As filed with the Securities and Exchange Commission on March 18, 2005
Securities Act File No. _____
Investment Company Act File No. 811-06471
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
[ ] PRE-EFFECTIVE AMENDMENT NO. _
[ ] POST-EFFECTIVE AMENDMENT NO. _
(CHECK APPROPRIATE BOX OR BOXES)
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
(800) 847-2424
(AREA CODE AND TELEPHONE NUMBER)
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
AMY R. DOBERMAN, ESQ.
MANAGING DIRECTOR
VAN KAMPEN INVESTMENTS INC.
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
WAYNE W. WHALEN, ESQ.
CHARLES B. TAYLOR, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
================================================================================
Approximate Date of Proposed Offering: As soon as practicable after this
Registration Statement is declared effective.
==============================================================================================================================
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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TITLE OF SECURITIES AMOUNT BEING PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED REGISTERED OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
UNIT PRICE
------------------------------------------ ----------------- --------------------- ----------------------- -------------------
Common Shares ($0.01 par value) 1,000 $ 14.82(1) $ 14,820 $ 117.70
------------------------------------------ ----------------- --------------------- ----------------------- -------------------
Auction Preferred Shares ($0.01 par value) 40 25,000 $ 1,000,000 $ 117.70
------------------------------------------ ----------------- --------------------- ----------------------- -------------------
(1) Average of high and low reported price for common shares on March 16, 2005.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
This Registration Statement is organized as follows:
o Questions and Answers to Shareholders of Van Kampen Municipal Income Trust
and Van Kampen Trust for Investment Grade Municipals
o Notice of Special Meeting of Shareholders of Van Kampen Municipal Income
Trust and Van Kampen Trust for Investment Grade Municipals
o Joint Proxy Statement/Prospectus of Van Kampen Municipal Income Trust and Van
Kampen Trust for Investment Grade Municipals
o Statement of Additional Information regarding the Reorganization of Van
Kampen Municipal Income Trust into Van Kampen Trust for Investment Grade
Municipals
o Part C Information
o Exhibits
-- MAY 2005 --
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IMPORTANT NOTICE
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TO SHAREHOLDERS OF VAN KAMPEN
MUNICIPAL INCOME TRUST
AND
VAN KAMPEN TRUST
FOR INVESTMENT GRADE MUNICIPALS
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QUESTIONS & ANSWERS
---------------------------------------
Although we recommend that you read the complete Joint Proxy Statement/
Prospectus, we have provided for your convenience a brief overview of the issues
to be voted on.
---------------------------------------
Q WHY IS A SHAREHOLDER
MEETING BEING HELD?
A Shareholders of
Van Kampen Municipal Income Trust: You are being asked to vote on a
reorganization (the "Reorganization") of Van Kampen Municipal Income Trust (the
"Target Fund") into Van Kampen Trust for Investment Grade Municipals (the
"Acquiring Fund"), a closed-end investment company that has a substantially
similar investment objective and substantially similar investment policies as
the Target Fund. You are also being asked to vote for the election of trustees
of the Target Fund.
Shareholders of Van Kampen Trust for Investment Grade Municipals: You are being
asked to vote on the issuance of common shares of beneficial interest by the
Acquiring Fund in connection with the Reorganization.
Q WHY IS THE
REORGANIZATION BEING RECOMMENDED?
A The Board of Trustees of
each Fund has determined that the Reorganization will benefit common
shareholders of the Target Fund and the Acquiring Fund. The Target Fund and the
Acquiring Fund are substantially similar. Each Fund invests primarily in
investment grade municipal securities and has a substantially similar investment
objective to provide a high level of current income exempt from federal income
taxes with safety of principal or preservation of capital. Each Fund is managed
by the same investment advisory personnel. After the Reorganization, it is
anticipated that common shareholders of each Fund will experience a reduced
overall operating expense ratio, as certain fixed administrative costs
will be spread across the combined fund's larger asset base. It is not
anticipated that the Reorganization will directly benefit holders of preferred
shares of the Funds; however, it is anticipated that preferred shareholders will
not be adversely effected by the Reorganization, and none of the expenses of the
Reorganization will be borne by preferred shareholders.
Q HOW WILL THE
REORGANIZATION AFFECT ME?
A Assuming shareholders of
the Target Fund approve the Reorganization and shareholders of the Acquiring
Fund approve the issuance of common shares of beneficial interest by that Fund,
the assets and liabilities of the Target Fund will be combined with those of the
Acquiring Fund and the Target Fund will dissolve.
Shareholders of the Target Fund: You will become a shareholder of the Acquiring
Fund. If you are a holder of common shares of the Target Fund, you will receive
newly-issued common shares of the Acquiring Fund, and if you are a holder of
preferred shares of the Target Fund, you will receive newly-issued preferred
shares of the Acquiring Fund. The aggregate net asset value of the common shares
you receive in the Reorganization will equal the aggregate net asset value of
the common shares you own immediately prior to the Reorganization less the costs
of the Reorganization (though you may receive cash for fractional shares). The
aggregate liquidation preference of the preferred shares you receive in the
Reorganization will equal the aggregate liquidation preference of the preferred
shares you own immediately prior to the Reorganization. No certificates for
shares of the Acquiring Fund will be issued in connection with the
Reorganization, although such certificates will be available upon request.
Shareholders of the Acquiring Fund: You will remain a shareholder of the
Acquiring Fund.
Q WILL I HAVE TO PAY ANY
SALES LOAD, COMMISSION OR OTHER SIMILAR FEE IN CONNECTION WITH THE
REORGANIZATION?
A You will pay no sales loads
or commissions in connection with the Reorganization. However, if the
Reorganization is completed, the costs associated with the Reorganization,
including the costs associated with the shareholder meeting, will be borne by
the Target Fund and the Acquiring Fund in proportion to their projected declines
in total operating expenses as a consequence of the Reorganization.
Q WILL I HAVE TO PAY ANY
FEDERAL TAXES AS A RESULT OF THE REORGANIZATION?
A The Reorganization is
intended to qualify as a "reorganization" within the meaning of Section
368(a)(1) of the Internal Revenue Code of 1986, as amended. If the
Reorganization so qualifies, in general, a shareholder of the Target Fund will
recognize no gain or loss upon the receipt solely of shares of the Acquiring
Fund in connection with the Reorganization. Additionally, the Target Fund will
not recognize any gain or loss as a result of the transfer of all of its assets
and liabilities solely in exchange for the shares of the Acquiring Fund or as a
result of its dissolution. Neither the Acquiring Fund nor its shareholders will
recognize any gain or loss in connection with the Reorganization.
Q WHY IS THE VOTE OF
HOLDERS OF COMMON SHARES OF THE ACQUIRING FUND BEING SOLICITED?
A Although the Acquiring
Fund will continue its legal existence and operations after the Reorganization,
the rules of the New York Stock Exchange (the "NYSE"), on which the Acquiring
Fund's common shares are listed, require the common shareholders of the
Acquiring Fund to approve the issuance of additional common shares of beneficial
interest by the Acquiring Fund in connection with the Reorganization.
Q WHY ARE SHAREHOLDERS OF
THE TARGET FUND BEING ASKED TO ELECT TRUSTEES?
A NYSE rules call for listed
companies to have their annual meeting to elect trustees within a reasonable
interval after the close of a company's fiscal year. Since the Target Fund's
fiscal year ends on June 30, 2005, the Board of Trustees of the Target Fund is
asking shareholders of that Fund to elect trustees at this time. The Special
Meeting will serve as the annual meeting of shareholders of the Target Fund.
Q HOW DOES THE BOARD OF
TRUSTEES OF MY FUND SUGGEST I VOTE?
A After careful consideration,
the Board of Trustees of each Fund recommend that you vote "FOR" each of the
items proposed.
Q HOW DO I VOTE MY PROXY?
A You may cast your vote by
mail, phone or internet. To vote by mail, please mark your vote on the enclosed
proxy card and sign, date and return the card in the postage-paid envelope
provided. If you choose to vote via phone or internet, please refer to the
instructions found on the proxy card accompanying this Joint Proxy
Statement/Prospectus. To vote by phone or internet, you will need the "control
number" that appears on the proxy card.
Q WHOM DO I CONTACT FOR
FURTHER INFORMATION?
A You can contact your
financial adviser for further information. You may also call Van Kampen's Client
Relations Department at (800) 847-2424 (Telecommunication Device for the Deaf
users may call (800) 421-2833) or visit our web site at www.vankampen.com where
you can send us an e-mail message by selecting "Contact Us."
ABOUT THE PROXY CARD
--------------------------------------------------------------------------------
Please vote on each issue using blue or black ink to mark an X in one of the
boxes provided on the proxy card.
SHAREHOLDERS OF VAN KAMPEN MUNICIPAL INCOME TRUST: APPROVAL OF REORGANIZATION -
mark "For," "Against" or "Abstain."
ELECTION OF TRUSTEES - mark "For," "Withhold" or "For All Except." To withhold
authority for any individual nominee, mark "For All Except" and write the
nominee's name on the line provided.
SHAREHOLDERS OF VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS: APPROVAL OF
ISSUANCE OF COMMON SHARES - mark "For," "Against" or "Abstain."
Sign, date and return the proxy card in the enclosed postage-paid envelope. All
registered owners of an account, as shown in the address, must sign the card.
When signing as attorney, trustee, executor, administrator, custodian, guardian
or corporate officer, please indicate your full title.
[ ] PLEASE MARK
X VOTES AS IN
THIS EXAMPLE
VAN KAMPEN XXXXX
JOINT SPECIAL MEETING OF SHAREHOLDERS
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
FOR AGAINST ABSTAIN
1. The proposal to [ ] [ ] [ ] 3. The proposal to approve the issuance of
approve the Common Shares.
Reorganization.
FOR ALL WITHHOLD FOR ALL FOR AGAINST ABSTAIN
EXCEPT
[ ] [ ] [ ] [ ] [ ] [ ]
2. Authority to vote 4. To transact such other business as may
for the election as properly come before the Meeting.
Class X Trustees
the nominees named
below:
XXXXXXXXX, XXXXXXXXX, XXXXXXXXX
To withhold authority to vote for any one or more
individual nominee check "For All Except" and write
the
nominee's name on the line below.
----------------------------------
Please be sure to sign and date this Proxy, Date
Shareholder sign here Co-owner sign here
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
SAMPLE
VAN KAMPEN MUNICIPAL INCOME TRUST
AND
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 847-2424
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 22, 2005
Notice is hereby given that a joint special meeting of shareholders (the
"Special Meeting") of Van Kampen Municipal Income Trust (the "Target Fund") and
Van Kampen Trust for Investment Grade Municipals (the "Acquiring Fund") will be
held at the offices of Van Kampen Investments Inc., 1 Parkview Plaza, Oakbrook
Terrace, Illinois 60181-5555, on June 22, 2005 at 4:00 p.m. for the following
purposes:
For shareholders of the Target Fund:
1. To approve an Agreement and Plan of Reorganization (the "Reorganization
Agreement") between the Target Fund and Acquiring Fund, the termination
of the Target Fund's registration under the Investment Company Act of
1940, as amended, and the dissolution of the Target Fund under applicable
state law;
2. To elect four trustees of the Target Fund to serve for a three year term
or until a successor shall have been duly elected and qualified;
For shareholders of the Acquiring Fund:
3. To approve the issuance of common shares of beneficial interest, par
value $0.01 per share, of the Acquiring Fund ("Acquiring Fund Common
Shares") in connection with and as contemplated by the Reorganization
Agreement;
and:
4. To transact such other business as may properly be presented at the
Special Meeting or any adjournment thereof.
Shareholders of record as of the close of business on April 25, 2005 are
entitled to vote at the Special Meeting or any adjournment thereof. The Special
Meeting will serve as the annual meeting of Shareholders of the Target Fund.
THE BOARD OF TRUSTEES OF EACH FUND REQUESTS THAT YOU VOTE YOUR SHARES BY
INDICATING YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATING AND
SIGNING
SUCH PROXY CARD AND RETURNING IT IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED
FOR YOUR CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES.
THE BOARD OF TRUSTEES OF THE TARGET FUND RECOMMENDS THAT YOU CAST YOUR VOTE:
- FOR THE REORGANIZATION AGREEMENT AS DESCRIBED IN THE JOINT PROXY
STATEMENT/PROSPECTUS.
- FOR THE ELECTION OF EACH OF THE NOMINEES LISTED IN THE JOINT PROXY
STATEMENT/PROSPECTUS FOR THE BOARD OF TRUSTEES OF THE TARGET FUND.
THE BOARD OF TRUSTEES OF THE ACQUIRING FUND RECOMMENDS THAT YOU CAST YOUR
VOTE:
- FOR THE ISSUANCE OF ADDITIONAL ACQUIRING FUND COMMON SHARES IN CONNECTION
WITH THE REORGANIZATION AS DESCRIBED IN THE JOINT PROXY
STATEMENT/PROSPECTUS.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK THAT
YOU MAIL YOUR PROXY CARD PROMPTLY.
For the Board of Trustees,
Lou Anne McInnis
Assistant Secretary
Van Kampen Municipal Income Trust
Van Kampen Trust for Investment Grade
Municipals
May , 2005
------------------
YOUR VOTE IS IMPORTANT.
PLEASE VOTE PROMPTLY BY SIGNING AND RETURNING THE
ENCLOSED PROXY CARD NO MATTER HOW MANY SHARES YOU OWN.
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 18, 2005
JOINT PROXY STATEMENT/PROSPECTUS
VAN KAMPEN MUNICIPAL INCOME TRUST
AND
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 847-2424
JOINT SPECIAL MEETING OF SHAREHOLDERS
JUNE 22, 2005
This Joint Proxy Statement/Prospectus is furnished to you as a shareholder of
Van Kampen Municipal Income Trust (the "Target Fund") or Van Kampen Trust for
Investment Grade Municipals (the "Acquiring Fund"). A joint special meeting of
shareholders of the Funds (the "Special Meeting") will be held at the offices of
Van Kampen Investments Inc., 1 Parkview Plaza, Oakbrook Terrace, Illinois
60181-5555 on June 22, 2005 at 4:00 p.m. to consider the items listed below and
discussed in greater detail elsewhere in this Joint Proxy Statement/Prospectus.
If you are unable to attend the Special Meeting or any adjournment thereof, the
Board of Trustees of each Fund requests that you vote your shares by completing
and returning the enclosed proxy card. The approximate mailing date of this
Joint Proxy Statement/Prospectus is May , 2005.
The purposes of the Special Meeting are:
For shareholders of the Target Fund:
1. To approve an Agreement and Plan of Reorganization (the "Reorganization
Agreement") between the Target Fund and the Acquiring Fund, the
termination of the Target Fund's registration under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the dissolution of
the Target Fund under applicable state law;
2. To elect four trustees of the Target Fund to serve for a three year term
or until a successor shall have been duly elected and qualified;
For shareholders of the Acquiring Fund:
3. To approve the issuance of common shares of beneficial interest, par
value $0.01 per share, by the Acquiring Fund ("Acquiring Fund Common
Shares") in connection with and as contemplated by the Reorganization
Agreement; and
For shareholders of both Funds:
4. To transact such other business as may properly be presented at the
Special Meeting or any adjournment thereof.
The Reorganization Agreement that you are being asked to consider involves a
transaction that will be referred to in this Joint Proxy Statement/Prospectus as
the "Reorganization." The Reorganization seeks to combine two substantially
similar funds to achieve certain economies of scale and other operational
efficiencies. Each Fund invests primarily in investment grade municipal
securities and has a substantially similar investment objective to provide a
high level of current income exempt from federal income taxes with safety of
principal or preservation of capital. The Target Fund and the Acquiring Fund are
sometimes referred to herein each as a "Fund" and collectively as the "Funds."
In the Reorganization, the Acquiring Fund will acquire substantially all of
the assets and assume substantially all of the liabilities of the Target Fund in
exchange solely for an equal aggregate value of Acquiring Fund Common Shares and
newly-issued auction preferred shares of the Acquiring Fund with a par value of
$0.01 per share and a liquidation preference of $25,000 per share ("Acquiring
Fund APS"). The Target Fund will distribute Acquiring Fund Common Shares to
holders of common shares of the Target Fund ("Target Fund Common Shares") and
Acquiring Fund APS to holders of Rate Adjusted Tax-Exempt Shares of the Target
Fund ("Target Fund RATES") (the Target Fund RATES and the Acquiring Fund APS are
sometimes referred to herein collectively as "Preferred Shares"), and will then
terminate its registration under the Investment Company Act of 1940, as amended
(the "1940 Act"), and dissolve under applicable state law. The aggregate net
asset value of Acquiring Fund Common Shares received in the Reorganization will
equal the aggregate net asset value of Target Fund Common Shares held
immediately prior to the Reorganization less the costs of the Reorganization
(though Shareholders may receive cash for fractional shares). The aggregate
liquidation preference of the Acquiring Fund APS received in the Reorganization
will equal the aggregate liquidation preference of the Target Fund RATES held
immediately prior to the Reorganization. The Acquiring Fund will continue to
operate as a registered closed-end investment company with the investment
objective and policies described in this Joint Proxy Statement/Prospectus.
In connection with the Reorganization, common shareholders of the Acquiring
Fund are being asked to approve the issuance of additional Acquiring Fund Common
Shares.
NYSE rules call for listed companies to have their annual meeting to elect
trustees within a reasonable interval after the close of a company's fiscal
year. Since the Target Fund's fiscal year ends on June 30, 2005, the Board of
Trustees of the Target Fund is asking shareholders of that Fund to elect
trustees at this time. The
2
Special Meeting will serve as the annual meeting of shareholders of the Target
Fund.
The Board of Trustees of each Fund has determined that including both
proposals in one Joint Proxy Statement/Prospectus will reduce costs and is in
the best interests of each Funds' shareholders.
In the event that Target Fund shareholders do not approve the Reorganization
or Acquiring Fund shareholders do not approve the issuance of Acquiring Fund
Common Shares, the Target Fund will continue to exist and the Board of Trustees
of the Target Fund will consider what additional action, if any, to take.
This Joint Proxy Statement/Prospectus sets forth concisely the information
shareholders of the Funds should know before voting on the proposals and
constitutes an offering of Acquiring Fund Common Shares and Acquiring Fund APS.
Please read it carefully and retain it for future reference. A Statement of
Additional Information, dated , 2005, relating to this Joint Proxy
Statement/Prospectus (the "Reorganization Statement of Additional Information")
has been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated herein by reference. If you wish to request the Reorganization
Statement of Additional Information, please ask for the "Reorganization
Statement of Additional Information." Copies of each Fund's most recent annual
report and semi-annual report can be obtained on a web site maintained by Van
Kampen Investments Inc. at www.vankampen.com. In addition, each Fund will
furnish, without charge, a copy of the Reorganization Statement of Additional
Information, its most recent annual report and its most recent semi-annual
report to any shareholder upon request. Any such request should be directed to
the Van Kampen Client Relations Department by calling (800) 847-2424 (TDD users
may call (800) 421-2833) or by writing to the respective Fund at 1 Parkview
Plaza, P.O. Box 5555, Oakbrook Terrace, Illinois 60181-5555. The address of the
principal executive offices of the Funds is 1221 Avenue of the Americas, New
York, New York 10020, and the telephone number is (800) 847-2424.
The Funds are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance therewith, file reports,
proxy statements, proxy material and other information with the SEC. Materials
filed with the SEC can be reviewed and copied at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549 or downloaded from the SEC's
web site at www.sec.gov. Information on the operation of the SEC's Public
Reference Room may be obtained by calling the SEC at (202) 942-8090. You can
also request copies of these materials, upon payment at the prescribed rates of
a duplicating fee, by electronic request to the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference Branch, Office of
Consumer Affairs and Information Services, SEC, Washington, DC, 20549-0102.
3
The Acquiring Fund Common Shares are listed on the New York Stock Exchange
(the "NYSE") and the Chicago Stock Exchange (the "CHX") under the ticker symbol
"VGM" and will continue to be so listed subsequent to the Reorganization. The
Target Fund Common Shares are listed on the NYSE and the CHX under the ticker
symbol "VMT." Reports, proxy statements and other information concerning the
Funds may be inspected at the offices of the NYSE, 20 Broad Street, New York,
New York 10005.
This Joint Proxy Statement/Prospectus serves as a prospectus of the Acquiring
Fund in connection with the issuance of the Acquiring Fund Common Shares and the
Acquiring Fund APS in the Reorganization. No person has been authorized to give
any information or make any representation not contained in this Joint Proxy
Statement/Prospectus and, if so given or made, such information or
representation must not be relied upon as having been authorized. This Joint
Proxy Statement/ Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction in which, or
to any person to whom, it is unlawful to make such offer or solicitation.
The Board of Trustees of each Fund knows of no business other than that
discussed above that will be presented for consideration at the Special Meeting.
If any other matter is properly presented, it is the intention of the persons
named in the enclosed proxy to vote in accordance with their best judgment.
---------------------
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is , 2005.
4
TABLE OF CONTENTS
PAGE
----
SUMMARY..................................................... 7
PROPOSAL 1: REORGANIZATION OF THE TARGET FUND............... 13
RISK FACTORS AND SPECIAL CONSIDERATIONS..................... 13
Market Risk............................................... 14
Credit Risk............................................... 14
Income Risk............................................... 15
Call Risk................................................. 15
Municipal Securities Risk................................. 15
Risks of Using Strategic Transactions..................... 16
Manager Risk.............................................. 16
Market Discount Risk...................................... 16
Leverage Risk............................................. 16
Anti-Takeover Provisions.................................. 18
Special Risks Related to Preferred Shares................. 18
COMPARISON OF THE FUNDS..................................... 19
Investment Objective and Policies......................... 19
Other Investment Practices and Policies................... 23
Investment Restrictions................................... 31
Management of the Funds................................... 33
Other Service Providers................................... 36
Capitalization............................................ 36
Additional Information about Common Shares of the Funds... 38
Additional Information about Preferred Shares of the
Funds................................................... 41
Governing Law............................................. 46
Certain Provisions of the Declaration of Trust............ 46
Conversion to Open-End Fund............................... 48
Voting Rights............................................. 48
Financial Highlights...................................... 52
INFORMATION ABOUT THE REORGANIZATION........................ 54
General................................................... 54
Terms of the Reorganization Agreement..................... 56
Material Federal Income Tax Consequences of the
Reorganization.......................................... 58
Shareholder Approval...................................... 60
Legal Matters............................................. 60
5
PAGE
----
PROPOSAL 2: ELECTION OF TARGET FUND TRUSTEES................ 61
INFORMATION REGARDING THE TRUSTEES AND NOMINEES FOR ELECTION
AS TRUSTEES............................................... 62
Remuneration of Trustees.................................. 72
Board Committees and Meetings............................. 74
OTHER INFORMATION........................................... 76
Executive Officers of the Fund............................ 76
Shareholder Information...................................
Independent Auditors...................................... 81
Audit and Other Fees...................................... 81
PROPOSAL 3: ISSUANCE OF ACQUIRING FUND COMMON SHARES........ 83
The Reorganization........................................ 83
Shareholder Approval...................................... 83
OTHER INFORMATION........................................... 84
Voting Information and Requirements....................... 84
Shareholder Information................................... 85
Section 16(a) Beneficial Ownership Reporting Compliance... 85
Shareholder Proposals..................................... 86
Solicitation of Proxies................................... 86
Other Matters to Come Before the Meeting.................. 86
6
------------------------------------------------------------------------------
SUMMARY
------------------------------------------------------------------------------
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus and is qualified in its entirety by reference
to the more complete information contained in this Joint Proxy
Statement/Prospectus and in the Reorganization Statement of Additional
Information. Shareholders should read the entire Joint Proxy
Statement/Prospectus carefully.
PROPOSAL 1: REORGANIZATION OF THE TARGET FUND
THE PROPOSED REORGANIZATION. The Board of Trustees of each Fund, including the
trustees who are not "interested persons," as defined in the 1940 Act, of each
Fund, has unanimously approved the Reorganization Agreement. If the shareholders
of the Target Fund approve the Reorganization Agreement and the shareholders of
the Acquiring Fund approve the issuance of Acquiring Fund Common Shares (see
"Proposal 3: Issuance of Acquiring Fund Common Shares"). Acquiring Fund Common
Shares and Acquiring Fund APS will be issued to holders of Target Fund Common
Shares and Target Fund RATES, respectively, in exchange for substantially all of
the assets of the Target Fund and the assumption of substantially all of the
liabilities of the Target Fund. The Target Fund will then terminate its
registration under the 1940 Act and dissolve under applicable state law. The
aggregate net asset value of Acquiring Fund Common Shares received in the
Reorganization will equal the aggregate net asset value of Target Fund Common
Shares held immediately prior to the Reorganization and the aggregate
liquidation preference of Acquiring Fund APS received in the Reorganization will
equal the aggregate liquidation preference of Target Fund RATES held immediately
prior to the Reorganization.
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION. The Reorganization
seeks to combine two substantially similar funds to achieve certain economies of
scale and other operational efficiencies. Each Fund is registered as a
diversified, closed-end management investment company under the 1940 Act. Each
Fund invests primarily in investment grade municipal securities. The investment
objective of the Target Fund is to provide a high level of current income exempt
from federal income taxes with safety of principal. The Target Fund seeks to
achieve its investment objective by investing primarily in a diversified
portfolio of investment grade tax-exempt municipal securities. The investment
objective of the Acquiring Fund is to provide a high level of current income
exempt from federal income tax, consistent with preservation of capital. The
Acquiring Fund seeks to achieve its investment objective by investing in a
diversified portfolio of municipal securities which the Acquiring Fund's
investment adviser believes do not involve undue risk to income or principal.
The Funds are managed by the same investment advisory personnel.
7
The proposed Reorganization will combine the assets of these similar funds by
reorganizing the Target Fund into the Acquiring Fund. The Board of Trustees of
the Target Fund (the "Target Fund Board"), based upon its evaluation of all
relevant information, anticipates that the Reorganization will benefit holders
of Target Fund Common Shares. The Board of Trustees of the Acquiring Fund (the
"Acquiring Fund Board"), based upon its evaluation of all relevant information,
anticipates that the Reorganization will benefit holders of Acquiring Fund
Common Shares. In particular, the Board of Trustees of each Fund believes, based
on data presented by Van Kampen Asset Management, investment adviser to each of
the Funds (the "Adviser"), that holders of common shares of the Funds will
experience a reduced overall operating expense ratio as a result of the
Reorganization. The combined fund resulting from the Reorganization will have a
larger asset base than either of the Funds has currently; certain fixed
administrative costs, such as costs of printing shareholder reports and proxy
statements, legal expenses, audit fees, mailing costs and other expenses, will
be spread across this larger asset base, thereby lowering the expense ratio for
common shareholders of the combined fund.
The table below illustrates the anticipated reduction in operating expenses
expected as a result of the Reorganization. The table sets forth (i) the fees
and expenses paid by the Target Fund for the 12-month period ended October 31,
2004, (ii) the fees and expenses paid by the Acquiring Fund for the 12-month
period ended October 31, 2004 and (iii) the pro forma fees and expenses for the
Acquiring
8
Fund for the 12-month period ended October 31, 2004, assuming the Reorganization
had been completed at the beginning of such period.
FEE AND EXPENSE TABLE FOR COMMON SHAREHOLDERS OF THE TARGET FUND
AND THE ACQUIRING FUND AS OF OCTOBER 31, 2004
TARGET ACTUAL PRO FORMA
FUND ACQUIRING FUND ACQUIRING FUND
------ -------------- --------------
Common Shareholder Transaction
Expenses(a):
Maximum Sales Load (as a percentage
of offering price)(b).............. None None None
Dividend Reinvestment Plan Fees...... None None None
Annual Expenses (as a percentage of net
assets attributable to Common
Shares):
Investment Advisory Fees(c).......... 0.85% 0.86% 0.86%
Interest Payments on Borrowed
Funds.............................. 0.00% 0.00% 0.00%
Other Expenses....................... 0.30% 0.27% 0.25%
Total Annual Expenses(c)........... 1.15% 1.13% 1.11%
---------------
(a)No information is presented with respect to Preferred Shares because holders
of Preferred Shares do not bear any operating expenses of either Fund and
will not bear any operating expenses of the combined fund.
(b)Common Shares purchased in the secondary market may be subject to
brokerage commissions or other charges. No sales load will be charged on the
issuance of shares in the Reorganization. Common Shares are not available for
purchase from the Funds but may be purchased through a broker-dealer subject
to individually negotiated commission rates.
(c)Expense information has been restated to reflect management fees in effect as
of November 1, 2004 attributable to Preferred Shares were included, the
investment advisory fees for each Fund and for the Acquiring Fund on a pro
forma basis would be 0.55%, 0.55% and 0.55% and the Total Annual Expenses
would be 0.74%, 0.73% and 0.71%.
The following example is intended to help you compare the costs of investing
in the Acquiring Fund, both before and pro forma after the Reorganization, with
the costs of investing in the Target Fund. An investor would pay the following
expenses on a $1,000 investment, assuming (1) the operating expense ratio for
each Fund (as
9
a percentage of net assets attributable to Common Shares) set forth in the table
above and (2) a 5% annual return throughout the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Target Fund............................ $12 $37 $63 $140
Acquiring Fund......................... $12 $36 $62 $137
Pro Forma--Acquiring Fund.............. $11 $35 $61 $135
The example set forth above assumes Common Shares of each Fund were purchased
in the initial offerings and the reinvestment of all dividends and distributions
and uses a 5% annual rate of return as mandated by SEC regulations. The example
should not be considered a representation of past or future expenses or annual
rates of return. Actual expenses or annual rates of return may be more or less
than those assumed for purposes of the example.
FURTHER INFORMATION REGARDING THE REORGANIZATION. The Target Fund Board has
determined that the Reorganization is in the best interests of holders of Target
Fund Common Shares and that the interests of such shareholders will not be
diluted as a result of the Reorganization. Similarly, the Board of Trustees of
the Acquiring Fund has determined that the Reorganization is in the best
interests of holders of Acquiring Fund Common Shares and that the interests of
such shareholders will not be diluted as a result of the Reorganization. It is
not anticipated that the Reorganization will directly benefit the holders of
Preferred Shares of either Fund; however, it is anticipated that the holders of
Preferred Shares of each Fund will not be adversely effected by the
Reorganization and the expenses of the Reorganization will not be borne by the
holders of Preferred Shares of either Fund. As a result of the Reorganization,
however, a shareholder of either Fund will hold a reduced percentage of
ownership in the larger combined fund than he or she did in either of the
separate Funds.
The Reorganization is intended to qualify as a "reorganization" within the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code" or "Code"). If the Reorganization so qualifies, in
general, a shareholder of the Target Fund will recognize no gain or loss upon
the receipt solely of shares of the Acquiring Fund in connection with the
Reorganization. Additionally, the Target Fund will not recognize any gain or
loss as a result of the transfer of all of its assets and liabilities solely in
exchange for the shares of the Acquiring Fund or as a result of its dissolution.
Neither the Acquiring Fund nor its shareholders will recognize any gain or loss
in connection with the Reorganization.
The Target Fund Board requests that shareholders of the Target Fund approve
the proposed Reorganization at the Special Meeting to be held on June 22, 2005.
Subject to the requisite approval of the shareholders of each Fund with regard
to the Reorganization, it is expected that the closing date of the transaction
(the
10
"Closing Date") will be after the close of business on or about June 30, 2005,
but it may be at a different time as described herein.
The Target Fund Board recommends that you vote "FOR" the proposed
Reorganization.
PROPOSAL 2: ELECTION OF TARGET FUND TRUSTEES
The Joint Special Meeting will serve as the annual meeting of shareholders of
the Target Fund for the current fiscal year at which Trustees of the Target Fund
will be elected. Shareholders of the Target Fund are being asked to elect four
Class I trustees at the Special Meeting to serve until the later of the Target
Fund's Annual Meeting of Shareholders in 2008 or until a successor has been duly
elected and qualified. Holders of Common Shares, voting as a separate class,
will vote with respect to four Class I Trustees (David C. Arch, Jerry D. Choate,
Howard J Kerr and Suzanne H. Woolsey) designated to be elected by such class of
shares. An affirmative vote of a plurality of the Common Shares is required to
elect the respective nominees. It is the intention of the persons named in the
enclosed proxy to vote the shares represented by them for the election of the
respective nominees listed unless the proxy is marked otherwise.
The Target Fund Board recommends that you vote "FOR" the election of trustees.
PROPOSAL 3: ISSUANCE OF ACQUIRING FUND COMMON SHARES
In connection with the proposed Reorganization, as described under "Proposal
1: Reorganization of the Target Fund," the Acquiring Fund will issue additional
Acquiring Fund Common Shares and list such shares on the NYSE. The Acquiring
Fund will acquire substantially all of the assets and assume substantially all
of the liabilities of the Target Fund in exchange for the newly-issued Acquiring
Fund Common Shares and newly-issued Acquiring Fund APS. The aggregate net asset
value of the Acquiring Fund Common Shares received by the Target Fund in the
Reorganization will equal the aggregate net asset value of the Target Fund
Common Shares immediately prior to the Reorganization. The Reorganization will
result in no reduction of net asset value of the Acquiring Fund Common Shares,
other than the costs of the Reorganization. No gain or loss will be recognized
by the Acquiring Fund or its shareholders in connection with the Reorganization.
The Acquiring Fund Board, based upon its evaluation of all relevant information,
anticipates that the Reorganization will benefit holders of Acquiring Fund
Common Shares by achieving certain economies of scale and other operational
efficiencies.
The Acquiring Fund Board requests that shareholders of the Acquiring Fund
approve the issuance of additional Acquiring Fund Common Shares at the Special
Meeting to be held on June 22, 2005. Subject to the requisite approval of the
11
shareholders of each Fund with regard to the Reorganization, it is expected that
the Closing Date will be after the close of business on or about June 30, 2005,
but it may be at a different time as described herein.
Shareholder approval of the issuance of Acquiring Fund Common Shares requires
the affirmative vote of a majority of the votes cast on the proposal, provided
that the total votes cast on the proposal represents more than 50% in interest
of all securities entitled to vote on the proposal.
The Acquiring Fund Board recommends that you vote "FOR" the issuance of
additional Acquiring Fund Common Shares in connection with the Reorganization.
12
------------------------------------------------------------------------------
PROPOSAL 1: REORGANIZATION OF THE TARGET FUND
------------------------------------------------------------------------------
The Reorganization seeks to combine two substantially similar funds to achieve
certain economies of scale and other operational efficiencies. Each Fund is
registered as a diversified, closed-end management investment company under the
1940 Act. Each Fund invests primarily in investment grade municipal securities
and has a substantially similar investment objective to provide a high level of
current income exempt from federal income taxes with safety of principal or
preservation of capital. The Funds are managed by the same investment advisory
personnel.
In the Reorganization, the Acquiring Fund will acquire substantially all of
the assets and assume substantially all of the liabilities of the Target Fund in
exchange solely for an equal aggregate value of Acquiring Fund Common Shares and
Acquiring Fund APS. The Target Fund will distribute Acquiring Fund Common Shares
to holders of Target Fund Common Shares and Acquiring Fund APS to holders of
Target Fund RATES, and will then terminate its registration under the 1940 Act
and dissolve under applicable state law. The aggregate net asset value of
Acquiring Fund Common Shares received in the Reorganization will equal the
aggregate net asset value on the Target Fund Common Shares held immediately
prior to the Reorganization less the costs of the Reorganization (though
shareholders may receive cash for fractional shares). The aggregate liquidation
preference of Acquiring Fund APS received in the Reorganization will equal the
aggregate liquidation preference Target Fund RATES held immediately prior to the
Reorganization. The Acquiring Fund will continue to operate as a registered
closed-end investment company with the investment objective and policies
described in this Joint Proxy Statement/Prospectus.
The Target Fund Board, based upon its evaluation of all relevant information,
anticipates that the common shareholders of the Target Fund will benefit from
the Reorganization. In particular, the Target Fund Board believes, based on data
presented by the Adviser, that common shareholders of the Target Fund will
experience a reduced overall operating expense ratio as a result of the
Reorganization. The combined fund resulting from the Reorganizations will have a
larger asset base than either Fund has currently; certain fixed administrative
costs, such as costs of printing shareholder reports and proxy statements, legal
expenses, audit fees, mailing costs and other expenses, will be spread across
this larger asset base, thereby lowering the expense ratio for common
shareholders of the combined fund.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Because each Fund, under normal market conditions, invests substantially all
of its assets in investment grade municipal securities, any risks inherent in
such investments are equally applicable to both Funds and will apply to the
combined
13
fund after the Reorganization. The Reorganization itself is not expected to
adversely affect the rights of holders of Common Shares or Preferred Shares of
either Fund or to create additional risks.
MARKET RISK
Market risk is the possibility that the market values of securities owned by
each Fund will decline. The prices of debt securities tend to fall as interest
rates rise, and such declines tend to be greater among debt securities with
longer maturities. Market risk is often greater among certain types of debt
securities, such as zero coupon bonds which do not make regular interest
payments but are instead bought at a discount to their face values and paid in
full upon maturity. As interest rates change, these securities often fluctuate
more in price than securities that make regular interest payments and therefore
subject the Funds to greater market risk than a fund that does not own these
types of securities. When-issued and delayed delivery transactions are subject
to changes in market conditions from the time of the commitment until
settlement. This may adversely affect the prices or yields of the securities
being purchased. The greater the Funds' outstanding commitments for these
securities, the greater the Funds' exposure to market price fluctuations.
INTEREST RATE RISK
Interest rate risk is the risk that prices of municipal securities generally
increase when interest rates decline and decrease when interest rates increase.
Prices of longer-term securities generally change more in response to interest
rate changes than prices of shorter-term securities.
CREDIT RISK
Credit risk refers to an issuer's ability to make timely payments of interest
and principal. The degree of credit risk depends on both the financial condition
of the issuer and the terms of the obligation. While the Acquiring Fund invests
substantially all of its total assets in municipal securities rated investment
grade at the time of investment, it may, consistent with such policy, invest a
portion of its assets in municipal securities rated below investment grade.
Therefore, to the extent that the Acquiring Fund invests in securities rated
below investment grade, it maybe subject to a higher level of credit risk than a
fund that invests solely in investment grade securities. Securities rated BBB by
S&P or Baa by Moody's are in the lowest of the four investment grades and are
considered by the rating agencies to be medium-grade obligations which possess
speculative characteristics so that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of the issuer to
make principal and interest payments than in the case of higher-rated
securities. The credit quality of non-investment grade securities is considered
speculative by recognized rating agencies with respect to the issuer's
14
continuing ability to pay interest and principal. Lower-grade securities may
have less liquidity and a higher incidence of default than higher-grade
securities. The Acquiring Fund may incur higher expenditures to protect its
interests in such securities. The credit risks and market prices of lower-grade
securities generally are more sensitive to negative issuer developments, such as
reduced revenues or increased expenditures, or adverse economic conditions, such
as a recession, than are higher-grade securities.
INCOME RISK
The income shareholders receive from a Fund is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest rates
drop, your income from such Fund may drop as well.
NONPAYMENT RISK
Although substantially all of the municipal securities in which the Funds
invest are rated investment grade at the time of investment, municipal
securities, like other debt obligations, are subject to the risk of nonpayment.
The ability of issuers of municipal securities to make timely payments of
interest and principal may be adversely impacted in general economic downturns
and as relative governmental cost burdens are allocated and reallocated among
federal, state and local governmental units. Such nonpayment would result in a
reduction of income to a Fund and could result in a reduction in the value of
them municipal security experiencing nonpayment and a potential decrease in the
net asset value of the Fund.
CALL RISK
If interest rates fall, it is possible that issuers of securities with high
interest rates will prepay or "call" their securities before their maturity
dates. In this event, the proceeds from the called securities would likely be
reinvested by the Funds in securities bearing the new, lower interest rates,
resulting in a possible decline in the Fund's income and distributions to
shareholders.
MUNICIPAL SECURITIES RISK
Under normal market conditions, the Funds invest primarily in municipal
securities. The yields of municipal securities may move differently and
adversely compared to the yields of overall debt securities markets. Although
the interest received from municipal securities generally is exempt from federal
income tax, each Fund may invest in municipal securities subject to the federal
alternative minimum tax. The Acquiring Fund may invest all or a substantial
portion of its total assets in municipal securities subject to the federal
alternative minimum tax. In addition, there could be changes in applicable tax
laws or tax treatments that reduce or eliminate the current federal income tax
exemption on municipal securities or
15
otherwise adversely affect the current federal or state tax status of municipal
securities.
RISKS OF USING STRATEGIC TRANSACTIONS
Each Fund may engage in certain transactions ("Strategic Transactions")
designed to, among other things, reduce its exposure to interest rate movements.
For example, each Fund may purchase and sell exchange-listed and over-the-
counter put and call options on securities, financial futures and other
financial instruments, purchase and sell financial futures contracts and enter
into various interest rate transactions such as swaps, caps, floors or collars.
If a Fund incorrectly forecasts market values, interest rates or other factors,
that Fund's performance could suffer as a result of its Strategic Transactions.
Each Fund also may suffer a loss if the other party to the Strategic Transaction
fails to meet its obligations. The Funds are not required to use Strategic
Transactions and may choose not to do so.
MANAGER RISK
As with any managed fund, the investment adviser to each Fund may not be
successful in selecting the best-performing securities or investment techniques,
and a Fund's performance may lag behind that of similar funds.
MARKET DISCOUNT RISK
Whether investors will realize gains or losses upon the sale of shares of a
Fund will depend upon the market price of the shares at the time of sale and the
price at which the Shares were purchased, which may be less or more than such
Fund's net asset value per share. Since the market price of the shares will be
affected by such factors as the relative demand for and supply of the shares in
the market, general market and economic conditions and other factors beyond the
control of the Funds, the Funds cannot predict whether shares of the Funds will
trade at, below or above net asset value. Shares of closed-end funds often trade
at a discount to their net asset values, and the Funds' shares may trade at such
a discount.
LEVERAGE RISK
Use of leverage, through the issuance of Preferred Shares, involves certain
risks to holders of Common Shares of the Funds. For example, each Fund's
issuance of Preferred Shares may result in higher volatility of the net asset
value of its Common Shares and potentially more volatility in the market value
of its Common Shares. In addition, changes in the short-term and medium-term
dividend rates on, and the amount of taxable income allocable to, the Preferred
Shares of a Fund will affect the yield to holders of Common Shares of the Fund.
In certain circumstances, when a Fund is required to allocate taxable income to
holders of its Preferred Shares, the Fund may be required to make an additional
distribution to such holders in an
16
amount approximately equal to the tax liability resulting from the allocation
(an "Additional Dividend"). Leverage will allow holders of each Fund's Common
Shares to realize a higher current rate of return than if the Fund were not
leveraged as long as the Fund, while accounting for its costs and operating
expenses, is able to realize a higher net return on its investment portfolio
than the then-current dividend rate (and any Additional Dividend) paid on its
Preferred Shares. Similarly, since a pro rata portion of each Fund's net
realized capital gains is generally payable to holders of the Fund's Common
Shares, the use of leverage will increase the amount of such gains distributed
to holders of the Fund's Common Shares. However, short-term, medium-term and
long-term interest rates change from time to time as do their relationships to
each other (i.e., the slope of the yield curve) depending upon such factors as
supply and demand forces, monetary and tax policies and investor expectations.
Changes in any or all of such factors could cause the relationship between
short-term, medium-term and long-term rates to change (i.e., to flatten or to
invert the slope of the yield curve) so that short-term and medium-term rates
may substantially increase relative to the long-term obligations in which each
Fund may be invested. To the extent that the current dividend rate (and any
Additional Dividend) on a Fund's Preferred Shares approaches the net return on
the Fund's investment portfolio, the benefit of leverage to holders of Common
Shares of the Fund will be decreased. If the current dividend rate (and any
Additional Dividend) on the Preferred Shares were to exceed the net return on a
Fund's portfolio, holders of Common Shares of the Fund would receive a lower
rate of return than if the Fund were not leveraged. Similarly, since both the
costs of issuing Preferred Shares and any decline in the value of a Fund's
investments (including investments purchased with the proceeds from any
Preferred Shares offering) will be borne entirely by holders of the Fund's
Common Shares, the effect of leverage in a declining market would result in a
greater decrease in net asset value to holders of Common Shares than if the Fund
were not leveraged. If a Fund is liquidated, holders of that Fund's Preferred
Shares will be entitled to receive liquidating distributions before any
distribution is made to holders of Common Shares of the Fund.
In an extreme case, a decline in net asset value could affect a Fund's ability
to pay dividends on its Common Shares. Failure to make such dividend payments
could adversely affect the Fund's qualification as a regulated investment
company under the federal tax laws. However, each Fund intends to take all
measures necessary to make required Common Share dividend payments. If a Fund's
current investment income is ever insufficient to meet dividend payments on
either its Common Shares or its Preferred Shares, the Fund may have to liquidate
certain of its investments. In addition, each Fund has the authority to redeem
its Preferred
17
Shares for any reason and may be required to redeem all or part of its Preferred
Shares in the following circumstances:
- if the asset coverage for the Preferred Shares declines below 200%, either
as a result of a decline in the value of the Fund's portfolio investments
or as a result of the repurchase of Common Shares in tender offers or
otherwise, or
- in order to maintain the asset coverage guidelines established by Moody's
and S&P in rating the Preferred Shares.
Redemption of the Preferred Shares or insufficient investment income to make
dividend payments, may reduce the net asset value of a Fund's Common Shares and
require the Fund to liquidate a portion of its investments at a time when it may
be disadvantageous to do so.
ANTI-TAKEOVER PROVISIONS
The Declaration of Trust of each Fund (in each case, the "Declaration of
Trust") includes provisions that could limit the ability of other entities or
persons to acquire control of that Fund or to change the composition of its
Board of Trustees. Such provisions could limit the ability of shareholders to
sell their shares at a premium over prevailing market prices by discouraging a
third party from seeking to obtain control of either Fund.
SPECIAL RISKS RELATED TO PREFERRED SHARES
AUCTION RISK. The dividend rate for the Preferred Shares of each Fund normally
is set through an auction process. In the auction, holders of Preferred Shares
may indicate the dividend rate at which they would be willing to hold or sell
their shares or purchase additional shares. An auction fails if there are more
Preferred Shares offered for sale than there are buyers, in which case holders
of Preferred Shares may not be able to sell their shares. Also, if holders of
Preferred Shares place bids to retain shares at an auction only at a specified
dividend rate and that rate exceeds the rate set at the auction, they will not
retain their shares. Additionally, if holders of Preferred Shares buy shares or
elect to retain shares without specifying a dividend rate below which they would
not wish to buy or continue to hold those shares, they could receive a lower
rate of return on their shares than the market rate. Finally, the dividend
period for the Preferred Shares may be changed by the Fund, subject to certain
conditions, including notice to preferred shareholders, which could also affect
the liquidity of an investment in Preferred Shares.
SECONDARY MARKET RISK. The Target Fund RATES have not been registered pursuant
to the Securities Act of 1933, as amended (the "1933 Act"). Acquiring Fund APS
are registered pursuant to the 1933 Act. Target Fund RATES may only be
transferred outside of auctions through transactions that are not required to be
registered under applicable federal and state securities laws. Broker-dealers
may
18
maintain a secondary trading market in the Acquiring Fund APS outside of
auctions; however, they are not obligated to do so and there can be no assurance
that such a secondary market will develop or, if it does develop, that it will
provide holders of Acquiring Fund APS with a liquid trading market. It may not
be possible to sell Acquiring Fund APS between auctions, or it may only be
possible to sell them for a price less than their liquidation preference plus
any accumulated dividends. An increase in the level of interest rates likely
will have an adverse effect on the secondary market price of the Acquiring Fund
APS. Acquiring Fund APS may only be transferred outside of auctions to or
through broker-dealers or other persons as the Fund permits.
RATINGS AND ASSET COVERAGE RISKS. Although the Preferred Shares of each Fund
have been rated "Aaa" by Moody's and "AAA" by S&P, such ratings do not eliminate
or necessarily mitigate the risks of investing in Preferred Shares. Moody's or
S&P could downgrade its rating of the Preferred Shares or withdraw its rating at
any time, which may make the Preferred Shares less liquid at an auction or in
the secondary market. If a Fund fails to satisfy its asset coverage ratios, it
will be required to redeem a sufficient number of Preferred Shares in order to
return to compliance with the asset coverage ratios. A Fund may voluntarily
redeem preferred shares under certain circumstances in order to meet asset
coverage tests.
COMPARISON OF THE FUNDS
INVESTMENT OBJECTIVE AND POLICIES
The Funds have substantially similar investment objectives and policies. The
Target Fund's investment objective is to provide a high level of current income
exempt from federal income taxes with safety of principal. The Acquiring Fund's
investment objective is to provide a high level of current income exempt from
federal income tax, consistent with preservation of capital.
Each Fund invests primarily in municipal securities rated investment grade at
the time of investment. Under normal market conditions, each Fund invests at
least 80% of its assets in municipal securities. The foregoing policy is a
fundamental policy of each Fund and cannot be changed without shareholder
approval. The Target Fund may only invest in municipal securities that are rated
investment grade at the time of investment. The Acquiring Fund invests
substantially all of its total assets in municipal securities rated investment
grade at the time of investment; however, the Acquiring Fund may, consistent
with such policy, also invest a portion of its assets in municipal securities
rated below investment grade. Each Fund considers securities rated BBB or higher
by Standard & Poor's Corporation ("S&P") or Baa or higher by Moody's Investors
Service ("Moody's") and equivalent rated short-term obligations to be investment
grade.
19
Each Fund may invest in municipal securities subject to the alternative
minimum tax provisions of federal tax law. The Acquiring Fund has not
established any limit on the percentage of its portfolio that may be invested in
municipal securities that pay interest subject to the alternative minimum tax
provisions of federal tax law, and a substantial portion of the income produced
by the Acquiring Fund may be taxable under the alternative minimum tax. The
Target Fund may invest up to 20% of its total assets in municipal securities
that pay interest subject to the alternative minimum tax. The Funds may not be
suitable investments for investors who are already subject to the federal
alternative minimum tax or who would become subject to the federal alternative
minimum tax as a result of an investment in the Funds.
Each Fund may engage in certain hedging transactions and may purchase and sell
put and call options on municipal securities and municipal securities indices.
Such transactions are not treated as investments in municipal securities for the
purpose of each Fund's policy of investing 80% of its total assets in municipal
securities.
MUNICIPAL SECURITIES. Municipal securities are obligations issued by or on
behalf of states, certain territories and possessions of the United States and
the District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is, in the opinion of bond counsel or
other counsel to the issuer of such securities, at the time of issuance, not
includable in gross income for regular federal income tax purposes. Under normal
market conditions, at least 80% of each Fund's net assets are invested in
municipal securities. The Acquiring Fund not established any limit on the
percentage of their respective portfolios that may be invested in municipal
securities that pay interest subject to the alternative minimum tax provisions
of federal tax law, and a substantial portion of the income produced by the
Acquiring Fund may be taxable under the federal alternative minimum tax. The
Target Fund may invest up to 20% of its total assets in municipal securities
that pay interest subject to the alternative minimum tax.
The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. "General obligation" securities
are secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. "Revenue" securities are usually payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source. Industrial development bonds are usually revenue securities, the
credit quality of which is normally directly related to the credit standing of
the industrial user involved.
Within these principal classifications of municipal securities, there are a
variety of categories of municipal securities, including fixed and variable rate
securities, municipal bonds, municipal notes, municipal leases, custodial
receipts, participation certificates and municipal securities the terms of which
include elements of, or are
20
similar in effect to, certain Strategic Transactions in which the Funds may
engage. Variable rate securities bear rates of interest that are adjusted
periodically according to formulae intended to reflect market rates of interest
and include securities whose rates vary inversely with changes in market rates
of interest. Municipal notes include tax, revenue and bond anticipation notes of
short maturity, generally less than three years, which are issued to obtain
temporary funds for various public purposes. Municipal leases are obligations
issued by state and local governments or authorities to finance the acquisition
of equipment and facilities. Certain municipal lease obligations may include
"nonappropriation" clauses which provide that the municipality has no obligation
to make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Custodial receipts are
underwritten by securities dealers or banks and evidence ownership of future
interest payments, principal payments or both on certain municipal securities.
Participation certificates are obligations issued by state and local governments
or authorities to finance the acquisition of equipment and facilities. They may
represent participations in a lease, an installment purchase contract, or a
conditional sales contract. Municipal securities may not be backed by the faith,
credit and taxing power of the issuer. The Funds may also invest in municipal
securities backed by original issue insurance or secondary market insurance
(collectively, "insurance").
The yields of municipal securities depend on, among other things, general
money market conditions, general conditions of the municipal securities market,
size of a particular offering, the maturity of the obligation and rating of the
issue. The ratings of S&P and Moody's represent their opinions of the quality of
the municipal securities they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, municipal securities with the same maturity, coupon and rating may
have different yields while municipal securities of the same maturity and coupon
with different ratings may have the same yield.
Municipal securities include long-term obligations, often called municipal
bonds, as well as short-term municipal notes, participation certificates,
municipal leases, and tax-exempt commercial paper. Under normal market
conditions, longer-term municipal securities generally provide a higher yield
than short-term municipal securities of similar credit quality and therefore
each Fund generally emphasizes investments in municipal securities with
long-term maturities. There is no limitation as to the maturity of municipal
securities in which the Fund may invest. The Adviser may adjust the average
maturity of the Fund's portfolio from time to time, depending on its assessment
of the relative yields available an securities of different maturities and its
expectations of future changes in interest rates.
Each Fund may invest more than 25% of its total assets in a particular segment
of the municipal securities market if the Adviser determines that the yields
available
21
from obligations in a particular segment justify the additional risks of a
larger investment in such segment.
Neither Fund has a policy limiting its investments in municipal securities
whose issuers are located in the same state. However, it is not the present
intention of either Fund to invest more than 25% of the value of its total
assets in issuers located in the same state. If a Fund were to invest more than
25% of its total assets in issuers located in the same state, it would be more
susceptible to adverse economic, business or regulatory conditions in that
state.
Neither Fund will not invest more than 25% of its total assets in any
industry, nor invest more than 5% of its total assets in the securities of any
single issuer. Governmental issuers of municipal securities are not considered
part of any "industry." However, municipal securities backed only by the assets
and revenues of non-governmental users may for this purpose be deemed to be
issued by such non-governmental users, and the 25% limitation would apply to
such obligations.
MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. Included within the
general category of municipal securities are participations in lease obligations
or installment purchase contract obligations (collectively called "lease
obligations") of municipal authorities or entities. Although lease obligations
do not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is ordinarily backed
by the municipality's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Although
non-appropriation lease obligations are often secured by the underlying
property, disposition of the property in the event of foreclosure might prove
difficult.
The Target Fund may only invest 5% of its total assets in lease obligations
that contain non-appropriation clauses, and only invests in those
non-appropriation lease obligations where (1) the nature of the leased equipment
or property is such that its ownership or use is essential to a governmental
function of the municipality, (2) the lease payments will commence amortization
of principal at an early date resulting in an average life of seven years or
less for the lease obligation, (3) appropriate covenants will be obtained from
the municipal obligor prohibiting the substitution or purchase of similar
equipment if lease payments are not appropriated, (4) the lease obligor has
maintained good market acceptability in the past, (5) the investment is of a
size that will be attractive to institutional investors, and (6) the underlying
leased equipment has elements of portability and/or use that enhance its
marketability in the event foreclosure on the underlying equipment was ever
required.
22
There is no limitation on the percentage of the Acquiring Fund's assets that
may be invested in lease obligations that contain non-appropriation clauses. In
evaluating such lease obligations, the Adviser will consider such factors as it
deems appropriate, which may include (1) whether the lease can be cancelled, (2)
the ability of the lease obligee to direct the sale of the underlying assets,
(3) the general creditworthiness of the lease obligor, (4) the likelihood that
the municipality will discontinue appropriating funding for the leased property
in the event such property is no longer considered essential by the
municipality, (5) the legal recourse of the lease obligee in the event of such a
failure to appropriate funding and (6) any limitations which are imposed on the
lease obligor's ability to utilize substitute property or services than those
covered by the lease obligation. The Acquiring Fund invests in lease obligations
which contain non-appropriation clauses only if such obligations are rated
investment grade at the time of investment.
Participation certificates are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities. They may represent participations in a lease, an installment
purchase contract, or a conditional sales contract. Some municipal leases and
participation certificates may not be readily marketable.
TEMPORARY DEFENSIVE STRATEGIES. At times, the Adviser may judge that
conditions in the markets for municipal securities make pursuing a Fund's basic
investment strategy inconsistent with the best interests of its shareholders. At
such times the Adviser may use alternative strategies, primarily designed to
reduce fluctuations in the value of such Fund's assets. In implementing these
"defensive" strategies, a Fund may invest to a substantial degree in other
investment grade municipal securities, including liquid, high-quality,
short-term municipal securities. If these other municipal securities are not
available or, in the Adviser's judgment, do not afford sufficient protection
against adverse market conditions, the Fund may invest in investment grade
taxable securities. To the extent that the Fund invests in taxable securities
for temporary defensive purposes, the Fund will not be invested in a manner
primarily designed to achieve its investment objective of seeking to provide
common shareholders with a high level of current income exempt from federal
income tax.
OTHER INVESTMENT PRACTICES AND POLICIES
In connection with the investment objective and policies described above, each
Fund may, but is not required to, utilize various other investment strategies as
described below to earn income, to facilitate portfolio management and to
mitigate risk. Such strategies are generally accepted by modern portfolio
managers and are regularly utilized by many investment companies and other
institutional investors. These investment practices entail risks. Although the
Adviser believes that these
23
investment practices may further the Funds' respective investment objectives, no
assurance can be given that these investment practices will achieve this result.
OPTIONS. Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In general, each Fund may purchase and sell (write)
options on up to 20% of its assets. In addition, many Strategic Transactions
involving options require segregation of Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future
contract, index or other instrument might be intended to protect the Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as a paradigm, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
24
The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only enter into OTC options that have a buy-back provision permitting
the Fund to require the Counterparty to close the option at a formula price
within seven days. The Fund expects generally to enter into OTC options that
have cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with U.S. government
securities dealers recognized by the Federal Reserve Bank of New York as
"primary dealers", or broker-dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of
25
which have received) a short-term credit rating of "A-1" from Standard & Poor's
("S&P") or "P-1" from Moody's Investors Service, Inc. ("Moody's") or an
equivalent rating from any other nationally recognized statistical rating
organization ("NRSRO"). The staff of the SEC currently takes the position that,
in general, OTC options on securities (other than U.S. government securities)
purchased by the Fund, and portfolio securities "covering" the amount of the
Fund's obligation pursuant to an OTC option sold by it (the cost of the
sell-back plus the in-the-money amount, if any) are illiquid, and are subject to
the Fund's limitation on illiquid securities described herein.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities, corporate debt securities that are traded on securities exchanges
and in the OTC markets and related futures contracts. All calls sold by the Fund
must be "covered" (i.e., the Fund must own the securities or futures contract
subject to the call) or must meet the asset segregation requirements described
below as long as the call is outstanding. Even though the Fund will receive the
option premium to help protect it against loss, a call sold by the Fund exposes
the Fund during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or
instrument and may require the Fund to hold a security or instrument which it
might otherwise have sold. In the event of exercise of a call option sold by the
Fund with respect to securities not owned by the Fund, the Fund may be required
to acquire the underlying security at a disadvantageous price to satisfy its
obligation with respect to the call option.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities and corporate debt securities (whether or not it holds the above
securities in its portfolio.) In selling put options, there is a risk that the
Fund may be required to buy the underlying security at a disadvantageous price
above the market price.
FUTURES CONTRACTS. Each Fund may enter into financial futures contracts or
purchase or sell put and call options on futures contracts as a hedge against
anticipated interest rate or fixed-income market changes, for duration
management and for risk management purposes. Futures contracts generally are
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The purchase of a futures
contract creates a firm obligation by the Fund, as purchaser, to take delivery
from the seller of the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to
index futures contracts and Eurodollar
26
instruments, the net cash amount). The sale of a futures contract creates a firm
obligation by the Fund, as seller, to deliver to the buyer the specific type of
financial instrument called for in the contract at a specific future time for a
specified price (or, with respect to index futures and Eurodollar instruments,
the net cash amount). Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
and obligates the seller to deliver such option.
The Fund's use of financial futures contracts and options on futures contracts
will in all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the Commodity Futures Trading Commission
and will be entered into only for bona fide hedging, risk management (including
duration management) or other portfolio management purposes. Typically,
maintaining a futures contract or selling an option on a futures contract
requires the Fund to deposit with a financial intermediary as security for its
obligations an amount of cash or other specified assets (initial margin) which
initially is typically 1% to 10% of the face amount of the contract (but may be
higher in some circumstances). Additional cash or assets (variation margin) may
be required to be deposited thereafter on a daily basis as the mark to market
value of the contract fluctuates. The purchase of options on financial futures
contracts involves payment of a premium for the option without any further
obligation on the part of the Fund. If the Fund exercises an option on a futures
contract it will be obligated to post initial margin (and potential subsequent
variation margin) for the resulting futures contracts position just as it would
for any position. Futures contracts and options on futures contracts are
generally settled by entering into an offsetting transaction but there can be no
assurance that the position can be offset prior to settlement at an advantageous
price nor that delivery will occur.
The Fund will not enter into a futures contract or an option on a futures
contracts (except for closing transactions) for other than bona fide hedging
purposes if, immediately thereafter, the sum of the amount of its initial margin
and premiums on open futures contracts and options thereon would exceed 5% of
the Fund's total assets (taken at current value); however, in the case of an
option that is in-the-money at the time of the purchase, the in-the-money amount
may be excluded in calculating the 5% limitation. The segregation requirements
with respect to futures contracts and options thereon are described below.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of
27
the underlying instrument, they settle by cash settlement, i.e., an option on an
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the excess of the
closing price of the index over the exercise price of the option, which also may
be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount. The gain or
loss on an option on an index depends on price movements in the instruments
making up the market, market segment, industry or other composite on which the
underlying index is based, rather than price movements in individual securities,
as is the case with respect to options on securities.
COMBINED TRANSACTIONS. Each Fund may enter into multiple transactions,
including multiple options transactions, multiple futures contracts transactions
and multiple interest rate transactions and any combination of futures
contracts, options and interest rate transactions ("component" transactions),
instead of a single Strategic Transaction, as part of a single or combined
strategy when, in the opinion of the Adviser, it is in the best interests of the
Fund to do so. A combined transaction will usually contain elements of risk that
are present in each of its component transactions. Although combined
transactions are normally entered into based on the Adviser's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve the
desired portfolio management goal, it is possible that the combination will
instead increase such risks or hinder achievement of the portfolio management
objective.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which
each Fund may enter are interest rate and index swaps and the purchase or sale
of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
28
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash and/or
liquid securities to the extent Fund obligations are not otherwise "covered"
through ownership of the underlying security, financial instrument or currency.
In general, either the full amount of any obligation by the Fund to pay or
deliver securities or assets must be covered at all times by the securities,
instruments or currency required to be delivered, or, subject to any regulatory
restrictions, the Fund must segregate cash and/or liquid securities in an amount
at least equal to the current amount of the obligation. The segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate cash and/or liquid securities sufficient to
purchase and deliver the securities if the call is exercised. A call option sold
by the Fund on an index will require the Fund to own portfolio securities which
correlate with the index or to segregate cash and/or liquid securities equal to
the excess of the index value over the exercise price on a current basis. A put
option written by the Fund requires the Fund to segregate cash and/or liquid
securities equal to the exercise price.
OTC options entered into by the Fund, including those on securities, financial
instruments or indices and OCC issued and exchange listed index options, will
generally provide for cash settlement. As a result, when the Fund sells these
instruments it will only segregate an amount of cash and/or liquid securities
equal to its accrued net obligations, as there is no requirement for payment or
delivery of amounts in excess of the net amount. These amounts will equal 100%
of the exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash and/or liquid securities equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of cash and/or liquid securities equal to the full value of the option.
OTC options settling with physical delivery, or with an election of either
physical delivery or cash settlement, will be treated the same as other options
settling with physical delivery.
In the case of a futures contract or an option on a futures contract, the Fund
must deposit initial margin and possible daily variation margin in addition to
segregating
29
cash and/or liquid securities sufficient to meet its obligation to purchase or
provide securities or currencies, or to pay the amount owed at the expiration of
an index-based futures contract.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash and/or liquid securities having
a value equal to the accrued excess. Caps, floors and collars require
segregation of cash and/or liquid securities with a value equal to the Fund's
net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund also may enter into offsetting
transactions so that its combined position, coupled with any segregated cash
and/or liquid securities, equals its net outstanding obligation in related
options and Strategic Transactions. For example, the Fund could purchase a put
option if the strike price of that option is the same or higher than the strike
price of a put option sold by the Fund. Moreover, instead of segregating cash
and/or liquid securities if the Fund held a futures contract or forward
contract, it could purchase a put option on the same futures contract or forward
contract with a strike price as high or higher than the price of the contract
held. Other Strategic Transactions also may be offset in combinations. If the
offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
cash and/or liquid securities equal to any remaining obligation could need to be
segregated.
The Fund's activities involving Strategic Transactions may be limited by the
requirements of the Code for qualification as a regulated investment company.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. Income earned or gains realized or deemed to
be earned or realized, if any, by a Fund from engaging in Strategic Transactions
generally will be taxable income of the Fund. Such income earned or realized by
the Target Fund is allocated to the Target Fund RATES. Such income earned or
realized by the Acquiring Fund is allocated to the Acquiring Fund Common Shares
and the Acquiring Fund APS on a pro rata basis.
"WHEN-ISSUED AND "DELAYED DELIVERY" TRANSACTIONS. Each Fund may also purchase
and sell municipal securities on a "when-issued" and "delayed delivery" basis.
No income accrues to a Fund on municipal securities in connection with such
transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher than yields on the municipal securities obtained pursuant
to such transactions. Because the Fund engaging in such transactions relies on
the buyer or seller, as the case may
30
be, to consummate the transaction, failure by the other party to complete the
transaction may result in the Fund missing the opportunity of obtaining a price
or yield considered to be advantageous.
INVESTMENT RESTRICTIONS
Each Fund's investment objective, its investment policy with respect to
investing at least 80% of its total assets in municipal securities and the
following investment restrictions are fundamental and cannot be changed without
the approval of the holders of a majority of the Fund's outstanding voting
securities (defined in the 1940 Act as the lesser of (i) more than 50% of the
Fund's outstanding Common Shares and of its outstanding Preferred Shares, voting
by class, or (ii) 67% of such outstanding Common Shares and of its outstanding
Preferred Shares, voting by class, present at a meeting at which the holders of
more than 50% of the outstanding shares of each such class are present in person
or by proxy). All other investment policies or practices are considered by the
Funds not to be fundamental and accordingly may be changed without shareholder
approval. If a percentage restriction on investment or use of assets set forth
below is adhered to at the time a transaction is effected, later changes in
percentage resulting from changing market values will not be considered a
deviation from policy. The investment restrictions of the Acquiring Fund are set
forth below. Except as noted herein the investment restrictions of the Target
Fund are substantially similar. The Acquiring Fund may not:
1. With respect to 75% of its total assets, purchase any securities (other
than tax-exempt obligations guaranteed by the United States Government or
by its agencies or instrumentalities), if as a result more than 5% of the
Fund's total assets would then be invested in securities of a single
issuer or if as a result the Fund would hold more than 10% of the
outstanding voting securities of any single issuer, except that the Fund
may purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the Securities and Exchange
Commission under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
2. Invest more than 25% of its assets in a single industry; however, as
described in the Fund's prospectus, the Fund may from time to time invest
more than 25% of its assets in a particular segment of the municipal
securities market.
3. Issue senior securities, as defined in the 1940 Act, other than preferred
shares of beneficial interest, except to the extent such issuance might be
involved with borrowings described under subparagraph (4) below or with
respect to hedging and risk management transactions or the writing of
options within limits described in the Fund's Prospectus.
31
4. Borrow money, except for temporary or emergency purposes from banks or for
repurchase of the Fund's shares, and then only in an amount not exceeding
one-third of the Fund's total assets, including the amount borrowed. The
Fund will not mortgage, pledge or hypothecate any assets except in
connection with a borrowing. The Fund will not purchase portfolio
securities during any period that such borrowings exceed 5% of the total
asset value of the Fund. Notwithstanding this investment restriction, the
Fund may enter into "when issued" and "delayed delivery" transactions as
described in the Fund's prospectus.
5. Make loans of money or property to any person, except to the extent the
securities in which the Fund may invest are considered to be loans and
except that the Fund may lend money or property in connection with
maintenance of the value of or the Fund's interest with respect to the
securities owned by the Fund.
6. Buy any securities "on margin." Neither the deposit of initial or
variation margin in connection with hedging and risk management
transactions nor short-term credits as may be necessary for the clearance
of transactions is considered the purchase of a security on margin.
7. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell financial futures or options,
except as described in the Fund's prospectus.
8. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.
9. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to municipal securities would be deemed to
constitute such control or participation, and except that the Fund may
purchase securities of other investment companies to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the Securities and Exchange Commission under
the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
10. Invest in securities issued by other investment companies as part of a
merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the Securities and Exchange
Commission under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
32
11. Invest in equity interests in oil, gas or other mineral exploration or
development programs except pursuant to the exercise by the Fund of its
rights under agreements relating to municipal securities.
12. Purchase or sell real estate, commodities or commodity contracts, except
to the extent the securities the Fund may invest in are considered to be
interests in real estate, commodities or commodity contracts or to the
extent the Fund exercises its rights under agreements relating to such
municipal securities (in which case the Fund may liquidate real estate
acquired as a result of a default on a mortgage), and except to the extent
that financial futures and related options the Fund may invest in are
considered to be commodities or commodities contracts.
In addition, the Target Fund may not:
13. Invest in illiquid investments, including securities which are subject to
legal or contractual restrictions on resale or for which there is no
readily available market (e.g., trading in the securities is suspended or,
in the case of unlisted securities, market makers do not exist or will not
entertain bids or offers), if more than 25% of the Fund's assets (taken at
market value) would be invested in such securities, except that the Fund
may purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the Securities and Exchange
Commission under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
MANAGEMENT OF THE FUNDS
THE BOARDS. The Board of each Fund is responsible for the overall supervision
of the operations of its respective Fund and performs the various duties imposed
on trustees of investment companies by the 1940 Act and under applicable state
law.
THE ADVISER. The investment adviser for each Fund is Van Kampen Asset
Management. The Adviser is a wholly owned subsidiary of Van Kampen Investments
Inc. ("Van Kampen Investments"). Van Kampen Investments is a diversified asset
management company that administers more than [three million] retail investor
accounts, has extensive capabilities for managing institutional portfolios and
has more than $96 billion under management or supervision as of January 31,
2005. Van Kampen Investments has over 40 open-end funds, more than 30 closed-
end funds and more than 2,700 unit investment trusts that are distributed by
authorized dealers nationwide. Van Kampen Investments is an indirect wholly
owned subsidiary of Morgan Stanley, a preeminent global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services. Morgan Stanley is a full
service
33
securities firm engaged in securities trading and brokerage activities,
investment banking, research and analysis, financing and financial advisory
services. The principal business address of the Adviser and Van Kampen
Investments is 1221 Avenue of the Americas, New York, New York 10020.
Pursuant to separate investment advisory agreements between each Fund and the
Adviser, each Fund pays the Adviser a monthly fee at the annual rate of 0.55% of
such Fund's average daily managed assets, including assets attributable to
Preferred Shares. Effective November 1, 2004, the investment advisory fee paid
by each Fund was reduced from .60% to .55%. Subsequent to the Reorganization,
the Adviser will continue to receive compensation at the rate of 0.55% of the
average daily managed assets, including assets attributable to Preferred Shares,
of the combined fund.
Under a separate Accounting Services and Legal Services agreement, the Adviser
provides accounting and legal services to each Fund. The Adviser allocates the
cost of such services to each Fund.
PORTFOLIO MANAGEMENT. Each Fund's portfolio is managed by the Adviser's
Municipal Fixed Income team. The team is made up of established investment
professionals. Current members of the team include Thomas Byron, Robert Wimmel
and John Reynoldson.
Thomas Byron has worked for the Adviser since [ ] and began managing
the Funds in [ ]. Robert Wimmel has worked for the Adviser since
[ ] and began managing the Funds in [ ]. John Rynoldson has
worked for the Adviser since [ ] and began managing the Funds in
[ ].
[ ] is the lead portfolio manager of each Fund. [
] are co-portfolio managers. Members of the team collaborate to manage
the assets of each Fund.
The Reorganization Statement of Additional Information provides additional
information about the portfolio managers' compensation, other accounts managed
by the portfolio managers and the portfolio managers' ownership of securities in
the Acquiring Fund.
PORTFOLIO TRANSACTIONS WITH AFFILIATES. The Adviser may place portfolio
transactions, to the extent permitted by law, with brokerage firms affiliated
with the Funds and the Adviser and with brokerage firms participating in the
distribution of the Funds' shares if it reasonably believes that the quality of
execution and the commission are comparable to that available from other
qualified firms.
LEGAL PROCEEDINGS. The Adviser, certain affiliates of the Adviser, and certain
open-end investment companies advised by the Adviser or its affiliates were
named as defendants in a number of similar class action complaints which were
consolidated. The consolidated amended complaint also names as defendants
certain
34
individual trustees and directors of certain investment companies advised by
affiliates of the Adviser; the complaint does not, however, name the individual
trustees of any Van Kampen funds. The complaint generally alleges that
defendants violated their statutory disclosure obligations and fiduciary duties
by failing properly to disclose (i) that the Adviser and certain affiliates of
the Adviser allegedly offered economic incentives to brokers and others to steer
investors to the funds advised by the Adviser or its affiliates rather than
funds managed by other companies, and (ii) that the funds advised by the Adviser
or its affiliates allegedly paid excessive commissions to brokers in return for
their alleged efforts to steer investors to these funds. The complaint seeks,
among other things, unspecified compensatory damages, rescissionary damages,
fees and costs.
The Adviser and certain affiliates of the Adviser are also named as defendants
in a derivative suit which additionally names as defendants individual trustees
of certain Van Kampen funds; the named open-end investment companies are listed
as nominal defendants. The complaint alleges that defendants caused the Van
Kampen funds to pay economic incentives to a proprietary sales force to promote
the sale of proprietary mutual funds. The complaint also alleges that the Van
Kampen funds paid excessive commissions to Morgan Stanley and its affiliates in
connection with the sales of the funds. The complaint seeks, among other things,
the removal of the current trustees of the funds, rescission of the management
contracts for the funds, disgorgement of profits by Morgan Stanley and its
affiliates and monetary damages. This complaint has been coordinated with the
consolidated complaint described in the preceding paragraph.
The defendants have moved to dismiss each of these actions and otherwise
intend to defend them vigorously. The motions to dismiss each action are
pending. While the defendants believe that they have meritorious defenses, the
ultimate outcome of these matters is not presently determinable at this early
stage of litigation.
The Adviser and one of the open-end investment companies advised by the
Adviser are named as defendants in a recently filed class action complaint
generally alleging that the defendants breached their duties of care to
long-term shareholders of the investment company by valuing portfolio securities
at the closing prices of the foreign exchanges on which they trade without
accounting for significant market information that became available after the
close of the foreign exchanges but before calculation of net asset value. As a
result, the complaint alleges, short-term traders were able to exploit stale
pricing information to capture arbitrage profits that diluted the value of
shares held by long-term investors. The complaint seeks unspecified compensatory
damages, punitive damages, fees and costs. Defendants have appealed an order of
the federal court remanding this case to state court. The federal appeals court
has issued a stay of discovery in the state court during the pendency of the
appeal. While the defendants believe that they have meritorious
35
defenses, the ultimate outcome of this matter is not presently determinable at
this early stage of litigation.
The Adviser, certain affiliates of the Adviser and the trustees of certain Van
Kampen funds are named as defendants in a recently filed complaint generally
alleging that the defendants breached various fiduciary and statutory duties to
shareholders in certain Van Kampen open-end funds by failing to ensure that the
funds participated in securities class action settlements involving securities
held in the funds' portfolios. The complaint seeks, among other things,
compensatory and punitive damages on behalf of investors in the funds. While the
defendants believe that they have meritorious defenses, the ultimate outcome of
this matter is not presently determinable at this early stage of litigation.
OTHER SERVICE PROVIDERS
THE ADMINISTRATOR. Van Kampen Funds Inc. (the "Administrator") serves as
administrator to the Acquiring Fund. The principal business address of the
Administrator is 1221 Avenue of the Americas, New York, New York 10020. The
administrative services provided by the Administrator include record keeping and
reporting responsibilities with respect to the Fund's portfolio and preferred
shares and providing certain services to shareholders. Prior to June 1, 2004,
the Acquiring Fund paid the Administrator a monthly administrative fee at the
annual rate of .05% of the average net assets of the Fund. Effective June 1,
2004, the administrative fee was reduced from .05% to .00%. Subsequent to the
Reorganization, the Administrator will continue serve as administrator to the
combined fund at the reduced rate.
THE COMMUNICATION SUPPORT SERVICES PROVIDER. Van Kampen Funds Inc. (the
"Support Service Provider") serves as the communications support service
provider to the Target Fund. The principal business address of the Support
Service Provider is 1221 Avenue of the Americas, New York, New York 10020. The
communications support services include telephonic and written correspondence
with shareholders and brokers. The Target Fund does not pay any fee to the
Support Service Provider but bears certain expenses incurred by the Support
Service Provider.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company is the
custodian, transfer agent, dividend paying agent and registrar for the Common
Shares of each of the Funds. Its principal business address is P.O. Box 43071,
Providence, Rhode Island, 02940-3071.
CAPITALIZATION
The Board of Trustees of each Fund may authorize separate classes of shares
together with such designation of preferences, rights, voting powers,
restrictions,
36
limitations, qualifications or terms as may be determined from time to time by
the trustees. The table below sets forth the capitalization of the Target Fund
and the Acquiring Fund as of October 31, 2004, and the pro forma capitalization
of the combined fund as if the Reorganization had occurred on that date.
CAPITALIZATION AS OF OCTOBER 31, 2004 (UNAUDITED)
AMOUNTS IN THOUSANDS
TARGET ACQUIRING
FUND FUND ACQUIRING FUND
(ACTUAL) (ACTUAL) (PRO FORMA)
-------- --------- --------------
NET ASSETS CONSIST OF:
Common Shares ($.01 par value)*... $ 270 $ 287 $ 444
Paid in Surplus................... 399,274 265,829 664,817
Net Unrealized Appreciation....... 66,994 33,745 100,689
Accumulated Undistributed Net
Investment Income............... 2,903 2,046 4,949
Accumulated Net Realized Loss..... (1,056) 426 (630)
NET ASSETS APPLICABLE TO
COMMON SHARES................... $468,335 $302,333 $ 770,269
PREFERRED SHARES ($.01 par value,
liquidation preference of
$25,000 and
$100,000 for Acquiring Fund and
Target Fund, respectively)*..... $265,000 $165,000 $ 430,000
NET ASSETS INCLUDING PREFERRED
SHARES.......................... $733,335 $467,333 $1,200,269
---------------
* Based on the number of outstanding shares listed in "Outstanding Securities of
the Funds" table below.
OUTSTANDING SECURITIES OF THE FUNDS AS OF OCTOBER 31, 2004
AMOUNT OUTSTANDING
AMOUNT HELD EXCLUSIVE OF AMOUNT
AMOUNT FOR ITS SHOWN IN
TITLE OF CLASS AUTHORIZED OWN ACCOUNT PREVIOUS COLUMN
-------------- ---------- ----------- -------------------
Target Fund(Actual)
Common Shares.............. Unlimited 0 28,684,985
Preferred Shares........... 1,000,000 0 330
Acquiring Fund (Actual)
Common Shares.............. Unlimited 0 27,013,149
Preferred Shares........... 100,000,000 0 10,600
37
ADDITIONAL INFORMATION ABOUT COMMON SHARES OF THE FUNDS
GENERAL. Common shareholders of a Fund are entitled to share equally in
dividends declared by the Fund's Board of Trustees payable to holders of the
common shares and in the net assets of the Fund available for distribution to
holders of the common shares after payment of the preferential amounts payable
to preferred shareholders. Common shareholders do not have preemptive or
conversion rights and a Fund's common shares are not redeemable. The outstanding
common shares of each Fund are fully paid and nonassessable. So long as any
preferred shares of a Fund are outstanding, holders of the Fund's common shares
will not be entitled to receive any dividends or other distributions from the
Fund unless all accumulated dividends on the Fund's outstanding preferred shares
have been paid, and unless asset coverage (as defined in the 1940 Act) with
respect to such preferred shares would be at least 200% after giving effect to
such distributions.
PURCHASE AND SALE. Purchase and sale procedures for the Common Shares of each
of the Funds are identical. Investors typically purchase and sell Common Shares
of the Funds through a registered broker-dealer on the NYSE or the CHX, thereby
incurring a brokerage commission set by the broker-dealer. Alternatively,
investors may purchase or sell Common Shares of the Funds through privately
negotiated transactions with existing shareholders.
COMMON SHARE PRICE DATA
The following table sets forth the high and low sales prices for Common Shares
of each Fund on the NYSE for each full quarterly period within each Fund's two
most recent fiscal years and for the first two fiscal quarters of the current
fiscal year of the Target Fund and the first fiscal quarter of the current
fiscal year of the Acquiring Fund, along with the net asset value and discount
or premium to net asset value for each quotation.
TARGET FUND
----------------------
NET ASSET PREMIUM NET ASSET PREMIUM
QUARTERLY PERIOD ENDING HIGH PRICE VALUE (DISCOUNT) LOW PRICE VALUE (DISCOUNT)
----------------------- ---------- --------- ---------- --------- --------- ----------
December 31, 2004..... $ 9.56 $10.58 $(1.02) $8.95 $10.28 $(1.33)
September 30, 2004.... $ 9.48 $10.58 $(1.10) $8.85 $10.14 $(1.29)
June 30, 2004......... $ 9.94 $10.59 $(0.65) $8.41 $ 9.85 $(1.44)
March 31, 2004........ $10.09 $10.94 $(0.85) $9.42 $10.49 $(1.07)
December 31, 2003..... 9.$50.... $10.50 $(1.00) $9.08 $10.24 $(1.16)
September 30, 2003.... 9.$74.... $10.74 $(1.00) $8.87 $10.00 $(1.13)
June 30, 2003......... 9.$91.... $11.07 $(1.16) $9.11 $10.42 $(1.31)
March 31, 2003........ 9.$25.... $10.67 $(1.42) $8.82 $10.32 $(1.50)
December 31, 2002..... 9.$56.... $10.64 $(1.08) $8.63 $10.07 $(1.44)
September 30, 2002.... 9.$57.... $10.66 $(1.09) $8.90 $ 9.95 $(1.05)
38
ACQUIRING FUND
----------------------
NET ASSET PREMIUM NET ASSET PREMIUM
QUARTERLY PERIOD ENDING HIGH PRICE VALUE (DISCOUNT) LOW PRICE VALUE (DISCOUNT)
----------------------- ---------- --------- ---------- --------- --------- ----------
January 31, 2005...... $15.40 $17.30 $(1.90) $14.74 $16.93 $(2.19)
October 31, 2004...... $15.52 $17.41 $(1.89) $14.85 $16.77 $(1.92)
July 31, 2004......... $14.85 $16.84 $(1.99) $13.85 $16.36 $(2.51)
April 30, 2004........ $16.55 $18.00 $(1.45) $14.37 $16.66 $(2.29)
January 31, 2004...... $16.18 $17.61 $(1.43) $15.50 $17.35 $(1.85)
October 31, 2003...... $15.58 $17.15 $(1.57) $14.86 $16.53 $(1.67)
July 31, 2003......... $16.74 $18.00 $(1.26) $15.10 $16.54 $(1.44)
April 30, 2003........ $16.16 $17.54 $(1.38) $15.48 $17.16 $(1.68)
January 31, 2003...... $15.98 $17.60 $(1.62) $15.16 $17.10 $(1.94)
As of [ ], 2005, (i) the net asset value per share for Target Fund
Common Shares was $[ ] and the market price per share was $[ ],
representing a discount to net asset value of [ ]%, and (ii) the net asset
value per share for Acquiring Fund Common Shares was $[ ] and the market
price per share was $[ ], representing a discount to net asset value of
[ ]%.
Target Fund Common Shares have traded at both a premium and a discount to net
asset value for extended periods since the Target Fund's inception. Acquiring
Fund Common Shares have historically traded at a discount to net asset value. In
order to reduce or eliminate a market value discount from net asset value, the
Board of Trustees of each Fund may, subject to the terms and conditions of its
preferred shares, authorize that Fund from time to time to repurchase the common
shares in the open market or to tender for the common shares at net asset value.
The Board of Trustees of each Fund, in consultation with the Adviser, will
review on a quarterly basis the possibility of open market repurchases and/or
tender offers for the common shares. Subject to its borrowing restrictions, each
Fund may incur debt to finance such repurchases, which entails risks. The
ability of a Fund to enter into tender offers and the common share repurchases
may be limited by the 1940 Act asset coverage requirements and any additional
asset coverage requirements which may be imposed by a rating agency in
connection with any rating of the preferred shares. No assurance can be given
that the Board of Trustees of either Fund will, in fact, authorize the Fund to
undertake such repurchases and/or tender offers or that, if undertaken, such
actions would result in the common shares trading at a price which is equal or
close to net asset value.
DIVIDENDS AND DISTRIBUTIONS. The Funds' current policies with respect to
dividends and distributions relating to their respective Common Shares are
substantially similar. It is each Fund's present policy, which may be changed by
its Board of Trustees, to make monthly distributions to holders of its Common
Shares of substantially all of the Fund's net investment income remaining after
the payment of dividends on any outstanding Preferred Shares. Net income of each
Fund
39
consists of all interest income accrued on portfolio assets less all expenses of
the Fund. Under current federal tax law, the Target Fund may allocate net
capital gains and other taxable income, if any, received by the Target Fund to
the Target Fund Common Shares, allowing the Target Fund to pay dividends to the
Target Fund RATES which qualify in their entirety as tax exempt distributions.
The Acquiring Fund, however, is required to allocate net capital gains and other
taxable income, if any, received by the Acquiring Fund among the Acquiring Fund
Common Shares and the Acquiring Fund APS on a pro rata basis in the year for
which such capital gains and other income is realized.
Expenses of the Fund are accrued each day. Net realized capital gains, if any,
are expected to be distributed to shareholders at least once a year. While there
are any Preferred Shares of a Fund outstanding, such Fund may declare any cash
dividend or other distribution on its Common Shares, unless at the time of such
declaration, (1) all accrued Preferred Shares dividends have been paid and (2)
the value of the Fund's total assets (determined after deducting the amount of
such dividend or other distribution), less all liabilities and indebtedness of
the Fund, is at least 200% (as required by the 1940 Act) of the liquidation
value of the outstanding Preferred Shares (expected to equal the aggregate
original purchase price of the outstanding Preferred Shares plus any accrued and
unpaid dividends thereon, whether or not earned or declared on a cumulative
basis). In addition to the requirements of the 1940 Act, the Fund may be
required to comply with other asset coverage requirements as a condition of the
Fund obtaining a rating of its Preferred Shares from a nationally recognized
rating service. These requirements may include an asset coverage test more
stringent than under the 1940 Act. This limitation on a Fund's ability to make
distributions on its Common Shares could in certain circumstances impair the
ability of the Fund to maintain its qualification for taxation as a regulated
investment company. Each Fund intends, however, to the extent possible, to
purchase or redeem Preferred Shares from time to time to maintain compliance
with such asset coverage requirements and may pay special dividends to the
holders of the Preferred Shares in certain circumstances in connection with any
such impairment of the Fund's status as a regulated investment company.
For information concerning the manner in which dividends and distributions to
holders of each Fund's Common Shares may be reinvested automatically in the
Fund's Common Shares, see "Automatic Dividend Reinvestment Plan" below.
DIVIDEND REINVESTMENT PLAN. Each Fund offers a Dividend Reinvestment Plan
(each a "Plan," and collectively the "Plans") pursuant to which holders of
Common Shares may elect to have all distributions of dividends and all capital
gains automatically reinvested in Common Shares pursuant to such Plan. The Plans
for the Target Fund and the Acquiring Fund are substantially similar. Unless
common shareholders elect to participate in a Plan, all common shareholders will
40
receive distributions of dividends and capital gains in cash. State Street Bank
and Trust Company, as plan agent (the "Plan Agent"), serves as agent for the
holders of Common Shares of each Fund in administering the Plans.
After the Reorganization, a holder of shares of a Fund who currently elects to
receive dividends in cash will continue to receive dividends in cash; all other
holders will have their dividends automatically reinvested in shares of the
combined fund. All correspondence concerning the Plan should be directed to the
Plan Agent at P.O. Box 8200, Boston, Massachusetts 02101. Telephone calls
concerning the Plan may be directed to the Plan Agent between the hours of 7:30
a.m. and 5:00 p.m. Central Standard Time at (800) 341-2929.
ADDITIONAL INFORMATION ABOUT PREFERRED SHARES OF THE FUNDS
GENERAL. The Preferred Shares of each Fund have similar structures. Both
Target Fund RATES and Acquiring Fund APS are preferred shares of beneficial
interest which entitle their holders to receive dividends when, as and if
declared by the Board of Trustees of such Fund, out of funds legally available
therefor, at a rate per annum that may vary for the successive dividend periods.
The Acquiring Fund APS have a liquidation preference of $25,000 per share. The
Target Fund RATES have a liquidation preference of $500,000 per share. Neither
Target Fund RATES nor Acquiring Fund APS are traded on a stock exchange or
over-the-counter. While the Target Fund RATES and Acquiring Fund APS are
substantially similar in many respects, there are several differences that
shareholders should consider.
Holders of each Fund's preferred shares do not have preemptive rights to
purchase any shares of RATES or APS, respectively, or any other preferred shares
that might be issued. The net asset value per share of a Fund's RATES or APS
equals its liquidation preference plus accumulated but unpaid dividends per
share.
SERIES. Under the 1940 Act, each Fund is permitted to have outstanding more
than one series of preferred shares as long as no single series has priority
over another series as to the distribution of assets of the Fund or the payment
of dividends. The Target Fund currently has three series of RATES outstanding,
Series A RATES, Series B RATES and Series C RATES. Except as described in the
private placement memorandum offering the Target Fund RATES, the terms of each
series of Target Fund RATES are the same. The Acquiring Fund currently has four
series of APS outstanding, Series A APS, Series B APS, Series C APS and Series D
APS. Except with regard to the length of the regular dividend period applicable
to each series and as otherwise described in the Prospectus offering the
Acquiring Fund APS, the terms of each series of Acquiring Fund APS are the same.
PURCHASE AND SALE. Both Target Fund RATES and Acquiring Fund APS are purchased
and sold at auctions conducted on a regular basis.
41
Target Fund RATES generally are purchased and sold at auctions conducted on a
regular basis by Deutsche Bank (the "Auction Agent"). Each Auction requires the
participation of one or more auction placement agents, selected by the Fund
(each an "Auction Placement Agent"), who have entered into an agreements with
the Trust Company, through whom existing or prospective holders may submit
orders to the Trust Company in an auction. On each auction date, each holder may
submit orders through an Auction Placement Agent to buy, sell or hold RATES.
Each prospective purchaser of Target Fund RATES must sign and deliver to the
Fund a Master Purchaser's Letter, in which such prospective purchaser agrees,
among other things, that (a) shares of Target Fund RATES may be transferred only
(i) pursuant to a Bid or Sell Order placed in an auction or (ii) to or through
an Auction Placement Agent to Eligible Person or to the Fund and (b) ownership
of shares of Target Fund RATES will be registered in the name of the Securities
Depository or its nominee and will be maintained in book entry form only.
Acquiring Fund APS generally are purchased and sold at auctions conducted on a
regular basis by the Auction Agent. Unless otherwise permitted by the Funds,
existing and potential holders of Acquiring Fund APS only may participate in
auctions through broker-dealers who have entered into agreements with the
Auction Agent ("Broker-Dealers"). Broker-Dealers submit orders to the Auction
Agent on behalf of their respective customers who are existing and potential
holders of Acquiring Fund APS. On or prior to each auction date for the
Acquiring Fund APS, each holder may submit orders to buy, sell or hold Acquiring
Fund APS to its Broker-Dealer. Outside of these auctions, shares of Acquiring
Fund APS may be purchased or sold through Broker-Dealers in a secondary trading
market maintained by the broker-dealers. However, there can be no assurance that
a secondary market will develop or if it does develop, that it will provide
holders with a liquid trading market for the Acquiring Fund APS of either fund.
Each prospective purchaser of Acquiring Fund APS or its Broker-Dealer is
required to sign a Master Purchaser's Letter, in which such purchaser agrees,
among other things that (a) shares of Acquiring Fund APS may be transferred only
(i) pursuant to a Bid or Sell Order placed in an auction or (ii) to or through a
Broker-Dealer and (b) ownership of shares of Acquiring Fund APS will be
registered in the name of the Securities Depository or its nominee and will be
maintained in book entry form only.
Auctions are generally held every four weeks for Target Fund RATES, and every
28 days for Series A APS and Series B APS, every three months for Series C APS
and every six months for Series D APS. In connection with the Reorganization,
holders of Target Fund RATES would receive Acquiring Fund APS which have regular
dividend periods of similar length as the Target Fund RATES, [such as Series A
APS, SERIES B APS or APS or a newly designated series with a regular dividend
period of 28 days.]
42
REGISTRATION. The Target Fund RATES have not been registered pursuant to the
1933 Act, but are offered pursuant to the private placement exemption contained
in Section 4 of the 1933 Act. Therefore, Target Fund RATES may be resold only at
auctions or through an Auction Placement Agent in a transaction that is not
required to be registered under applicable federal and state securities laws.
The Master Purchaser's Letter, which each potential purchaser of Target Fund
RATES must sign, places additional restrictions on the resale of Target Fund
RATES. Acquiring Fund APS are registered pursuant to the 1933 Act.
Broker-Dealers may maintain a secondary trading market in the Acquiring Fund APS
outside of auctions. They have no obligation to do so, however, and there can be
no assurance that a secondary market for the Acquiring Fund APS will develop or,
it does develop, that it will provide holders with liquidity of investment.
DIVIDENDS AND DISTRIBUTIONS. The holders of each Fund's Preferred Shares are
entitled to receive, when, as and if declared by the Board of Trustees of the
Fund, out of funds legally available therefor, cumulative cash dividends on
their shares. Dividends on each Fund's Preferred Shares so declared and payable
shall be paid (i) in preference to and in priority over any dividends so
declared and payable on the Fund's Common Shares, and (ii) to the extent
permitted under the Internal Revenue Code and to the extent available, out of
net tax-exempt income earned on the Target Fund's investments.
Prior to each dividend payment date, the relevant Fund is required to deposit
with the Auction Agent sufficient funds for the payment of such declared
dividends. Neither Fund intends to establish any reserves for the payment of
dividends, and no interest will be payable in respect of any dividend payment or
payment on a Fund's Preferred Shares which may be in arrears.
If a Fund retroactively allocates any net capital gains or other income
subject to regular federal income tax to its Preferred Shares without having
given advance notice thereof as described above, the Fund will make certain
payments to holders of its Preferred Shares to which such allocation was made to
offset substantially the tax effect thereof. In no other instances will the Fund
be required to make payments to holders of its Preferred Shares to offset the
tax effect of any reallocation of net capital gains or other taxable income.
Holders of Target Fund RATES generally receive dividends out of the Fund's
available net tax-exempt income, which qualify in their entirety as
distributions of tax-exempt interest income for federal income tax purposes. The
Acquiring Fund, however, is required to allocate net capital gains and other
taxable income, if any, proportionately between its Common Shares and APS. The
amount of taxable income allocated to the APS depends upon the amount of such
income realized by the Fund, but is generally not expected to be significant.
43
In normal circumstances, whenever the Acquiring Fund intends to include any
net capital gains or other taxable income in any dividend on APS, the Fund will
notify the Auction Agent of the amount to be so included prior to the Auction
establishing the Applicable Rate for such dividend. The Auction Agent will in
turn notify each Broker-Dealer who will notify existing and potential holders of
Acquiring Fund APS. As a result, auction participants may, in response to such
information, place bids which take account of the inclusion of net capital gains
or other taxable income in the dividend. If the Acquiring Fund retroactively
allocates any net capital gains or other taxable income to the APS without
having given notice to the Auction Agent, the Fund will pay an Additional
Dividend to offset substantially the tax effect thereof. As a result of the
notice and additional dividend provisions, the after-tax return to a holders of
Target Fund RATES and Acquiring Fund APS is not expected to differ
substantially.
DIVIDEND RATES. The following table provides information about the dividend
rates for each Fund's Preferred Shares as of a recent auction.
AUCTION DIVIDEND DATE FUND RATE
--------------------- ---- ----
[ ], 2005 Target Fund RATES [ ]%
Acquiring Fund
[ ], 2005 APS [ ]%
REDEMPTIONS. The redemption provisions pertaining to each Fund's Preferred
Shares are substantially similar. It is anticipated that shares of each Fund's
Preferred Shares will generally be redeemable at the option of the Fund at a
price equal to their liquidation preference plus accumulated but unpaid
dividends (whether or not earned or declared) to the date of redemption plus, in
certain circumstances, a redemption premium. Each Fund's Preferred Shares are
also subject to mandatory redemption at a price equal to their liquidation
preference plus accumulated but unpaid dividends (whether or not earned or
declared) to the date of redemption upon the occurrence of certain specified
events, such as the failure of a Fund to maintain asset coverage requirements
for the Preferred Shares specified by Moody's and S&P in connection with their
issuance of ratings on the Preferred Shares. The liquidation preference of
Target Fund RATES is $500,000 and the liquidation preference of Acquiring Fund
APS is $25,000.
RATINGS. The Target Fund RATES and the Acquiring Fund APS have each been
assigned a rating of "AAA" from S&P and "Aaa" from Moody's. Each Fund intends
that, so long as its Preferred Shares are outstanding, the composition of its
portfolio will reflect guidelines established by S&P and Moody's in connection
with each Fund's receipt of a rating for such shares of at least "AAA" from S&P
and "Aaa" from Moody's. S&P and Moody's, which are nationally recognized
statistical rating organizations, issue ratings for various securities
reflecting the perceived creditworthiness of such securities. The guidelines for
rating such preferred shares have been developed by S&P and Moody's in
connection with issuances of
44
asset-backed and similar securities, including debt obligations and variable
rate preferred stock, generally on a case-by-case basis through discussions with
the issuers of these securities. The guidelines are designed to ensure that
assets underlying outstanding debt or preferred stock will be varied
sufficiently and will be of sufficient quality and amount to justify investment
grade ratings. The guidelines do not have the force of law but have been adopted
by each Fund in order to satisfy current requirements necessary for S&P and
Moody's to issue the above-described ratings for Preferred Shares, which ratings
generally are relied upon by institutional investors in purchasing such
securities. The guidelines provide a set of tests for portfolio composition and
asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the 1940 Act.
Each Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by S&P or Moody's. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of the ratings altogether. In addition, any rating agency
providing a rating for a Fund's Preferred Shares, at any time, may change or
withdraw any such rating. As set forth in the Certificate of Vote of Trustees
Establishing Preferred Shares of each Fund (each a "Certificate of Vote"), the
Board of Trustees of each Fund, without shareholder approval, may modify certain
definitions or restrictions that have been adopted by the Fund pursuant to the
rating agency guidelines, provided the Board of Trustees has obtained written
confirmation from S&P and Moody's that any such change would not impair the
ratings then assigned by S&P and Moody's to the Preferred Shares. For so long as
any shares of the Target Fund RATES or Acquiring Fund APS are rated by S&P or
Moody's, as the case may be, a Fund's use of options and financial futures
contracts and options thereon will be subject to certain limitations mandated by
the rating agencies.
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of either
Fund, whether voluntary or involuntary, the holders of each Fund's Preferred
Shares will be entitled to receive, out of the assets of such Fund available for
distribution to shareholders, before any distribution or payment is made upon
any of the Fund's Common Shares or any other capital shares of the Fund ranking
junior in right of payment upon liquidation to the Preferred Shares, the
liquidation preference of such Preferred Shares, together with the amount of any
dividends accumulated but unpaid (whether or not earned or declared) thereon to
the date of distribution, and after such payment the holders of Preferred Shares
will be entitled to no other payments except for any Additional Dividends. The
liquidation preference per share of the Target Fund RATES is $500,000 and the
liquidation preference per share of the Acquiring Fund APS is $25,000. If the
assets of a Fund are insufficient to make the full liquidation payment on the
Preferred Shares of such Fund and liquidation payments on any other outstanding
class or series of preferred shares of such Fund ranking on a parity with the
Preferred Shares as to payment upon liquidation, then such assets will be
distributed among the holders of Preferred
45
Shares and the holders of shares of such other class or series ratably in
proportion to the respective preferential amounts to which they are entitled.
After payment of the full amount of liquidation distribution to which they are
entitled, the holders of a Fund's Preferred Shares will not be entitled to any
further participation in any distribution of assets by the Fund except for any
Additional Dividends. A consolidation, merger or share exchange of a Fund with
or into any other entity or entities 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 Fund shall not be deemed or construed to be a liquidation,
dissolution or winding up of the Fund for this purpose.
ADDITIONAL INFORMATION. For additional information, Target Fund shareholders
should consult the Reorganization Statement of Additional Information, which
contains a more complete summary of the terms of the Acquiring Fund APS, and the
Certificate of Vote governing the Acquiring Fund APS, included as Appendix B to
the Reorganization Statement of Additional Information.
GOVERNING LAW
Each Fund is organized as a business trust under the laws of The Commonwealth
of Massachusetts. The Target Fund was organized on July 6, 1987 and commenced
operations on August 19, 1988; the Acquiring Fund was organized on November 13,
1991 and commenced operations on January 24, 1992.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust of each Fund contains an express disclaimer of
shareholder liability for acts or obligations of the Fund and provides for
indemnification and reimbursement of expenses out of the Fund's property for any
shareholder held personally liable for the obligations of that Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be unable
to meet its obligations. Given the nature of each Fund's assets and operations,
the possibility of a Fund being unable to meet its obligations is remote and, in
the opinion of counsel to the Funds, the risk to the Funds' respective
shareholders is remote.
Each Fund is also subject to federal securities laws, including the 1940 Act
and the rules and regulations promulgated by SEC thereunder, and applicable
state securities laws. Each Fund is registered as a non-diversified, closed-end
management investment company under the 1940 Act.
CERTAIN PROVISIONS OF THE DECLARATIONS OF TRUST
Each Fund's Declaration of Trust includes provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Trustees, and could
have the effect of
46
depriving common shareholders of an opportunity to sell their Common Shares at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Fund. The Board of Trustees of each Fund is divided
into three classes, with the term of one class expiring at the annual meeting of
shareholders. At each annual meeting, each class whose term is expiring will be
elected to a three-year term. This provision could delay for up to two years the
replacement of a majority of the Board of Trustees. A Trustee may be removed
from office only for cause by a written instrument signed by at least two-thirds
of the remaining Trustees or by a vote of the holders of at least two-thirds of
the class of shares of the Fund that elected such Trustee and entitled to vote
on the matter.
In addition, each Fund's Declaration of Trust requires the favorable vote of
the holders of at least 75% of the outstanding shares of each class of the Fund,
voting as a class, then entitled to vote to approve, adopt or authorize certain
transactions with 5%-or-greater holders of a class of shares and their
associates, unless the Board of Trustees shall by resolution have approved a
memorandum of understanding with such holders, in which case normal voting
requirements would be in effect. For purposes of these provisions, a
5%-or-greater holder of a class of shares (a "Principal Shareholder") refers to
any person who, whether directly or indirectly and whether alone or together
with its affiliates and associates, beneficially owns 5% or more of the
outstanding shares of any class of beneficial interest of the Fund. The
transactions subject to these special approval requirements are: (i) the merger
or consolidation of the Fund or any subsidiary of the Fund with or into any
Principal Shareholder; (ii) the issuance of any securities of the Fund to any
Principal Shareholder for cash (except pursuant to the Dividend Reinvestment
Plan); (iii) the sale, lease or exchange of all or any substantial part of the
assets of the Fund to any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating for the purpose
of such computation all assets sold, leased or exchanged in any series of
similar transactions within a twelve-month period); or (iv) the sale, lease or
exchange to the Fund or any subsidiary thereof, in exchange for securities of
the Fund, of any assets of any Principal Shareholder (except assets having an
aggregate fair market value of less than $1,000,000, aggregating for purposes of
such computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period).
The Board of Trustees of each Fund has determined that the 75% voting
requirements described above, which are greater than the minimum requirements
under Massachusetts law or the 1940 Act, are in the best interest of
shareholders of each respective Fund generally. Reference should be made to the
Declaration of Trust of each Fund on file with the SEC for the full text of
these provisions.
The Declaration of Trust of each Fund further provides that no trustee,
officer, employee or agent of the Fund is liable to the Fund or to any
shareholder, nor is any trustee, officer, employee or agent liable to any third
persons in connection with the
47
affairs of the Fund, except as such liability may arise from his or her own bad
faith, willful misfeasance, gross negligence, or reckless disregard of their
duties. It also provides that all third persons shall look solely to the Fund
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, the Declaration of Trust provides that a
trustee or officer is entitled to be indemnified against all liability in
connection with the affairs of the Fund.
CONVERSION TO OPEN-END FUND
Each Fund may be converted to an open-end investment company at any time by an
amendment to its Declaration of Trust. Each Fund's Declaration of Trust provides
that such an amendment would require the approval of (a) a majority of the
Trustees, including the approval by a majority of the disinterested Trustees of
the Fund, and (b) the lesser of (i) more than 50% of the Fund's outstanding
common and preferred shares, each voting as a class or (ii) 67% of the common
and preferred shares, each voting as a class, present at a meeting at which
holders of more than 50% of the outstanding shares of each such class are
present in person or by proxy. If approved in the foregoing manner, conversion
of the Fund could not occur until 90 days after the shareholders' meeting at
which such conversion was approved and would also require at least 30 days prior
notice to all shareholders. Conversion of a Fund to an open-end investment
company would require the redemption of all outstanding preferred shares, which
would eliminate the leveraged capital structure of the Fund. In the event of
conversion, the Common Shares would cease to be listed on the NYSE, the AMEX,
the NASDAQ National Market System or other national securities exchange or
national market system. Shareholders of an open-end investment company may
require the company to redeem their shares at any time (except in certain
circumstances as authorized by or under the 1940 Act) at their net asset value,
less such redemption charge, if any, as might be in effect at the time of a
redemption. If a Fund were converted to an open-end fund, it is likely that new
Common Shares would be sold at net asset value plus a sales load. Following any
such conversion, it is also possible that certain of the Fund's investment
policies and strategies would have to be modified to assure sufficient portfolio
liquidity. In particular the Fund would be required to maintain its portfolio
such that not more than 15% of its assets would be invested in illiquid
securities. Such requirement could cause the Fund to dispose of portfolio
securities or other assets at a time when it is not advantageous to do so, and
could adversely affect the ability of the Fund to meet its investment objective.
VOTING RIGHTS
Voting rights are identical for the holders of each Fund's Common Shares.
Holders of each Fund's Common Shares are entitled to one vote for each share
held. Except as set forth above under "Certain Provisions of the Declarations of
Trust" or "Conversion to Open-End Fund," or except as expressly required by
applicable law or expressly set forth in the designation of rights and
preferences
48
with respect to a Fund's Preferred Shares, holders of Preferred Shares have no
voting rights. When holders of a Fund's Preferred Shares are entitled to vote,
they are also entitled to cast one vote per share held.
Holders of Preferred Shares of Fund, voting as a class, are entitled to elect
two of each Fund's trustees. Under the 1940 Act, if at any time dividends on a
Fund's Preferred Shares are unpaid in an amount equal to two full years
dividends thereon, the holders of all outstanding Preferred Shares, voting as a
class, are entitled to elect a majority of the Fund's Trustees until all
dividends have been paid or declared and set apart for payment.
Unless a higher percentage is provided for herein, the affirmative vote of the
holders of a majority of a Fund's outstanding Preferred Shares, voting as a
class, is required to approve any action requiring a vote of security holders
under Section 13(a) of the 1940 Act including, among other things, changes in
the Fund's investment objective or changes in the Fund's fundamental investment
restrictions.
The affirmative vote of a majority of the holders of Acquiring Fund APS,
voting as a class, is required to amend, alter or repeal any of the preferences,
rights or powers of holders of Acquiring Fund APS so as to materially and
adversely affect such preferences, rights or powers, or increase or decrease the
number of preferred shares authorized to be issued.
In addition to any vote or consent of shareholders required by law, without
the affirmative consent of the holders of at least 66 2/3% of the shares of
Target Fund RATES at the time outstanding, given in person or by proxy, either
by written consent without a meeting or by vote at any meeting called for that
purpose, the Target Fund shall not:
(1) institute any proceedings to be adjudicated bankrupt or insolvent, or
consent to the institution of bankruptcy or insolvency proceedings against
it, or file a petition seeking or consenting to reorganization or relief
under any applicable Federal or state law relating to bankruptcy, or
consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or a substantial
part of its property, or make any assignment for the benefit of creditors,
or, except as may be required by applicable law, admit in writing its
inability to pay its debts generally as they become due, or take any
corporate action in furtherance of any such action;
(2) create, authorize or issue shares of any class or series of beneficial
interest ranking senior to the RATES with respect to the payment of
dividends or the distribution of assets, or any securities convertible
into, or warrants, options or similar rights to purchase, acquire or
receive, such shares of beneficial interest ranking senior to the RATES or
reclassify any authorized shares of beneficial interest of the Company
into any share ranking senior to the RATES;
49
(3) create, authorize, issue, incur or suffer to exist any indebtedness for
borrowed money or any direct or indirect guarantee of such indebtedness in
excess of $10,000,000 outstanding at any one time provided, however, that
transfers of assets by the Company subject to an obligation to repurchase
shall not be deemed to be indebtedness for purposes of this provision to
the extent that after any such transaction the Company meets the Minimum
Asset Coverage and Required Liquid Asset Test as of the immediately
preceding Valuation Date with Eligible Assets not subject to any reverse
repurchase agreement; and provided further that (a) if the RATES is then
rated by Standard & Poor's, the Company may not incur any indebtedness
unless such indebtedness is rated "AAA" by Standard & Poor's or is would
not adversely affect the current rating by Standard & Poor's or unless the
holders of such indebtedness at the time such indebtedness is incurred
agree that they will not file a petition or any claim against the Company
pursuant to the Federal Bankruptcy Code and the Company obtains an opinion
of counsel to the effect that such agreement is enforceable, and (b) if
the RATES is then rated by Moody's, the Company may not incur any
indebtedness in an amount in excess of $10,000,000 without the approval of
Moody's;
(4) create, incur or suffer to exist, or agree to create, incur or suffer to
exist, or consent to cause or permit in the future (upon the happening of
a contingency or otherwise) the creation, incurrence or existence of any
material lien, mortgage, pledge, charge, security interest, security
agreement, conditional sale or trust receipt or other material encumbrance
of any kind upon any of the Eligible Assets, except (a) liens the validity
of which are being contested in good faith by appropriate proceedings, (b)
liens for taxes that are not then due and payable or that can be paid
thereafter without penalty, (c) liens, pledges, charges, security
interests, security agreements or other encumbrances arising in connection
with any indebtedness or reverse repurchase agreements permitted under
clause (3) above, (d) liens to secure payment for services rendered by the
Trust Company in connection with the RATES and (a) any hedging
transactions as contemplated by the Prospectus;
(5) amend, alter or repeal any of the rights of the holders of RATES so as to
affect materially and adversely the preferences, rights or powers of the
shares of RATES, or increase the number of shares of RATES authorized to
be issued;
(6) in addition to the voting rights set forth in Section 9.7 of the Amended
and Restated Declaration of Trust, consolidate or merge with or into any
other corporation (except to the extent that applicable law does not
permit such a vote to be required in the Amended and Restated Declaration
of Trust), or
50
sell, lease or convey all or substantially all of the assets of the
Company (other than with respect to sales, leases and conveyances of
assets in the normal course of selling and investing in Eligible Assets);
and
(7) voluntarily dissolve the Company.
51
FINANCIAL HIGHLIGHTS
TARGET FUND. The following schedule presents financial highlights for one
Target Fund Common Share outstanding throughout the periods indicated.
YEAR ENDED JUNE 30
2004 2003 2002(E) 2001 2000 1999 1998
---- ---- ------- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 10.73 $ 9.99 $ 9.62 $ 8.99 $ 9.56 $ 10.26 $ 10.01
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Investment Income............. .65 .66 .70 .75 .81 .84 .89
Net Realized and Unrealized
Gain/Loss....................... (.62) .70 .31 .66 (.55) (.70) .26
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income............. (.06) (.07) (.11) (.23) (.22) (.19) (.21)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations... (.03) 1.29 .90 1.18 .04 (.05) .94
Distributions Paid to Common
Shareholders:
Net Investment Income............. (.60) (.55) (.53) (.55) (.61) (.65) (.69)
Net Realized Gain................. (.05) -0- -0- -0- -0- -0- -0-
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 10.05 $ 10.73 $ 9.99 $ 9.62 $ 8.99 $ 9.56 $ 10.26
========== ========== ========== ========== ========== ========== ==========
Common Share Market Price at End of
the Period........................ $ 8.87 $ 9.66 $ 8.85 $ 8.89 $ 8.6875 $ 9.625 $ 10.875
Total Return(a).................... -1.63% 15.76% 5.64% 8.88% -3.08% -5.68% 6.85%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 288.2 $ 307.9 $ 286.4 $ 276.0 $ 258.0 $ 274.1 $ 292.3
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(b)......................... 1.23% 1.21% 1.25% 1.27% 1.32% 1.24% 1.23%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(b).................. 6.25% 6.35% 6.99% 7.94% 9.06% 8.23% 8.69%
Portfolio Turnover................. 22% 35% 41% 50% 54% 98% 103%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(b)......................... .79% .78% .79% .79% .81% .79% .79%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 5.72% 5.67% 5.92% 5.50% 6.59% 6.35% 6.64%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 330 330 330 330 330 330 330
Asset Coverage Per Preferred
Share(d).......................... $1,373,451 $1,433,101 $1,368,316 $1,336,403 $1,281,820 $1,330,642 $1,385,892
Involuntary Liquidating Preference
Per Preferred Share............... $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000
Average Market Value Per Preferred
Share............................. $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000
YEAR ENDED JUNE 30
1997 1996 1995
---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 9.76 $ 9.76 $ 9.92
---------- ---------- ----------
Net Investment Income............. .92 .94 .96
Net Realized and Unrealized
Gain/Loss....................... .26 .05 (.06)
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income............. (.21) (.22) (.22)
---------- ---------- ----------
Total from Investment Operations... .97 .77 .68
Distributions Paid to Common
Shareholders:
Net Investment Income............. (.72) (.77) (.84)
Net Realized Gain................. -0- -0- -0-
---------- ---------- ----------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 10.01 $ 9.76 $ 9.76
========== ========== ==========
Common Share Market Price at End of
the Period........................ $ 10.875 $ 9.875 $ 11.125
Total Return(a).................... 18.32% -4.27% 8.59%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 283.2 $ 273.7 $ 271.1
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(b)......................... 1.28% 1.31% 1.33%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(b).................. 9.25% 9.47% 9.85%
Portfolio Turnover................. 53% 29% 38%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(b)......................... .80% .82% .83%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 7.18% 7.26% 7.56%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 330 330 330
Asset Coverage Per Preferred
Share(d).......................... $1,358,326 $1,329,390 $1,321,483
Involuntary Liquidating Preference
Per Preferred Share............... $ 500,000 $ 500,000 $ 500,000
Average Market Value Per Preferred
Share............................. $ 500,000 $ 500,000 $ 500,000
(a) Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common share market price at the end of the
period indicated.
(b) Ratios do not reflect the effect of distributions to preferred shareholders.
(c) Ratios reflect the effect of distributions to preferred shareholders.
(d) Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
(e) As required, effective July 1, 2001, the Trust has adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
accreting market discount on fixed income securities. The effect of this
change for the year ended June 30, 2002 was to increase net investment
income per share by $.01, decrease realized and unrealized gains and losses
per share by $.01, and increase the ratio of net investment income to
average net assets applicable to common shares by .04%. Per shares,
supplemental data for the period prior to June 30, 2002 have not been
restated to reflect this change in presentation.
52
ACQUIRING FUND. The following schedule presents financial highlights for one
Acquiring Fund Common Share outstanding throughout the periods indicated.
YEAR ENDED OCTOBER 31,
2004 2003 2002(A) 2001 2000 1999 1998
---- ---- ------- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 17.15 $ 17.46 $ 17.51 $ 16.22 $ 15.63 $ 17.64 $ 17.29
------- ------- ------- ------- -------- -------- --------
Net Investment Income............. 1.09 1.10 1.18 1.25 1.32 1.33 1.35
Net Realized and Unrealized
Gain/Loss....................... .31 .09 .18 1.24 .64 (1.94) .42
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income........... (.10) (.08) (.10) (.32) (.40) (.32) (.34)
Net Realized Gain............... (.01) (.03) (.07) -0- -0- (.02) (.02)
------- ------- ------- ------- -------- -------- --------
Total from Investment Operations... 1.29 1.08 1.19 2.17 1.56 (.95) 1.41
Distributions Paid to Common
Shareholders:
Net Investment Income........... (1.00) (1.07) (1.03) (.88) (.97) (.99) (1.00)
Net Realized Gain............... (.10) (.32) (.21) -0- -0- (.07) (.06)
------- ------- ------- ------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 17.34 $ 17.15 $ 17.46 $ 17.51 $ 16.22 $ 15.63 $ 17.64
======= ======= ======= ======= ======== ======== ========
Common Share Market Price at End of
the Period........................ $ 15.34 $ 15.58 $ 15.80 $ 14.94 $13.5625 $13.6875 $ 17.00
Total Return(b).................... 5.76% 7.60% 14.56% 16.85% 6.41% -13.97% 12.40%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 468.3 $ 463.3 $ 471.6 $ 473.0 $ 438.1 $ 422.2 $ 476.6
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.27% 1.28% 1.41% 1.55% 1.68% 1.61% 1.58%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 6.43% 6.40% 6.89% 7.37% 8.44% 7.87% 7.73%
Portfolio Turnover................. 18% 23% 33% 29% 31% 33% 29%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... .80% .82% .89% .98% 1.03% 1.02% 1.01%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 5.82% 5.92% 6.30% 5.49% 5.86% 6.00% 5.80%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 10,600 10,600 10,600 10,600 10,600 10,600 5,300
Asset Coverage Per Preferred
Share(e).......................... $69,204 $68,721 $69,511 $69,623 $ 66,332 $ 64,827 $139,932
Involuntary Liquidating Preference
Per Preferred Share............... $25,000 $25,000 $25,000 $25,000 $ 25,000 $ 25,000 $ 50,000
Average Market Value Per Preferred
Share............................. $25,000 $25,000 $25,000 $25,000 $ 25,000 $ 25,000 $ 50,000
YEAR ENDED OCTOBER 31,
1997 1996 1995
---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 16.58 $ 16.58 $ 15.03
-------- -------- --------
Net Investment Income............. 1.37 1.38 1.42
Net Realized and Unrealized
Gain/Loss....................... .74 .11 1.65
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income........... (.35) (.35) (.38)
Net Realized Gain............... -0- -0- -0-
-------- -------- --------
Total from Investment Operations... 1.76 1.14 2.69
Distributions Paid to Common
Shareholders:
Net Investment Income........... (1.05) (1.14) (1.14)
Net Realized Gain............... -0- -0- -0-
-------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 17.29 $ 16.58 $ 16.58
======== ======== ========
Common Share Market Price at End of
the Period........................ $ 16.125 $ 15.813 $ 15.75
Total Return(b).................... 8.92% 7.84% 21.15%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 467.0 $ 447.8 $ 447.9
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.60% 1.62% 1.68%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 8.16% 8.37% 8.96%
Portfolio Turnover................. 40% 30% 15%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... 1.01% 1.02% 1.04%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 6.06% 6.24% 6.55%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 5,300 5,300 5,300
Asset Coverage Per Preferred
Share(e).......................... $138,116 $134,491 $134,501
Involuntary Liquidating Preference
Per Preferred Share............... $ 50,000 $ 50,000 $ 50,000
Average Market Value Per Preferred
Share............................. $ 50,000 $ 50,000 $ 50,000
(a) As required effective November 1, 2001, the Trust has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
accreting market discount on fixed income securities. The effect of this
change for the year ended October 31, 2002 was to increase net investment
income per share by $.01, decrease net realized and unrealized gains and
losses per share by $.01 and increase the ratio of net investment income to
average net assets applicable to common shares by .02%. Per share, ratios
and supplemental data for periods prior to October 31, 2002 have not been
restated to reflect this change in presentation.
(b) Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common share market price at the end of the
period indicated.
(c) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(d) Ratios reflect the effect of dividend payments to preferred shareholders.
(e) Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
53
INFORMATION ABOUT THE REORGANIZATION
GENERAL
Under the Reorganization Agreement (attached as Appendix A to the
Reorganization Statement of Additional Information), the Acquiring Fund will
acquire substantially all of the assets, and will assume substantially all of
the liabilities, of the Target Fund, in exchange for Acquiring Fund Common
Shares and Acquiring Fund APS to be issued by the Acquiring Fund. The Acquiring
Fund will issue and cause to be listed on the NYSE and the CHX additional
Acquiring Fund Common Shares. The Acquiring Fund Common Shares issued to the
Target Fund will have an aggregate net asset value equal to the aggregate net
asset value of the Target Fund Common Shares less the costs of the
Reorganization (except that cash will be paid in lieu of any fractional shares),
and the Acquiring Fund APS to be issued to the Target Fund will have an
aggregate liquidation preference equal to the aggregate liquidation preference
of the Target Fund RATES. Upon receipt by the Target Fund of such shares, the
Target Fund will (i) distribute the Acquiring Fund Common Shares to the holders
of Target Fund Common Shares and (ii) distribute the Acquiring Fund APS to the
holders of Target Fund RATES. As soon as practicable after the Closing Date for
the Reorganization, the Target Fund will deregister as an investment company
under the 1940 Act and dissolve under applicable state law.
The Target Fund will distribute the Acquiring Fund Common Shares and the
Acquiring Fund APS received by it pro rata to its holders of record of Target
Fund Common Shares and Target Fund RATES, as applicable, in exchange for such
shareholders' shares in the Target Fund. Such distribution would be accomplished
by opening new accounts on the books of the Acquiring Fund in the names of the
common and preferred shareholders of the Target Fund and transferring to those
shareholder accounts the Acquiring Fund Common Shares and the Acquiring Fund APS
previously credited on those books to the accounts of the Target Fund. Each
newly-opened account on the books of the Acquiring Fund for the previous holders
of the Target Fund would represent the respective pro rata number of Acquiring
Fund Common Shares (rounded down, in the case of fractional shares, to the next
largest number of whole shares) due such holder of Common Shares. No fractional
Acquiring Fund Common Shares will be issued. In lieu thereof, the Acquiring
Fund's transfer agent will aggregate all fractional Acquiring Fund Common Shares
and sell the resulting whole shares on the NYSE for the account of all holders
of fractional interests, and each such holder will be entitled to the pro rata
share of the proceeds from such sale upon surrender of the Target Fund Common
Share certificates. Similarly, each newly-opened account on the books of the
Acquiring Fund for the previous holders of Target Fund RATES would represent the
respective pro rata number of Acquiring Fund APS due such holder. See "Terms of
the Reorganization Agreement -- Surrender and Exchange of Share
54
Certificates" below for a description of the procedures to be followed by Target
Fund shareholders to obtain their Acquiring Fund Common Shares or Acquiring Fund
APS (and cash in lieu of fractional shares, if any).
As a result of the Reorganization, every holder of Target Fund Common Shares
would own Acquiring Fund Common Shares that (except for cash payments received
in lieu of fractional shares) would have an aggregate net asset value
immediately after the Closing Date equal to the aggregate net asset value of
that shareholder's Target Fund Common Shares immediately prior to the Closing
Date less the costs of the Reorganization. Since the Acquiring Fund Common
Shares would be issued at net asset value in exchange for the net assets of the
Target Fund having a value equal to the aggregate net asset value of those
Acquiring Fund Common Shares, the net asset value per share of Acquiring Fund
Common Shares should remain virtually unchanged by the Reorganization except for
its share of the reorganization costs. Similarly, the aggregate liquidation
preference of the Acquiring Fund APS to be issued to the Target Fund will equal
the aggregate liquidation preference of the Target Fund RATES. Every holder of
Target Fund RATES would receive Acquiring Fund APS that would have an aggregate
liquidation preference immediately after the Closing Date equal to the aggregate
liquidation preference of that shareholder's Target Fund RATES immediately prior
to the Closing Date. The liquidation preference per share of the Acquiring Fund
APS will remain unchanged by the Reorganization. Thus, the Reorganization will
result in no dilution of net asset value of the Target Fund Common Shares or
Acquiring Fund Common Shares, other than to reflect the costs of the
Reorganization, and will result in no dilution of the value per share of
Acquiring Fund APS or Target Fund RATES. However, as a result of the
Reorganization, a shareholder of either Fund will hold a reduced percentage of
ownership in the larger combined entity than he or she did in either Fund prior
to the Reorganization.
No sales charge or fee of any kind will be charged to shareholders of the
Target Fund in connection with their receipt of Acquiring Fund Common Shares or
Acquiring Fund APS in the Reorganization. Holders of Target Fund RATES will find
that the auction dates and dividend payment dates for the Acquiring Fund APS
received in the Reorganization are ordinarily (i.e., except in the case of a
special dividend period) on a 28 day schedule, similar to the schedule of
dividend payment dates for Target Fund RATES. Any change in the standard
dividend period should not materially affect the value of the Preferred Shares
held by holders of Target Fund RATES. The auction procedures for the Acquiring
Fund APS and the Target Fund RATES are substantially similar. As a result of the
Reorganization, the last dividend period for the Target Fund RATES prior to the
Closing Date may be shorter than the dividend period for such RATES determined
as set forth in its applicable Certificate of Vote.
55
TERMS OF THE REORGANIZATION AGREEMENT
The following is a summary of the significant terms of the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, attached as Appendix A to the Reorganization Statement
of Additional Information.
VALUATION OF ASSETS AND LIABILITIES. The respective assets of each of the
Funds will be valued on the business day prior to the Closing Date (the
"Valuation Date"). The valuation procedures are the same for each Fund: the net
asset value per Common Share of each Fund will be determined after the close of
business on the NYSE (generally, 4:00 p.m., Eastern time) on the Valuation Date.
For the purpose of determining the net asset value of a Common Share of each
Fund, the value of the securities held by the issuing Fund plus any cash or
other assets (including interest accrued but not yet received) minus all
liabilities (including accrued expenses) and the aggregate liquidation value of
the outstanding Preferred Shares of the issuing Fund is divided by the total
number of Common Shares of the issuing Fund outstanding at such time. Daily
expenses, including the fees payable to the Adviser, will accrue on the
Valuation Date.
AMENDMENTS AND CONDITIONS. The Reorganization Agreement may be amended at any
time prior to the Closing Date with respect to any of the terms therein. The
obligations of each Fund pursuant to the Reorganization Agreement are subject to
various conditions, including a registration statement on Form N-14 being
declared effective by the SEC, approval of the Reorganization by the
shareholders of the Target Fund, approval of the issuance of Acquiring Fund
Common Shares by Common Shareholders of the Acquiring Fund, receipt of an
opinion of counsel as to tax matters, receipt of an opinion of counsel as to
corporate and securities matters and the continuing accuracy of various
representations and warranties of the Funds being confirmed by the respective
parties.
POSTPONEMENT; TERMINATION. Under the Reorganization Agreement, the Board of
Trustees of either Fund may cause the Reorganization to be postponed or
abandoned in certain circumstances should such Board determine that it is in the
best interests of the shareholders of its respective Fund to do so.
The Reorganization Agreement may be terminated, and the Reorganization
abandoned at any time (whether before or after adoption thereof by the
shareholders of either of the Funds) prior to the Closing Date, or the Closing
Date may be postponed: (i) by mutual consent of the Boards of Trustees of the
Funds and (ii) by the Board of Trustees of either Fund if any condition to that
Fund's obligations set forth in the Reorganization Agreement has not been
fulfilled or waived by such Board.
SURRENDER AND EXCHANGE OF SHARE CERTIFICATES. After the Closing Date, each
holder of an outstanding certificate or certificates formerly representing
Target
56
Fund Common Shares will be entitled to receive, upon surrender of his or her
certificate or certificates, a certificate or certificates representing the
number of Acquiring Fund Common Shares distributable with respect to such
holder's Target Fund Common Shares, together with cash in lieu of any fractional
Acquiring Fund Common Shares. Promptly after the Closing Date, the transfer
agent for the Acquiring Fund Common Shares will mail to each holder of
certificates formerly representing Target Fund Common Shares a letter of
transmittal for use in surrendering his or her certificates for certificates
representing Acquiring Fund Common Shares and cash in lieu of any fractional
shares.
Please do not send in any share certificates at this time. Upon consummation
of the Reorganization, holders of Target Fund Common Shares will be furnished
with instructions for exchanging their share certificates for Acquiring Fund
share certificates and, if applicable, cash in lieu of fractional shares.
From and after the Closing Date, certificates formerly representing Target
Fund Common Shares will be deemed for all purposes to evidence ownership of the
number of full Acquiring Fund Common Shares distributable with respect to the
Target Fund Common Shares held before the Reorganization as described above and
as shown in the table above, provided that, until such share certificates have
been so surrendered, no dividends payable to the holders of record of Target
Fund Common Shares as of any date subsequent to the Closing Date will be
reinvested pursuant to the Acquiring Fund's Dividend Reinvestment Plan, but will
instead be paid in cash. Once such Target Fund share certificates have been
surrendered, participants in the Target Fund's Dividend Reinvestment Plan will
automatically be enrolled in the Dividend Reinvestment Plan of the Acquiring
Fund.
From and after the Closing Date, there will be no transfers on the share
transfer books of the Target Fund. If, after the Closing Date, certificates
representing Target Fund Common Shares are presented to the Acquiring Fund, they
will be cancelled and exchanged for certificates representing Acquiring Fund
Common Shares, as applicable, and cash in lieu of fractional shares, if any,
distributable with respect to such Target Fund Common Shares in the
Reorganization.
Preferred Shares are held in "street name" by the Depository Trust Company and
all transfers will be accomplished by book entry.
EXPENSES OF THE REORGANIZATION. In the event the Reorganization is completed,
the expenses of the Reorganization will be shared by the Target Fund and the
Acquiring Fund in proportion to their projected declines in total operating
expenses as a result of the Reorganization. The expenses of the Reorganization
will not be borne by the holders of Preferred Shares of either Fund. Management
of the Funds estimates total costs of the Reorganization to be approximately
$ . Of these expenses, approximately will be borne by the Target
Fund and approximately will be borne by the Acquiring Fund. In the event
the
57
Reorganization is not completed, the Adviser will bear the costs associated with
the Reorganization. The Board of Trustees of each Fund has reviewed and approved
the foregoing arrangements with respect to expenses and other charges relating
to the Reorganization.
Expenses incurred in connection with the Reorganization include, but are not
limited to: all costs related to the preparation and distribution of materials
distributed to each Fund's Board; all expenses incurred in connection with the
preparation of the Reorganization Agreement and a registration statement on Form
N-14; SEC and state securities commission filing fees and legal and audit fees
in connection with the Reorganization; the costs of printing and distributing
this Joint Proxy Statement/Prospectus; legal fees incurred preparing materials
for the Board of each Fund, attending each Fund's Board meetings and preparing
the minutes; auditing fees associated with each Fund's financial statements;
portfolio transfer taxes (if any); and any similar expenses incurred in
connection with the Reorganization. Neither the Funds nor the Adviser will pay
any expenses of shareholders arising out of or in connection with the
Reorganization.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
The following is a general summary of the material anticipated U.S. federal
income tax consequences of the Reorganization. The discussion is based upon the
Internal Revenue Code, Treasury regulations, court decisions, published
positions of the Internal Revenue Service ("IRS") and other applicable
authorities, all as in effect on the date hereof and all of which are subject to
change or differing interpretations (possibly with retroactive effect). The
discussion is limited to U.S. persons who hold shares of the Target Fund as
capital assets for U.S. federal income tax purposes (generally, assets held for
investment). This summary does not address all of the U.S. federal income tax
consequences that may be relevant to a particular shareholder or to shareholders
who may be subject to special treatment under U.S. federal income tax laws. No
ruling has been or will be obtained from the IRS regarding any matter relating
to the Reorganization. No assurance can be given that the IRS would not assert,
or that a court would not sustain, a position contrary to any of the tax aspects
described below. Prospective investors must consult their own tax advisers as to
the federal income tax consequences of the Reorganization, as well as the
effects of state, local and non-U.S. tax laws.
It is a condition to closing the Reorganization that each of the Target Fund
and the Acquiring Fund receives an opinion from Skadden, Arps, Slate, Meagher &
Flom LLP ("Skadden Arps"), dated as of the Closing Date, regarding the
characterization of the Reorganization as a "reorganization" within the meaning
of
58
Section 368(a) of the Internal Revenue Code. As such a reorganization, the
federal income tax consequences of the Reorganization can be summarized as
follows:
- No gain or loss will be recognized by the Target Fund or the Acquiring
Fund upon the transfer to the Acquiring Fund of substantially all of the
assets of the Target Fund in exchange solely for Acquiring Fund Common
Shares and Acquiring Fund APS and the assumption by the Acquiring Fund of
substantially all of the liabilities of the Target Fund and the subsequent
liquidation of the Target Fund.
- No gain or loss will be recognized by a shareholder of the Target Fund who
exchanges, as the case may be, all of his, her or its Target Fund Common
Shares solely for Acquiring Fund Common Shares pursuant to the
Reorganization or all of his, her or its Target Fund RATES solely for
Acquiring Fund APS pursuant to the Reorganization (except with respect to
cash received in lieu of a fractional share of the Acquiring Fund, as
discussed below).
- The aggregate tax basis of the Acquiring Fund Common Shares or Acquiring
Fund APS, as the case may be, received by a shareholder of the Target Fund
pursuant to the Reorganization will be the same as the aggregate tax basis
of the shares of the Target Fund surrendered in exchange therefor (reduced
by any amount of tax basis allocable to a fractional shall for which cash
is received).
- The holding period of the Acquiring Fund Common Shares or Acquiring Fund
APS, as the case may be, received by a shareholder of the Target Fund
pursuant to the Reorganization will include the holding period of the
shares of the Target Fund surrendered in exchange therefor.
- A shareholder of the Target Fund that receives cash in lieu of a
fractional share of the Acquiring Fund pursuant to the Reorganization will
recognize capital gain or loss with respect to the fractional share in an
amount equal to the difference between the amount of cash received for the
fractional share and the portion of such shareholder's tax basis in its
Target Fund shares that is allocable to the fractional share. The capital
gain or loss will be long-term if the holding period for such Target Fund
Common Shares or Target Fund RATES, as the case may be, is more than one
year as of the date of the exchange.
- The Acquiring Fund's tax basis in the Target Fund's assets received by the
Acquiring Fund pursuant to the Reorganization will equal the tax basis of
such assets in the hands of the Target Fund immediately prior to the
Reorganization, and the Acquiring Fund's holding period of such assets
will include the period during which the assets were held by the Target
Fund.
59
The opinion of Skadden Arps will be based on federal income tax law in effect
on the Closing Date. In rendering its opinion, Skadden Arps will also rely upon
certain representations of the management of the Acquiring Fund and the Target
Fund and assume, among other things, that the Reorganization will be consummated
in accordance with the Reorganization Agreement and as described herein. An
opinion of counsel is not binding on the IRS or any court.
The Acquiring Fund intends to continue to be taxed under the rules applicable
to regulated investment companies as defined in Section 851 of the Internal
Revenue Code, which are the same rules currently applicable to the Target Fund
and its shareholders
Pursuant to the grandfather relief granted in Revenue Ruling 89-81, 1989-1
C.B. 226, Target Fund is permitted to designate that dividends paid on the
Target Fund RATES consist of more than the Target Fund RATES's pro rata share of
tax-exempt income earned by the Target Fund. The Acquiring Fund, however, is not
eligible to make such disproportionate designations. Accordingly, designations
made by the Acquiring Fund with respect to dividends paid on the Acquiring Fund
APS will be treated as consisting of a pro rata portion of each type of income
so designated.
For five years after the Closing Date, the combined fund will not be allowed
to offset certain pre-Reorganization built-in gains attributable to one Fund
with capital loss carryforwards (and certain built-in losses) attributable to
the other Fund.
SHAREHOLDER APPROVAL
Under the Declaration of Trust of the Target Fund (as amended to date and
including the Certificate of Vote of Trustees Establishing Preferred Shares of
the Target Fund), relevant Massachusetts law and the rules of the NYSE,
shareholder approval of the Reorganization Agreement requires the affirmative
vote of shareholders of the Target Fund representing more than 50% of the
outstanding Target Fund Common Shares and 66 2/3% of the outstanding Target Fund
RATES, each voting separately as a class.
LEGAL MATTERS
Certain legal matters concerning the federal income tax consequences of the
Reorganization and the issuance of Acquiring Fund Common Shares and Acquiring
Fund APS will be passed upon by Skadden Arps, which serves as counsel to the
Target Fund and the Acquiring Fund. Wayne W. Whalen, a partner of Skadden Arps,
is a trustee of both the Target Fund and the Acquiring Fund.
60
PROPOSAL 2: ELECTION OF TARGET FUND TRUSTEES
NYSE rules call for listed companies to have their annual meeting to elect
trustees within a reasonable interval after the close of a company's fiscal
year. Since the Target Fund's current fiscal year ends on June 30, 2005, the
Target Fund Board is asking shareholders of that Fund to elect trustees at this
time. The Special Meeting will serve as the annual meeting of shareholders of
the Target Fund. The Target Fund Board believes that combining the proposals
related to the proposed Reorganization with the proposal to elect trustees of
the Target Fund into one Joint Proxy Statement/Prospectus is cost effective. The
fiscal year end of the Acquiring Fund occurs later in the year, and thus the
Acquiring Fund Board will ask shareholders of the Acquiring Fund to elect
trustees at a separate meeting to take place later in the year.
This Joint Proxy Statement/Prospectus asks shareholders of the Target Fund to
elect four Class I trustees at the Special Meeting, to serve until the later of
such Fund's Annual Meeting of Shareholders in 2008 or until successors have been
duly elected and qualified. Holders of Common Shares, voting as a separate
class, will vote with respect to four Class I Trustees (David C. Arch, Jerry D.
Choate, Howard J Kerr and Suzanne H. Woolsey) designated to be elected by such
class of shares.
As in the past, only one class of trustees is being submitted to shareholders
of the Target Fund for election at the Special Meeting. The Declaration of Trust
of the Target Fund provides that the Target Fund Board shall consist of trustees
divided into three classes, the classes to be as nearly equal in number as
possible. The trustees of only one class are elected at each annual meeting so
that the regular term of only one class of trustees will expire annually and any
particular trustee stands for election only once in each three-year period. This
type of classification may prevent replacement of a majority of trustees of the
Target Fund for up to a two-year period. The foregoing is subject to the
provisions of the 1940 Act, applicable state law and the Target Fund's
Declaration of Trust and Bylaws.
SHAREHOLDER APPROVAL
An affirmative vote of a plurality of the Common Shares present at the Special
Meeting in person or by proxy is required to elect the respective nominees. It
is the intention of the persons named in the enclosed proxy to vote the shares
represented by them for the election of the respective nominees listed unless
the proxy is marked otherwise.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR ALL" OF THE NOMINEES.
61
INFORMATION REGARDING TRUSTEES AND NOMINEES FOR
ELECTION AS TRUSTEE
The tables below list the incumbent trustees and nominees for trustee, their
principal occupations during the last five years, other directorships held by
them and their affiliations, if any, with the Adviser, Van Kampen Funds Inc.,
Van Kampen Advisors Inc., Van Kampen Exchange Corp. and Van Kampen Investor
Services, Inc. The term "Fund Complex" includes each of the investment companies
advised by the Adviser as of the date of this Joint Proxy Statement/ Prospectus.
Trustees of the Funds generally serve three year terms or until their successors
are duly elected and qualified. All nominees have consented to being named in
this Joint Proxy Statement/Prospectus and have agreed to serve if elected.
62
INDEPENDENT TRUSTEES
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE
David C. Arch (59) Trustee Trustee Chairman and Chief Executive 83
Blistex Inc. since 2003 Officer of Blistex Inc., a
1800 Swift Drive consumer health care products
Oak Brook, IL 60523 manufacturer. Director of the
Heartland Alliance, a nonprofit
organization serving human needs
based in Chicago. Director of St.
Vincent de Paul Center, a Chicago
based day care facility serving
the children of low income
families. Board member of the
Illinois Manufacturers'
Association.
Jerry D. Choate (66) Trustee Trustee Prior to January 1999, Chairman 81
33971 Selva Road since 1999 and Chief Executive Officer of the
Suite 130 Allstate Corporation ("Allstate")
Dana Point, CA 92629 and Allstate Insurance Company.
Prior to January 1995, President
and Chief Executive Officer of
Allstate. Prior to August 1994,
various management positions at
Allstate.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
David C. Arch (59) Trustee/Director/Managing
Blistex Inc. General Partner of funds in the
1800 Swift Drive Fund Complex.
Oak Brook, IL 60523
Jerry D. Choate (66) Trustee/Director/Managing
33971 Selva Road General Partner of funds in the
Suite 130 Fund Complex. Director of Amgen
Dana Point, CA 92629 Inc., a biotechnological
company, and Director of Valero
Energy Corporation, an
independent refining company.
63
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE
Rod Dammeyer+ (64) Trustee Trustee President of CAC, L.L.C., a 83
CAC, L.L.C. since 2003 private company offering capital
4350 LaJolla Village Drive investment and management advisory
Suite 980 services. Prior to February 2001,
San Diego, CA 92122-6223 Vice Chairman and Director of
Anixter International, Inc., a
global distributor of wire, cable
and communications connectivity
products. Prior to July 2000,
Managing Partner of Equity Group
Corporate Investment (EGI), a
company that makes private
investments in other companies.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
Rod Dammeyer+ (64) Trustee/Director/Managing
CAC, L.L.C. General Partner of funds in the
4350 LaJolla Village Drive Fund Complex. Director of
Suite 980 Stericycle, Inc., Ventana
San Diego, CA 92122-6223 Medical Systems, Inc., and GATX
Corporation, and Trustee of The
Scripps Research Institute and
the University of Chicago
Hospitals and Health Systems.
Prior to April 2004, Director
of TheraSense, Inc. Prior to
January 2004, Director of
TeleTech Holdings Inc. and
Arris Group, Inc. Prior to May
2002, Director of Peregrine
Systems Inc. Prior to February
2001, Director of IMC Global
Inc. Prior to July 2000,
Director of Allied Riser
Communications Corp., Matria
Healthcare Inc., Transmedia
Networks, Inc., CNA Surety,
Corp. and Grupo Azcarero Mexico
(GAM).
64
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE
Linda Hutton Heagy (56) Trustee Trustee Managing Partner of Heidrick & 81
Heidrick & Struggles since 1995 Struggles, an executive search
233 South Wacker Drive firm. Trustee on the University of
Suite 7000 Chicago Hospitals Board, Vice
Chicago, IL 60606 Chair of the Board of the YMCA of
Metropolitan Chicago and a member
of the Women's Board of the
University of Chicago. Prior to
1997, Partner of Ray & Berndtson,
Inc., an executive recruiting
firm. Prior to 1996, Trustee of
The International House Board, a
fellowship and housing
organization for international
graduate students. Prior to 1995,
Executive Vice President of ABN
AMRO, N.A., a bank holding
company. Prior to 1992, Executive
Vice President of La Salle
National Bank.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (56) Trustee/Director/Managing
Heidrick & Struggles General Partner of funds in the
233 South Wacker Drive Fund Complex.
Suite 7000
Chicago, IL 60606
65
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE
R. Craig Kennedy (52) Trustee Trustee Director and President of the 81
1744 R Street, NW since 1995 German Marshall Fund of the United
Washington, DC 20009 States, an independent U.S.
foundation created to deepen
understanding, promote
collaboration and stimulate
exchanges of practical experience
between Americans and Europeans.
Formerly, advisor to the Dennis
Trading Group Inc., a managed
futures and option company that
invests money for individuals and
institutions. Prior to 1992,
President and Chief Executive
Officer, Director and member of
the Investment Committee of the
Joyce Foundation, a private
foundation.
Howard J Kerr (69) Trustee Trustee Prior to 1998, President and Chief 83
736 North Western Avenue since 2003 Executive Officer of Pocklington
P.O. Box 317 Corporation, Inc., an investment
Lake Forest, IL 60045 holding company. Director of the
Marrow Foundation.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
R. Craig Kennedy (52) Trustee/Director/Managing
1744 R Street, NW General Partner of funds in the
Washington, DC 20009 Fund Complex.
Howard J Kerr (69) Trustee/Director/Managing
736 North Western Avenue General Partner of funds in the
P.O. Box 317 Fund Complex. Director of the
Lake Forest, IL 60045 Lake Forest Bank & Trust.
66
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE
Jack E. Nelson (68) Trustee Trustee President of Nelson Investment 81
423 Country Club Drive since 1995 Planning Services, Inc., a
Winter Park, FL 32789 financial planning company and
registered investment adviser in
the State of Florida. President of
Nelson Ivest Brokerage Services
Inc., a member of the NASD,
Securities Investors Protection
Corp. and the Municipal Securities
Rulemaking Board. President of
Nelson Sales and Services
Corporation, a marketing and
services company to support
affiliated companies.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (68) Trustee/Director/Managing
423 Country Club Drive General Partner of funds in the
Winter Park, FL 32789 Fund Complex.
67
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE
Hugo F. Sonnenschein+ (64) Trustee Trustee President Emeritus and Honorary 83
1126 E. 59th Street since 2003 Trustee of the University of
Chicago, IL 60637 Chicago and the Adam Smith
Distinguished Service Professor in
the Department of Economics at the
University of Chicago. Prior to
July 2000, President of the
University of Chicago. Trustee of
the University of Rochester and a
member of its investment
committee. Member of the National
Academy of Sciences, the American
Philosophical Society and a fellow
of the American Academy of Arts
and Sciences.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
Hugo F. Sonnenschein+ (64) Trustee/Director/Managing
1126 E. 59th Street General Partner of funds in the
Chicago, IL 60637 Fund Complex. Director of
Winston Laboratories, Inc.
68
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE
Suzanne H. Woolsey, Ph.D. (63) Trustee Trustee Chief Communications Officer of 81
815 Cumberstone Road since 1999 the National Academy of Sciences/
Harwood, MD 20776 National Research Council, an
independent, federally chartered
policy institution, from 2001 to
November 2003 and Chief Operating
Officer from 1993 to 2001.
Director of the Institute for
Defense Analyses, a federally
funded research and development
center, Director of the German
Marshall Fund of the United
States, Director of the Rocky
Mountain Institute and Trustee of
Colorado College. Prior to 1993,
Executive Director of the
Commission on Behavioral and
Social Sciences and Education at
the National Academy of
Sciences/National Research
Council. From 1980 through 1989,
Partner of Coopers & Lybrand.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
Suzanne H. Woolsey, Ph.D. (63) Trustee/Director/Managing
815 Cumberstone Road General Partner of funds in the
Harwood, MD 20776 Fund Complex. Director of Fluor
Corp., an engineering,
procurement and construction
organization, since January
2004 and Director of Neurogen
Corporation, a pharmaceutical
company, since January 1998.
69
INTERESTED TRUSTEES*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE
Mitchell M. Merin* (51) Trustee, Trustee President and Chief Executive Officer of funds in the Fund 81
1221 Avenue of the Americas President since Complex. Chairman, President, Chief Executive Officer and
New York, NY 10020 and Chief 1999; Director of the Adviser and Van Kampen Advisors Inc. since
Executive President December 2002. Chairman, President and Chief Executive
Officer and Chief Officer of Van Kampen Investments since December 2002.
Executive Director of Van Kampen Investments since December 1999.
Officer Chairman and Director of Van Kampen Funds Inc. since
since 2002 December 2002. President, Director and Chief Operating
Officer of Morgan Stanley Investment Management since
December 1998. President and Director since April 1997 and
Chief Executive Officer since June 1998 of Morgan Stanley
Investment Advisors Inc. and Morgan Stanley Services Company
Inc. Chairman, Chief Executive Officer and Director of
Morgan Stanley Distributors Inc. since June 1998. Chairman
since June 1998, and Director since January 1998 of Morgan
Stanley Trust. Director of various Morgan Stanley
subsidiaries. President of the Morgan Stanley Funds since
May 1999. Previously Chief Executive Officer of Van Kampen
Funds Inc. from December 2002 to July 2003, Chief Strategic
Officer of Morgan Stanley Investment Advisors Inc. and
Morgan Stanley Services Company Inc. and Executive Vice
President of Morgan Stanley Distributors Inc. from April
1997 to June 1998. Chief Executive Officer from September
2002 to April 2003 and Vice President from May 1997 to April
1999 of the Morgan Stanley Funds.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (51) Trustee/Director/
1221 Avenue of the Americas Managing General
New York, NY 10020 Partner of funds in
the Fund Complex.
70
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE
Richard F. Powers, III* (58) Trustee Trustee Advisory Director of Morgan Stanley. Prior to December 2002, 83
1221 Avenue of the Americas since 1999 Chairman, Director, President, Chief Executive Officer and
New York, NY 10020 Managing Director of Van Kampen Investments and its
investment advisory, distribution and other subsidiaries.
Prior to December 2002, President and Chief Executive
Officer of funds in the Fund Complex. Prior to May 1998,
Executive Vice President and Director of Marketing at Morgan
Stanley and Director of Dean Witter, Discover & Co. and Dean
Witter Realty. Prior to 1996, Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (65) Trustee Trustee Partner in the law firm of Skadden, Arps, Slate, Meagher & 83
333 West Wacker Drive since 1995 Flom LLP, legal counsel to funds in the Fund Complex.
Chicago, IL 60606
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (58) Trustee/Director/
1221 Avenue of the Americas Managing General
New York, NY 10020 Partner of funds in
the Fund Complex.
Wayne W. Whalen* (65) Trustee/Director/
333 West Wacker Drive Managing General
Chicago, IL 60606 Partner of funds in
the Fund Complex.
Director of the
Abraham Lincoln
Presidential
Foundation.
------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Messrs. Merin and Powers are interested persons of funds in
the Fund Complex and the Adviser by reason of their current or former
positions with Morgan Stanley or its affiliates. Mr. Whalen is an interested
person of certain funds in the Fund Complex by reason of he and his firm
currently providing legal services as legal counsel to such funds in the Fund
Complex.
+ Designated as Preferred Shares Trustee.
71
REMUNERATION OF TRUSTEES
The compensation of trustees and executive officers that are affiliated
persons (as defined in 1940 Act) of the Adviser or Van Kampen Investments, Inc.
is paid by the respective entity. The funds in the Fund Complex, including the
Target Fund, pay the non-affiliated trustees an annual retainer and meeting
fees.
Each fund in the Fund Complex (except the Van Kampen Exchange Fund) provides a
deferred compensation plan to its non-affiliated trustees that allows such
trustees to defer receipt of compensation and earn a return on such deferred
amounts based upon the return of the common shares of the funds in the Fund
Complex as selected by the respective non-affiliated trustees. Each fund in the
Fund Complex (except the Van Kampen Exchange Fund) also provides a retirement
plan to its non-affiliated trustees that provides non-affiliated trustees with
compensation after retirement, provided that certain eligibility requirements
are met as more fully described below.
Each non-affiliated trustee generally can elect to defer receipt of all or a
portion of the compensation earned by such non-affiliated trustee until
retirement. Amounts deferred are retained by the respective fund and earn a rate
of return determined by reference to the return on the common shares of such
fund or other funds in the Fund Complex as selected by the respective
non-affiliated trustee, with the same economic effect as if such non-affiliated
trustee had invested in one or more funds in the Fund Complex, including the
Funds. To the extent permitted by the 1940 Act, each Fund may invest in
securities of those funds selected by the non-affiliated trustees in order to
match the deferred compensation obligation. The deferred compensation plan is
not funded and obligations thereunder represent general unsecured claims against
the general assets of the respective fund.
The Target Fund has adopted a retirement plan. Under the retirement plan, a
non-affiliated trustee who is receiving trustee's compensation from a fund prior
to such non-affiliated trustee's retirement, has at least 10 years of service
(including years of service prior to adoption of the retirement plan) for such
fund and retires at or after attaining the age of 60, is eligible to receive a
retirement benefit each year for ten years following such trustee's retirement
from such Fund. Non-affiliated trustees retiring prior to the age of 60 or with
fewer than 10 years but more than 5 years of service may receive reduced
retirement benefits from a fund.
Additional information regarding compensation and benefits for trustees is set
forth below. As indicated in the notes accompanying the table, the amounts
relate to either the Target Fund's most recently completed fiscal year end in
2004 or the Fund Complex's most recently completed calendar year ended December
31, 2004.
72
COMPENSATION TABLE
FUND COMPLEX
-----------------------------------------------------
AGGREGATE
AGGREGATE PENSION ESTIMATED TOTAL
AGGREGATE OR RETIREMENT MAXIMUM COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL BENEFITS BEFORE DEFERRAL
FROM TARGET PART OF AS ACCRUED AS PART FROM FUND
NAME FUND EXPENSES(3) OF EXPENSES(4) COMPLEX(5)
---- ------------ ----------------- --------------- ---------------
INDEPENDENT TRUSTEES
David C. Arch........... $35,277 $147,500 $192,530
Jerry D. Choate......... 82,527 126,000 200,002
Rod Dammeyer............ 63,782 147,500 208,000
Linda Hutton Heagy...... 24,465 142,500 184,784
R. Craig Kennedy........ 16,911 142,500 200,002
Howard J Kerr........... 140,743 147,500 208,000
Jack E. Nelson.......... 97,294 109,500 200,002
Hugo F. Sonnenschein.... 64,476 147,500 208,000
Suzanne H. Woolsey...... 58,450 142,500 200,002
INTERESTED TRUSTEE
Wayne W. Whalen(1)...... 72,001 147,500 208,000
---------------
(1)Trustees not eligible for compensation and retirement benefits are not
included in the Compensation Table. Mr. Whalen is an "interested person"
(within the meaning of Section 2(a)(19) of the 1940 Act) of the Target Fund
and certain other funds in the Fund Complex. J. Miles Branagan retired as a
member of the Board of Trustees of the Fund and other funds in the Fund
Complex as of December 31, 2004. Theodore A. Myers retired from the Board of
Trustees of the Fund and other funds in the Fund Complex as of December 31,
2003.
(2)The amounts shown in this column represent the aggregate compensation
before deferral by the Trustees with respect to the Target Fund's fiscal year
ended June 30, 2004. The following Trustees deferred compensation from the
Target Fund during the fiscal year ended June 30, 2004: Mr. Choate,
$ ; Mr. Dammeyer, $ ; Ms. Heagy, $ ; Mr. Nelson,
$ ; Mr. Sonnenschein, $ ; and Mr. Whalen, $ . The
cumulative deferred compensation (including interest) accrued with respect to
each trustee, including former trustees, from the Target Fund as of June 30,
2004 is as follows: Mr. Branagan, $ ; Mr. Choate, $ ; Mr.
Dammeyer, $ ; Ms. Heagy, $ ; Mr. Kennedy, $ ; Mr.
Miller, $ ; Mr. Nelson, $ ; Mr. Rees, $ ; Mr.
Robinson, $ ; Mr. Rooney, $ ; Mr. Sisto, $ ; Mr.
Sonnenschein, $ ; and Mr. Whalen, $ . The deferred
compensation plan is described above the table. Amounts deferred are retained
by the respective Fund and earn a rate of return determined by reference to
either the return on the Common Shares of the Fund or the common shares of
other funds in the Fund Complex as selected by the respective Trustee. To the
extent permitted by the 1940 Act, the Fund may invest in securities of these
73
funds selected by the Trustees in order to match the deferred compensation
obligation.
(3)The amounts shown in this column represent the sum of the estimated pension
or retirement benefit accruals expected to be accrued by the operating funds
in the Fund Complex for their respective fiscal years ended in 2004.
(4)For each Trustee, the amounts shown in this column represent the sum of the
estimated annual benefits upon retirement payable per year by the current
operating funds in the Fund Complex for each year of the 10-year period
commencing in the year of such person's anticipated retirement. The
retirement plan is described above the compensation table.
(5)The amounts shown in this column are accumulated from the aggregate
compensation of the operating investment companies in the Fund Complex for
the calendar year ended December 31, 2004 before deferral by the Trustees
under the deferred compensation plan. Because the funds in the Fund Complex
have different fiscal year ends, the amounts shown in this column are
presented on a calendar year basis.
BOARD COMMITTEES AND MEETINGS
The Board of Trustees has three standing committees (an audit committee, a
brokerage and services committee and a governance committee). Each committee is
comprised solely of "Independent Trustees", which is defined for purposes herein
as trustees who: (1) are not "interested persons" of the Fund as defined by the
1940 Act and (2) are "independent" of the Fund as defined by the NYSE, American
Stock Exchange and CSX listing standards.
The Board's audit committee consists of Jerry D. Choate, Rod Dammeyer and R.
Craig Kennedy. In addition to being Independent Trustees as defined above, each
of these trustees also meets the additional independence requirements for audit
committee members as defined by the NYSE, American Stock Exchange and CSX
listing standards. The audit committee makes recommendations to the Board of
Trustees concerning the selection of the Fund's independent registered public
accounting firm, reviews with such independent registered public accounting firm
the scope and results of the Fund's annual audit and considers any comments
which the independent registered public accounting firm may have regarding the
Fund's financial statements, books of account or internal controls. The Board of
Trustees has adopted a formal written charter for the audit committee which sets
forth the audit committee's responsibilities. The audit committee has reviewed
and discussed the financial statements of each Fund with management as well as
with the independent registered public accounting firm of the Fund, and
discussed with the independent registered public accounting firm the matters
required to be discussed under the Statement of Auditing Standards No. 61. The
audit committee has received the written disclosures and the letter from the
independent registered public accounting firm required under Independence
Standards Board Standard
74
No. 1 and has discussed with the independent registered public accounting firm
its independence. Based on this review, the audit committee recommended to the
Board of Trustees of the Fund that the Fund's audited financial statements be
included in each Fund's annual report to shareholders for the most recent fiscal
year for filing with the SEC.
In accordance with proxy rules promulgated by the SEC, a fund's audit
committee charter is required to be filed at least once every three years as an
exhibit to a fund's proxy statement. The audit committee charter of the Target
Fund was attached as an exhibit to the Van Kampen Joint Closed-End Fund Proxy
Statement, filed with the SEC on May 19, 2004.
The Board's brokerage and services committee consists of Linda Hutton Heagy,
Hugo F. Sonnenschein and Suzanne H. Woolsey. The brokerage and services
committee reviews the Fund's allocation of brokerage transactions and
soft-dollar practices and reviews the transfer agency and shareholder servicing
arrangements with Investor Services.
The Board's governance committee consists of David C. Arch, Howard J Kerr and
Jack E. Nelson. In addition to being Independent Trustees as defined above, each
of these trustees also meets the additional independence requirements for
nominating committee members as defined by the NYSE, American Stock Exchange and
CSX listing standards. The governance committee identifies individuals qualified
to serve as Independent Trustees on the Board and on committees of the Board,
advises the Board with respect to Board composition, procedures and committees,
develops and recommends to the Board a set of corporate governance principles
applicable to the Fund, monitors corporate governance matters and makes
recommendations to the Board, and acts as the administrative committee with
respect to Board policies and procedures, committee policies and procedures and
codes of ethics. The Independent Trustees of the Fund select and nominate any
other nominee Independent Trustees for the Fund. While the Independent Trustees
of the Fund expect to be able to continue to identify from their own resources
an ample number of qualified candidates form the Board of Trustees as they deem
appropriate, they will consider nominations from shareholders to the Board.
Nominations from shareholders should be in writing and sent to the Independent
Trustees as described below.
In accordance with proxy rules promulgated by the SEC, a fund's nominating
committee charter is required to be filed at least once every three years as an
exhibit to a fund's proxy statement. The governance committee charter of the
Target Fund was attached as an exhibit to the Van Kampen Joint Closed-End Fund
Proxy Statement, filed with the SEC on May 19, 2004.
During the Target Fund's last fiscal year, the Board of Trustees held
meetings. During such Fund's last fiscal year, the audit committee of the Board
held
75
meetings, the brokerage and services committee of the Board held 4 meetings and
the governance committee of the Board and held [ ] meetings. During the last
fiscal year, each of the trustees of the Target Fund during such period such
trustee served as a trustee attended at least 75% of the meetings of the Board
of Trustees and all committee meetings thereof of which such trustee was a
member.
OTHER INFORMATION
EXECUTIVE OFFICERS OF THE FUNDS
The following information relates to the executive officers of the Target Fund
who are not trustee nominees. Each officer also serves in the same capacity for
all or a number of the other investment companies advised by the Adviser or
affiliates of the Adviser. The officers the Target Fund are appointed annually
by the trustees and serve for one year or until their respective successors are
chosen and qualified. The Funds' officers receive no compensation from the funds
in the Fund Complex but may also be officers of the Adviser or officers of
affiliates of the Adviser and receive compensation in such capacities.
76
OFFICERS
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
------------------ ----------- ---------- -----------------------
Stefanie V. Chang Yu (38) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Secretary since 2003 Vice President and Secretary of funds in the Fund Complex.
New York, NY 10020
Amy R. Doberman (42) Vice President Officer Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc.
and the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex as of August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc from January 1997 to July 2000.
James W. Garrett (36) Chief Financial Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas Officer and since 2005 Chief Financial Officer and Treasurer of Morgan Stanley
New York, NY 10020 Treasurer Institutional Funds since 2002 and of funds in the Fund
Complex since 2005.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Chief Investment Management Inc. and Morgan Stanley Investments LP and
Officer Director of Morgan Stanley Trust for over 5 years. Executive
Vice President and Chief Investment Officer of funds in the
Fund Complex. Managing Director and Chief Investment Officer
of Van Kampen Investments, the Adviser and Van Kampen
Advisors Inc. since December 2002.
77
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
------------------ ----------- ---------- -----------------------
Ronald E. Robison (66) Executive Vice Officer Executive Vice President and Principal Executive Officer of
1221 Avenue of the Americas President and since 2003 Funds in the Fund Complex since May 2003. Chief Executive
New York, NY 10020 Principal Officer and Chairman of Investor Services. Managing Director
Executive of Morgan Stanley. Chief Administrative Officer, Managing
Officer Director and Director of Morgan Stanley Investment Advisors
Inc., Morgan Stanley Services Company Inc. and Managing
Director and Director of Morgan Stanley Distributors Inc.
Chief Executive Officer and Director of Morgan Stanley
Trust. Executive Vice President and Principal Executive
Officer of the Institutional and Retail Morgan Stanley
Funds; Director of Morgan Stanley SICAV; previously Chief
Global Operations Officer and Managing Director of Morgan
Stanley Investment Management Inc.
John L. Sullivan (49) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1996 August 2004. Prior August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management. Prior
to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
78
TRUSTEE BENEFICIAL OWNERSHIP OF SECURITIES
Excluding deferred compensation balances as described in the Compensation
Table above, as of April , 2005, each trustee beneficially owned equity
securities of the Target Fund and other funds in the Fund Complex overseen by
the trustees in the dollar range amounts as specified below.
TRUSTEE BENEFICIAL OWNERSHIP OF SECURITIES
INDEPENDENT TRUSTEES
TRUSTEE
-----------------------------------------------------------------------------------
ARCH CHOATE DAMMEYER HEAGY KENNEDY KERR NELSON SONNENSCHEIN WOOLSEY
---- ------ -------- ----- ------- ---- ------ ------------ -------
Dollar range of
equity securities
owned in the Target
Fund................
Aggregate dollar
range of equity
securities owned in
all registered
investment companies
overseen by trustee
in Fund Complex.....
INTERESTED TRUSTEES
TRUSTEE
--------------------------------
MERIN POWERS WHALEN
----- ------ ------
Dollar range of equity securities in the Target
Fund.........................................
Aggregate dollar range of equity securities in
all registered investment companies overseen
by trustee in Fund Complex...................
79
Including deferred compensation balances as described in the Compensation
Table, as of April , 2005, each Trustee owned the dollar ranges of amounts of
the Target Fund and other funds in the Fund Complex as specified below.
TRUSTEE BENEFICIAL OWNERSHIP AND DEFERRED COMPENSATION
INDEPENDENT TRUSTEES
TRUSTEE
-------------------------------------------------------------------------------------
ARCH CHOATE DAMMEYER HEAGY KENNEDY KERR NELSON SONNENSCHEIN WOOLSEY
---- ------ -------- ----- ------- ---- ------ ------------ -------
Dollar range of
equity securities
and deferred
compensation in the
Target Fund.........
Aggregate dollar
range of equity
securities and
deferred
compensation in all
registered
investment companies
overseen by trustee
in Fund Complex.....
INTERESTED TRUSTEES
TRUSTEE
--------------------------------
MERIN POWERS WHALEN
----- ------ ------
Dollar range of equity securities owned in the
Target Fund..................................
Aggregate dollar range of equity securities
owned in all registered investment companies
overseen by trustee in Fund Complex..........
80
INDEPENDENT AUDITORS
The Board of Trustees of each Fund, including a majority of the Trustees who
are not "interested persons" of each Fund (as defined by the 1940 Act), has
selected [ ] as the independent auditors to examine the financial
statements for the current fiscal year of each Fund. The selection of [ ] for
the current fiscal year was recommended and approved by each Fund's audit
committee and approved by each Fund's Board. Each of the Funds knows of no
direct or indirect financial interest of [ ] in such Fund.
AUDIT AND OTHER FEES
Each Fund and certain "covered entities" were billed the amounts listed below
by [ ] during the Target Fund's most recent two fiscal years.
FISCAL YEAR ENDED JUNE 30, 2004
NON-AUDIT FEES
--------------------------------------------
TOTAL
ENTITY AUDIT FEES AUDIT RELATED TAX ALL OTHER NON-AUDIT TOTAL
------ ---------- ------------- --- --------- --------- -----
Target Fund.............
Covered Entities*.......
81
FISCAL YEAR ENDED JUNE 30, 2003
NON-AUDIT FEES
--------------------------------------------
TOTAL
ENTITY AUDIT FEES AUDIT RELATED TAX ALL OTHER NON-AUDIT TOTAL
------ ---------- ------------- --- --------- --------- -----
Target Fund.............
Covered Entities*.......
---------------
* Covered Entities include the Adviser and any entity controlling, controlled by
or under common control with the Adviser that provides ongoing services to the
Target Fund.
The audit committee of each Board has considered whether the provision of non-
audit services performed by [ ] to the Funds and "covered entities" is
compatible with maintaining [ ]'s independence in performing audit services.
Beginning with non-audit service contracts entered into on or after May 6, 2003,
the audit committee also is required to pre-approve services to "covered
entities" to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Funds. 100% of such services
were pre-approved by the audit committee pursuant to the audit committee's
pre-approval policies and procedures. The Board's pre-approval policies and
procedures are included as part of the Board's audit committee charter, which
was attached to the Van Kampen Joint Closed-End Fund Proxy Statement, filed with
the SEC on May 19, 2004.
Representatives of [ ] will attend the Special Meeting, will have the
opportunity to make a statement if they desire to do so and will be available to
answer appropriate questions.
82
PROPOSAL 3: ISSUANCE OF ACQUIRING FUND COMMON SHARES
THE REORGANIZATION
Pursuant to the Reorganization Agreement, which is described more fully under
"Proposal 1: Reorganization of the Target Fund" herein, the Acquiring Fund will
acquire substantially all of the assets and assume substantially all of the
liabilities of the Target Fund in exchange solely for an equal aggregate value
of Acquiring Fund Common Shares and Acquiring Fund APS. The Target Fund will
distribute Acquiring Fund Common Shares to holders of Target Fund Common Shares
and Acquiring Fund APS to holders of Target Fund RATES, and will then terminate
its registration under the 1940 Act and dissolve under applicable state law. The
Acquiring Fund Board, based upon its evaluation of all relevant information,
anticipates that the Reorganization will benefit holders of Acquiring Fund
Common Shares.
The aggregate net asset value of Acquiring Fund Common Shares received in the
Reorganization will equal the aggregate net asset value on the Target Fund
Common Shares held immediately prior to the Reorganization less the costs of the
Reorganization (though you may receive cash for fractional shares). The
aggregate liquidation preference of Acquiring Fund APS received in the
Reorganization will equal the aggregate liquidation preference Target Fund RATES
held immediately prior to the Reorganization. The Reorganization will result in
no dilution of net asset value of the Acquiring Fund Common Shares, other than
to reflect the costs of the Reorganization. No gain or loss will be recognized
by the Acquiring Fund or its shareholders in connection with the Reorganization.
The Acquiring Fund will continue to operate as a registered closed-end
investment company with the investment objective and policies described in this
Joint Proxy Statement/Prospectus.
In connection with the Reorganization and as contemplated by the
Reorganization Agreement, the Acquiring Fund will issue additional Acquiring
Fund Common Shares and list such shares on the NYSE and the CHX.
SHAREHOLDER APPROVAL
While applicable state and federal law does not require the shareholders of
the Acquiring Fund to approve the Reorganization, applicable NYSE rules require
the common shareholders of the Acquiring Fund to approve the issuance of
additional Acquiring Fund Common Shares to be issued in connection with the
Reorganization. Shareholder approval of the issuance of Acquiring Fund Common
Shares requires the affirmative vote of a majority of the votes cast on the
proposal, provided that the total votes cast on the proposal represents more
than 50% in interest of all securities entitled to vote on the proposal.
------------------------------------------------------------------------------
83
OTHER INFORMATION
------------------------------------------------------------------------------
VOTING INFORMATION AND REQUIREMENTS
RECORD DATE. The Board of Trustees of each Fund has fixed the close of
business on April 25, 2005 as the record date (the "Record Date") for the
determination of shareholders entitled to notice of, and to vote at, the Special
Meeting or any adjournment thereof. Shareholders on the Record Date will be
entitled to one vote for each share held, with no shares having cumulative
voting rights. At the Record Date, the Target Fund had outstanding [ ] Target
Fund Common Shares and [ ] Target Fund RATES and the Acquiring Fund had
outstanding [ ] Acquiring Fund Common Shares.
PROXIES. Shareholders may vote by appearing in person at the Special Meeting,
by returning the enclosed proxy card or by casting their vote via telephone or
the internet using the instructions provided on the enclosed proxy card. Any
person giving a proxy may revoke it at any time prior to its exercise by giving
written notice of the revocation to the Secretary of the Fund at the address
indicated above, by delivering a duly executed proxy bearing a later date, or by
attending the Special Meeting and voting in person. The giving of a proxy will
not affect your right to vote in person if you attend the Special Meeting and
wish to do so.
All properly executed proxies received prior to the Special Meeting will be
voted in accordance with the instructions marked thereon or otherwise as
provided therein. Unless instructions to the contrary are marked, proxies will
be voted "FOR" the approval of each proposal. Abstentions and broker non-votes
(i.e., where a nominee such as a broker, holding shares for beneficial owners,
indicates that instructions have not been received from the beneficial owners,
and the nominee does not exercise discretionary authority) are not treated as
votes "FOR" a proposal.
With respect to Proposal 1, abstentions and broker non-votes (i.e., where a
nominee such as a broker holding shares for beneficial owners votes on certain
matters pursuant to discretionary authority or instructions from beneficial
owners, but with respect to one or more proposals does not receive instructions
from beneficial owners or does not exercise discretionary authority) have the
same effect as votes "AGAINST" the proposals since their approvals are based on
the affirmative vote of a majority of the total Target Fund Common Shares
outstanding and 66 2/3% of the Target Fund RATES outstanding. With respect to
Proposal 2, abstentions and broker non-votes are disregarded since only votes
"FOR" are considered in a plurality voting requirement. With respect to Proposal
3, [abstentions will not be treated as votes "FOR" the proposal but will be
counted as votes cast on the proposal and will therefore have the same effect as
votes "AGAINST" the proposal.] Broker non-votes will not be treated as vote
"FOR" the proposal and
84
will not be counted as votes cast on the proposal and will therefore have the
effect of reducing the aggregate number of shares voting on the proposal and
reducing the number of votes "FOR" the proposal required to approve the
proposal.
With respect to each proposal, a majority of the outstanding shares entitled
to vote on the proposal must be present in person or by proxy to have a quorum
to conduct business at the Special Meeting. Abstentions and broker non-votes
will be deemed present for quorum purposes.
CERTAIN VOTING INFORMATION REGARDING TARGET FUND RATES. Target Fund RATES held
in "street name" may be voted under certain conditions by broker-dealer firms
and counted for purposes of establishing a quorum of that Fund if no
instructions are received one business day before the Special Meeting or, if
adjourned, one business day before the day to which the Special Meeting is
adjourned. These conditions include, among others, that (i) at least 30% of the
Target Fund's preferred shares outstanding have voted on the Reorganization and
(ii) less than 10% of the Target Fund's preferred shares outstanding have voted
against the Reorganization. In such instance, the broker-dealer firm will vote
such uninstructed Target Fund RATES on the Reorganization in the same proportion
as the votes cast by all holders of Target Fund RATES who voted on the
Reorganization. The Fund will include shares held of record by broker-dealers as
to which such authority has been granted in its tabulation of the total number
of shares present for purposes of determining whether the necessary quorum of
shareholders of the Fund exists.
SHAREHOLDER INFORMATION
Except as set forth below, as of [ ], to the knowledge of the Funds, no
shareholder owned beneficially more than 5% of a class of a Fund's outstanding
shares:
[insert]
As of [ ], no trustees or executive officers owned, directly or beneficially,
Common Shares or Preferred Shares of either Fund. As of [ ], the trustees and
executive officers of the Funds individually and as a group owned less than [ ]%
of the outstanding shares of each Fund.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 30(f) of the 1940 Act and Section 16(a) of the Securities Exchange Act
of 1934, as amended, require the Funds' trustees, officers, investment adviser,
affiliated persons of the investment adviser and persons who own more than 10%
of a registered class of the Fund's equity securities to file forms with the SEC
and the NYSE, as applicable, reporting their affiliation with the Fund and
reports of ownership and changes in ownership of Fund shares. These persons and
entities are required by SEC regulation to furnish the Fund with copies of all
such forms they
85
file. Based on a review of these forms furnished to each Fund, each Fund
believes that during its last fiscal year, its trustees, officers, investment
adviser and affiliated persons of the investment adviser complied with the
applicable filing requirements.
SHAREHOLDER PROPOSALS
To be considered for presentation at a shareholders' meeting, rules
promulgated by the SEC generally require that, among other things, a
shareholder's proposal must be received at the offices of the relevant Fund a
reasonable time before a solicitation is made. Timely submission of a proposal
does not necessarily mean that such proposal will be included. Any shareholder
who wishes to submit a proposal for consideration at a meeting of such
shareholder's Fund should send such proposal to the respective Fund at 1221
Avenue of the Americas, New York, New York 10020.
SOLICITATION OF PROXIES
Solicitation of proxies is being made primarily by the mailing of this Notice
and Joint Proxy Statement/Prospectus with its enclosures on or about May [ ],
2005. Shareholders whose shares are held by nominees such as brokers can vote
their proxies by contacting their respective nominee. In addition to the
solicitation of proxies by mail, employees of the Adviser and its affiliates as
well as dealers or their representatives may, without additional compensation,
solicit proxies in person or by mail, telephone, telegraph, facsimile or oral
communication. The Funds have retained ALAMO Direct Mail Services, Inc.
("ALAMO") to make telephone calls to shareholders to remind them to vote. In
addition, ALAMO may also be retained to assist with any necessary solicitation
of proxies. In the event of a solicitation, ALAMO would be paid a project
management fee as well as fees charged on a per call basis and certain other
expenses. Management estimates that any such solicitation would cost
approximately $ . The Funds estimate that any such solicitation would
cost approximately for the Target Fund and for the Acquiring Fund.
Proxy solicitation expenses are an expense of the Reorganization which will be
borne by the Target Fund and the Acquiring Fund in proportion to their projected
declines in total operating expenses as a result of the Reorganization.
OTHER MATTERS TO COME BEFORE THE MEETING
The Board of Trustees of each Fund knows of no business other than that
described in this Joint Proxy Statement/Prospectus which will be presented for
consideration at the Special Meeting. If any other matters are properly
presented, it is the intention of the persons named on the enclosed proxy card
to vote proxies in accordance with their best judgment.
In the event that a quorum is present at the Special Meeting but sufficient
votes to approve the proposed Reorganization are not received, proxies
(including
86
abstentions and broker non-votes) will be voted in favor of one or more
adjournments of the Special Meeting to permit further solicitation of proxies on
the proposed Reorganization, provided that the Board of Trustees of each Fund
determines that such an adjournment and additional solicitation is reasonable
and in the interest of shareholders based on a consideration of all relevant
factors, including the percentage of votes then cast, the percentage of negative
votes cast, the nature of the proposed solicitation activities and the nature of
the reasons for such further solicitation. Any such adjournment will require the
affirmative vote of the holders of a majority of the outstanding shares voted at
the session of the Special Meeting to be adjourned.
If you cannot be present in person at the Special Meeting, please fill in,
sign and return the enclosed proxy card promptly. No postage is necessary if
mailed in the United States.
Lou Anne McInnis
Assistant Secretary
Van Kampen Municipal Income Trust
Van Kampen Trust for Investment
Grade Municipals
May , 2005
87
[VAN KAMPEN INVESTMENTS LOGO]
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 18, 2005
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION OF THE ASSETS AND LIABILITIES OF
VAN KAMPEN MUNICIPAL INCOME TRUST
BY AND IN EXCHANGE FOR SHARES OF
VAN KAMPEN TRUST FOR INVESTMENT MUNICIPALS
DATED , 2005
This Statement of Additional Information is available to the shareholders
of Van Kampen Municipal Income Trust (the "Target Fund") in connection with a
proposed transaction (the "Reorganization") whereby Van Kampen Trust for
Investment Grade Municipals (the "Acquiring Fund") will acquire substantially
all of the assets and assume substantially all of the liabilities of the Target
Fund in exchange solely for an equal aggregate value of newly-issued common
shares of beneficial interest, par value $0.01 per share ("Acquiring Fund Common
Shares"), and newly-issued auction preferred shares with a par value of $0.01
per share and a liquidation preference of $25,000 per share ("Acquiring Fund
APS"). A copy of a form of the Agreement and Plan of Reorganization between the
Target Fund and the Acquiring Fund is attached hereto as Appendix A. Unless
otherwise defined herein, capitalized terms have the meanings given to them in
the Proxy Statement/Prospectus.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statement/Prospectus dated May 2, 2005
relating to the proposed Reorganization of the Target Fund into the Acquiring
Fund. A copy of the Proxy Statement/Prospectus may be obtained, without charge,
by writing to the Van Kampen Client Relations Department at 1 Parkview Plaza,
P.O. Box 5555, Oakbrook Terrace, Illinois 60181-5555 or by calling (800)
847-2424 (TDD users may call (800) 421-2833). The Acquiring Fund will provide,
without charge, upon the written or oral request of any person to whom this
Statement of Additional Information is delivered, a copy of any and all
documents that have been incorporated by reference in the registration statement
of which this Statement of Additional Information is a part.
This Statement of Additional Information is intended to provide Target Fund
shareholders with certain additional information about the Acquiring Fund, which
will hereinafter sometimes be referred to simply as the "Fund."
TABLE OF CONTENTS
Trustees and Officers....................................... S-3
General..................................................... S-3
Compensation................................................ S-3
Board Committees............................................ S-5
Share Ownership............................................. S-5
Code of Ethics.............................................. S-6
Investment Advisory Agreement............................... S-7
Portfolio Transactions and Brokerage Allocation............. S-10
Taxation....................................................
Additional Information Relating to Auction Preferred Shares
of the Acquiring Fund..................................... S-12
Other Information........................................... S-21
Financial Statements........................................ S-22
Pro Forma Financial Statements.............................. S-22
Appendix A--Agreement and Plan of Reorganization............ A-1
Appendix B--Certificate of Vote of Trustees Establishing
Preferred Shares.......................................... B-1
Appendix C--Acquiring Fund Annual Report Dated October 31,
2004...................................................... C-1
Appendix D--Target Fund Annual Report Dated June 30, 2004... D-1
Appendix E--Target Fund Semi-Annual Report dated December
31, 2004.................................................. E-1
Appendix F--Proxy Voting Policy and Procedures.............. F-1
Appendix G--Pro Forma Financial Statements.................. G-1
S-2
TRUSTEES AND OFFICERS
GENERAL
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The Acquiring Fund and Target Fund share the same Board of Trustees
and executive officers. Information regarding the trustees and executive
officers of the Acquiring Fund, including their principal occupations during the
last five years, other directorships held by trustees and certain affiliates,
can be found in the Joint Proxy Statement/Prospectus under "Proposal 2: Election
of Target Fund Trustees." The term "Fund Complex" includes each of the
investment companies advised by the Adviser as of the date of this Statement of
Additional Information.
COMPENSATION
Each trustee/director/managing general partner (hereinafter referred to in
this section as "trustee") who is not an affiliated person (as defined in the
1940 Act) of Van Kampen Investments, the Adviser or the Distributor (each a
"Non-Affiliated Trustee") is compensated by an annual retainer and meeting fees
for services to funds in the Fund Complex. Each fund in the Fund Complex (except
Van Kampen Exchange Fund) provides a deferred compensation plan to its
Non-Affiliated Trustees that allows trustees to defer receipt of their
compensation until retirement and earn a return on such deferred amounts.
Amounts deferred are retained by the Fund and earn a rate of return determined
by reference to the return on the common shares of the Fund or other funds in
the Fund Complex as selected by the respective Non-Affiliated Trustee. To the
extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund. Deferring compensation has the same economic effect as if
the Non-Affiliated Trustee reinvested his or her compensation into the funds.
Each fund in the Fund Complex (except Van Kampen Exchange Fund) provides a
retirement plan to its Non-Affiliated Trustees that provides Non-Affiliated
Trustees with compensation after retirement, provided that certain eligibility
requirements are met. Under the retirement plan, a Non-Affiliated Trustee who is
receiving compensation from the Fund prior to such Non-Affiliated Trustee's
retirement, has at least 10 years of service (including years of service prior
to adoption of the retirement plan) and retires at or after attaining the age of
60, is eligible to receive a retirement benefit per year for each of the 10
years following such retirement from the Fund. Non-Affiliated Trustees retiring
prior to the age of 60 or with fewer than 10 years but more than 5 years of
service may receive reduced retirement benefits from the Fund.
S-3
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
Fund Complex
--------------------------------------------------------------
Aggregate Pension Aggregate Estimated
or Retirement Maximum Annual
Aggregate Benefits Accrued Benefits from the Total Compensation
Compensation as Part of Fund Complex before Deferral from
Name(1) from the Fund(2) Expenses(3) Upon Retirement(4) Fund Complex(5)
------- ---------------- ----------------- ------------------- --------------------
INDEPENDENT TRUSTEES
David C. Arch $ $ 35,277 $147,500 $192,530
Jerry D. Choate 82,527 126,000 200,002
Rod Dammeyer 63,782 147,500 208,000
Linda Hutton Heagy 24,465 142,500 184,784
R. Craig Kennedy 16,911 142,500 200,002
Howard J Kerr 140,743 147,500 208,000
Jack E. Nelson 97,294 109,500 200,002
Hugo F. Sonnenschein 64,476 147,500 208,000
Suzanne H. Woolsey 58,450 142,500 200,002
INTERESTED TRUSTEE
Wayne W. Whalen(1) 72,001 147,500 208,000
------------------------------------
(1) Trustees not eligible for compensation are not included in the Compensation
Table. Mr. Whalen is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act) of the Fund and certain other funds in the Fund
Complex. J. Miles Branagan retired as a member of the Board of Trustees of
the Fund and other funds in the Fund Complex on December 31, 2004.
(2) The amounts shown in this column represent the aggregate compensation before
deferral with respect to the Fund's fiscal year ended December 31, 2004. The
following Trustees deferred compensation from the Fund during the fiscal
year ended December 31, 2004: Mr. Choate, $ ; Mr. Dammeyer,
$ ; Ms. Heagy, $ ; Mr. Nelson, $ ; Mr.
Sonnenschein, $ ; and Mr. Whalen, $ . The cumulative
deferred compensation (including interest) accrued with respect to each
trustee, including former trustees, from the Fund as of December 31, 2004 is
as follows: Mr. Branagan, $ ; Mr. Choate, $ ; Mr.
Dammeyer, $ ; Ms. Heagy, $ ; Mr. Kennedy, $ ; Mr.
Miller, $ ; Mr. Nelson, $ ; Mr. Robinson, $ ; Mr.
Rooney, $ ; Mr. Sisto, $ ; Mr. Sonnenschein, $ ;
and Mr. Whalen, $ . The deferred compensation plan is described
above the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits accrued by the operating funds in the Fund Complex for each of the
trustees for the funds' respective fiscal years ended in 2004. The
retirement plan is described above the Compensation Table.
(4) For each trustee, this is the sum of the estimated maximum annual benefits
payable by the funds in the Fund Complex for each year of the 10-year period
commencing in
S-4
the year of such person's anticipated retirement. The retirement plan is
described above the Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all of the funds in the Fund Complex as of December 31, 2004 before
deferral by the trustees under the deferred compensation plan. Because the
funds in the Fund Complex have different fiscal year ends, the amounts shown
in this column are presented on a calendar year basis.
BOARD COMMITTEES
Information regarding the standing committees of the Board of Trustees,
including the members and responsibilities of each committee and the number of
meetings held by each committee in the Fund's last fiscal year is included in
the Joint Proxy Statement/ Prospectus under "Proposal 2: Election of Target Fund
Trustees."
SHARE OWNERSHIP
In addition to deferred compensation balances as described in the
Compensation Table, as of December 31, 2004, the most recently completed
calendar year prior to the date of this Statement of Additional Information,
each trustee of the Fund beneficially owned equity securities of the Fund and of
all of the funds in the Fund Complex overseen by the trustee in the dollar range
amounts specified below.
2004 TRUSTEE BENEFICIAL OWNERSHIP OF SECURITIES
INDEPENDENT TRUSTEES
TRUSTEE
-----------------------------------------------------------------------------------------
ARCH CHOATE DAMMEYER HEAGY KENNEDY KERR NELSON SONNENSCHEIN WOOLSEY
-------- ------- -------- -------- -------- ------- ------- ------------ --------
Dollar range of equity securities
in the Fund.......................
Aggregate dollar range of equity
securities in all registered
investment companies overseen by
Trustee in the Fund Complex....... $50,001- $1- over $10,001- over $1- $1- $10,001- $10,001-
$100,000 $10,000 $100,000 $50,000 $100,000 $10,000 $10,000 $50,000 $50,000
INTERESTED TRUSTEES
TRUSTEE
----------------------------
MERIN POWERS WHALEN
-------- -------- --------
Dollar range of equity securities in the Fund...............
Aggregate dollar range of equity securities in all
registered investment companies overseen by Trustee in the
Fund Complex............................................... over over over
$100,000 $100,000 $100,000
S-5
Including deferred compensation balances (which are amounts deferred and
thus retained by the Fund as described in the Compensation Table), as of
December 31, 2004, the most recently completed calendar year prior to the date
of this Statement of Additional Information, each trustee of the Fund had in the
aggregate, combining beneficially owned equity securities and deferred
compensation of the Fund and of all of the funds in the Fund Complex overseen by
the trustee, the dollar range of amounts specified below.
2004 TRUSTEE BENEFICIAL OWNERSHIP AND DEFERRED COMPENSATION
INDEPENDENT TRUSTEES
TRUSTEE
--------------------------------------------------------------------------------------------
ARCH CHOATE DAMMEYER HEAGY KENNEDY KERR NELSON SONNENSCHEIN WOOLSEY
-------- -------- -------- -------- -------- -------- -------- ------------ --------
Dollar range of equity
securities and deferred
compensation in the Fund.......
Aggregate dollar range of equity
securities and deferred
compensation in all registered
investment companies overseen
by Trustee in Fund Complex..... $50,001- over over over over over over over $10,000-
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $50,001
INTERESTED TRUSTEES
TRUSTEE
-----------------------------------------------
MERIN POWERS WHALEN
----- ------ ------
Dollar range of equity
securities and deferred
compensation in the Fund.......
Aggregate dollar range of equity
securities and deferred
compensation in all registered
investment companies overseen
by Trustee in the Fund
Complex........................ over over over
$100,000 $100,000 $100,000
As of , 2005, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
CODE OF ETHICS
The Fund, the Adviser, and the Distributor have adopted a Code of Ethics
(the "Code of Ethics") that sets forth general and specific standards relating
to the securities trading activities of their employees. The Code of Ethics does
not prohibit employees from acquiring securities that may be purchased or held
by the Fund, but is intended to ensure that all employees conduct their personal
transactions in a manner that does not interfere with the portfolio transactions
of the Fund or other Van Kampen funds, or that such employees take unfair
advantage of their relationship with the Fund. Among other things, the Code of
Ethics prohibits certain types of transactions absent prior approval, imposes
various trading restrictions (such as time periods during which personal
transactions may or may not be made) and requires quarterly reporting of
securities transactions and other reporting matters. All reportable securities
transactions and other required reports are to be reviewed by appropriate
personnel for compliance with the Code of Ethics. Additional restrictions apply
to portfolio managers, traders, research analysts and others who may have access
to nonpublic information about the trading activities of the Fund or other Van
Kampen funds or who otherwise are involved in the investment advisory process.
S-6
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate
strategy and implement the Fund's investment objective. The Adviser also
furnishes offices, necessary facilities and equipment, provides administrative
services to the Fund, renders periodic reports to the Fund's Board of Trustees
and permits its officers and employees to serve without compensation as trustees
or officers of the Fund if elected to such positions. The Fund, however, bears
the costs of its day-to-day operations, including service fees, distribution
fees, custodian fees, legal and independent registered public accounting firm
fees, the costs of reports and proxies to shareholders, compensation of trustees
of the Fund (other than those who are affiliated persons of the Adviser,
Distributor or Van Kampen Investments) and all other ordinary business expenses
not specifically assumed by the Adviser. The Advisory Agreement also provides
that the Adviser shall not be liable to the Fund for any actions or omissions in
the absence of willful misfeasance, bad faith, negligence or reckless disregard
of its obligations and duties under the Advisory Agreement.
The fee payable to the Adviser is reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority owned subsidiary of Van Kampen
Investments in connection with the purchase and sale of portfolio investments
less any direct expenses incurred by such subsidiary of Van Kampen Investments
in connection with obtaining such commissions, fees, brokerage or similar
payments. The Adviser agrees to use its best efforts to recapture tender
solicitation fees and exchange offer fees for the Fund's benefit and to advise
the trustees of the Fund of any other commissions, fees, brokerage or similar
payments which may be possible for the Adviser or any other direct or indirect
majority owned subsidiary of Van Kampen Investments to receive in connection
with the Fund's portfolio transactions or other arrangements which may benefit
the Fund.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Board of Trustees or (ii) by a
vote of a majority of the Fund's outstanding voting securities and (b) by a vote
of a majority of the trustees who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. The Advisory Agreement provides that it shall terminate automatically
if assigned and that it may be terminated without penalty by either party on 60
days' written notice.
In approving the Advisory Agreement, the Board of Trustees, including the
non-interested trustees, considered the nature, quality and scope of the
services provided by the Adviser, the performance, fees and expenses of the Fund
compared to other similar investment companies, the Adviser's expenses in
providing the services and the profitability of the Adviser and its affiliated
companies. The Board of Trustees also reviewed the benefit to the Adviser of
receiving research paid for by Fund assets and the propriety of such an
arrangement and evaluated other benefits the Adviser derives from its
relationship with the
S-7
Fund. The Board of Trustees considered the extent to which any economies of
scale experienced by the Adviser are shared with the Fund's shareholders, and
the propriety of existing and alternative breakpoints in the Fund's advisory fee
schedule. The Board of Trustees considered comparative advisory fees of the Fund
and other investment companies at different asset levels, and considered the
trends in the industry versus historical and projected sales and redemptions of
the Fund. The Board of Trustees reviewed reports from third parties about the
foregoing factors and considered changes, if any, in such items since its
previous approval. The Board of Trustees discussed the financial strength of the
Adviser and its affiliated companies and the capability of the personnel of the
Adviser. The Board of Trustees reviewed the statutory and regulatory
requirements for approval of advisory agreements. The Board of Trustees,
including the non-interested trustees, evaluated all of the foregoing and
determined, in the exercise of its business judgment, that approval of the
Advisory Agreement was in the best interests of the Fund and its shareholders.
Prior to the date of this Statement of Additional Information, Van Kampen
Advisors Inc., an affiliate of the Adviser, acted as sub-adviser to the Fund.
Van Kampen Advisors Inc. was located at 40 Broad Street, Suite 915, Boston,
Massachusetts 02109. The Adviser paid to Van Kampen Advisors Inc. on a monthly
basis a portion of the net advisory fees that the Adviser received from the
Fund.
ADVISORY FEES
FISCAL YEAR ENDED NOVEMBER 30,
---------------------------------------
2004 2003 2002
----------- ----------- -----------
The Adviser received the approximate advisory
fees of..................................... $ $ $
PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
As of [ ], Thomas Byron managed [ ] registered investment
companies with a total of $[ ] billion in assets; [ ] pooled investment
vehicles other than registered investment companies with a total of $[ ]
million in assets; and [ ] other accounts with a total of $[ ] billion
in assets.
As of [ ], Robert Wimmel managed [ ] registered investment
companies with a total of $[ ] billion in assets; [ ] pooled investment
vehicles other than registered investment companies with a total of $[ ]
million in assets; and [ ] other accounts with a total of $[ ] billion
in assets.
As of [ ], John Reynoldson managed [ ] registered investment
companies with a total of $[ ] billion in assets; [ ] pooled investment
vehicles other than registered investment companies with a total of $[ ]
million in assets; and [ ] other accounts with a total of $[ ] billion
in assets.
Because the portfolio managers manage assets for other mutual funds, pooled
investment vehicles, institutional clients, pension plans and certain high net
worth individuals, there may be incentive to favor one client over another
resulting in conflicts of interest. For instance, the Adviser may receive fees
from certain accounts that are higher
S-8
than the fee it receives from the Fund, or it may receive a performance-based
fee on certain accounts. In those instances, the portfolio managers may have an
incentive to favor the higher and/or performance-based fee accounts over the
Fund. The Adviser has adopted policies and procedures reasonably designed to
address these and other conflicts of interest.
PORTFOLIO MANAGER COMPENSATION
BASE COMPENSATION. Generally, portfolio managers receive base compensation
based on the level of their position with the Adviser.
DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio
managers may receive discretionary compensation. Discretionary compensation can
include:
- Cash Bonus;
- Morgan Stanley's Equity Incentive Compensation Program (EICP) awards--a
mandatory program that defers a portion of discretionary year-end
compensation into restricted stock units or other awards based on Morgan
Stanley common stock that are subject to vesting and other conditions;
- Investment Management Deferred Compensation Plan (IMDCP) awards--a
mandatory program that defers a portion of discretionary year-end
compensation and notionally invests it in certain Morgan Stanley Funds
[HR/tax: referenced--need different term]. The award is subject to
vesting and other conditions. Portfolio managers must notionally invest a
minimum of 25% to a maximum of 50% of the IMDCP deferral into a
combination of the [referenced] funds they manage or directly support
that are included in the IMDCP fund menu. [Need more tailored language
for AIP and parts of Fixed Income.]
- Select Employees' Capital Accumulation Program (SECAP) awards--a
voluntary program that permits employees to elect to defer a portion of
their discretionary compensation and notionally invest the deferred
amount across a range of [referenced] investment funds, including Morgan
Stanley funds; and
- Voluntary Equity Incentive Compensation Program (VEICP) awards--a
voluntary program that permits employees to elect to defer a portion of
their discretionary compensation to invest in Morgan Stanley stock units.
Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative importance,
these factors include:
- Investment performance. The majority of a portfolio manager's
compensation is linked to the Fund's pre-tax investment performance.
Investment performance is calculated for one-, three- and five-year
periods measured against the Fund's benchmark [HR: please confirm--is it
the primary benchmark if there is more than one benchmark?], indexes
and/or peer groups. Generally, the greatest weight is placed on the
three- and five-year periods.
- The Fund's revenue.
S-9
- Contribution to the business objectives of the Adviser.
- The dollar amount of assets managed by the portfolio manager.
- Market/compensation survey.
- Other qualitative factors, such as contributions to client objectives.
- Performance of other affiliated entities, including Morgan Stanley and
Morgan Stanley Investment Management, and the Global Investor Group, a
division of Morgan Stanley Investment Management.
Occasionally, to attract new hires or to retain key employees, the total
amount of compensation will be guaranteed in advance of the fiscal year end
based on current market levels. In limited circumstances, the guarantee may
continue for more than one year. The guaranteed compensation comprises the same
factors as those comprising overall compensation described above.
The same methodology is used to determine portfolio manager compensation
for all accounts.
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
As of the end of the Fund's most recently completed fiscal year, the dollar
range of securities beneficially owned by each portfolio manager in the Fund is
shown below:
BYRON WIMMEL REYNOLDSON
----- -------- ----------
[ ] [ ] [ ]
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard are subject to
review by the Fund's Board of Trustees.
As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed securities on an exchange, which are effected through brokers who
charge a commission for their services.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary
S-10
consideration in all portfolio transactions is prompt execution of orders in an
effective manner at the most favorable price. In selecting broker-dealers and in
negotiating prices and any brokerage commissions on such transactions, the
Adviser considers the firm's reliability, integrity and financial condition and
the firm's execution capability, the size and breadth of the market for the
security, the size of and difficulty in executing the order, and the best net
price. There are many instances when, in the judgment of the Adviser, more than
one firm can offer comparable execution services. In selecting among such firms,
consideration may be given to those firms which supply research and other
services in addition to execution services. The Adviser is authorized to pay
higher commissions to brokerage firms that provide it with investment and
research information than to firms which do not provide such services if the
Adviser determines that such commissions are reasonable in relation to the
overall services provided. No specific value can be assigned to such research
services which are furnished without cost to the Adviser. Since statistical and
other research information is only supplementary to the research efforts of the
Adviser to the Fund and still must be analyzed and reviewed by its staff, the
receipt of research information is not expected to reduce its expenses
materially. The investment advisory fee is not reduced as a result of the
Adviser's receipt of such research services. Services provided may include (a)
furnishing advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; (b) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts; and (c) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody). Research services furnished by firms through
which the Fund effects its securities transactions may be used by the Adviser in
servicing all of its advisory accounts; not all of such services may be used by
the Adviser in connection with the Fund.
The Adviser also may place portfolio transactions, to the extent permitted
by law, with brokerage firms affiliated with the Fund and the Adviser if it
reasonably believes that the quality of execution and the commission are
comparable to that available from other qualified firms.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In making such allocations among the
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.
Certain broker-dealers, through which the Fund may effect securities
transactions, are affiliated persons (as defined in the 1940 Act) of the Fund or
affiliated persons of such affiliates, including Morgan Stanley or its
subsidiaries. The Fund's Board of Trustees has adopted certain policies
incorporating the standards of Rule 17e-1 issued by the SEC under the 1940 Act
which require that the commissions paid to affiliates of the Fund must
S-11
be reasonable and fair compared to the commissions, fees or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time.
The rule and procedures also contain review requirements and require the Adviser
to furnish reports to the trustees and to maintain records in connection with
such reviews. After consideration of all factors deemed relevant, the trustees
will consider from time to time whether the advisory fee for the Fund will be
reduced by all or a portion of the brokerage commission paid to affiliated
brokers.
Unless otherwise disclosed below, the Fund paid no commissions to
affiliated brokers during the last three fiscal years. The Fund paid the
following commissions to brokers during the fiscal years shown:
AFFILIATED BROKERS
ALL BROKERS MORGAN STANLEY DW INC.
----------- ----------------------
COMMISSIONS PAID:
Fiscal year ended October 31, 2004..... $23,000 $0
Fiscal year ended October 31, 2003..... $16,000 $0
Fiscal year ended October 31, 2002..... $ 4,000 $0
FISCAL YEAR 2004 PERCENTAGES:
Commissions with affiliate to total commissions..... 0%
Value of brokerage transactions with affiliate to
total transactions............................... 0%
During the fiscal year ended October 31, 2004, the Fund paid no brokerage
commissions to brokers selected primarily on the basis of research services
provided to the Adviser.
ADDITIONAL INFORMATION
RELATING TO AUCTION PREFERRED SHARES OF THE ACQUIRING FUND
The following is a brief description of the terms of the shares of each
series of APS. This description does not purport to be complete and is subject
to and qualified in its entirety by reference to Fund's Declaration of Trust,
including the Certificate of Vote establishing and fixing the rights and
preferences of the shares of such series of APS, attached hereto as Appendix B
(the "Certificate of Vote" and together, with the Fund's Declaration of Trust,
the "APS Provisions"). For purposes of this section, capitalized terms not
otherwise defined herein have the meanings ascribed to them in the Certificate
of Vote.
General. The Declaration of Trust currently authorizes the issuance of an
unlimited number of shares of Common Shares and 100,000,000 Preferred Shares of
beneficial interest, par value $.01 per share (which may be issued from time to
time in such series and with such designations, preferences and other rights,
qualifications, limitations and restrictions as are determined in a resolution
of the Board of Trustees of the Fund). Under the APS Provisions, the Fund is
authorized to issue up to 10,600 APS. All shares of each series of APS will have
a liquidation preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared). The shares
of
S-12
each series of APS will rank on a parity with shares of any other series of
Preferred Shares (including any other series of APS) as to the payment of
dividends and the distribution of assets upon liquidation. So long as either
Moody's or S&P is rating the shares of any series of APS, the Fund may, without
the vote of the holders of APS, issue additional series of Preferred Shares,
including APS, subject to applicable provisions of the 1940 Act and to
continuing compliance with the 1940 Act APS Asset Coverage and the APS Basic
Maintenance Amount, provided that (1) any such additional series ranks on a
parity with the then Outstanding APS as to the payment of dividends and the
distribution of assets upon liquidation and (2) the Fund obtains written
confirmation from Moody's or S&P, or both, as the case may be, that the issuance
of any such additional series would not impair the rating then assigned by such
rating agency to the APS.
Dividends. Dividends on shares of each series of APS will accumulate at
the Applicable Rate per annum will be payable, when, as and if declared by the
Board of Trustees of the Fund out of funds legally available therefor. Dividend
Periods shall be 28 days for APS Series A, 28 days for APS Series B, 3 months
for APS Series C and 6 months for APS Series D. The Fund, subject to certain
conditions, may designate any Dividend Period as a Special Dividend Period,
which shall be such number of consecutive days or whole years as the Board of
Trustees shall specify, subject to certain exceptions.
Dividends will be paid through the Securities Depository on each Dividend
Payment Date in accordance with its normal procedures, which now provide for it
to distribute dividends in next-day funds to Agent Members, who in turn are
expected to distribute such dividend payments to the persons for whom they are
acting as agents. Each of the initial Broker Dealers, however, has indicated to
the Fund that such Broker-Dealer or one of its affiliates will make such
dividend payments available in same-day funds on each Dividend Payment Date to
customers that use such Broker-Dealer or such affiliate as Agent Member.
For each Dividend Period, the dividend rate for shares of each series of
APS will be the Applicable Rate per annum that the Auction Agent advises the
Fund results from an Auction, except as provided below. The dividend rate that
results from an Auction for a series of APS will not be greater than the Maximum
Rate, which is:
(i) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Dividend Period,
the product of (1) the "AA" Composite Commercial Paper Rate on such Auction
Date for the next Rate Period of such series and (2) the Applicable
Percentage on such Auction Date, unless such series of APS has or had a
Special Dividend Period (other than a Special Dividend Period of 28 days or
less) and an Auction at which Sufficient Clearing Bids existed has not yet
occurred for a Minimum Dividend Period for such series (28 days for each
series of APS) after such Special Dividend Period, in which case the higher
of:
(A) the dividend rate on shares of such series of APS for the
then-ending Rate Period, and
(B) the product of (x) the higher of (I) the "AA" Composite
Commercial Paper Rate on such Auction Date for the then-ending Rate
Period of such series, if such Rate Period is less than one year, or the
Treasury Rate on such Auction Date for such Rate Period, if such Rate
Period is one year or longer, and
S-13
(II) the "AA" Composite Commercial Paper Rate on such Auction Date for
such Special Dividend Period of such series, if such Special Dividend
Period is less than one year, or the Treasury Rate on such Auction Date
for such Special Dividend Period, if such Special Dividend Period is one
year or longer and (y) the Applicable Percentage on such Auction Date;
or
(ii) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Dividend Period
of more than 28 days, the product of (1) the highest of (x) the "AA"
Composite Commercial Paper Rate on such Auction Date for the then-ending
Rate Period of such series, if such Rate Period is less than one year, or
the Treasury Rate on such Auction Date for such Rate Period, if such Rate
Period is one year or longer, (y) the "AA" Composite Commercial Paper Rate
on such Auction Date for the Special Dividend Period of such series for
which the Auction is being held if such Special Dividend Period is less
than one year or the Treasury Rate on such Auction Date for the Special
Dividend Period for which the Auction is being held if such Special
Dividend Period is one year or longer, and (z) the "AA" Composite
Commercial Paper Rate on such Auction Date for a Minimum Dividend Period
and (2) the Applicable Percentage on such Auction Date.
The applicable "AA" Composite Commercial Paper Rates and Treasury Rates
will be the rates announced on such Auction Date for the Business Day
immediately prior to such Auction Date.
The "Applicable Percentage" will be a percentage, determined as set forth
below, based on the prevailing rating of the APS in effect at the close of
business on the Business Day next preceding such Auction Date:
APPLICABLE
PREVAILING RATING PERCENTAGE
----------------- ----------
"aa3"/AA- or higher....................................... 110%
"a3"/A-................................................... 125%
"baa3"/BBB-............................................... 150%
"ba3"/BB-................................................. 200%
Below "ba3"/BB-........................................... 250%
provided, however, that in the event the Fund has notified the Auction Agent of
its intent to allocate income that is taxable for federal income tax purposes to
the APS prior to any Auction, for purposes of determining the Maximum Rate with
respect to such Auction the Applicable Percentage in the foregoing table shall
be divided by the quantity 1 minus 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; provided,
however, that the Applicable Percentage shall be divided in the foregoing manner
only to the extent that the portion of the dividend on the APS for such Rate
Period that represents the allocation of taxable income to the APS. If the APS
are rated by only one rating agency, such rating will be the prevailing rating.
If the ratings for the APS are split between two of the foregoing categories,
the lower rating will determine the prevailing rating.
S-14
If an Auction for any Dividend Period of any series of APS is not held for
any reason or if the Fund fails to pay in a timely manner to the Auction Agent
the full amount of any dividend on, or Redemption Price of, shares of any series
of APS and such failure has not been cured as set forth below prior to any
succeeding Dividend Period thereof, then, subject to the next paragraph, the
dividend rate on the shares of such series for any such Dividend Period will be
the Maximum Rate for such series on the Auction Date for such Dividend Period.
If the Fund fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the Redemption Price of, any shares of any series
of APS during any Rate Period thereof (other than any Special Dividend Period
consisting of four or more Dividend Periods or any Rate Period succeeding any
Special Dividend Period consisting of four or more Dividend Periods during which
such a failure occurred that has not been cured), and, prior to 12:00 Noon on
the third Business Day next succeeding the date on which such failure occurred,
such failure shall not have been cured or the Fund shall not have paid a late
charge, then Auctions for such series will be suspended until such failure is so
cured and the dividend rate for such shares of APS for each Dividend Period
thereof commencing after such failure to and including the Dividend Period, if
any, during which such failure is so cured shall be a rate per annum equal to
the Maximum Rate on the Auction Date for each such Dividend Period (but with the
prevailing rating for such shares, for purposes of determining such Maximum
Rate, being deemed to be "Below "ba3"/BB-"). If the Fund fails to pay in a
timely manner to the Auction Agent the full amount of any dividend on, or the
Redemption Price of, any shares of any series of APS during a Special Dividend
Period thereof consisting of four or more Dividend Periods, or during any
Dividend Period thereof succeeding any Special Dividend Period consisting of
four or more Dividend Periods during which such a failure occurred that has not
been cured, and such failure shall not have been cured, then Auctions for such
series will be suspended until such failure is so cured and the dividend rate
for such shares of APS for each Dividend Period thereof commencing after such
failure to and including the Dividend Period, if any, during which such failure
is so cured shall be a rate per annum equal to the Maximum Rate on the Auction
Date for each such Dividend Period (but with the prevailing rating for such
shares, for purposes of determining such Maximum Rate, being deemed to be "Below
"ba3"/BB-").
The Fund, at its option, may designate any succeeding Dividend Period of
any series of APS as a Special Dividend Period which shall consist of such
number of days or whole years as the Board of Trustees shall specify; provided,
however, that such designation shall be effective only if (i) notice thereof
shall have been given as provided in the APS Provisions, (ii) any failure to pay
in a timely manner to the Auction Agent the full amount of any dividend on, or
the Redemption Price of, shares of such series of APS shall have been cured
(iii) Sufficient Clearing Bids for such series shall have existed in an Auction
held on the Auction Date immediately preceding the first day of such proposed
Special Dividend Period, (iv) if the Fund shall have mailed a notice of
redemption with respect to any shares of such series, the Redemption Price with
respect to such shares shall have been deposited with the Auction Agent, and (v)
in the event the Fund wishes to designate any succeeding Dividend Period for
such series as a Special Dividend Period consisting of more than 28 days, the
Fund has received written confirmation from S&P (if S&P is then rating the APS)
and Moody's (if Moody's is then rating the APS) that such designation would not
affect the rating then assigned by S&P to such series.
S-15
If the Fund retroactively allocates any net capital gains or other income
taxable for federal income tax purposes to the APS without having given advance
notice thereof to the Auction Agent as described in the APS Provisions by reason
of the fact that such allocation is made as a result of (i) the realization of
net capital gains or other income taxable for federal income tax purposes, (ii)
the redemption of all or a portion of the outstanding APS or (iii) the
liquidation of the Fund (such allocation is referred to herein as a "Retroactive
Taxable Allocation"), the Fund will simultaneously, if practicable, with such
allocation but in no event later than 270 days after the end of the Fund's
taxable year in which a Retroactive Taxable Allocation is made, provide notice
thereof to the Auction Agent and to each holder of APS (initially Cede & Co. as
nominee of DTC) during such taxable year at such holder's address as the same
appears or last appeared on the share books of the Fund. The Fund 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 shares of APS), out of funds
legally available therefor, an amount equal to the aggregate Additional
Dividends (as defined below) with respect to all Retroactive Taxable Allocations
made to such holders during the taxable year in question.
"Additional Dividends" means payment to a Holder of APS of an amount which,
when taken together with the aggregate amount of Retroactive Taxable Allocations
made to such Holder with respect to the taxable year in question, would cause
such Holder's dividends in dollars (after federal income tax consequences as
described below) from the aggregate of both the Retroactive Taxable Allocations
and the Additional Dividends 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. State taxes imposed on the Additional Dividends, however, may
reduce the amount of after tax cash a holder would have had if there were no
Retroactive Taxable Allocation. Such Additional Dividends shall be calculated
(i) without consideration being given to the time value of money; (ii) assuming
that no holder of APS is subject to the federal alternative minimum tax with
respect to dividends received from the Fund; and (iii) assuming that each
Retroactive Taxable Allocation would be taxable in the hands of each holder of
APS at the maximum marginal regular federal individual income tax rate
applicable to ordinary income or net capital gains, as applicable, or the
maximum marginal regular federal corporate income tax rate, whichever is
greater, in effect during the taxable year in question.
The Auctions. On each Auction Date for each series of APS (the Business
Day prior to the beginning of each Rate Period for such series), each Existing
Holder may submit Orders through a Broker-Dealer to the Auction Agent as
follows:
Hold Order: indicating its desire to hold without regard to the
Applicable Rate for the next Rate Period.
Bid: indicating its desire to sell if the Applicable Rate for
the next Rate Period is less than the rate specified in
such Bid.
Sell Order: indicating its desire to sell without regard to the
Applicable Rate for the next Rate Period.
An Existing Holder may submit different types of Orders in an Auction with
respect to shares of APS then held by such Existing Holder. An Existing Holder
that offers to purchase additional shares of APS is, for purposes of such offer,
treated as a Potential
S-16
Holder as described below. Bids of Existing Holders with rates higher than the
Maximum Rate on the Auction Date will be treated as Sell Orders. A Hold Order
will be deemed to have been submitted on behalf of an Existing Holder if an
Order is not submitted on behalf of such Existing Holder for any reason,
including the failure of a Broker-Dealer to submit such Existing Holder's Order
to the Auction Agent.
Potential Holders of shares of any series of APS may submit Bids in which
they will offer to purchase shares of such series of APS if the Applicable Rate
for the next Rate Period is not less than the rate specified in such Bid. A Bid
by a Potential Holder specifying a rate higher than the Maximum Rate will not be
accepted.
In normal circumstances, whenever the Fund intends to include any net
capital gains or other income that is taxable for federal income tax purposes in
any dividend on shares of any series of APS, the Fund will notify the Auction
Agent of the amount to be so included 15 days prior to the Auction Date on which
the Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Fund, it will in turn notify each
Broker-Dealer, who, on or prior to such Auction Date, in accordance with its
Broker Dealer Agreement, will notify its Existing Holders and Potential Holders
believed by it to be interested in submitting an Order in the Auction to be held
on such Auction Date.
If Sufficient Clearing Bids exist (that is, the number of shares of a
particular series of APS subject to Bids by Potential Holders with rates equal
to or lower than the Maximum Rate is at least equal to the number of shares of
such series of APS subject to Sell Orders by Existing Holders), the Applicable
Rate for such series will be the lowest rate specified in the Submitted Bids
which, taking into account such rate and all lower rates bid by Existing Holders
and Potential Holders, would result in Existing Holders and Potential Holders
owning all the shares of such series of APS available for purchase in the
Auction. If Sufficient Clearing Bids do not exist, the Applicable Rate will be
the Maximum Rate on the Auction Date, and, in such event, Existing Holders that
have submitted Sell Orders may not be able to sell in such Auction all shares of
such series of APS subject to such Sell Orders. If all Existing Holders of
shares of such series of APS submit or are deemed to have submitted Hold Orders,
the Applicable Rate will be the product of (i) (I) the "AA" Composite Commercial
Paper Rate on such Auction Date for the Rate Period for which the Auction is
held, if such Rate Period is less than one year or (2) the Treasury Rate on such
Auction Date for such Rate Period, if such Rate Period is one year or longer and
(ii) 1 minus 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; provided, however, that if the Fund has
notified the Auction Agent of its intent to allocate to the APS in such Rate
Period any net capital gains or other income that is taxable for federal income
tax purposes, the Applicable Rate in respect of that portion of the dividend on
the APS for such Rate Period that represents the allocation of net capital gains
or other income taxable for Federal income tax purposes will be the rate
described in the preceding clause (i) (1) or (2), as applicable, without being
multiplied by the factor set forth in the preceding clause (ii).
The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder continuing to hold or selling,
or a Potential Holder purchasing, a number of shares of APS that is fewer than
the number of shares of APS specified in its Order.
S-17
A Bid placed by an Existing Holder specifying a rate greater than the
Applicable Rate determined in the Auction or a Sell Order shall constitute an
irrevocable offer to sell the shares of such series of APS subject thereto, in
each case at a price per share equal to $25,000. A Bid placed by a Potential
Holder shall constitute an irrevocable offer to purchase the shares of such
series of APS subject thereto at a price per share equal to $25,000 if the rate
specified in such Bid is less than or equal to the Applicable Rate determined in
the Auction. Settlement of purchases and sales will be made on the next Business
Day (also a Dividend Payment Date) after the Auction Date through the Securities
Depository. Purchasers will make payment through their Agent Members in same-day
funds to the Securities Depository against delivery to their respective Agent
Members. The Securities Depository will make payment to the sellers' Agent
Members in accordance with the Securities Depository's normal procedures, which
now provide for payment against delivery by their Agent Members in same-day
funds.
Asset Maintenance. Under the APS Provisions, the Fund must maintain (i)
assets having in the aggregate a Discounted Value at least equal to the APS
Basic Maintenance Amount, and (ii) 1940 Act APS Asset Coverage of at least 200%.
The Discount Factors and guidelines for calculating the Discounted Value of the
Fund's portfolio for purposes of determining whether the APS Basic Maintenance
Amount has been satisfied have been established by Moody's and S&P in connection
with the Fund's receipt of ratings on the shares of each series of APS on their
Date of Original Issue of "aaa" from Moody's and AAA from S&P. So long as any of
the APS are Outstanding and S&P is rating the APS, the Fund will be required
under the APS Provisions to maintain as of each Valuation Date certain Dividend
Coverage Assets with a value not less than the Dividend Coverage Amount (the
"Minimum Liquidity Level").
Mandatory Redemption. If the APS Basic Maintenance Amount or the 1940 Act
APS Asset Coverage is not maintained or restored as specified, the APS will be
subject to mandatory redemption on a date specified by the Board of Trustees,
out of funds legally available therefor, at the redemption price of $25,000 per
share plus an amount equal to accumulated but unpaid dividends thereon (whether
or not earned or declared) to the date fixed for redemption. Any such redemption
will be limited to the number of APS necessary to restore the APS Basic
Maintenance Amount or the 1940 Act APS Asset Coverage, as the case may be.
Optional Redemption. Except as described in the APS Provisions, shares of
each series of APS are redeemable, in whole or in part, at the option of the
Fund, on the next succeeding scheduled Dividend Payment Date applicable to the
shares of such series of APS called for redemption, out of funds legally
available therefor, at the Optional Redemption Price of $25,000 per share plus
(in the case of a Special Dividend Period only) a premium, if any, resulting
from the designation of a Premium Call Period, plus an amount equal to dividends
thereon (whether or not earned or declared) accumulated but unpaid to the date
fixed for redemption; provided that during a Special Dividend Period of 365 days
or more no share of such series of APS will be subject to optional redemption
during any Non-Call Period to which such series of APS may be subject.
Liquidation Preference. The liquidation preference of the shares of each
series of APS is $25,000 per share plus accumulated but unpaid dividends, if
any, thereon (whether or not earned or declared).
S-18
Voting Rights. The 1940 Act requires that the holders of APS, voting as a
separate class, have the right to elect at least two Trustees at all times and
to elect a majority of the Trustees at any time that two years' dividends on the
APS are unpaid. The holders of APS will vote as a separate class or classes on
certain other matters as required under the APS Provisions, the 1940 Act and
Massachusetts law. In addition, each series of APS may vote as a separate series
under certain circumstances.
Master Purchaser's Letter. Each prospective purchaser of shares of any
series of APS or its Broker-Dealer will be required to sign and deliver a Master
Purchaser's Letter to the Auction Agent in which such prospective purchaser or
its Broker-Dealer will agree, among other things, that (i) dispositions of
shares of such series of APS may be made only pursuant to a Bid or a Sell Order
placed in an Auction, or to or through a Broker-Dealer or to a person that has
delivered a signed Master Purchaser's Letter to the Auction Agent, provided that
in the case of all transfers other than those pursuant to Auctions, the Existing
Holder of the shares so transferred, its Agent Member or its Broker-Dealer
advises the Auction Agent of such transfer, and (ii) ownership of shares of such
series of APS will be maintained in book entry form by the Securities Depository
for the account of such prospective purchaser's Agent Member, which in turn will
maintain records of such prospective purchaser's beneficial ownership.
Each prospective purchaser should ask its Broker-Dealer whether such
prospective purchaser should sign a Master Purchaser's Letter. If the
Broker-Dealer submits Orders for such prospective purchaser listing the
Broker-Dealer as the Existing Holder or the Potential Holder, a Master
Purchaser's Letter signed by such prospective purchaser may not be required.
Execution by a prospective purchaser or its Broker-Dealer of a Master
Purchaser's Letter is not a commitment to purchase shares of APS in the offering
being made by this Prospectus or in any Auction, but is a condition precedent to
such purchaser's purchasing shares of APS. In addition, acceptance of a Master
Purchaser's Letter is not a guarantee that shares of APS will be available for
purchase.
The Broker-Dealers may maintain a secondary trading market in the APS
outside of Auctions. They have no obligation to do so, however, and there can be
no assurance that a secondary market for the APS will develop or, if it does
develop, that it will provide holders with liquidity of investment. The APS will
not be registered on any stock exchange or on the National Association of
Securities Dealers Automated Quotations system.
Rating Agency Guidelines. The Fund intends that, so long as shares of any
series of APS are Outstanding, the composition of its portfolio will reflect
guidelines established by Moody's and S&P in connection with the Fund's receipt
on the Date of Original Issue of the shares of each series of APS of ratings of
"aaa" from Moody's and AAA from S&P. Moody's and S&P, nationally recognized
independent rating agencies, issue ratings for various securities reflecting
their perceived creditworthiness of such securities. The Fund will pay certain
fees to Moody's and S&P for rating shares of the APS. The guidelines have been
developed by Moody's and S&P in connection with other issuances of asset-backed
and similar securities, including debt obligations and adjustable rate preferred
stock, generally on a case-by-case basis through discussions with the issuers of
these securities. The guidelines are designed to ensure that assets underlying
outstanding debt or preferred stock will be sufficiently varied and will be of
sufficient quality and amount to
S-19
justify investment grade ratings. The guidelines do not have the force of law,
but have been adopted by the Fund in order to satisfy current requirements
necessary for Moody's and S&P to issue the above-described ratings for shares of
each series of APS, which ratings are generally relied upon by institutional
investors in purchasing such securities. In the context of a closed-end
investment company such as the Fund, therefore, the guidelines provide a set of
tests for portfolio composition and asset coverage that supplement (and in some
cases are more restrictive than) the applicable requirements under the 1940 Act.
A rating agency's guidelines will apply to shares of any series of APS only so
long as such rating agency is rating such shares.
The Fund intends to maintain a Discounted Value for its portfolio at least
equal to the APS Basic Maintenance Amount and, in addition, so long as S&P is
rating the shares of any series of APS, the Fund intends to maintain a Minimum
Liquidity Level. Moody's and S&P have each established separate guidelines for
determining Discounted Value. To the extent any particular portfolio holding
does not satisfy the applicable rating agency's guidelines, all or a portion of
such holding's value will not be included in the calculation of Discounted Value
(as defined by such rating agency). The Moody's and S&P guidelines do not impose
any limitations on the percentage of Fund assets that may be invested in
holdings not eligible for inclusion in the calculation of the Discounted Value
of the Fund's portfolio. The amount of such assets included in the portfolio at
any time may vary depending upon the rating, diversification and other
characteristics of the Eligible Assets included in the portfolio, although it is
not anticipated that in the normal course of business the value of such assets
would exceed 20% of the Fund's total assets.
In managing the Fund's portfolio, the Adviser will not alter the
composition of the Fund's portfolio if, in the reasonable belief of the Adviser,
the effect of any such alteration would be to cause the Fund to have Eligible
Assets with an aggregate Discounted Value, as of the immediately preceding
Valuation Date, less than the APS Basic Maintenance Amount as of such Valuation
Date; provided, however, that in the event that, as of the immediately preceding
Valuation Date, the aggregate Discounted Value of the Fund's Eligible Assets
exceeded the APS Basic Maintenance Amount by five percent or less, the Adviser
will not alter the composition of the Fund's portfolio in a manner reasonably
expected to reduce the aggregate Discounted Value of the Fund's Eligible Assets
unless the Fund shall have confirmed that, after giving effect to such
alteration, the aggregate Discounted Value of the Fund's Eligible Assets would
exceed the APS Basic Maintenance Amount.
Upon any failure to maintain the required Discounted Value, the Fund will
seek to alter the composition of its portfolio to reattain the APS Basic
Maintenance Amount on or prior to the APS Basic Maintenance Cure Date, thereby
incurring additional transaction costs and possible losses and/or gains on
dispositions of portfolio securities. To the extent any such failure is not
cured in a timely manner, shares of each series of APS will be subject to
redemption if either Moody's or S&P is rating such shares.
The Fund may, but is not required to, adopt any modifications to these
guidelines that may hereafter be established by Moody's and S&P. Failure to
adopt any such modifications, however, may result in a change in the ratings
described above or a withdrawal of ratings altogether. In addition, any rating
agency providing a rating for the shares of any series of APS may, at any time,
change or withdraw any such rating. As set forth in the APS Provisions, the
Board of Trustees may, without Shareholder approval,
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modify certain definitions or policies which have been adopted by the Fund
pursuant to the rating agency guidelines, provided the Board of Trustees has
obtained written confirmation from Moody's and S&P, as appropriate, that any
such change would not impair the ratings then assigned by Moody's and S&P to any
series of APS. A rating agency's guidelines will apply to shares of any series
of APS only so long as such rating agency is rating such shares.
The ratings on any series of the APS are not recommendations to purchase,
hold or sell shares of any series of APS, inasmuch as the ratings do not comment
as to market price or suitability for a particular investor nor do the rating
agency guidelines described above address the likelihood that a holder of shares
of any series of APS will be able to sell such shares in an Auction. The ratings
are based on current information furnished to Moody's and S&P by the Fund and
the Adviser, and information obtained from other sources. The ratings may be
changed, suspended or withdrawn as a result of changes in, or the unavailability
of, such information. The Fund's Common Shares have not been rated by a
nationally recognized statistical rating organization.
OTHER INFORMATION
CUSTODY OF ASSETS
Except for segregated assets held by a futures commission merchant pursuant
to rules and regulations promulgated under the 1940 Act, all securities owned by
the Fund and all cash, including proceeds from the sale of shares of the Fund
and of securities in the Fund's investment portfolio, are held by State Street
Bank and Trust Company, 225 West Franklin Street, Boston, Massachusetts 02110,
as custodian. The custodian also provides accounting services to the Fund.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
The Fund's Proxy Voting Policy and Procedures are included as Appendix E to
this Statement of Additional Information. Information on how the Fund voted
proxies relating to portfolio securities during the most recent twelve-month
period ended June 30 is available without charge, upon request, by calling (800)
847-2424 or by visiting our web site at www.vankampen.com. This information is
also available on the SEC's web site at http://www.sec.gov.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
An independent registered public accounting firm for the Fund performs an
annual audit of the Fund's financial statements. The Fund's Board of Trustees
has engaged , located at [ ], to be the Fund's independent
registered public accounting firm.
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FINANCIAL STATEMENTS
Incorporated herein by reference in their respective entireties are (i) the
audited financial statements of the Acquiring Fund for the fiscal year ended
October 31, 2004, as included in Appendix C hereto, (ii) the audited financial
statements of the Target Fund for fiscal year ended June 30, 2004, as included
in Appendix D hereto, and (iii) the unaudited semi-annual financial statements
of the Target Fund for the period ended December 31, 2004, as included in
Appendix E hereto.
PRO FORMA FINANCIAL STATEMENTS
Set forth in Appendix G hereto are unaudited pro forma financial statements
of the Acquiring Fund giving effect to the Reorganization which include: (i) Pro
Forma Condensed Statements of Assets and Liabilities at October 31, 2004, (ii)
Pro Forma Condensed Statement of Operations for the one year period ended
October 31, 2004 and (iii) Pro Forma Portfolio of Investments at October 31,
2004.
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APPENDIX A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
In order to consummate the Reorganization and in consideration of the
promises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, Van Kampen Municipal Income Trust, a registered closed-end
investment company, File No. 811-05230 (the "Target Fund") and Van Kampen Trust
for Investment Grade Municipals (the "Acquiring Fund"), a registered closed-end
investment company, File No. 811-06471, each hereby agree as follows:
1. Representations and Warranties of the Acquiring Fund.
The Acquiring Fund represents and warrants to, and agrees with, the
Target Fund that:
(a) The Acquiring Fund is a trust, with transferable shares, duly
organized, validly existing and in good standing in conformity
with the laws of its jurisdiction of organization, and has the
power to own all of its assets and to carry out this
Agreement. The Acquiring Fund has all necessary federal, state
and local authorizations to carry on its business as it is now
being conducted and to carry out this Agreement.
(b) The Acquiring Fund is duly registered under the 1940 Act of
1940, as amended (the "1940 Act") as a diversified, closed-end
management investment company and such registration has not
been revoked or rescinded and is in full force and effect. The
Acquiring Fund has elected and qualified for the special tax
treatment afforded regulated investment companies ("RICs")
under Section 851 of the Internal Revenue Code (the "Code") at
all times since its inception and intends to continue to so
qualify until consummation of the reorganization contemplated
hereby (the "Reorganization") and thereafter.
(c) The Target Fund has been furnished with the Acquiring Fund's
Annual Report to Shareholders for the fiscal year ended
October 31, 2004, and the audited financial statements
appearing therein, having been audited by Deloitte & Touche,
LLP, independent public auditors, fairly present the financial
position of the Acquiring Fund as of the respective dates
indicated, in conformity with accounting principles generally
accepted in the United States applied on a consistent basis.
(d) An unaudited statement of assets, liabilities and capital of
the Acquiring Fund and an unaudited schedule of investments of
the Acquiring Fund, each as of the Valuation Time (as defined
in Section 5(d) of this Agreement), will be furnished to the
Target Fund, at or prior to the Closing Date for the purpose
of determining the number of Acquiring Fund Common Shares, and
Auction Preferred Shares ("Acquiring Fund APS") of the
Acquiring Fund to be issued pursuant to Section 6 of this
Agreement; each will fairly present the financial position of
the Acquiring Fund as of the Valuation Time in conformity with
generally accepted accounting principles applied on a
consistent basis.
(e) The Acquiring Fund has full power and authority to enter into
and perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement has been
duly authorized by all necessary action of its Board of
Trustees, and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to
the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar
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laws relating to or affecting creditors' rights generally and
court decisions with respect thereto.
(f) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Acquiring
Fund, threatened against it which assert liability on the part
of the Acquiring Fund or which materially affect its financial
condition or its ability to consummate the Reorganization. The
Acquiring Fund is not charged with or, to the best of its
knowledge, threatened with any violation or investigation of
any possible violation of any provisions of any federal, state
or local law or regulation or administrative ruling relating
to any aspect of its business.
(g) The Acquiring Fund is not obligated under any provision of its
Declaration of Trust, as amended, or its by-laws, as amended,
or a party to any contract or other commitment or obligation,
and is not subject to any order or decree which would be
violated by its execution of or performance under this
Agreement, except insofar as the Funds have mutually agreed to
amend such contract or other commitment or obligation to cure
any potential violation as a condition precedent to the
Reorganization.
(h) There are no material contracts outstanding to which the
Acquiring Fund is a party that have not been disclosed in the
N-14 Registration Statement (as defined in subsection (k)
below) or will not otherwise be disclosed to the Target Fund
prior to the Valuation Time.
(i) The Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown on its
statements of assets, liabilities and capital referred to in
subsection (c) above, those incurred in the ordinary course of
its business as an investment company; and those incurred in
connection with the Reorganization. As of the Valuation Time,
the Acquiring Fund will advise each Acquired Fund in writing
of all known liabilities, contingent or otherwise, whether or
not incurred in the ordinary course of business, existing or
accrued as of such time, except to the extent disclosed in the
financial statements referred to in subsection (c) above.
(j) No consent, approval, authorization or order of any court or
government authority is required for the consummation by the
Acquiring Fund of the Reorganization, except such as may be
required under the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934, as amended
(the "1934 Act") and the 1940 Act or state securities laws
(which term as used herein shall include the laws of the
District of Columbia and Puerto Rico).
(k) The registration statement filed by the Acquiring Fund on Form
N-14 which includes the proxy statement of the Target Fund
with respect to the transactions contemplated herein and the
prospectus of the Acquiring Fund relating to the Acquiring
Fund Common Shares and the Acquiring Fund APS to be issued
pursuant to this Agreement, (the "Proxy Statement and
Prospectus"), and any supplement or amendment thereto or to
the documents therein (as amended or supplemented, the "N-14
Registration Statement"), on its effective date, at the time
of the shareholders' meetings referred to in Section 8(a) of
this Agreement and at the Closing Date, insofar as it relates
to the Acquiring Fund (i) complied or will comply in all
material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) did not or will not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading; and the Proxy Statement and
Prospectus included therein did not or will not contain any
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untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; provided, however, that the representations and
warranties in this subsection only shall apply to statements
in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by
the Acquiring Fund for use in the N-14 Registration Statement
as provided in Section 8(e) of this Agreement.
(l) The Acquiring Fund is authorized to issue an unlimited number
of common shares of beneficial interest, par value $.01 per
share, and 100,000,000 preferred shares of beneficial
interest, par value $.01 per share. The Board of Trustees of
the Acquiring Fund has designated 10,600 preferred shares as
Auction Preferred Shares. Each outstanding Common Share of
beneficial interest and each Auction Preferred Share of the
Acquiring Fund is fully paid and non-assessable, and has full
voting rights.
(m) The Acquiring Fund Common Shares and the Acquiring Fund APS to
be issued to the Target Fund pursuant to this Agreement will
have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued
and will be fully paid and nonassessable and will have full
voting rights, and no shareholder of the Acquiring Fund will
have any preemptive right of subscription or purchase in
respect thereof.
(n) At or prior to the Closing Date, the Acquiring Fund Common
Shares to be transferred to the Target Fund for distribution
to the shareholders of the Target Fund on the Closing Date
will be duly qualified for offering to the public in all
states of the United States in which the sale of shares of the
Funds presently are qualified, and there will be a sufficient
number of such shares registered under the 1933 Act and, as
may be necessary, with each pertinent state securities
commission to permit the transfers contemplated by this
Agreement to be consummated.
(o) At or prior to the Closing Date, the Acquiring Fund APS to be
transferred to the Target Fund on the Closing Date will be
duly qualified for offering to the public in all states of the
United States in which the sale of APS of the Target Fund
presently are qualified, and there are a sufficient number of
Acquiring Fund APS registered under the 1933 Act and with each
pertinent state securities commission to permit the transfers
contemplated by this Agreement to be consummated.
(p) At or prior to the Closing Date, the Acquiring Fund will have
obtained any and all regulatory, Trustee and shareholder
approvals necessary to issue the Acquiring Fund Common Shares
and the Acquiring Fund APS to the Target Fund.
(q) The Acquiring Fund has filed, or intends to file, or has
obtained extensions to file, all federal, state and local tax
returns which are required to be filed by it, and has paid or
has obtained extensions to pay, all federal, state and local
taxes shown on said returns to be due and owing and all
assessments received by it, up to and including the taxable
year in which the Closing Date occurs. All tax liabilities of
the Acquiring Fund have been adequately provided for on its
books, and no tax deficiency or liability of the Acquiring
Fund has been asserted and no question with respect thereto
has been raised by the Internal Revenue Service or by any
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state or local tax authority for taxes in excess of those
already paid, up to and including the taxable year in which
the Closing Date occurs.
(r) The Acquiring Fund has elected to qualify and has qualified as
a RIC as of and since its inception; has been a RIC under the
Internal Revenue Code at all times since the end of its first
taxable year when it so qualified; qualifies and will continue
to qualify as a RIC under the Internal Revenue Code; and has
satisfied the distribution requirements imposed by the
Internal Revenue Code for each of its taxable years.
2. Representations and Warranties of the Target Fund.
The Target Fund represents and warrants to, and agrees with, the
Acquiring Fund that:
(a) The Target Fund is a trust, with transferable shares, duly
organized, validly existing and in good standing in conformity
with the laws of the jurisdiction of its organization, and has
the power to own all of its assets and to carry out this
Agreement. The Target Fund has all necessary federal, state
and local authorizations to carry on its business as it is now
being conducted and to carry out this Agreement.
(b) The Target Fund is duly registered under the 1940 Act as a
diversified, closed-end management investment company (File
No. 811-05230), and such registration has not been revoked or
rescinded and is in full force and effect. The Target Fund has
elected and qualified for the special tax treatment afforded
RICs under Section 851 of the Code at all times since its
inception, and intends to continue to so qualify through its
taxable year ending upon liquidation.
(c) As used in this Agreement, the term "Target Fund Investments"
shall mean (i) the investments of the Target Fund shown on the
schedule of its investments as of the Valuation Time furnished
to the Acquiring Fund; and (ii) all other assets owned by the
Target Fund or liabilities incurred as of the Valuation Time.
(d) The Target Fund has full power and authority to enter into and
perform its obligations under this Agreement. The execution,
delivery and performance of this Agreement has been duly
authorized by all necessary action of its Board of Trustees
and this Agreement constitutes a valid and binding contract
enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with respect
thereto.
(e) The Acquiring Fund has been furnished with the Target Fund's
Annual Report to Shareholders for the fiscal year ended June
30, 2004, and the audited financial statements appearing
therein, having been audited by Deloitte & Touche LLP,
independent public accountants, fairly present the financial
position of the Target Fund as of the respective dates
indicated, in conformity with accounting principles generally
accepted in the United States applied on a consistent basis.
(f) An unaudited statement of assets, liabilities and capital of
the Target Fund and an unaudited schedule of investments of
the Target Fund, each as of the Valuation Time, will be
furnished to the Acquiring Fund at or prior to the Closing
Date for the purpose of determining the number of shares of
Acquiring Fund Common Shares and Acquiring Fund APS to be
issued to the Target Fund pursuant to Section 3 of this
Agreement; each
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will fairly present the financial position of the Target Fund
as of the Valuation Time in conformity with generally accepted
accounting principles applied on a consistent basis.
(g) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Target Fund,
threatened against it which assert liability on the part of
the Target Fund or which materially affect its financial
condition or its ability to consummate the Reorganization. The
Target Fund is not charged with or, to the best of its
knowledge, threatened with any violation or investigation of
any possible violation of any provisions of any federal, state
or local law or regulation or administrative ruling relating
to any aspect of its business.
(h) There are no material contracts outstanding to which the
Target Fund is a party that have not been disclosed in the
N-14 Registration Statement or will not otherwise be disclosed
to the Acquiring Fund prior to the Valuation Time.
(i) The Target Fund is not obligated under any provision of its
Declaration of Trust, as amended, or its by-laws, as amended,
or a party to any contract or other commitment or obligation,
and is not subject to any order or decree which would be
violated by its execution of or performance under this
Agreement, except insofar as the Funds have mutually agreed to
amend such contract or other commitment or obligation to cure
any potential violation as a condition precedent to the
Reorganization.
(j) The Target Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its
statements of assets, liabilities and capital referred to
above, those incurred in the ordinary course of its business
as an investment company since [ ], 2005 and those incurred in
connection with the Reorganization. As of the Valuation Time,
the Target Fund will advise the Acquiring Fund in writing of
all known liabilities, contingent or otherwise, whether or not
incurred in the ordinary course of business, existing or
accrued as of such time.
(k) The Target Fund has filed, or intends to file, or has obtained
extensions to file, all federal, state and local tax returns
which are required to be filed by it, and has paid or has
obtained extensions to pay, all federal, state and local taxes
shown on said returns to be due and owing and all assessments
received by it, up to and including the taxable year in which
the Closing Date occurs. All tax liabilities of the Target
Fund have been adequately provided for on its books, and no
tax deficiency or liability of the Target Fund has been
asserted and no question with respect thereto has been raised
by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid, up to and
including the taxable year in which the Closing Date occurs.
(l) At both the Valuation Time and the Closing Date, the Target
Fund will have full right, power and authority to sell,
assign, transfer and deliver the Target Fund Investments. At
the Closing Date, subject only to the obligation to deliver
the Target Fund Investments as contemplated by this Agreement,
the Target Fund will have good and marketable title to all of
the Target Fund Investments, and the Acquiring Fund will
acquire all of the Target Fund Investments free and clear of
any encumbrances, liens or security interests and without any
restrictions upon the transfer thereof (except those imposed
by the federal or state securities laws and those
imperfections of title or encumbrances as do not materially
detract from the value or use of the Target Fund Investments
or materially affect title thereto).
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(m) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Target Fund of the Reorganization, except such as may be
required under the 1933 Act, the 1934 Act, the 1940 Act or
state securities laws.
(n) The N-14 Registration Statement, on its effective date, at the
time of the shareholders' meetings referred to in Section 5(a)
of this Agreement and on the Closing Date, insofar as it
relates to the Target Fund (i) complied or will comply in all
material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations
thereunder, and (ii) did not or will not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading; and the Proxy Statement and
Prospectus included therein did not or will not contain any
untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; provided, however, that the representations and
warranties in this subsection shall apply only to statements
in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by
the Target Fund for use in the N-14 Registration Statement as
provided in Section 5(e) of this Agreement.
(o) The Target Fund is authorized to issue an unlimited number of
common shares of beneficial interest, par value $.01 per
share, and 1,000,000 preferred shares of beneficial interest,
par value $.01 per share. The Board of Trustees of the Target
Fund has designated 330 preferred shares as Rate Adjusted
Tax-Exempt Shares ("Target Fund RATES") (the Target Fund RATES
and the Acquiring Fund APS are sometimes referred to herein
collectively as "Preferred Shares"). Each outstanding common
share of beneficial interest and each outstanding Rate
Adjusted Tax-Exempt Share of the Target Fund is fully paid and
nonassessable and has full voting rights.
(p) All of the issued and outstanding Target Fund Common Shares
and Target Fund RATES were offered for sale and sold in
conformity with all applicable federal and state securities
laws.
(q) The books and records of the Target Fund made available to the
Acquiring Fund and/or its counsel are substantially true and
correct and contain no material misstatements or omissions
with respect to the operations of the Target Fund.
(r) The Target Fund will not sell or otherwise dispose of any of
the Acquiring Fund Common Shares or Acquiring Fund APS to be
received in the Reorganization, except in distribution to the
shareholders of the Target Fund, as provided in Section 3 of
this Agreement.
(s) The Target Fund has elected to qualify and has qualified as
"regulated investment company" under the Internal Revenue Code
(a "RIC") as of and since its inception; has been a RIC under
the Internal Revenue Code at all times since the end of its
first taxable year when it so qualified; qualifies and will
continue to qualify as a RIC under the Internal Revenue Code
for its taxable year ending upon its liquidation; and has
satisfied the distribution requirements imposed by the
Internal Revenue Code for each of its taxable years.
3. The Reorganization.
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(a) Subject to receiving the requisite approvals of the
shareholders of the Target Fund, and to the other terms and
conditions contained herein, (i) the Target Fund agrees to
convey, transfer and deliver to the Acquiring Fund and the
Acquiring Fund agrees to acquire from the Target Fund, on the
Closing Date, all of the Target Fund Investments (including
interest accrued as of the Valuation Time on debt
instruments), and assume substantially all of the liabilities
of the Target Fund, in exchange solely for that number of
Acquiring Fund Common Shares and Acquiring Fund RATES provided
in Section 4 of this Agreement; Pursuant to this Agreement, as
soon as practicable after the Closing Date, the Target Fund
will distribute all Acquiring Fund Common Shares and Acquiring
Fund APS received by it to its shareholders in exchange for
their Target Fund Common Shares and Target Fund RATES. Such
distributions shall be accomplished by the opening of
shareholder accounts on the share ledger records of the
Acquiring Fund in the amounts due the shareholders of the
Target Fund based on their respective holdings in the Target
Fund as of the Valuation Time.
(b) If it is determined that the portfolios of the Target Fund and
the Acquiring Fund, when aggregated, would contain investments
exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Target
Fund, if requested by the Acquiring Fund, will dispose of a
sufficient amount of such investments as may be necessary to
avoid violating such limitations as of the Closing Date.
Notwithstanding the foregoing, (a) nothing herein will require
the Target Fund to dispose of any portfolios, securities or
other investments, if, in the reasonable judgment of the
Target Fund's trustees or investment adviser, such disposition
would adversely affect the tax-free nature of the
Reorganization for federal income tax purposes or would
otherwise not be in the best interests of the Target Fund and
(b) nothing will permit the Target Fund to dispose of any
portfolio securities or other investments if, in the
reasonable judgment of the Acquiring Fund's trustees or
investment adviser, such disposition would adversely affect
the tax-free nature of the Reorganization for federal income
tax purposes or would otherwise not be in the best interests
of the Target Fund.
(c) Prior to the Closing Date, the Target Fund shall declare a
dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to their
respective shareholders all of their respective net investment
company taxable income to and including the Closing Date, if
any (computed without regard to any deduction for dividends
paid), and all of its net capital gain, if any, realized to
and including the Closing Date. In this regard and in
connection with the Reorganization, the last dividend period
for the Target Fund RATES prior to the Closing Date may be
shorter than the dividend period for such Target Fund RATES
determined as set forth in the applicable Certificate of Vote
pertaining to such Target Fund RATES.
(d) The Target Fund will pay or cause to be paid to the Acquiring
Fund any interest the Target Fund receives on or after the
Closing Date with respect to any of the Target Fund
Investments transferred to the Acquiring Fund hereunder.
(e) The Valuation Time shall be 4:00 p.m., Eastern time, on [ ],
2005, or such earlier or later day and time as may be mutually
agreed upon in writing (the "Valuation Time").
(e) Recourse for liabilities assumed from the Target Fund by the
Acquiring Fund in the Reorganization will be limited to the
net assets acquired by the Acquiring Fund. The known
liabilities of the Target Fund, as of the Valuation Time,
shall be confirmed to the Acquiring Fund pursuant to Section
2(j) of this Agreement.
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(f) The Target Fund will be terminated following the Closing Date
by terminating its registration under the 1940 Act and its
organization under Massachusetts law and will withdraw its
authority to do business in any state where it is required to
do so.
(g) The Acquiring Fund will file with the Secretary of State of
The Commonwealth of Massachusetts, as required, any amendment
to its Certificate of Vote establishing the powers, rights and
preferences of the Acquiring Fund APS prior to the closing of
the Reorganization.
4. Issuance and Valuation of Acquiring Fund Common Shares and APS in the
Reorganization.
Acquiring Fund Common Shares and Acquiring Fund APS of an aggregate net
asset value or liquidation preference, as the case may be, equal to the value of
the assets of the Target Fund acquired in the Reorganization determined as
hereinafter provided, reduced by the amount of liabilities of the Target Fund
assumed by the Acquiring Fund in the Reorganization, shall be issued by the
Acquiring Fund to the Target Fund in exchange for such assets of the Target
Fund, plus cash in lieu of fractional shares. The Acquiring Fund will issue to
the Target Fund (i) a number of Acquiring Fund Common Shares, the aggregate net
asset value of which will equal the aggregate net asset value of the Target Fund
Common Shares, determined as set forth below, and (ii) a number of Acquiring
Fund APS, the aggregate liquidation preference and value of which will equal the
aggregate liquidation preference and value of the Target Fund RATES, determined
as set forth below.
The net asset value of each of the Funds and the liquidation preference
and value of the Preferred Shares of each of the Funds shall be determined as of
the Valuation Time in accordance with the procedures described in (i) the
prospectus of the Acquiring Fund, dated January 24, 1992, relating to the
Acquiring Fund Common Shares and (ii) the prospectus of the Acquiring Fund,
dated August 19, 1988, relating to the Acquiring Fund APS, and no formula will
be used to adjust the net asset value so determined of any Fund to take into
account differences in realized and unrealized gains and losses. Values in all
cases shall be determined as of the Valuation Time. The value of the Target Fund
Investments to be transferred to the Acquiring Fund shall be determined by the
Acquiring Fund pursuant to the procedures utilized by the Acquiring Fund in
valuing its own assets and determining its own liabilities for purposes of the
Reorganization.
Such valuation and determination shall be made by the Acquiring Fund in
cooperation with the Target Fund and shall be confirmed in writing by the
Acquiring Fund to the Target Fund. The net asset value per share of the
Acquiring Fund Common Shares and the liquidation preference and value per share
of the Acquiring Fund APS shall be determined in accordance with such procedures
and the Acquiring Fund shall certify the computations involved. For purposes of
determining the net asset value of a Common Share of each Fund, the value of the
securities held by the Fund plus any cash or other assets (including interest
accrued but not yet received) minus all liabilities (including accrued expenses)
and the aggregate liquidation value of the outstanding shares of Preferred
Shares of that Fund is divided by the total number of Common Shares of that Fund
outstanding at such time.
The Acquiring Fund shall issue to the Target Fund separate certificates
or share deposit receipts for the Acquiring Fund Common Shares and the Acquiring
Fund APS, each registered in the name of the Target Fund. The Target Fund shall
then distribute the Acquiring Fund Common Shares and the Acquiring Fund APS to
the holders of Target Fund Common Shares and Target Fund RATES by redelivering
the certificates or share deposit receipts evidencing ownership of (i) the
Acquiring Fund Common Shares to State Street Bank and Trust Company, as the
transfer agent and registrar for the Acquiring Fund Common Shares for
distribution to the holders of Target Fund Common Shares on the basis of such
holder's proportionate interest in the aggregate net asset value of the Common
Shares of the
A-8
Target Fund and (ii) the Acquiring Fund APS to Bankers Trust Company, as the
transfer agent and registrar for the Acquiring Fund APS for distribution to the
holders of Target Fund RATES on the basis of such holder's proportionate
interest in the aggregate liquidation preference and value of the APS of the
Target Fund. With respect to any Target Fund shareholder holding certificates
evidencing ownership of Target Fund Common Shares as of the Closing Date, and
subject to the Acquiring Fund being informed thereof in writing by the Target
Fund, the Acquiring Fund will not permit such shareholder to receive new
certificates evidencing ownership of the Acquiring Fund Common Shares or
Acquiring Fund APS, exchange Acquiring Fund Common Shares or Acquiring Fund APS
credited to such shareholder's account for shares of other investment companies
managed by the Adviser or any of its affiliates, or pledge or redeem such
Acquiring Fund Common Shares or Acquiring Fund APS, in any case, until notified
by the Target Fund or its agent that such shareholder has surrendered his or her
outstanding certificates evidencing ownership of Target Fund Common Shares or
Target Fund RATES or, in the event of lost certificates, posted adequate bond.
The Target Fund, at its own expense, will request its shareholders to surrender
their outstanding certificates evidencing ownership of Target Fund Common Shares
or Target Fund RATES, as the case may be, or post adequate bond therefor.
No fractional shares of Acquiring Fund Common Shares will be issued to
holders of Target Fund Common Shares. In lieu thereof, the Acquiring Funds
transfer agent, State Street Bank and Trust Company, will aggregate all
fractional shares of Acquiring Fund Common Shares and sell the resulting full
shares on the New York Stock Exchange at the current market price for Acquiring
Fund Common Shares for the account of all holders of fractional interests, and
each such holder will receive such holder's pro rata share of the proceeds of
such sale upon surrender of such holder's certificates representing Acquiring
Fund Common Shares.
5. Payment of Expenses.
(a) With respect to expenses incurred in connection with the
Reorganization, the Target Fund and the Acquiring Fund will
share, in proportion to their respective projected declines in
total operating expenses, all expenses incurred in connection
with the Reorganization, including, but not limited to, all
costs related to the preparation and distribution of materials
distributed to each Fund's Board of Trustees, expenses
incurred in connection with the preparation of the Agreement
and Plan of Reorganization, a registration statement on Form
N-14, SEC and state securities commission filing fees and
legal and audit fees in connection with the Reorganization,
costs of printing and distributing this Proxy Statement and
Prospectus, legal fees incurred preparing each Fund's board
materials, attending each Fund's board meetings and preparing
the minutes, auditing fees associated with each Fund's
financial statements, stock exchange fees, rating agency fees,
portfolio transfer taxes (if any) and any similar expenses
incurred in connection with the Reorganization.
(b) If for any reason the Reorganization is not consummated, no
party shall be liable to any other party for any damages
resulting therefrom, including, without limitation,
consequential damages.
6. Covenants of the Funds.
(a) Each Fund covenants to operate its business as presently
conducted between the date hereof and the Closing Date.
(b) The Target Fund agrees that following the consummation of the
Reorganization, it will terminate in accordance with the laws
of The Commonwealth of Massachusetts and any
A-9
other applicable law, it will not make any distributions of
any Acquiring Fund Common Shares or Acquiring Fund APS other
than to its respective shareholders and without first paying
or adequately providing for the payment of all of its
respective liabilities not assumed by the Acquiring Fund, if
any, and on and after the Closing Date it shall not conduct
any business except in connection with its termination.
(c) The Target Fund undertakes that if the Reorganization is
consummated, it will file an application pursuant to Section
8(f) of the 1940 Act for an order declaring that the Target
Fund has ceased to be a registered investment company.
(d) The Acquiring Fund will file the N-14 Registration Statement
with the Securities and Exchange Commission (the "Commission")
and will use its best efforts to provide that the N-14
Registration Statement becomes effective as promptly as
practicable. Each Fund agrees to cooperate fully with the
other, and each will furnish to the other the information
relating to itself to be set forth in the N-14 Registration
Statement as required by the 1933 Act, the 1934 Act the 1940
Act, and the rules and regulations thereunder and the state
securities laws.
(e) The Acquiring Fund has no plan or intention to sell or
otherwise dispose of the Target Fund Investments, except for
dispositions made in the ordinary course of business.
(f) Each of the Funds agrees that by the Closing Date all of its
federal and other tax returns and reports required to be filed
on or before such date shall have been filed and all taxes
shown as due on said returns either have been paid or adequate
liability reserves have been provided for the payment of such
taxes.
The intention of the parties is that the transaction contemplated by
this Agreement will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code. Neither the Acquiring Fund nor the Target
Fund shall take any action or cause any action to be taken (including, without
limitation, the filing of any tax return) that is inconsistent with such
treatment or results in the failure of the transaction to qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. At or prior to the Closing Date, the Acquiring Fund and the Target Fund
will take such action, or cause such action to be taken, as is reasonably
necessary to enable Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to
the Funds, to render the tax opinion required herein (including, without
limitation, each party's execution of representations reasonably requested by
and addressed to Skadden, Arps, Slate, Meagher & Flom LLP).
In connection with this covenant, the Funds agree to cooperate with
each other in filing any tax return, amended return or claim for refund,
determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. The Acquiring Fund agrees to retain for a period of ten (10) years
following the Closing Date all returns, schedules and work papers and all
material records or other documents relating to tax matters of the Target Fund
for each of such Fund's taxable period first ending after the Closing Date and
for all prior taxable periods.
After the Closing Date, the Target Fund shall prepare, or cause its
agents to prepare, any federal, state or local tax returns required to be filed
by such fund with respect to its final taxable year ending with its complete
liquidation and for any prior periods or taxable years and further shall cause
such tax returns to be duly filed with the appropriate taxing authorities.
Notwithstanding the aforementioned provisions of this subsection, any expenses
incurred by the Target Fund (other than for payment of taxes) in connection with
the preparation and filing of said tax returns after the Closing Date shall be
borne by such Fund to
A-10
the extent such expenses have been accrued by such Fund in
the ordinary course without regard to the Reorganization; any excess expenses
shall be borne by Van Kampen or an affiliate thereof.
(g) The Target Fund agrees to mail to its shareholders of record
entitled to vote at the annual meeting of shareholders at
which action is to be considered regarding this Agreement, in
sufficient time to comply with requirements as to notice
thereof, a combined proxy statement and prospectus which
complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a)
of the 1940 Act, and the rules and regulations, respectively,
thereunder. (h) Following the consummation of the
Reorganization, the Acquiring Fund will stay in existence and
continue its business as a diversified, closed-end management
investment company registered under the 1940 Act.
7. Closing Date.
(a) Delivery of the assets of the Target Fund to be transferred,
together with any other Target Fund Investments, and the
Acquiring Fund Common Shares and Acquiring Fund APS to be
issued as provided in this Agreement, shall be made at such
place and time as the Funds shall mutually agree on the next
full business day following the Valuation Time, or at such
other time and date agreed to by the Funds, the date and time
upon which such delivery is to take place being referred to
herein as the "Closing Date." To the extent that any Target
Fund Investments, for any reason, are not transferable on the
Closing Date, the Target Fund shall cause such Target Fund
Investments to be transferred to the Acquiring Fund's account
with its custodian at the earliest practicable date
thereafter.
(b) The Target Fund will deliver to the Acquiring Fund on the
Closing Date confirmation or other adequate evidence as to the
tax basis of the Target Fund Investments delivered to the
Acquiring Fund hereunder, certified by Deloitte & Touche LLP.
(c) As soon as practicable after the close of business on the
Closing Date, the Target Fund shall deliver to the Acquiring
Fund a list of the names and addresses of all of the
shareholders of record of the Target Fund on the Closing Date
and the number of shares of Target Fund Common Shares and
Target Fund RATES owned by each such shareholder, certified to
the best of its knowledge and belief by the transfer agent for
the Target Fund or by its President.
8. Conditions of the Target Fund.
The obligations of the Target Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the affirmative
vote of the Board of Trustees of the Target Fund and by the
affirmative vote of the holders of (i) a majority of the
outstanding Target Fund Common Shares and 66 2/3% of the
outstanding Target Fund RATES, each voting separately as a
class.
(b) That the Target Fund shall have received from the Acquiring
Fund a statement of assets, liabilities and capital, with
values determined as provided in Section 4 of this Agreement,
together with a schedule of such Fund's investments, all as of
the Valuation Time, certified on the Target Fund's behalf by
its President (or any Vice President) and its Treasurer, and a
certificate signed by the Fund's President (or any Vice
President) and its Treasurer, dated as of the Closing Date,
certifying that as of the Valuation Time and as of
A-11
the Closing Date there has been no material adverse change in
the financial position of the Target Fund since the date of
such Fund's most recent Annual or Semi-Annual Report as
applicable, other than changes in its portfolio securities
since that date or changes in the market value of its
portfolio securities.
(c) That the Acquiring Fund shall have furnished to the Target
Fund a certificate signed by the Acquiring Fund's President
(or any Vice President) and its Treasurer, dated as of the
Closing Date, certifying that, as of the Valuation Time and as
of the Closing Date all representations and warranties of the
Acquiring Fund made in this Agreement are true and correct in
all material respects with the same effect as if made at and
as of such dates, and that the Acquiring Fund has complied
with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied at or prior to each
of such dates.
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(e) The Target Fund shall have received the opinion(s) of Skadden,
Arps, Slate, Meagher & Flom LLP, counsel for the Acquiring
Fund, dated as of the Closing Date, addressed to the Target
Fund substantially in the form and to the effect that:
(i) the Acquiring Fund is duly formed and validly
existing under the laws of its state of organization;
(ii) the Acquiring Fund is registered as a closed-end,
management investment company under the 1940 Act;
(iii) this Agreement and the reorganization provided for
herein and the execution of this Agreement have been
duly authorized and approved by all requisite action
of Acquiring Fund and this Agreement has been duly
executed and delivered by the Acquiring Fund and
(assuming the Agreement is a valid and binding
obligation of the other parties thereto) is a valid
and binding obligation of the Acquiring Fund;
(iv) neither the execution or delivery by the Acquiring
Fund of this Agreement nor the consummation by the
Acquiring Fund of the transactions contemplated
thereby violate any provision of any statute or any
published regulation or any judgment or order
disclosed to counsel by the Acquiring Fund as being
applicable to the Acquiring Fund;
(v) the Acquiring Fund Common Shares and Acquiring Fund
APS have each been duly authorized and, upon issuance
thereof in accordance with this Agreement, each will
be validly issued and fully paid; and
(vi) to their knowledge and subject to the qualifications
set forth below, the execution and delivery by the
Acquiring Fund of the Agreement and the consummation
of the transactions therein contemplated do not
require, under the laws of its state of organization
or any state in which the Acquiring Fund is qualified
to do business or the federal laws of the United
States, the consent, approval, authorization,
registration, qualification or order of, or filing
with, any court or governmental agency or body
(except such as have been obtained). Counsel need
express no
A-12
opinion, however, as to any such consent, approval,
authorization, registration, qualification, order or
filing
(a) which may be required as a result of the involvement of other
parties to the Agreement in the transactions contemplated by
the Agreement because of their legal or regulatory status or
because of any other facts specifically pertaining to them;
(b) the absence of which does not deprive the Target Fund of any
material benefit under the Agreement; or
(c) which can be readily obtained without significant delay or
expense to the Target Fund, without loss to the Target Fund of
any material benefit under the Agreement and without any
material adverse effect on the Target Fund during the period
such consent, approval, authorization, registration,
qualification or order was obtained. The foregoing opinion
relates only to consents, approvals, authorizations,
registrations, qualifications, orders or filings under (a)
laws which are specifically referred to in this opinion, (b)
laws of its state of organization or any state in which the
Acquiring Fund is qualified to do business and the federal
laws of the United States which, in counsel's experience, are
normally applicable to transactions of the type provided for
in the Agreement and (c) court orders and judgments disclosed
to counsel by the Acquiring Fund in connection with the
opinion. In addition, although counsel need not have
specifically considered the possible applicability to the
Acquiring Fund of any other laws, orders or judgments, nothing
has come to their attention in connection with their
representation of the Acquiring Fund in this transaction that
has caused them to conclude that any other consent, approval,
authorization, registration, qualification, order or filing is
required.
(d) The Target Fund shall have obtained an opinion from Skadden,
Arps, dated as of the Closing Date, addressed to the Target
Fund, that the consummation of the transactions set forth in
this Agreement comply with the requirements of a
reorganization as described in Section 368(a) of the Internal
Revenue Code.
(e) That all proceedings taken by each of the Funds and its
counsel in connection with the Reorganization and all
documents incidental thereto shall be satisfactory in form and
substance to the others.
(f) That the N-14 Registration Statement shall have become
effective under the 1933 Act, and no stop order suspending
such effectiveness shall have been instituted or, to the
knowledge of the Acquiring Fund, be contemplated by the SEC.
9. Acquiring Fund Conditions.
The obligations of the Acquiring Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the Board of
Trustees of the Acquiring Fund and the Target Fund shall have
delivered to the Acquiring Fund a copy of the resolution
approving this Agreement adopted by the Target Fund's Board of
Trustees, and a certificate setting forth the vote of the
shareholders of the Target Fund obtained, each certified by
its Secretary.
(b) That the Target Fund shall have furnished to the Acquiring
Fund a statement of its assets, liabilities and capital, with
values determined as provided in Section 4 of this Agreement,
A-13
together with a schedule of investments with their respective
dates of acquisition and tax costs, all as of the Valuation
Time, certified on such Fund's behalf by its President (or any
Vice President) and its Treasurer, and a certificate signed by
such Fund's President (or any Vice President) and its
Treasurer, dated as of the Closing Date, certifying that as of
the Valuation Time and as of the Closing Date there has been
no material adverse change in the financial position of the
Target Fund since the date of such Fund's most recent Annual
Report or Semi-Annual Report, as applicable, other than
changes in the Target Fund Investments since that date or
changes in the market value of the Target Fund Investments.
(c) That the Target Fund shall have furnished to the Acquiring
Fund a certificate signed by such Fund's President (or any
Vice President) and its Treasurer, dated the Closing Date,
certifying that as of the Valuation Time and as of the Closing
Date all representations and warranties of the Target Fund
made in this Agreement are true and correct in all material
respects with the same effect as if made at and as of such
dates and the Target Fund has complied with all of the
agreements and satisfied all of the conditions on its part to
be performed or satisfied at or prior to such dates.
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(e) That the Acquiring Fund shall have received the opinion of
Skadden, Arps, counsel for the Target Fund, dated as of the
Closing Date, addressed to the Acquiring Fund, substantially
in the form and to the effect that:
(i) the Target Fund is duly formed and validly existing
under the laws of its state of organization;
(ii) the Target Fund is registered as a closed-end,
management investment company under the 1940 Act;
(iii) this Agreement and the reorganization provided for
herein and the execution of this Agreement have been
duly authorized by all requisite action of the Target
Fund and this Agreement has been duly executed and
delivered by the Target Fund and (assuming the
Agreement is a valid and binding obligation of the
other parties thereto) is a valid and binding
obligation of the Target Fund;
(iv) neither the execution or delivery by the Target Fund
of this Agreement nor the consummation by the Target
Fund of the transactions contemplated thereby violate
any provision of any statute, or any published
regulation or any judgment or order disclosed to them
by the Target Fund as being applicable to the Target
Fund; and
(v) to their knowledge and subject to the qualifications
set forth below, the execution and delivery by the
Trust on behalf of the Target Fund of the Agreement
and the consummation of the transactions therein
contemplated do not require, under the laws of its
state of organization or any state in which the
Target Fund is qualified to do business, or the
federal laws of the United States, the consent,
approval, authorization, registration, qualification
or order of, or filing with, any court or
governmental agency or body (except such as have been
obtained under the 1933 Act, 1934 Act, the 1940 Act
or the rules and regulations thereunder.) Counsel
A-14
need express no opinion, however, as to any such
consent, approval, authorization, registration,
qualification, order or filing;
(f) which may be required as a result of the involvement of other
parties to the Agreement in the transactions contemplated by
the Agreement because of their legal or regulatory status or
because of any other facts specifically pertaining to them;
(g) the absence of which does not deprive the Acquiring Fund of
any material benefit under such agreements; or
(h) which can be readily obtained without significant delay or
expense to the Acquiring Fund, without loss to the Acquiring
Fund of any material benefit under the Agreement and without
any material adverse effect on them during the period such
consent, approval, authorization, registration, qualification
or order was obtained. The foregoing opinion relates only to
consents, approvals, authorizations, registrations,
qualifications, orders or filings under (a) laws which are
specifically referred to in the opinion, (b) laws of its state
of organization or any state in which the Target Fund is
qualified to do business and the federal laws of the United
States which, in our experience, are normally applicable to
transactions of the type provided for in the Agreement and (c)
court orders and judgments disclosed to them by the Target
Fund in connection with the opinion. In addition, although
counsel need not have specifically considered the possible
applicability to the Target Fund of any other laws, orders or
judgments, nothing has come to their attention in connection
with their representation of the Target Fund in this
transaction that has caused them to conclude that any other
consent, approval, authorization, registration, qualification,
order or filing is required.
(i) That the Acquiring Fund shall have obtained an opinion from
Skadden, Arps, counsel for the Target Fund, dated as of the
Closing Date, addressed to the Acquiring Fund, that the
consummation of the transactions set forth in this Agreement
comply with the requirements of a reorganization as described
in Section 368(a) of the Internal Revenue Code.
(j) That the N-14 Registration Statement shall have become
effective under the 1933 Act and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge
of any Acquired Fund, be contemplated by the SEC.
(k) That all proceedings taken by the Target Fund and its counsel
in connection with the Reorganization and all documents
incidental thereto shall be satisfactory in form and substance
to the Acquiring Fund.
(l) That prior to the Closing Date the Acquired Fund shall have
declared a dividend or dividends which, together with all such
previous dividends, shall have the effect of distributing to
its shareholders all of its net investment company taxable
income for the period to and including the Closing Date, if
any (computed without regard to any deduction for dividends
paid), and all of its net capital gain, if any, realized to
and including the Closing Date. In this regard, the last
dividend period for the Target Fund RATES may be shorter than
the dividend period for such Target Fund RATES determined as
set forth in the applicable Certificate of Vote.
A-15
10. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be terminated and the
Reorganization abandoned at any time (whether before or after
adoption thereof by the shareholders of the Funds) prior to
the Closing Date, or the Closing Date may be postponed, (i) by
mutual consent of the Boards of Trustees of the Funds, (ii) by
the Board of Trustees of the Target Fund if any condition of
the Target Fund's obligations set forth in Section 10 of this
Agreement has not been fulfilled or waived by such Board; or
(iii) by the Board of Trustees of the Acquiring Fund if any
condition of the Acquiring Fund's obligations set forth in
Section 11 of this Agreement have not been fulfilled or waived
by such Board.
(b) If the transactions contemplated by this Agreement have not
been consummated by [ ], 2005 this Agreement automatically
shall terminate on that date, unless a later date is mutually
agreed to by the Boards of Trustees of the Funds.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no
further effect, and there shall not be any liability on the
part of any Fund or persons who are their directors, trustees,
officers, agents or shareholders in respect of this Agreement.
(d) At any time prior to the Closing Date, any of the terms or
conditions of this Agreement may be waived by the Board of
Trustees of any Fund (whichever is entitled to the benefit
thereof), if, in the judgment of such Board after consultation
with its counsel, such action or waiver will not have a
material adverse effect on the benefits intended under this
Agreement to the shareholders of their respective fund, on
behalf of which such action is taken. In addition, the Boards
of Trustees of the Funds have delegated to the Adviser the
ability to make non-material changes to the transaction if it
deems it to be in the best interests of the Funds to do so.
(e) The respective representations and warranties contained in
Sections 1 and 2 of this Agreement shall expire with, and be
terminated by, the consummation of the Reorganization, and
neither Fund nor any of its officers, trustees, agents or
shareholders shall have any liability with respect to such
representations or warranties after the Closing Date. This
provision shall not protect any officer, trustee, agent or
shareholder of either Fund against any liability to the entity
for which that officer, trustee, agent or shareholder so acts
or to its shareholders, to which that officer, trustee, agent
or shareholder otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties in the conduct of such office.
(f) If any order or orders of the Commission with respect to this
Agreement shall be issued prior to the Closing Date and shall
impose any terms or conditions which are determined by action
of the Boards of Trustees of the Funds to be acceptable, such
terms and conditions shall be binding as if a part of this
Agreement without further vote or approval of the shareholders
of the Funds unless such terms and conditions shall result in
a change in the method of computing the number of Acquiring
Fund Common Shares or Acquiring Fund APS to be issued to the
Target Fund, in which event, unless such terms and conditions
shall have been included in the proxy solicitation materials
furnished to the shareholders of the Target Fund prior to the
meetings at which the Reorganization shall have been approved,
this Agreement shall not be consummated and shall terminate
unless
A-16
the Target Fund promptly shall call a special meeting of
shareholders at which such conditions so imposed shall be
submitted for approval.
11. Indemnification.
(a) Each party (an "Indemnitor") shall indemnify and hold the
other and its officers, trustees, agents and persons
controlled by or controlling any of them (each an "Indemnified
Party") harmless from and against any and all losses, damages,
liabilities, claims, demands, judgments, settlements,
deficiencies, taxes, assessments, charges, costs and expenses
of any nature whatsoever (including reasonable attorneys'
fees) including amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees
reasonably incurred by such Indemnified Party in connection
with the defense or disposition of any claim, action, suit or
other proceeding, whether civil or criminal, before any court
or administrative or investigative body in which such
Indemnified Party may be or may have been involved as a party
or otherwise or with which such Indemnified Party may be or
may have been threatened (collectively, the "Losses") arising
out of or related to any claim of a breach of any
representation, warranty or covenant made herein by the
Indemnitor, provided, however, that no Indemnified Party shall
be indemnified hereunder against any Losses arising directly
from such Indemnified Party's (i) willful misfeasance, (ii)
bad faith, (iii) gross negligence or (iv) reckless disregard
of the duties involved in the conduct of such Indemnified
Party's position.
(b) The Indemnified Party shall use its best efforts to minimize
any liabilities, damages, deficiencies, claims, judgments,
assessments, costs and expenses in respect of which indemnity
may be sought hereunder. The Indemnified Party shall give
written notice to Indemnitor within the earlier of ten (10)
days of receipt of written notice to Indemnified Party or
thirty (30) days from discovery by Indemnified Party of any
matters which may give rise to a claim for indemnification or
reimbursement under this Agreement. The failure to give such
notice shall not affect the right of Indemnified Party to
indemnity hereunder unless such failure has materially and
adversely affected the rights of the Indemnitor; provided that
in any event such notice shall have been given prior to the
expiration of the Survival Period. At any time after ten (10)
days from the giving of such notice, Indemnified Party may, at
its option, resist, settle or otherwise compromise, or pay
such claim unless it shall have received notice from
Indemnitor that Indemnitor intends, at Indemnitor's sole cost
and expense, to assume the defense of any such matter, in
which case Indemnified Party shall have the right, at no cost
or expense to Indemnitor, to participate in such defense. If
Indemnitor does not assume the defense of such matter, and in
any event until Indemnitor states in writing that it will
assume the defense, Indemnitor shall pay all costs of
Indemnified Party arising out of the defense until the defense
is assumed; provided, however, that Indemnified Party shall
consult with Indemnitor and obtain indemnitor's prior written
consent to any payment or settlement of any such claim.
Indemnitor shall keep Indemnified Party fully apprised at all
times as to the status of the defense. If Indemnitor does not
assume the defense, Indemnified Party shall keep Indemnitor
apprised at all times as to the status of the defense.
Following indemnification as provided for hereunder,
Indemnitor shall be subrogated to all rights of Indemnified
Party with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been
made.
A-17
12. Other Matters.
(a) Pursuant to Rule 145 under the 1933 Act, and in connection
with the issuance of any shares to any person who at the time
of the Reorganization is, to its knowledge, an affiliate of a
party to the Reorganization pursuant to Rule 145(c), the
Acquiring Fund will cause to be affixed upon the
certificate(s) issued to such person (if any) a legend as
follows: THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT TO THE VAN KAMPEN TRUST FOR
INVESTMENT GRADE MUNICIPALS (OR ITS STATUTORY SUCCESSOR), OR
ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF
1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE FUND, SUCH REGISTRATION IS NOT REQUIRED and, further,
that stop transfer instructions will be issued to the
Acquiring Fund's transfer agent with respect to such shares.
The Target Fund will provide the Acquiring Fund on the Closing
Date with the name of any shareholder of the Target Fund who
is to the knowledge of the Target Fund an affiliate of the
Target Fund on such date.
(b) All covenants, agreements, representations and warranties made
under this Agreement and any certificates delivered pursuant
to this Agreement shall be deemed to have been material and
relied upon by each of the parties, notwithstanding any
investigation made by them or on their behalf.
(c) All notices hereunder shall be sufficiently given for all
purposes hereunder if in writing and delivered personally or
sent by registered mail or certified mail, postage prepaid.
Notice to the Target Fund shall be addressed to the Target
Fund c/o Van Kampen Investment Asset Management, 1221 Avenue
of the Americas, New York, New York 10020, Attention: General
Counsel, or at such other address as the Target Fund may
designate by written notice to the Acquiring Fund. Notice to
the Acquiring Fund shall be addressed to the Acquiring Fund
c/o Van Kampen Investment Asset Management, 1221 Avenue of the
Americas, New York, New York 10020, Attention: General
Counsel, or at such other address and to the attention of such
other person as the Acquiring Fund may designate by written
notice to the Target Fund. Any notice shall be deemed to have
been served or given as of the date such notice is delivered
personally or mailed.
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the
Reorganization, constitutes the only understanding with
respect to the Reorganization, may not be changed except by a
letter of agreement signed by each party and shall be governed
by and construed in accordance with the laws of the State of
Illinois applicable to agreements made and to be performed in
said state.
(e) It is expressly agreed that the obligations of the Funds
hereunder shall not be binding upon any of their respective
trustees, shareholders, nominees, officers, agents, or
employees personally, but shall bind only the trust property
of the respective Fund as provided in such Fund's Declaration
of Trust. The execution and delivery of this Agreement has
been authorized by the trustees of each Fund and signed by
authorized officers of each Fund, acting as such, and neither
such authorization by such trustees, nor such execution and
delivery by such officers shall be deemed to have been made by
any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of
each Fund as provided in such Funds' Declaration of Trust.
A-18
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be executed and delivered by their duly authorized officers as of the day and
year first written above.
VAN KAMPEN MUNICIPAL INCOME TRUST
---------------------------------
[Name]
[Title]
Attest: [Name]
[Title]
VAN KAMPEN TRUST FOR INVESTMENT
GRADE MUNICIPALS
---------------------------------
[Name]
[Title]
Attest: [Name]
[Title]
A-19
APPENDIX B
Federal Identification
No. 36-3797841
THE COMMONWEALTH OF MASSACHUSETTS
Office of the Massachusetts Secretary of State
Michael J. Connolly, Secretary
One Ashburton Place, Boston, Mass. 02108
CERTIFICATE OF VOTE OF TRUSTEES ESTABLISHING
FOUR SERIES OF PREFERRED SHARES
I, Ronald A. Nyberg, Secretary, of Van Kampen Merritt Trust
For Investment Grade Municipals (the "Fund") located at One Parkview Plaza,
Oakbrook Terrace, IL 60181, do hereby certify that at a meeting of the trustees
of the Fund held on February 20, 1992, the following vote establishing and
designating four series of preferred shares of beneficial interest and
determining the relative rights and preferences thereof was duly adopted:
First: Pursuant to authority expressly vested in the Board of Trustees
of the Fund by Article VI of its Declaration of Trust (which, as amended or
restated from time to time is, together with this Certificate of Vote, herein
called the "Declaration of Trust"), the Board of Trustees hereby authorizes the
issuance of four series of 5,300 shares of its authorized preferred shares of
beneficial interest, par value $.01 per share ("Preferred Shares"), liquidation
preference of $50,000 per share, designated, respectively, Auction Preferred
Shares, Series A ("APS Series A"), Auction Preferred Shares, Series B ("APS
Series B"), Auction Preferred Shares, Series C ("APS Series C") and Auction
Preferred Shares, Series D ("APS Series D") (collectively the APS Series A, APS
Series B, APS Series C and APS Series D are referred to herein as "APS").
Second: The preferences, voting powers, qualifications, and special or
relative rights or privileges of each such series of preferred shares of
beneficial interest are as follows:
DESIGNATION
APS SERIES A: A series of 1,500 preferred shares of beneficial
interest, $.01 par value, liquidation preference $50,000 per share, is hereby
designated "Auction Preferred Shares, Series A" (hereinafter, "APS Series A").
Each share of APS Series A shall be issued on March 10, 1992; have an Applicable
Rate for its Initial Dividend Period equal to 3.30% per annum; have an Initial
Dividend Payment Date of Monday, April 6, 1992; and have such other preferences,
limitations and relative voting rights, in addition to those required by
applicable law or set forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in Part I and Part
II of this Certificate of
Vote. The APS Series A shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series A shall be
identical except as provided in Section 3 of Part I of this Certificate of Vote.
APS SERIES B: A series of 1,500 preferred shares of beneficial
interest, par value $.01 per share, liquidation preference $50,000 per share, is
hereby designated "Auction Preferred Shares, Series B" (hereinafter, "APS Series
B"). Each share of APS Series B shall be issued on March 10, 1992; have an
Applicable Rate for its Initial Dividend Period equal to 3.30% per annum; have
an Initial Dividend Payment Date of Monday, April 13, 1992; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Declaration of Trust applicable
to preferred shares of beneficial interest of the Fund, as are set forth in Part
I and Part II of this Certificate of Vote. The APS Series B shall constitute a
separate series of Preferred Shares of the Fund, and each share of APS Series B
shall be identical except as provided in Section 3 of Part I of this Certificate
of Vote.
APS SERIES C: A series of 1,500 preferred shares of beneficial
interest, par value $.01 per share, liquidation preference $50,000 per share, is
hereby designated "Auction Preferred Shares, Series C" (hereinafter, "APS Series
C"). Each share of APS Series C shall be issued March 10, 1992; have an
Applicable Rate for its Initial Dividend Period equal to 3.40% per annum; have
an Initial Dividend Payment Date of Monday, July 6, 1992; and have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Declaration of Trust applicable
to preferred shares of beneficial interest of the Fund, as are set forth in Part
I and Part II of this Certificate of Vote. The APS Series C shall constitute a
separate series of Preferred Shares of the Fund, and each share of APS Series C
shall be identical except as provided in Section 3 of Part I of this Certificate
of Vote.
APS SERIES D: A series of 800 preferred shares of beneficial interest,
par value $.01 per share, liquidation preference $50,000 per share, is hereby
designated "Auction Preferred Shares, Series D." Each share of APS Series D
shall be issued on March 10, 1992; have an Applicable Rate for its Initial
Dividend Period equal to 3.40% per annum; have an Initial Dividend Payment Date
of Monday, July 6, 1992; and have such other preferences, limitations and
relative voting rights, in addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred shares of beneficial
interest of the Fund, as are set forth in Part I and Part II of this Certificate
of Vote. The APS Series D shall constitute a separate series of Preferred Shares
of the Fund, and each share of APS Series D shall be identical except as
provided in Section 3 of Part I of this Certificate of Vote.
No holder of any series of APS shall have, solely by reason of being
such a holder of any series of APS, any right to acquire, purchase or subscribe
for any APS, common shares of beneficial interest, par value $.01 per share, of
the Fund or other securities of the Fund which it may hereafter issue or sell
(whether out of the number of shares authorized by the Declaration of Trust, or
out of any shares acquired by the Fund after the issuance thereof, or
otherwise).
PART I
1. Number of Shares; Ranking. (a) No fractional APS shall be
issued.
(b) Any APS which at any time have been redeemed or
purchased by the Fund shall, after such redemption or purchase, have the status
of authorized but unissued Preferred Shares, without designation as to series.
(c) The shares of each series of APS shall rank on a
parity with shares of any other series of Preferred Shares (including any other
series of APS) as to the payment of
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dividends and the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund.
2. Dividends. (a) The Holder of shares of any series of APS
shall be entitled to receive, when, as and if declared by the Board of Trustees,
out of funds legally available therefor, cumulative cash dividends at the
Applicable Rate per annum thereof, determined as set forth in paragraph (c) of
this Section 2, and no more (except to the extent set forth in Section 12 of
this Part I), payable on the respective dates (each a "Dividend Payment Date")
determined as set forth in paragraph (b) of this Section 2. Dividends on shares
of any series of APS shall accumulate at the Applicable Rate per annum from the
Date of Original Issue thereof.
(b) (i) Dividends shall be payable subject to
subparagraph (b) (ii) of this Section 2, on shares of:
(A) APS Series A, on Monday, April
6, 1992, and on each fourth Monday thereafter,
(B) APS Series B, on Monday, April
13, 1992, and on each fourth Monday thereafter,
(C) APS Series C, on Monday, July 6,
1992 and the first Business Day of each calendar month thereafter,
provided that in any calendar month in which an Auction Date for such
series is scheduled to occur, dividends shall be payable on the first
Business Day next succeeding such Auction Date, and
(D) APS Series D, on Monday, July 6,
1992, and the first Business Day of each calendar month thereafter,
provided that in any calendar month in which an Auction Date for such
series is scheduled to occur, dividends shall be payable on the first
Business Day next succeeding such Auction Date,
provided that if the Fund, subject to the conditions set forth in Section 4 of
this Part I, designates any Subsequent Dividend Period as a Special Dividend
Period, dividends will be payable: (1) with respect to a Special Dividend Period
of less than 181 days, the day after the last day thereof, (2) with respect to a
Special Dividend Period of 181 days or more and fewer than 365 days, the 92nd
day thereof, the 183rd day thereof, if any, the 247th day thereof, if any, and
the day after the last day, thereof and (3) with respect to a Special Dividend
Period of 365 or more days, on such date in each quarterly period after the
commencement thereof as is determined by the Board of Trustees.
After any Special Dividend Period, dividends on shares of such series of APS
shall be payable, subject to subparagraph (b)(ii) of this Section 2, on each
fourth succeeding Monday if such series is APS Series A, each fourth succeeding
Monday if such series is APS Series B, and the first Business Day of each
calendar month thereafter, provided that in any calendar month in which an
Auction Date for such series is scheduled to occur, dividends shall be payable
on the first Business Day next succeeding such Auction Date if such series is
APS Series C, and the first Business Day of each calendar month thereafter,
provided that in any calendar month in which an Auction Date for such series is
scheduled to occur, dividends shall be payable on the first Business Day next
succeeding such Auction Date if such series is
B-3
APS Series D, subject in each case to the options of the Fund to further
designate from time to time any Subsequent Dividend Period thereof as a Special
Dividend Period.
(ii) In the case of dividends that would
otherwise be payable on a Sunday, Monday, Tuesday, Wednesday, Thursday,
Friday or Saturday as determined by subparagraph (b) (i) of this
Section 2, including clause (1), (2) or (3) of the proviso thereto, if
(i) the Sunday, Monday or Tuesday that would otherwise be the Dividend
Payment Date is not a Business Day, then dividends shall be payable on
the first Business Day that falls after such Sunday, Monday or Tuesday,
or (ii) the Wednesday, Thursday, Friday or Saturday that would
otherwise be the Dividend Payment Date is not a Business Day, then
dividends shall be payable on the first Business Day that falls prior
to such Wednesday, Thursday, Friday or Saturday.
(iii) The Fund shall pay to the Auction
Agent not later than 12:00 Noon, New York City time, on the Business
Day next preceding each Dividend Payment Date for shares of such
series, an aggregate amount of funds available on the next Business Day
in The City of New York, New York, equal to the dividends to be paid to
all Holders of shares of such series on such Dividend Payment Date.
(iv) All moneys paid to the Auction
Agent for the payment of dividends (or for the payment of any late
charges pursuant to subparagraph (c)(i) of this Section 2) shall be
held in trust for the payment of such dividends (and any such late
charge) by the Auction Agent for the benefit of the Holders specified
in subparagraph (b)(v) of this Section 2. Any moneys paid to the
Auction Agent in accordance with the foregoing but not applied by the
Auction Agent to the payment of dividends (and any late charge) will,
to the extent permitted by law, be repaid to the Fund at the end of 90
days from the date on which such moneys were so to have been applied.
(v) Each dividend on the APS shall be
paid on the Dividend Payment Date therefor to the Holders as their
names appear on the share books of the Fund on the Business Day next
preceding such 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 their names
appear on the share books of the Fund on such date, not exceeding 15
days preceding the payment date thereof, as may be fixed by the Board
of Trustees.
(c) (i) The dividend rate on shares of any series of
APS during the period from and after the Date of Original Issue thereof to and
including the last day of the Initial Dividend Period therefor shall be equal to
the rate per annum set forth with respect to such series under "Designation,"
above. For each Subsequent Dividend Period of any series of APS outstanding
thereafter, the dividend rate on shares of such series shall be equal to the
rate per annum that results from an Auction for such series on the Auction Date
next preceding such Subsequent Dividend Period; provided, however, that if an
Auction for any Subsequent Dividend
B-4
Period of any series of APS is not held for any reason or if a Failure to
Deposit occurs and such failure has not been cured as set forth below prior to
any succeeding Subsequent Dividend Period thereof, then, subject to the next
succeeding provision, the dividend rate on the shares of such series for any
such Subsequent Dividend Period shall be the Maximum Rate (as defined herein)
for such series on the Auction Date for such Subsequent Dividend Period;
provided, further, however, that if (A) any Failure to Deposit shall have
occurred with respect to shares of any series of APS during any Rate Period
thereof (other than any Special Dividend Period consisting of four or more
Dividend Periods or any Rate Period succeeding any Special Dividend Period
consisting of four or more Dividend Periods during which a Failure to Deposit
occurred that has not been cured), and prior to 12:00 noon, New York City time,
on the third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall not have been cured in
accordance with the next succeeding sentence or the Fund shall not have paid to
the Auction Agent a late charge equal to the sum of (1) if such Failure to
Deposit consisted of the failure timely to pay to the Auction Agent the full
amount of dividends with respect to any Dividend Period on the shares of such
series, an amount computed by multiplying (x) 200% of the "AA" Composite
Commercial Paper Rate for the Rate Period during which such Failure to Deposit
occurs on the Dividend Payment Date for such Dividend Period by (y) a fraction,
the numerator of which shall be the number of days for which such Failure to
Deposit has not been cured in accordance with the next succeeding sentence
(including the day such Failure to Deposit occurs and excluding the day such
Failure to Deposit is cured) and the denominator of which shall be 365, and
applying the rate obtained against the aggregate liquidation preference of the
outstanding shares of such series of APS and (2) if such Failure to Deposit
consisted of the failure timely to pay to the Auction Agent the Redemption Price
of the shares of such series of APS, if any, for which Notice of Redemption has
been given by the Fund pursuant to paragraph (b) of Section 3 of this Part I, an
amount computed by multiplying (x) 200% of the "AA" Composite Commercial Paper
Rate for the Rate Period during which such Failure to Deposit occurs on the
redemption date by (y) a fraction, the numerator of which shall be the number of
days for which such Failure to Deposit is not cured in accordance with the next
succeeding sentence (including the day such Failure to Deposit occurs and
excluding the day such Failure to Deposit is cured) and the denominator of which
shall be 365, and applying the rate obtained against the aggregate liquidation
preference of the outstanding shares of APS to be redeemed, or (B) any Failure
to Deposit shall have occurred with respect to shares of any series of APS
during a Special Dividend Period thereof consisting of four or more Dividend
Periods, or during any Rate Period thereof succeeding any Special Dividend
Period consisting of four or more Dividend Periods during which a Failure to
Deposit occurred that has not been cured, and such Failure to Deposit shall not
have been cured in accordance with the next succeeding sentence during such
Special Dividend Period or such other Rate Period, then the dividend rate for
shares of such series of APS for each Subsequent Dividend Period thereof
commencing after such failure to and including the Subsequent Dividend Period,
if any, during which such Failure to Deposit is so cured shall be a rate per
annum equal to the Maximum Rate on the Auction Date for such Subsequent Dividend
Period (but with the prevailing rating for such shares, for purposes of
determining such Maximum Rate, being deemed to be "Below "ba3"/BB-") (the rate
per annum at which dividends are payable on the APS for any Rate Period for such
shares being herein referred to as the "Applicable Rate" for such shares). A
Failure to Deposit with respect to shares of any series of APS shall have been
cured (if such Failure to Deposit is not solely due to the willful failure of
the Fund to make the required payment to the Auction Agent) with respect to
B-5
any Rate Period if, not later than 12:00 Noon, New York City time, on the fourth
Business Day preceding the Auction Date for the Rate Period subsequent to such
Rate Period the Fund shall have paid to the Auction Agent (A) all accumulated
and unpaid dividends on the shares of such series of APS and (B) without
duplication, the Redemption Price for the APS, if any, for which Notice of
Redemption has been given by the Fund pursuant to paragraph (b) of Section 3 of
this Part I.
(ii) The amount of dividends per share
payable on shares of any series of APS on any date on which dividends
shall be payable on shares of such series shall be computed by
multiplying the respective Applicable Rate for such series in effect
for such Dividend Period or Dividend Periods or part thereof for which
dividends have not been paid by a fraction, the numerator of which
shall be the number of days in such Dividend Period or Dividend Periods
or part thereof and the denominator of which shall be 365 if such
Dividend Period is a Rate Period, or is contained in a Rate Period, of
less than one year and 360 for all other Dividend Periods, and applying
the rate obtained against $50,000.
(d) Any dividend payment made on the APS shall first
be credited against the earliest accumulated but unpaid dividends due with
respect to such APS.
(e) Except as set forth in the next sentence, no
dividends shall be declared or paid or set apart for payment on the shares of
any class or series of shares ranking, as to the payment of dividends, on a
parity with the APS for any period unless full cumulative dividends have been or
contemporaneously are declared and paid on the shares of each series of APS
through the most recent Dividend Payment Date for each such series. When
dividends are not paid in full upon the APS through their most recent respective
Dividend Payment Dates or upon the shares of any other class or series of shares
ranking on a parity as to the payment of dividends with the APS through their
most recent respective dividend payment dates, all dividends declared upon the
APS and any other such class or series of shares ranking on a parity as to the
payment of dividends with the APS shall be declared pro rata so that the amount
of dividends declared per share on the APS and such other class or series of
shares shall in all cases bear to each other the same ratio that accumulated
dividends per share on the APS and such other class or series of shares bear to
each other (for purposes of this sentence, the amount of dividends declared per
share shall be based on the Applicable Rate for such shares for the Dividend
Periods during which dividends were not paid in full). Holders of the APS shall
not be entitled to any dividend, whether payable in cash, property or shares, in
excess of full cumulative dividends, as herein provided, on the APS. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the APS which may be in arrears, and, except
to the extent set forth in subsection (c)(i) of this Section 2, no additional
sum of money shall be payable in respect of any such arrearage.
(f) Dividends on the APS shall be designated as
exempt-interest dividends up to the amount of tax-exempt income of the Fund, to
the extent permitted by, and for purposes of, Section 852 of the Internal
Revenue Code of 1986, as amended from time to time.
(g) The Board of Trustees shall not declare any
dividend (except a dividend payable in Common Shares), or declare any other
distribution, upon the Common
B-6
Shares, or purchase Common Shares, unless in every such case the APS have, at
the time of any such declaration or purchase, an asset coverage (as defined in
and determined pursuant to the 1940 Act) of at least 200% (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are stock of a closed-end
investment company as a condition of declaring dividends on its common stock)
after deducting the amount of such dividend, distribution or purchase price, as
the case may be.
3. Redemption. (a)(i) Upon giving a Notice of Redemption, as
provided below, the Fund at its option may redeem shares of any series of APS,
in whole or in part, on the Second Business Day next preceding any Dividend
Payment Date applicable to those shares of APS called for redemption, out of
funds legally available therefor, at the Optional Redemption Price; provided
that during a Special Dividend Period of 365 days or more no share of APS will
be subject to optional redemption during any Non-Call Period; provided, that
shares of any series of APS may not be redeemed in part if after such partial
redemption fewer than 250 shares of such series remain outstanding.
(ii) If fewer than all of the
outstanding shares of any series of APS are to be redeemed pursuant to
subparagraph (a)(i) of this Section 3, the number of shares of such
series to be redeemed shall be determined by the Board of Trustees, and
such shares shall be redeemed pro rata from the Holders of such series
in proportion to the number of such shares held by such Holders.
(iii) No APS shall be redeemed pursuant
to subparagraphs (a)(i) or (a)(ii) of this Section 3 unless, on the
date on which the Fund intends to give notice of such redemption
pursuant to paragraph (b) of this Section 3, (a) the Fund has available
Deposit Securities with maturity or tender dates not later than the day
preceding the applicable redemption date and having a value not less
than the amount (including the applicable premium, if any) due to
Holders of the APS by reason of the redemption of such shares on such
redemption date and (b) Moody's Eligible Assets (if Moody's is then
rating the APS) and S&P Eligible Assets (if S&P is then rating the APS)
each at least equal the APS Basic Maintenance Amount, and would at
least equal the APS Basic Maintenance Amount immediately subsequent to
such redemption, if such redemption were to occur on such date, and on
the date of redemption.
(iv) The Fund shall redeem, at the
Mandatory Redemption Price, certain of the APS to the extent permitted
under the 1940 Act and Massachusetts law, if the Fund fails to maintain
the APS Basic Maintenance Amount or 1940 Act APS Asset Coverage in
accordance with the requirements of the rating agency or agencies then
rating the APS and such failure is not cured on or before the APS Basic
Maintenance Cure Date or the 1940 Act Cure Date, as the case may be.
The number of APS to be redeemed shall be equal to the lesser of (i)
the minimum number of APS the redemption of which, if deemed to have
occurred immediately prior to the opening of business on the Cure Date,
together with all other Preferred Shares subject to redemption or
retirement, would result in the satisfaction of the APS Basic
Maintenance Amount or the 1940 Act APS Asset Coverage, as the case may
be, on such Cure Date (provided that, if there is
B-7
no such minimum number of APS and other Preferred Shares the redemption
of which would have such result, all the APS and Preferred Shares then
outstanding shall be redeemed), and (ii) the maximum number of APS,
together with all other Preferred Shares subject to redemption or
retirement, that can be redeemed out of funds expected to be legally
available therefor. In determining the APS required to be redeemed in
accordance with the foregoing, the Fund shall allocate the number
required to be redeemed to satisfy the APS Basic Maintenance Amount or
the 1940 Act APS Asset Coverage, as the case may be, pro rata among
each series of APS and other Preferred Shares subject to redemption
provisions similar to those contained in this subparagraph (a)(iv) of
this Section 3. The Fund shall effect such redemption not earlier than
20 days and not later than 40 days after such Cure Date, except that if
the Fund does not have funds legally available for the redemption of
all of the required number of APS and other Preferred Shares which are
subject to redemption provisions similar to those contained in this
subparagraph (a)(iv) of this Section 3 or the Fund otherwise is unable
to effect such redemption on or prior to 40 days after such Cure Date,
the Fund shall redeem those APS and other Preferred Shares which it was
unable to redeem on the earliest practicable date on which it is able
to effect such redemption. If fewer than all of the outstanding shares
of any series of APS are to be redeemed pursuant to this Section
3(a)(iv), the number of shares of such series to be redeemed shall be
redeemed pro rata from the Holders of such shares in proportion to the
number of shares held by such Holders.
(b) The Fund is required to give 30 days Notice of
Redemption. In the event the Fund obtains appropriate exemptive or no-action
relief from the Securities and Exchange Commission, the number of days' notice
required for a mandatory redemption may be reduced by the Board of Trustees of
the Fund to as few as two Business Days if Moody's and S&P each has agreed in
writing that the revised notice provision would not adversely affect its
then-current ratings of the APS. The Auction Agent will use its reasonable
efforts to provide telephonic notice to each holder of APS called for redemption
not later than the close of business on the Business Day on which the Auction
Agent determines the shares to be redeemed (as described above) (or, during the
occurrence of a Failure to Deposit with respect to such shares, not later than
the close of business on the Business Day immediately following the day on which
the Auction Agent receives Notice of Redemption from the Fund). Such telephonic
notice will be confirmed promptly in writing not later than the close of
business on the third Business Day preceding the redemption date by notice sent
by the Auction Agent to each holder of record of APS called for redemption, the
Broker-Dealers and the Securities Depository. Every Notice of Redemption and
other redemption notice with respect to APS will state: (1) the redemption date,
(2) the number of APS to be redeemed, (3) the redemption price, (4) that
dividends on the APS to be redeemed will cease to accumulate as of such
redemption date and (5) the provision of the APS Provisions pursuant to which
such shares are being redeemed. No defect in the Notice of Redemption or other
redemption notice or in the transmittal or the mailing thereof will affect the
validity of the redemption proceedings, except as required by applicable law. If
fewer than all shares of any series held by any Holder are to be redeemed, the
Notice of Redemption mailed to such Holder shall also specify the number of
shares of such series to be redeemed from such Holder.
B-8
(c) Notwithstanding the provisions of paragraph (a)
of this Section 3, if any dividends on shares of any series of APS are in
arrears, no shares of such series of APS shall be redeemed unless all
outstanding shares of such series of APS are simultaneously redeemed, and the
Fund shall not purchase or otherwise acquire any shares of such series of APS;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of all outstanding shares of such series of APS pursuant to the
successful completion of an otherwise lawful purchase or exchange offer made on
the same terms to, and accepted by, Holders of all outstanding shares of such
series of APS.
(d) Upon the deposit of funds sufficient to redeem
the APS with the Auction Agent and the giving of Notice of Redemption under
Paragraph (b) of this Section 3, dividends on such shares shall cease to
accumulate and such shares shall no longer be deemed to be outstanding for any
purpose, and all rights of the Holders of the shares so called for redemption
shall cease and terminate, except the right of such Holders to receive the
Optional Redemption Price or Mandatory Redemption Price, as the case may be, but
without any interest or other additional amount, except as provided in Section
2(c)(i) and in Section 12. Upon surrender in accordance with the Notice of
Redemption of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Trustees shall so require and the Notice
of Redemption shall so state), the Optional Redemption Price or Mandatory
Redemption Price, as the case may be, shall be paid by the Auction Agent to the
Holders of the APS subject to redemption. In the case that fewer than all of the
shares represented by any such certificate are redeemed, a new certificate shall
be issued, representing the unredeemed shares, without cost to the Holder
thereof. The Fund shall be entitled to receive from the Auction Agent, promptly
after the date fixed for redemption, any cash deposited with the Auction Agent
in excess of (i) the aggregate Optional Redemption Price of the APS called for
redemption on such date and (ii) all other amounts to which Holders of the APS
called for redemption may be entitled. Any funds so deposited that are unclaimed
at the end of 90 days from such redemption date shall, to the extent permitted
by law, be repaid to the Fund, after which time the Holders of the APS so called
for redemption may look only to the Fund for payment of the Optional Redemption
Price or Mandatory Redemption Price, as the case may be, and all other amounts
to which they may be entitled. The Fund shall be entitled to receive, from time
to time after the date fixed for redemption, any interest on the funds so
deposited.
(e) To the extent that any redemption for which
Notice of Redemption has been given is not made by reason of the absence of
legally available funds therefor, such redemption shall be made as soon as
practicable to the extent such funds become available. Failure to redeem the APS
shall be deemed to exist at any time after the date specified for redemption in
a Notice of Redemption when the Fund shall have failed, for any reason
whatsoever, to deposit in trust with the Auction Agent the Redemption Price with
respect to any shares for which such Notice of Redemption has been given.
Notwithstanding the fact that the Fund may not have redeemed the APS for which a
Notice of Redemption has been given, dividends may be declared and paid on the
APS and shall include those APS for which a Notice of Redemption has been given.
(f) All moneys paid to the Auction Agent for payment
of the Optional Redemption Price or Mandatory Redemption Price, as the case may
be, of the APS called for
B-9
redemption shall be held in trust by the Auction Agent for the benefit of
Holders of shares so to be redeemed.
(g) In effecting any redemption pursuant to this
Section 3, the Fund shall use its best efforts to comply with all applicable
procedural conditions precedent to effecting such redemption under the 1940 Act
and Massachusetts law, but shall effect no redemption except in accordance with
the 1940 Act and Massachusetts law.
(h) In the case of any redemption pursuant to this
Section 3, only whole APS shall be redeemed, and in the event that any provision
of the Declaration of Trust would require redemption of a fractional share, the
Auction Agent shall be authorized to round up so that only whole shares are
redeemed.
4. Designation of Special Dividend Periods. (a) The Fund, at
its option, may designate any succeeding Subsequent Dividend Period of any
series of APS as a Special Dividend Period; provided, however, that such
designation shall be effective only if (A) notice thereof shall have been given
in accordance with paragraph (b) and clause (i) of paragraph (c) of this Section
4, (B) any Failure to Deposit that shall have occurred with respect to shares of
such series during any Dividend Period shall have been cured in accordance with
the provisions of the third sentence of paragraph (c)(i) of Section 2 of this
Part I, (C) Sufficient Clearing Bids (as defined in Section 1 of Part II hereof)
for such series shall have existed in an Auction held on the Auction Date
immediately preceding the first day of such proposed Special Dividend Period,
(D) if any Notice of Redemption shall have been mailed by the Fund pursuant to
paragraph (b) of Section 3 of this Part I with respect to any shares of such
series of APS, the Redemption Price with respect to such shares shall have been
deposited with the Auction Agent and (E) in the event the Fund wishes to
designate any succeeding Subsequent Dividend Period for such series as a Special
Dividend Period consisting of more than 28 Rate Period Days, the Fund has
received written confirmation from S&P (if S&P is then rating the APS) and
Moody's (if Moody's is then rating the APS) that such designation would not
affect the rating then assigned by S&P and Moody's to such series.
(b) If the Fund proposes to designate any succeeding
Subsequent Dividend Period of any series of APS as a Special Dividend Period of
more than 28 Rate Period Days pursuant to paragraph (a) of this Section 4, not
less than 20 nor more than 30 days prior to the date the Fund proposes to
designate as the first day of such Special Dividend Period (which shall be such
day that would otherwise be the first day of a Minimum Dividend Period), notice
shall be (i) published or caused to be published by the Fund in a newspaper of
general circulation to the financial community in The City of New York, New
York, which carries financial news, and (ii) communicated by the Fund by
telephonic or other means to the Auction Agent and confirmed in writing promptly
thereafter. Each such notice shall state (A) that the Fund may exercise its
option to designate a succeeding Subsequent Dividend Period of such series of
APS as a Special Dividend Period, specifying the first day thereof and (B) that
the Fund will by 11:00 A.M., New York City time, on the second Business Day next
preceding such date notify the Auction Agent of either (x) its determination,
subject to certain conditions, to exercise such option, in which case the Fund
shall specify the Special Dividend Period designated and the terms of the
Specific Redemption Provisions, if any, or (y) its determination not to exercise
such option.
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(c) No later than 11:00 A.M., New York City time, on
the second Business Day next preceding the first day of any proposed Special
Dividend Period the Fund shall deliver to the Auction Agent either:
(i) a notice stating (A) that the Fund
has determined to designate the next succeeding Dividend Period of such
series as a Special Dividend Period, specifying the same and the first
day thereof, (B) the Auction Date immediately prior to the first day of
such Special Dividend Period, (C) the terms of the Specific Redemption
Provisions, if any, for such series, (D) that such Special Dividend
Period shall not commence if (1) on such Auction Date Sufficient
Clearing Bids for such series shall not exist (in which case the
succeeding Rate Period shall be a Minimum Dividend Period) or (2) a
Failure to Deposit shall have occurred prior to the first day of such
Special Dividend Period with respect to shares of such series and (E)
the scheduled Dividend Payment Dates for such series of APS during such
Special Dividend Period; provided that, if such Special Dividend Period
consists of more than 28 Rate Period Days, such notice will be
accompanied by an APS Basic Maintenance Report showing that, as of the
third Business Day next preceding such proposed Special Dividend
Period, (1) Moody's Eligible Assets, assuming for the purposes
calculating Moody's Eligible Assets, in connection with an APS Basic
Maintenance Report required to be prepared pursuant to this Section
4(c)(i), a Moody's Exposure Period of "eight weeks or less but greater
than seven weeks" (if Moody's is then rating such series) and (2) S&P
Eligible Assets (if S&P is then rating such series) each at least equal
the APS Basic Maintenance Amount as of such Business Day (assuming for
purposes of the foregoing calculation that the Maximum Rate is the
Maximum Rate on such Business Day as if such Business Day were the
Auction Date for the proposed Special Dividend Period); or
(ii) a notice stating that the Fund has
determined not to exercise its option to designate a Special Dividend
Period for such series of APS and that the next succeeding Dividend
Period of such series shall be a Minimum Dividend Period.
If the Fund fails to deliver either such notice with respect to any designation
of any proposed Special Dividend Period to the Auction Agent by 11:00 A.M., New
York City time, on the second Business Day next preceding the first day of such
proposed Special Dividend Period, the Fund shall be deemed to have delivered a
notice to the Auction Agent with respect to such Special Dividend Period to the
effect set forth in clause (ii) of the preceding sentence.
5. Voting Rights. (a) Except as otherwise provided in the
Declaration of Trust or as otherwise required by law, (i) each Holder of APS
shall be entitled to one vote for each of the APS held on each matter submitted
to a vote of shareholders of the Fund, and (ii) the holders of outstanding
Preferred Shares, including APS, and of Common Shares shall vote together as a
single class; provided that, at a meeting of the shareholders of the Fund held
for the election of the trustees, the holders of outstanding Preferred Shares,
including APS, represented in person or by proxy at said meeting, shall elect
two trustees of the Fund, each Preferred Share, including
B-11
each of the APS, entitling the holder thereof to one vote. Subject to paragraph
(b) of this Section 5, the holders of outstanding Common Shares shall elect the
balance of the trustees.
(b) 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 trustees constituting the Board of Trustees
shall be automatically increased by the smallest number that, when added to the
two trustees elected exclusively by the holders of Preferred Shares, including
APS, would constitute a majority of the Board of Trustees as so increased by
such smallest number, and the holders of Preferred Shares, including APS, shall
be entitled, voting as a class on a one-vote-per-share basis (to the exclusion
of the holders of all other securities and class of capital shares of the Fund),
to elect such smallest number of additional trustees, together with the two
trustees that such holders are in any event entitled to elect. A Voting Period
shall commence:
(i) if at the close of business on any
Dividend Payment Date accumulated dividends (whether or not earned or
declared) on any outstanding APS 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
(ii) if at any time holders of any other
Preferred Shares are entitled under the 1940 Act to elect a majority of
the trustees of the Fund.
Upon the termination of a Voting Period, the voting rights described in this
paragraph (b) of Section 5 shall cease, subject always, however, to the
revesting of such voting rights in the Holders upon the further occurrence of
any of the events described in this paragraph (b) of Section 5.
(c) (i) As soon as practicable after the accrual of
any right of the holders of Preferred Shares to elect additional trustees as
described in paragraph (b) of this Section 5, the Fund shall notify the Auction
Agent and the Auction Agent shall call a special meeting of such holders, by
mailing a notice of such special meeting to such holders, such meeting to be
held not less than 10 nor more than 20 days after the date of mailing of such
notice. If the Fund fails to send such notice to the Auction Agent or if the
Auction Agent 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 of holders of Preferred Shares held
during a Voting Period at which trustees are to be elected, such holders, voting
together as a class (to the exclusion of the holders of all other securities and
classes of capital shares of the Fund), shall be entitled to elect the number of
trustees prescribed in paragraph (b) of this Section 5 on a one-vote-per-share
basis.
(ii) For purposes of determining any
rights of the Holders to vote on any matter, whether such right is
created by this Certificate of Vote, by the other provisions of the
Declaration of Trust, by statute or otherwise, no Holder shall be
entitled to vote and no APS shall be deemed to be "outstanding" for the
purpose of voting or determining the number of shares
B-12
required to constitute a quorum if, prior to or concurrently with the
time of determination of shares entitled to vote or shares deemed
outstanding for quorum purposes, as the case may be, the Redemption
Price for the redemption of such shares has been deposited in trust
with the Auction Agent for that purpose and the requisite Notice of
Redemption with respect to such shares shall have been given as
provided in Section 3 of this Part I. None of the APS held by the Fund
or any affiliate of the Fund shall have any voting rights or be deemed
to be outstanding for voting or other purposes.
(iii) The terms of office of all persons
who are Trustees of the Fund at the time of a special meeting of
Holders and holders of other Preferred Shares to elect trustees shall
continue, notwithstanding the election at such meeting by the Holders
and such other holders of the number of trustees that they are entitled
to elect, and the persons so elected by the Holders and such other
holders, together with the two incumbent trustees elected by the
Holders and such other holders of Preferred Shares and the remaining
incumbent trustees elected by the holders of the Common Shares, shall
constitute the duly elected trustees of the Fund.
(iv) Simultaneously with the termination
of a Voting Period, the terms of office of the additional trustees
elected by the Holders and holders of other Preferred Shares pursuant
to paragraph (b) of this Section 5 shall terminate, the remaining
trustees shall constitute the trustees of the Fund and the voting
rights of the Holders and such other holders to elect additional
trustees pursuant to paragraph (b) of this Section 5 shall cease,
subject to the provisions of the last sentence of paragraph (b) of this
Section 5.
(d) (i) So long as any of the APS are outstanding,
the Fund shall not, without the affirmative vote of the Holders of the
Outstanding APS determined with reference to a "majority of outstanding voting
securities" as that term is defined in Section 2(a)(42) of the 1940 Act (voting
separately as one class): (a) authorize, create or issue any class or series of
shares of beneficial interest ranking prior to or on a parity with the APS with
respect to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund, or increase
the authorized amount of any series of APS (except that, notwithstanding the
foregoing, but subject to the provisions of Section 13, the Board of Trustees,
without the vote or consent of the Holders of APS, may from time to time
authorize and create, and the Fund may from time to time issue, classes or
series of Preferred Shares, including APS, ranking on a parity with the APS with
respect to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund, subject to
continuing compliance by the Fund with 1940 Act APS Asset Coverage and APS Basic
Maintenance Amount requirements, provided that the Fund obtains written
confirmation from Moody's (if Moody's is then rating APS) and S&P (if S&P is
then rating APS) that the issuance of such class or series would not impair the
rating then assigned by such rating agency to the APS, (b) amend, alter or
repeal the provisions of the Declaration of Trust, including this Certificate of
Vote, whether by merger, consolidation or otherwise, so as to affect any
preference, right or power of such APS or the Holders thereof; provided that (i)
none of the actions permitted by the exception to (a) above will be deemed to
affect such preferences, rights
B-13
or powers and (ii) the authorization, creation and issuance of classes or series
of shares ranking junior to the APS with respect to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Fund, will be deemed to affect such preferences, rights or powers
only if Moody's or S&P is then rating the APS and such issuance would, at the
time thereof, cause the Fund not to satisfy the 1940 Act APS Asset Coverage or
the APS Basic Maintenance Amount, or (c) file a voluntary application for relief
under Federal bankruptcy law or any similar application under state law for so
long as the Fund is solvent and does not foresee becoming insolvent.
(ii) The Board of Trustees, without the
vote or consent of the Holders of APS, may from time to time amend,
alter or repeal any or all of the definitions of the terms listed
below, and any such amendment, alteration or repeal will not be deemed
to affect the preferences, rights or powers of the APS or the Holders
thereof, provided the Board of Trustees receives written confirmation
from Moody's (such confirmation being required to be obtained only in
the event Moody's is rating the APS and in no event being required to
be obtained in the case of the definitions of Deposit Securities,
Discounted Value and Receivables for Municipal Securities Sold as such
terms apply to S&P Eligible Assets, Dividend Coverage Amount, Dividend
Coverage Assets, Minimum Liquidity Level, S&P Discount Factor, S&P
Eligible Assets, S&P Exposure Period and Valuation Date as such term
applies to the definitions of Dividend Coverage Amount, Dividend
Coverage Assets and Minimum Liquidity Level) and S&P (such confirmation
being required to be obtained only in the event S&P is rating the APS
and in no event being required to be obtained in the case of the
definitions of Discounted Value and Receivables for Municipal
Securities Sold as such terms apply to Moody's Eligible Assets, Moody's
Discount Factor, Moody's Eligible Asset and Moody's Exposure Period)
that any such amendment, alteration or repeal would not impair the
ratings then assigned by Moody's or S&P, as the case may be, to the
APS:
B-14
APS Basic
Maintenance Amount
APS Basic
Maintenance Cure Date
APS Basic
Maintenance Report
Deposit Securities
Discounted Value
Dividend Coverage Amount
Dividend Coverage Assets
Market Value
Maximum Potential
Gross-up
Payment Liability
Minimum Liquidity Level
Moody's Discount Factor
Moody's Eligible Asset
Moody's Exposure Period
1940 Act Cure Date
1940 Act APS
Asset Coverage
Quarterly Valuation Date
Receivables for Municipal
Securities Sold
S&P Discount Factor
S&P Eligible Asset
S&P Exposure Period
Valuation Date
(e) Unless otherwise required by law, the Holders of
the APS shall not have any relative rights or preferences or other special
rights other than those specifically set forth herein. The Holders of the APS
shall have no preemptive rights or rights to cumulative voting. In the event
that the Fund fails to pay any dividends on the APS, the exclusive remedy of the
Holders shall be the right to vote for trustees pursuant to the provisions of
this Section 5.
(f) Unless a higher percentage is provided for in the
Declaration of Trust, the affirmative vote of the Holders of a majority of the
outstanding APS, voting as a separate class, shall be required to approve any
plan of reorganization (as such term is used in the 1940 Act) adversely
affecting such shares or any action requiring a vote of security holders of the
Fund under Section 13(a) of the 1940 Act. In the event a vote of Holders of APS
is required pursuant to the provisions of Section 13(a) of the 1940 Act, the
Fund shall, not later than ten Business Days prior to the date on which such
vote is to be taken, notify Moody's (if Moody's is then rating the APS) and S&P
(if S&P is then rating the APS) that such vote is to be taken and the nature of
the action with respect to which such vote is to be taken. In addition, the Fund
shall notify Moody's (if Moody's is then rating the APS) and S&P (if S&P is then
rating the APS) of the results of any vote described in the proceeding sentence.
B-15
(g) Right to Vote with Respect to Certain Other
Matters. The affirmative vote of the holders of a majority (unless a higher
percentage vote is required under the Declaration of Trust or under this
Certificate of Vote) of the outstanding shares of each series of APS, each
voting as a separate class, is required with respect to any matter that
materially affects the series in a manner different from that of other series of
classes of the Fund's shares, including without limitation any proposal to do
the following: (1) increase or decrease the aggregate number of authorized
shares of the series; (2) effect an exchange, reclassification, or cancellation
of all or part of the shares of the series; (3) effect an exchange, or create a
right of exchange, of all or any part of the shares of the series; (4) change
the rights or preferences of the shares of the series; (5) change the shares of
the series, whether with or without par value, into the same or a different
number of shares, either with or without par value, of the same or another class
or series; (6) create a new class or series of shares having rights and
preferences prior and superior to the shares of the series, or increase the
rights and preferences or the number of authorized shares of a series having
rights and preferences prior or superior to the shares of the series; or (7)
cancel or otherwise affect distributions on the shares of the series that have
accrued but have not been declared. To the extent that the interests of a series
of APS affected by a matter are substantially identical to the interests of
another series of APS affected by such matter (e.g., a vote of shareholders
required under Section 13(a) of the 1940 Act), each such series shall vote
together collectively as one class. The vote of holders of APS described above
will in each case be in addition to a separate vote of the requisite percentage
of Common Shares and APS necessary to authorize the action in question.
6. Liquidation Rights. (a) Upon the dissolution, liquidation
or winding up of the affairs of the Fund, whether voluntary or involuntary, the
Holders of the APS then outstanding shall be entitled to receive and to be paid
out of the assets of the Fund available for distribution to its shareholders,
before any payment or distribution shall be made on the Common Shares or on any
other class of shares of the Fund ranking junior to the APS upon dissolution,
liquidation or winding up, an amount equal to the liquidation preference with
respect to such shares. The liquidation preference for the APS shall be $50,000
per share, plus an amount equal to all dividends thereon (whether or not earned
or declared) accumulated but unpaid to the date of final distribution in
same-day funds, together with any payments required to be made pursuant to
Section 12 in connection with the liquidation of the Fund.
(b) Neither the sale of all or substantially all the
property or business of the Fund, nor the merger or consolidation of the Fund
into or with any other corporation nor the merger or consolidation of any other
corporation into or with the Fund shall be a dissolution, liquidation or winding
up, whether voluntary or involuntary, for the purposes of this Section 6.
(c) After the payment to the Holders of the APS of
the full preferential amounts provided for in this Section 6, the Holders of the
APS as such shall have no right or claim to any of the remaining assets of the
Fund.
(d) In the event the assets of the Fund available for
distribution to the Holders of the APS upon any dissolution, liquidation or
winding up of the affairs of the Fund, whether voluntary or involuntary, shall
be insufficient to pay in full all amounts to which such Holders are entitled
pursuant to paragraph (a) of this Section 6, no such distribution shall be made
on account of any shares of any other class or series of Preferred Shares
ranking on a parity
B-16
with the APS with respect to the distribution of assets upon such dissolution,
liquidation or winding up unless proportionate distributive amounts shall be
paid on account of the APS, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
(e) Subject to the rights of the holders of shares of
any series or class or classes of shares ranking on a parity with the APS with
respect to the distribution of assets upon dissolution, liquidation or winding
up of the affairs of the Fund, after payment shall have been made in full to the
Holders of the APS as provided in paragraph (a) of this Section 6, but not prior
thereto, any other series or class or classes of shares ranking junior to the
APS with respect to the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the Holders of the APS shall not be
entitled to share therein.
7. Auction Agent. For so long as any of the APS is
outstanding, the Auction Agent, duly appointed by the Fund to so act, shall be
in each case a commercial bank, trust company or other financial institution
independent of the Fund and its affiliates (which, however, may engage or have
engaged in business transactions with the Fund or its affiliates) and at no time
shall the Fund or any of its affiliates act as the Auction Agent in connection
with the Auction Procedures. If the Auction Agent resigns or for any reason its
appointment is terminated during any period that any of the APS is outstanding,
the Board of Trustees shall use its best efforts promptly thereafter to appoint
another qualified commercial bank, trust company or financial institution to act
as the Auction Agent.
8. 1940 Act APS Asset Coverage. The Fund shall maintain, as of
the last Business Day of each month in which any of the APS is outstanding, the
1940 Act APS Asset Coverage.
9. APS Basic Maintenance Amount. (a) So long as APS are
Outstanding, the Fund shall maintain, on each Valuation Date, and shall verify
to its satisfaction that it is maintaining on such Valuation Date, (i) S&P
Eligible Assets having an aggregate Discounted Value equal to or greater than
the APS Basic Maintenance Amount (if S&P is then rating the APS) and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the APS Basic Maintenance Amount (if Moody's is then rating the APS).
(b) On or before 5:00 P.M., New York City time, on
the third Business Day after a Valuation Date on which the Fund fails to satisfy
the APS Basic Maintenance Amount, and on the third Business Day after the APS
Basic Maintenance Cure Date with respect to such Valuation Date, the Fund shall
complete and deliver to S&P (if S&P is then rating the APS), Moody's (if Moody's
is then rating the APS) and the Auction Agent (if either S&P or Moody's is then
rating the APS) an APS Basic Maintenance Report as of the date of such failure
or such APS Basic Maintenance Cure Date, as the case may be, which will be
deemed to have been delivered to the Auction Agent if the Auction Agent receives
a copy or telecopy, telex or other electronic transcription thereof and on the
same day the Fund mails to the Auction Agent for delivery on the next Business
Day the full APS Basic Maintenance Report. The Fund shall also deliver an APS
Basic Maintenance Report to S&P (if S&P is then rating the APS), and the
B-17
Auction Agent (if S&P is then rating the APS) as of (i) the fifteenth day of
each month (or, if such day is not a Business Day, the next succeeding Business
Day) and (ii) the last Business Day of each month, in each case on or before the
third Business Day after such day. The Fund will also deliver an APS Basic
Maintenance Report to Moody's on any Valuation Date that (i) the Discounted
Value of Moody's Eligible Assets is greater than the APS Basic Maintenance
Amount by 5% or less or (ii) on any date which the Fund redeems Common Shares. A
failure by the Fund to deliver an APS Basic Maintenance Report under
subparagraph (b) of this Section 9 shall be deemed to be delivery of an APS
Basic Maintenance Report indicating the Discounted Value for all assets of the
Fund is less than the APS Basic Maintenance Amount, as of the relevant Valuation
Date.
(c) Within ten Business Days after the date of
delivery of an APS Basic Maintenance Report in accordance with paragraph (b) of
this Section 9 relating to a Quarterly Valuation Date, the Fund shall cause the
Independent Accountant to confirm in writing to S&P (if S&P is then rating the
APS), Moody's (if Moody's is then rating the APS) and the Auction Agent (if
either S&P or Moody's is then rating the APS) (i) the mathematical accuracy of
the calculations reflected in such Report (and in any other APS Basic
Maintenance Report, randomly selected by the Independent Accountant, that was
delivered by the Fund during the quarter ending on such Quarterly Valuation
Date) and (ii) that, in such Report (and in such randomly selected Report), the
Fund determined in accordance with this Certificate of Vote whether the Fund
had, at such Quarterly Valuation Date (and at the Valuation Date addressed in
such randomly-selected Report), S&P Eligible Assets (if S&P is then rating the
APS) of an aggregate Discounted Value at least equal to the APS Basic
Maintenance Amount and Moody's Eligible Assets (if Moody's is then rating the
APS) of an aggregate Discounted Value at least equal to the APS Basic
Maintenance Amount (such confirmation being herein called the "Accountant's
Confirmation").
(d) Within ten Business Days after the date of
delivery of an APS Basic Maintenance Report in accordance with paragraph (b) of
this Section 9 relating to any Valuation Date on which the Fund failed to
satisfy the APS Basic Maintenance Amount, and relating to the APS Basic
Maintenance Cure Date with respect to such failure to satisfy the APS Basic
Maintenance Amount, the Fund shall cause the Independent Accountant to provide
to S&P (if S&P is then rating the APS), Moody's (if Moody's is then rating the
APS) and the Auction Agent (if either S&P or Moody's is then rating the APS) an
Accountant's Confirmation as to such APS Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered
pursuant to subparagraph (c) or (d) of this Section 9 shows that an error was
made in the APS Basic Maintenance Report for a particular Valuation Date for
which such Accountant's Confirmation was required to be delivered, or shows that
a lower aggregate Discounted Value for the aggregate of all S&P Eligible Assets
(if S&P is then rating the APS) or Moody's Eligible Assets (if Moody's is then
rating the APS), as the case may be, of the Fund was determined by the
Independent Accountant, the calculation or determination made by such
Independent Accountant shall be final and conclusive and shall be binding on the
Fund, and the Fund shall accordingly amend and deliver the APS Basic Maintenance
Report to S&P (if S&P is then rating the APS), Moody's (if Moody's is then
rating the APS) and the Auction Agent (if either S&P or Moody's is then rating
the APS) promptly following receipt by the Fund of such Accountant's
Confirmation.
B-18
(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 APS, the Fund
shall complete and deliver to S&P (if S&P is then rating the APS) and to Moody's
(if Moody's is then rating the APS), an APS Basic Maintenance Report as of the
close of business on such Date of Original Issue. Within five Business Days of
such Date of Original Issue, the Fund shall cause the Independent Accountant to
confirm in writing to S&P (if S&P is then rating the APS) and to Moody's (if
Moody's is then rating the APS) (i) the mathematical accuracy of the
calculations reflected in such Report and (ii) that the amount of S&P Eligible
Assets reflected thereon equals or exceeds the APS Basic Maintenance Amount
reflected thereon.
10. Minimum Liquidity Level. So long as S&P is rating the APS,
the Fund shall have, as of each Valuation Date, Dividend Coverage Assets, with
respect to each then Outstanding share of each series of APS, having a value not
less than the Dividend Coverage Amount with respect to such share (the "Minimum
Liquidity Level"). If, as of each Valuation Date, the Fund does not have the
required Dividend Coverage Assets, the Fund shall, as soon as practicable,
adjust its portfolio in order to meet the Minimum Liquidity Level, but only so
long as S&P is rating the APS. So long as S&P is rating the APS, the Fund shall
notify S&P on any Valuation Date which the Fund does not have the required
Dividend Coverage Assets and does not adjust its portfolio as described in the
immediately preceding sentence.
11. Restrictions on Certain Distributions. For so long as any
of the APS is Outstanding, and except as set forth in Sections 2(e) and 6(d) of
this Part I, (A) the Fund shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase, Common
Shares or other shares, if any, ranking junior to the APS as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of the Common Shares or any other shares of the Fund
ranking junior to or on a parity with the APS as to the payment of dividends or
the distribution of assets upon dissolution, liquidation or winding up, or call
for redemption, redeem, purchase or otherwise acquire for consideration any
Common Shares or any other such junior shares (except by conversion into or
exchange for shares of the Fund ranking junior to the APS as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up), or any such parity shares (except by conversion into or exchange
for shares of the Fund ranking junior to or on a parity with APS as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up), unless (i) full cumulative dividends on shares of
each series of APS through its most recently ended Dividend Period shall have
been paid or shall have been declared and sufficient funds for the payment
thereof deposited with the Auction Agent and (ii) the Fund has redeemed the full
number of shares of each series of APS required to be redeemed by any provision
for mandatory redemption pertaining thereto, and (B) if either Moody's or S&P is
rating the APS, the Fund shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase, Common
Shares or other shares, if any, ranking junior to the APS as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of Common Shares or any other shares of the Fund ranking
junior to the APS as to the payment of dividends or the distribution of assets
upon dissolution, liquidation or winding up, or call for redemption, redeem,
purchase or otherwise acquire for consideration any shares of Common Shares or
any other such junior shares (except by conversion into or exchange for shares
of the Fund ranking
B-19
junior to the APS as to the payment of dividends and the distribution of assets
upon dissolution, liquidation or winding up), unless immediately after such
transaction the Discounted Value of Moody's Eligible Assets and S&P Eligible
Assets would each at least equal the APS Basic Maintenance Amount.
12. Additional Dividends. If the Fund retroactively allocates
any net capital gains or other income taxable for federal income tax purposes to
the APS without having given advance notice thereof to the Auction Agent as
provided in Section 6 of Part II by reason of the fact that such allocation is
made as a result of (i) the realization of net capital gains or other income
taxable for federal income tax purposes, (ii) the redemption of all or a portion
of the outstanding APS or (iii) the liquidation of the Fund (such allocation
being referred to herein as a "Retroactive Taxable Allocation"), the Fund will
simultaneously, if practicable, with such allocation but in no event later than
270 days after the end of the Fund's taxable year in which a Retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent and to each
Holder of such shares during such taxable year at such Holder's address as the
same appears or last appeared on the share books of the Fund. Such Holders of
such shares shall be entitled to receive, when, as and if declared by the Board
of Trustees, out of funds legally available therefor, dividends in an amount
equal to the aggregate Additional Dividends with respect to all Retroactive
Taxable Allocations made to such shares during the taxable year in question,
such dividends to be payable by the Fund to the Auction Agent, for distribution
to such Holders, within 30 days after the notice described above is given to the
Auction Agent.
13. Certain Other Restrictions. (a) For so long as any of the
APS is outstanding and Moody's is then rating such shares, the Fund will not,
unless it has received written confirmation from Moody's that any such action
would not impair the ratings then assigned by Moody's to the APS, engage in any
one or more of the following transactions:
(i) transactions in options on
securities, futures contracts or options on futures contracts except
that in connection with Moody's Hedging Transactions: (A) the Fund may
buy call or put option contracts on securities; (B) the Fund may write
covered call options on securities; (C) the Fund may write put options
on securities; (D) the Fund may enter into positions in futures
contracts based on the Municipal Index provided that the Fund shall not
engage in any such transaction which would cause the Fund at the time
of such transaction to own or have sold (1) outstanding futures
contracts based on the Municipal Index exceeding in number 10% of the
rolling average number of daily traded futures contracts based on the
Municipal Index in the 30 calendar days prior to the time of effecting
such transaction as reported by The Wall Street Journal or (2)
outstanding futures contracts based on the Municipal Index and options
on such futures contracts having an aggregate fair market value (taking
into account the fair market value of futures contracts based on
Treasury Bonds) exceeding the fair market value of Moody's Eligible
Assets owned by the Fund; (E) the Fund may enter into futures contracts
on Treasury Bonds provided that the Fund shall not engage in any such
transaction which would cause the Fund at the time of such transaction
to own or have sold (1) outstanding futures contracts based on Treasury
Bonds and options on such futures contracts having an aggregate fair
market value (taking into account the fair market value of futures
B-20
contracts based on the Municipal Index) exceeding 40% of the aggregate
fair market value of Moody's Eligible Assets owned by the Fund and
rated Aa by Moody's (or, if not rated by Moody's but rated by S&P,
rated AAA by S&P) or (2) outstanding futures contracts based on
Treasury Bonds and options on such futures contracts having an
aggregate fair market value (taking into account the fair market value
of futures contracts based on the Municipal Index) exceeding 80% of the
aggregate fair market value of Moody's Eligible Assets owned by the
Fund 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 (D) and (E), the Fund shall be deemed to own the number of
futures contracts that underlie any outstanding option written by the
Fund; and (F) the Fund may buy call or put options on futures contracts
on the Municipal Index or Treasury Bonds, may write put options on such
futures contracts (provided, that if the contract would require
delivery of a security, that security must be held by the Fund) and may
write call options on such futures if it owns the futures contract
subject to the option. For so long as the APS are rated by Moody's, the
Fund will engage in Closing Transactions to close out any outstanding
futures contract based on the Municipal Index if the open interest with
respect to such futures contracts based on the Municipal Index as
reported by The Wall Street Journal is less than 5,000. For so long as
the APS are rated by Moody's, the Fund will engage in a Closing
Transaction to close out any outstanding futures contract by no later
than the fifth Business Day of the month in which such contract expires
and will engage in a Closing Transaction to close out any outstanding
option on a futures contract by no later than the first Business Day of
the month in which such option expires. For so long as the APS are
rated by Moody's, the Fund will engage in transactions with respect to
futures contracts or options thereon having only the next settlement
date or the settlement date immediately thereafter. For purposes of
valuation of Moody's Eligible Assets: (A) if the Fund writes a call
option, the underlying asset will be valued as follows: (1) if the
option is exchange-traded and may be offset readily or if the option
expires before the earliest possible redemption of the APS, at the
Discounted Value of the underlying security of the option or (2)
otherwise, it has no value; (B) if the Fund writes a put option, the
underlying asset will be valued as follows: the lessor of (1) exercise
price and (2) the Discounted Value of the underlying security; (C) if
the Fund is a seller under a futures contract, the underlying security
will be valued at the lower of (1) settlement price and (2) the
Discounted Value of the underlying security; if a contract matures
within the Moody's Exposure Period, the security may be valued at the
settlement price; (D) if the Fund is the buyer under a futures
contract, the underlying security will be valued at the lower of (1)
the settlement price and (2) the Discounted Value of the underlying
security; if the contract matures within the Moody's Exposure Period,
the security may be valued at its Discounted Value and (E) call or put
option contracts which the Fund buys have no value. For so long as APS
are rated by Moody's: (A) the Fund will not engage in options and
futures transactions for leveraging or speculative purposes; (B) the
Fund will not write or sell any anticipatory contracts pursuant to
which the Fund hedges the anticipated purchase of an asset prior to
completion of such purchase; (C) the Fund will not
B-21
enter into an option or futures transaction unless, after giving effect
thereto, the Fund would continue to have Moody's Eligible Assets with
an aggregate Discounted Value equal to or greater than the APS Basic
Maintenance Amount; (D) the Fund will not enter into an option or
futures transaction unless after giving effect to such transaction the
Fund would continue to be in compliance with the provisions relating to
the APS Basic Maintenance Amount; (E) for purposes of the APS Basic
Maintenance Amount (1) assets in margin accounts are not Moody's
Eligible Assets, (2) 10% of the settlement price of assets sold under a
futures contract, the settlement price of assets purchased under a
futures contract, the settlement price of an underlying futures
contract if the Fund writes put options on futures contracts will
constitute liabilities of the Fund and (3) if the Fund writes call
options on futures contracts and does not own the underlying futures
contract, 105% of the Market Value of the underlying futures contract
will constitute a liability of the Fund; (F) the Fund shall enter into
only exchange-traded futures and shall write only exchange-traded
options on exchanges approved by Moody's; (G) where delivery may be
made to the Fund with any of a class of securities, the Fund shall
assume for purposes of the APS Basic Maintenance Amount that it takes
delivery of that security which yields it the least value; (H) the Fund
will not engage in forward contracts; (I) the Fund will enter into
futures contracts as seller only if it owns the underlying security;
and (J) there shall be a quarterly audit made of the Fund's futures and
options transactions by the Fund's independent accountants to confirm
that the Fund is in compliance with these standards; or
(ii) incur any indebtedness, without
prior written approval of Moody's that such indebtedness would not
adversely affect the then current rating by Moody's of the APS except
that the Fund may, without obtaining the written confirmation described
above, incur indebtedness for the purpose of clearing securities
transactions if the APS Basic Maintenance Amount would continue to be
satisfied after giving effect to such indebtedness; or
(iii) issue any class or series of
shares ranking prior to or on a parity with the APS with respect to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the Fund, or reissue any APS previously
purchased or redeemed by the Fund; or
(b) For so long as any of the APS is Outstanding and
S&P is rating such shares, the Fund will not, unless the Fund has received
written confirmation from S&P that any such action would not impair the rating
then assigned by such rating agency to the APS, engage in any one or more of the
following transactions:
(i) transactions in any reverse
repurchase agreements; or
(ii) lend portfolio securities; or
B-22
(iii) borrow money, except that the Fund
may, without obtaining the written confirmation described above, borrow
money for the purposes of clearing securities transactions if the APS
Basic Maintenance Amount would continue to be satisfied after giving
effect to such borrowing; or
(iv) issue any class or series of shares
ranking prior to or on a parity with the APS with respect to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the Fund, or reissue any APS previously
purchased or redeemed by the Fund, or merge or consolidate with any
corporation; or
(v) engage in repurchase agreement
transactions in which the term of such repurchase obligation is longer
than 90 days, in which the underlying security is a security other than
United States treasury securities (not inclusive of zero-coupon
securities), demand deposits, certificates of deposits or bankers
acceptance in which the counter-party or its affiliates have securities
rated A1+ by S&P with respect to such underlying security; or
(vi) engage in short sale transactions;
or
(vii) purchase or sell futures contracts
or options thereon or write uncovered put or uncovered call options on
portfolio securities except that (A) the Fund may engage in any S&P
Hedging Transactions based on the Municipal Index, provided that the
Fund shall not engage in any S&P Hedging Transaction based on the
Municipal Index (other than Closing Transactions) which would cause the
Fund at the time of such transaction to own or have sold the least of
(1) more than 1,000 outstanding futures contracts based on the
Municipal Index, (2) outstanding futures contracts based on the
Municipal Index and on the Treasury Bonds exceeding in number 25% of
the quotient of the fair market value of the Fund's total assets
divided by 100,000 or (3) outstanding futures contract based on the
Municipal Index exceeding in number 10% of the average number of daily
traded futures contracts based on the Municipal Index in the month
prior to the time of effecting such transaction as reported by The Wall
Street Journal and (B) the Fund may engage in S&P Hedging Transactions
based on Treasury Bonds, provided that the Fund shall not engage in any
S&P Hedging Transaction based on Treasury Bonds (other than Closing
Transactions) which would cause the Fund at the time of such
transaction to own or have sold the lesser of (1) outstanding futures
contracts based on Treasury Bonds and on the Municipal Index exceeding
in number 25% of the quotient of the fair market value of the Fund's
total assets divided by 100,000 or (2) outstanding futures contracts
based on Treasury Bonds exceeding in number 10% of the average number
of daily traded futures contracts based on Treasury Bonds in the month
prior to the time of effecting such transaction as reported by The Wall
Street Journal. For so long as the APS are rated by S&P, the Fund will
engage in Closing Transactions to close out any outstanding futures
contracts which the Fund owns or has sold or any outstanding option
thereon owned by the Fund in the event (A) the Fund does not have S&P
Eligible Assets with an aggregate
B-23
Discounted Value equal to or greater than the APS Basic Maintenance
Amount on two consecutive Valuation Dates and (B) the Fund is required
to pay Variation Margin on the second such Valuation Date. For so long
as the APS are rated by S&P, the Fund will engage in a Closing
Transaction to close out any outstanding futures contract or option
thereon in the month prior to the delivery month under the terms of
such futures contract or option thereon unless the Fund holds
securities deliverable under such terms. For purposes of determining
S&P Eligible Assets to determine compliance with the APS Basic
Maintenance Amount, no amounts on deposit with the Fund's custodian or
broker representing Initial Margin or Variation Margin shall constitute
S&P Eligible Assets. For so long as the APS are rated by S&P, when the
Fund writes a futures contract or option thereon, it will maintain an
amount of cash, cash equivalents or short-term, money market securities
in a segregated account with the Fund's custodian, so that the amount
so segregated plus the amount of Initial Margin and Variation Margin
held in the account of the Fund's broker equals the fair market value
of the futures contract, except that in the event the Fund writes a
futures contract or option thereon which requires delivery of an
underlying security, the Fund shall hold such underlying security.
14. Notice. All notices or communications, unless otherwise
specified in the By-Laws of the Fund or this Certificate of Vote, 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.
15. Definitions. As used in Parts I and II hereof, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"'AA' Composite Commercial Paper Rate," on any date for any Rate
Period, shall mean (i) (A) in the case of any Minimum Dividend Period or any
Rate Period between 7 and 28 Rate Period Days, the interest equivalent of the
30-day rate; provided, however, in the case of any Minimum Dividend Period of 7
days or any Rate Period with 7 Rate Period Days and the "AA" Composite
Commercial Paper Rate is being used to determine the Applicable Rate when all of
the Outstanding APS are subject to Submitted Hold Orders, then the interest
equivalent of the 7-day rate, and (B) in the case of any Rate Period with more
than 28 Rate Period Days, the interest equivalent of the 180-day rate, on
commercial paper placed on behalf of issuers whose corporate bonds are rated
"AA" by S&P or the equivalent of such rating by S&P or another rating agency, as
made available on a discount basis or otherwise by the Federal Reserve Bank of
New York for the Business Day immediately preceding such date; or (ii) in the
event that the Federal Reserve Bank of New York does not make available any such
rate, then the arithmetic average of such rates, as quoted on a discount basis
or otherwise, by the Commercial Paper Dealers to the Auction Agent for the close
of business on the Business Day next preceding such date. If any Commercial
Paper Dealer does not quote a rate required to determine the "AA" Composite
Commercial Paper Rate, the "AA" Composite Commercial Paper Rate shall be
determined on the basis of the quotation or quotations furnished by the
remaining Commercial Paper Dealer or Commercial Paper Dealers and any Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers selected by the
Fund to provide such rate or rates not being supplied by any Commercial Paper
Dealer or Commercial Paper Dealers, as the case may be, or, if the Fund does not
select any such Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers, by the remaining Commercial Paper Dealer or Commercial Paper
Dealers. For purposes of this definition, the "interest equivalent" of a rate
stated on a discount basis (a "discount
B-24
rate") for commercial paper of a given days' maturity shall be equal to the
quotient (rounded upwards to the next higher one-thousandth (.001) of 1%) of (A)
the discount rate divided by (B) the difference between (x) 1.00 and (y) a
fraction the numerator of which shall be the product of the discount rate times
the number of days in which such commercial paper matures and the denominator of
which shall be 360.
"Accountant's Confirmation" shall have the meaning set forth in
paragraph (c) of Section 9 of this Part I.
"Additional Dividends" means payment to a Holder of APS of an amount
which, when taken together with the aggregate amount of Retroactive Taxable
Allocations made to such Holder with respect to the taxable year in question,
would cause such Holder's dividends in dollars (after federal income tax
consequences) from the aggregate of both the Retroactive Taxable Allocations and
the Additional Dividends 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 Dividends shall be calculated (i) without
consideration being given to the time value of money; (ii) assuming that no
Holder of APS is subject to the federal alternative minimum tax with respect to
dividends received from the Fund; and (iii) assuming that each Retroactive
Taxable Allocation would be taxable in the hands of each Holder of APS at the
maximum marginal regular federal individual income tax rate applicable to
ordinary income or net capital gains, as applicable, or the maximum marginal
regular federal corporate income tax rate, whichever is greater, in effect
during the taxable year in question.
"Anticipation Notes" means the following municipal securities: tax
anticipation notes, revenue anticipation notes and tax and revenue anticipation
notes.
"Applicable Rate" shall have the meaning specified in subparagraph
(c)(i) of Section 2 of this Part I.
"APS Basic Maintenance Amount," as of any Valuation Date, shall mean
the dollar amount equal to the sum of (i)(A) the product of the number of APS
Outstanding on such date multiplied by $50,000; (B) the aggregate amount of
dividends that will have accumulated at the Applicable Rate (whether or not
earned or declared) to (but not including) the first respective Dividend Payment
Dates for each of the APS Outstanding that follow such Valuation Date; (C) the
amount equal to the Projected Dividend Amount (based on the number of APS
Outstanding on such date); (D) the amount of anticipated expenses of the Fund
for the 90 days subsequent to such Valuation Date; (E) the amount of the Fund's
Maximum Potential Additional Dividend Liability as of such Valuation Date; (F)
the amount of any premium payable pursuant to a Premium Call Period; and (G) any
current liabilities as of such Valuation Date to the extent not reflected in any
of (i)(A) through (i)(F) (including, without limitation, any amounts described
in Section 13 of Part I as required to be treated as liabilities in connection
with the Fund's transactions in futures and options and including any payables
for municipal securities purchased as of such Valuation Date) less (ii) either
(A) the face value of any of the Fund's assets irrevocably deposited by the Fund
for the payment of any of (i)(A) through (i)(G) if such assets mature within the
Moody's Exposure Period and are either securities issued or guaranteed by the
United States Government or have a rating assigned by Moody's of P-1, VMIG-1 or
MIG-1 (or, with respect to S&P, SP-1+ or A-1+) or (B) the Discounted Value of
such assets. For purposes of the APS Basic Maintenance Amount in connection with
S&P's ratings of the APS, with respect to any transactions by the Fund in
futures contracts, the Fund shall include as liabilities (i) 30% of the
aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Fund plus (ii) 25%
of the aggregate settlement value, as marked to market, of any outstanding
futures contracts based on Treasury Bonds which contracts are owned by the Fund.
For purposes of the APS Basic Maintenance Amount in connection with Moody's
rating of the APS, with respect to any transactions by the Fund in
B-25
securities options, the Fund shall include as liabilities (i) 10% of the
exercise price of a call option written by the Fund and (ii) the exercise price
of any written put option.
"APS Basic Maintenance Cure Date," with respect to the failure by the
Fund to satisfy the APS Basic Maintenance Amount (as required by paragraph (a)
of Section 9 of this Part I) as of a given Valuation Date, shall mean the third
Business Day following such Valuation Date.
"APS Basic Maintenance Report" shall mean a report signed by the
President, Treasurer or any Senior Vice President or Vice President of the Fund
which sets forth, as of the related Valuation Date, the assets of the Fund, the
Market Value and the Discounted Value thereof (seriatim and in aggregate), and
the APS Basic Maintenance Amount.
"Auction" shall mean each periodic implementation of the Auction
Procedures.
"Auction Agency Agreement" shall mean the agreement between the Fund
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for purposes of determining the Applicable
Rate for each series of APS so long as the Applicable Rate for such series is to
be based on the results of an Auction.
"Auction Agent" shall mean the entity appointed as such by a resolution
of the Board of Trustees in accordance with Section 7 of this Part I.
"Auction Date," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
"Auction Procedures" shall mean the procedures for conducting Auctions
set forth in Part II hereof.
"Board of Trustees" shall mean the Board of Trustees of the Fund or any
duly authorized committee thereof.
"Business Day" shall mean a day on which the New York Stock Exchange is
open for trading and which is neither a Saturday, Sunday nor any other day on
which banks in The City of New York, New York, are authorized by law to close.
"Closing Transactions" means the termination of a futures contract or
option position by taking an equal position opposite thereto in the same
delivery month as such initial position being terminated.
"Commercial Paper Dealers" shall mean Goldman, Sachs Money Markets,
L.P., Lehman Commercial Paper Incorporated, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Smith Barney, Harris Upham & Co. or, in lieu of any
thereof, their respective affiliates or successors, if such entity is a
commercial paper dealer.
"Common Shares" shall mean the common shares of beneficial interest,
par value $.01 per share, of the Fund.
"Cure Date" shall mean the APS Basic Maintenance Cure Date or the 1940
Act Cure Date, as the case may be.
"Date of Original Issue," with respect to any series of APS, shall mean
the date on which the Fund initially issued shares of such series of APS.
B-26
"Deposit Securities" shall mean cash and municipal securities rated at
least A-1+ or SP-1+ by S&P, except that, for purposes of Section 3(a)(iii) of
this Part I, such municipal securities shall be considered "Deposit Securities"
only if they are also rated P-1, MIG-1 or VMIG-1 by Moody's.
"Discounted Value" shall mean (i) with respect to an S&P Eligible
Asset, the quotient of the Market Value thereof divided by the applicable S&P
Discount Factor and (ii) with respect to a Moody's Eligible Asset, the quotient
of the Market Value thereof divided by the applicable Moody's Discount Factor,
provided that with respect to a Moody's Eligible Asset, Discounted Value shall
not exceed the par value of such Asset at any time.
"Dividend Coverage Amount," as of any Valuation Date, shall mean, with
respect to each of the APS, (i) the aggregate amount of dividends that will
accumulate on such APS to (but not including) the first Dividend Payment Date
for such share that follows such Valuation Date plus any liabilities that will
become payable prior to or on such payment date, less (ii) the combined value of
Deposit Securities irrevocably deposited for the payment of dividends on such
APS and Receivables for Municipal Securities Sold which become due prior to the
Dividend Payment Date and interest with respect to municipal securities which is
payable to the Fund prior to the Dividend Payment Date.
"Dividend Coverage Assets," as of any Valuation Date, shall mean, with
respect to each of the APS, Deposit Securities with maturity or tender dates not
later than the day preceding the first Dividend Payment Date for such share that
follows such Valuation Date and having a value not less than the Dividend
Coverage Amount with respect to such share.
"Dividend Payment Date," with respect to any series of APS, shall mean
any date on which dividends on shares of such series of APS are payable pursuant
to the provisions of paragraph (b) of Section 2 of this Part I.
"Dividend Period," with respect to any series of APS, shall mean the
period from and including the Date of Original Issue of such series to but
excluding the initial Dividend Payment Date for such series and any period
thereafter from and including one Dividend Payment Date for such series to but
excluding the next succeeding Dividend Payment Date for such series.
"Fund" shall mean Van Kampen Merritt Trust For Investment Grade
Municipals, a Massachusetts business trust, which is the issuer of the APS.
"Failure to Deposit," with respect to any series of APS, shall mean a
failure by the Fund to pay to the Auction Agent, not later than 12:00 noon, New
York City time, (A) on the Business Day next preceding any Dividend Payment Date
for such series, in funds available on such Dividend Payment Date in The City of
New York, New York, the full amount of any dividend (whether or not earned or
declared) to be paid on such Dividend Payment Date on any share of such series
or (B) on the Business Day next preceding any redemption date in funds available
on such redemption date for such series in The City of New York, New York, the
Redemption Price to be paid on such redemption date for any share of such series
after notice of redemption is given pursuant to paragraph (b) of Section 3 of
this Part I.
"Holder," with respect to any series of APS, shall mean the registered
holder of shares of such series of APS as the same appears on the share books of
the Fund.
"Independent Accountant" shall mean a nationally recognized accountant,
or firm of accountants, that is with respect to the Fund an independent public
accountant or firm of independent public accountants under the Securities Act of
1933, as amended from time to time.
B-27
"Initial Dividend Period," with respect to any series of APS, shall
mean the period from and including the Date of Original Issue thereof to but
excluding the initial Dividend Payment Date therefor.
"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.
"Initial Margin" means the amount of cash or securities deposited with
a custodian for the benefit of a futures commission merchant as a good-faith
deposit at the time of the initiation of a purchase or sale position with
respect to a futures contract or a sale position with respect to an option
position thereon.
"Market Value" of any asset of the Fund shall mean the market value
thereof determined by the Pricing Service designated from time to time by the
Board of Trustees. Market Value of any asset shall include any interest accrued
thereon. The Pricing Service values portfolio securities at the mean between the
quoted bid and asked price or the yield equivalent when quotations are readily
available. Securities for which quotations are not readily available are valued
at fair value as determined by the pricing service using methods which include
consideration of yields or prices of municipal bonds of comparable quality, type
of issue, coupon, maturity and rating; indications as to value from dealers; and
general market conditions. The pricing service may employ electronic data
processing techniques and/or a matrix system to determine valuations.
"Mandatory Redemption Price" means $50,000 per share of APS plus an
amount equal to accumulated but unpaid dividends thereon to the date fixed for
redemption (whether or not earned or declared).
"Master Purchaser's Letter" has the meaning specified in Section 1 of
Part II hereof.
"Maximum Potential Additional Dividends Liability," as of any Valuation
Date, shall mean the aggregate amount of Additional Dividends that would be due
if the Fund 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 Fund, as of
the end of the calendar month immediately preceding such Valuation Date, and
assuming such Additional Dividends are fully taxable.
"Minimum Liquidity Level" shall have meaning set forth in Section 10 of
this Part I.
"Minimum Dividend Period" shall mean with respect to APS Series A, APS
Series B, APS Series C and APS Series D, any Rate Period consisting of 28 Rate
Period Days.
"Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
"Moody's Discount Factor" shall mean, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the Moody's
Exposure Period, in accordance with the table set forth below:
B-28
RATING CATEGORY
RATING CATEGORY
-------------------------------------------------------------------------------------
EXPOSURE PERIOD 1+ (3),(4) Aaa(1) AA(1) A(1) BAA(1) OTHER(2) (V) MIG-1 (1),(3),(4) SP-1+(3),(4)
-------------------------- ------ ----- ---- ------ -------- ----------------------------------
7 Weeks...................... 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater 154 164 173 205 235 137 149
than seven weeks...........
9 weeks or less but greater 158 169 179 209 242 138 150
than eight weeks...........
-----------------
(1) Moody's rating.
(2) California municipal securities not rated by Moody's but rated BBB-, BBB or
BBB+ by S&P.
(3) California municipal securities rated MIG-1 or VMIG-1 or, if not
rated by Moody's, rated SP-1+ by S&P which do not mature or have a demand
feature at par exercisable within the Moody's Exposure Period and which do not
have a long-term rating.
(4) For the purposes of the definition of Moody's Eligible Assets, these
securities will have an assumed rating of "A" by Moody's.
Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short-term municipal securities will be 115%, so long as such municipal
securities 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 or 125%
as long as such municipal securities are rated at least A-1-/AA or SP-1+/AA by
S&P and mature or have a demand feature at par exercisable within the Moody's
Exposure Period and (ii) no Moody's Discount Factor will be applied to cash or
to Receivables for Municipal Securities Sold.
"Moody's Eligible Asset" shall mean cash, Receivables for Municipal
Securities Sold or a municipal security that (i) pays interest in cash, (ii) is
publicly rated Baa or higher by Moody's or, if not rated by Moody's but rated by
S&P, is rated at least BBB by S&P (provided that, for purposes of determining
the Moody's Discount Factor applicable to any such S&P-rated municipal security,
such municipal security (excluding any short-term municipal security) shall be
deemed to have a Moody's rating which is one full rating category lower than its
S&P rating), (iii) does not have its Moody's rating suspended by Moody's; and
(iv) is part of an issue of municipal securities of at least $10,000,000.
Municipal securities issued by any one issuer and rated BBB by S&P may comprise
no more than 4% of total Moody's Eligible Assets; such BBB-rated municipal
securities, if any, together with any municipal securities issued by the same
issuer and rated Baa by Moody's or A by S&P, may comprise no more than 6% of
total Moody's Eligible Assets; such BBB, Baa and A-rated municipal securities,
if any, together with any municipal securities issued by the same issuer and
rated A by Moody's or AA by S&P, may comprise no more than 10% of total Moody's
Eligible Assets; and such BBB, Baa, A and AA-rated municipal securities, if any,
together with any municipal securities issued by the same issuer and rated Aa by
Moody's or AAA by S&P, may comprise no more than 20% of total Moody's Eligible
Assets. For purposes of the foregoing sentence, any municipal security backed by
the guaranty, letter of credit or insurance issued by a third party shall be
deemed to be issued by such third party if the issuance of such third party
credit is the sole determinant of the rating on such municipal security.
Municipal securities issued by issuers located within a single state or
territory and rated BBB by S&P may comprise no more than 12% of total Moody's
Eligible Assets; such BBB-rated municipal securities, if any, together with any
municipal securities issued by issuers located within the same state or
territory and rated Baa by Moody's or A by S&P may comprise no more than 20% of
total Moody's Eligible Assets; such BBB, Baa and A-rated municipal securities,
if any, together with any municipal securities issued by issuers located within
the same state or territory and rated A by Moody's or AA by S&P, may comprise no
more than 40% of total Moody's Eligible Assets; and such BBB, Baa, A and
AA-rated municipal securities, if any, together
B-29
with any municipal securities issued by issuers located within the same state or
territory and rated Aa by Moody's or AAA by S&P, may comprise no more than 60%
of total Moody's Eligible Assets. For purposes of applying the foregoing
requirements, a municipal security shall be deemed to be rated BBB by S&P if
rated BBB or BBB+ by S&P. For purposes of Minimum Issue Size, Maximum Underlying
Obligor and Maximum State or Territory Concentration, Moody's Eligible Assets
shall be calculated without including cash and municipal securities rated MIG-1
or VMIG-1 or, if not rated by Moody's, rated SP-1+ by S&P, which either mature
or have a demand feature at par exercisable within the Moody's Exposure Period.
Where the Fund sells an asset and agrees to repurchase such asset in the future,
the Discounted Value of such asset will constitute a Moody's Eligible Asset and
the amount the Fund is required to pay upon repurchase of such asset will count
as a liability for the purposes of the APS Basic Maintenance Amount. Where the
Fund purchases an asset and agrees to sell it to a third party in the future,
cash receivable by the Fund thereby will constitute a Moody's Eligible Asset if
the long-term debt of such other party is rated at least A2 by Moody's and such
agreement has a term of 30 days or less; otherwise the Discounted Value of such
asset will constitute a Moody's Eligible Asset. For the purposes of calculation
of Moody's Eligible Assets, municipal securities which have been called for
redemption by the issuer thereof shall be valued at the lower of Market Value or
the call price of such municipal securities.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent that is has been deposited for the payment
of (i)(A) through (i)(G) under the definition of APS Basic Maintenance Amount or
it is subject to any material lien, mortgage, pledge, security interest or
security agreement of any kind (collectively, "Liens"), except for (a) Liens
which are being contested in good faith by appropriate proceedings and which
Moody's has indicated to the Fund will not affect the status of such asset as a
Moody's Eligible Asset, (b) Liens for taxes that are not then due and payable or
that can be paid thereafter without penalty, (c) Liens to secure payment for
services rendered or cash advanced to the Fund by Van Kampen Merritt Investment
Advisory Corp., the Administrator, State Street Bank and Trust Company or the
Auction Agent and (d) Liens by virtue of any repurchase agreement.
"Moody's Exposure Period" shall mean the period commencing on a given
Valuation Date and ending 46 days thereafter.
"Moody's Hedging Transactions" shall mean transactions in options on
securities, futures contracts based on the Municipal Index or Treasury Bonds and
options on such futures contracts.
"Municipal Index" shall mean The Bond Buyer Municipal Bond Index.
"1940 Act" shall mean the Investment Company Act of 1940, as amended
from time to time.
"1940 Act APS Asset Coverage" shall mean asset coverage, as defined in
Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Fund which are stock, including all outstanding APS (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 declaring dividends on its
common stock).
"1940 Act Cure Date," with respect to the failure by the Fund to
maintain the 1940 Act APS Asset Coverage (as required by Section 8 of this Part
I) as of the last Business Day of each month, shall mean the last Business Day
of the following month.
"Non-call Period" shall have the meaning set forth below under
"Specific Redemption Provisions."
B-30
"Notice of Redemption" shall mean any notice with respect to the
redemption of the APS pursuant to Section 3 of this Part I.
"Optional Redemption Price" shall mean (i) $50,000 per share of APS in
the case of a 28-day, a three-month or a six-month Dividend Period or a Special
Dividend Period of less than 365 days or (ii) with respect to a Special Dividend
Period of 365 days or more the Optional Redemption Price set forth in the
Specific Redemption Provisions in connection therewith; in each case plus an
amount equal to accumulated but unpaid dividends thereon to the date of
redemption (whether or not earned or declared). "Preferred Shares" shall mean
the authorized preferred shares of beneficial interest, par value $.01 per
share, of the Fund, and includes the APS.
"Premium Call Period" shall have the meaning set forth below under
"Specific Redemption Provisions."
"Pricing Service" means Van Kampen Merritt Investment Advisory Corp.,
acting pursuant to a Fund Pricing Agreement between the Fund and Van Kampen
Merritt Investment Advisory Corp. and any successor pricing service approved in
writing by Moody's (if Moody's is then rating the APS) and S&P (if S&P is then
rating the APS).
"Projected Dividend Amount" means, with respect to the shares of any
series of APS, on any Valuation Date in the event the then current Dividend
Period will end within 47 calendar days of such date, from and after the last
day of such Dividend Period until 47 calendar days less the number of days
remaining in the current Dividend Period at an Applicable Rate equal to the
Maximum Rate for such Dividend Period multiplied by the larger of the factors
(currently 304%) that the Fund has been informed by Moody's and S&P is
applicable to the Projected Dividend Amount and designed to take into account
increases in dividend rates over such period.
"Quarterly Valuation Date" shall mean the last Business Day of each
fiscal quarter of the Fund in each fiscal year of the Fund, commencing April 30,
1992.
"Rate Period," with respect to any series of APS, shall mean the
Initial Dividend Period thereof and any Subsequent Dividend Period, including
any Special Dividend Period, for such series.
"Rate Period Days," for any Rate Period consisting of less than four
Dividend Periods, shall mean the number of days (without giving effect to
subparagraph (b)(ii) of Section 2 of this Part I) in such Rate Period.
"Receivables for Municipal Securities Sold" shall mean (A) for purposes
of calculation of Moody's Eligible Assets as of any Valuation Date, no more than
the aggregate of the following: (i) the book value of receivables for municipal
securities sold as of or prior to such Valuation Date if such receivables are
due within five business days of such Valuation Date, and if the trades which
generated such receivables are (x) settled through clearing house firms with
respect to which the Fund has received prior written authorization from Moody's
or (y) with counterparties having a Moody's long-term debt rating of at least
Baa3; and (ii) the Moody's Discounted Value of municipal securities sold as of
or prior to such Valuation Date which generated receivables, if such receivables
are due within the Moody's Exposure Period but do not comply with either of the
conditions specified in (i) above, and (B) for purposes of calculation of S&P
Eligible Assets as of any Valuation Date, the book value of receivables for
municipal securities sold as of or prior to such Valuation Date if such
receivables are due within five business days of such Valuation Date.
B-31
"Redemption Price" shall mean the Optional Redemption Price or the
Mandatory Redemption Price, as applicable.
"Retroactive Taxable Allocation" shall have the meaning set forth in
Section 12 hereof.
"S&P" shall mean Standard & Poor's Fund, a New York corporation, and
its successors.
"S&P Discount Factor" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the S&P
Exposure Period, in accordance with the table set forth below:
Rating Category
-----------------------------------------------------------------------
Exposure Period AAA* AA* A* BBB*
-------------------------------------------------------------------------------------------------------------
40 Business Days 190% 195% 210% 250%
22 Business Days 170 175 190 230
10 Business Days 155 160 175 215
7 Business Days 150 155 170 210
3 Business Days 130 135 150 190
--------------------
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term municipal securities will be 115%, so long as such municipal
securities are rated A-1+ or SP-1+ by S&P and mature or have a demand feature
exercisable within 30 days or less, or 125% if such municipal securities are not
rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; provided, however,
that any such Moody's rated short-term municipal securities which have demand
features exercisable within 30 days or less must be backed by a letter of
credit, liquidity facility or guarantee from a bank or other financial
institution with a short-term rating of at least A-1+ from S&P; and further
provided that such Moody's-rated short-term municipal securities may comprise no
more than 50% of short-term municipal securities that qualify as S&P Eligible
Assets and (ii) no S&P Discount Factor will be applied to cash or to Receivables
for Municipal Securities Sold. For purposes of the foregoing, Anticipation Notes
rated SP-1+ or, if not rated by S&P, rated MIG-1 or VMIG-1 by Moody's, which do
not mature or have a demand feature at par exercisable in 30 days and which do
not have a long-term rating, shall be considered to be short-term municipal
securities.
"S&P Eligible Asset" shall mean cash (excluding any cash irrevocably
deposited by the Fund for the payment of any liabilities within the mean of APS
Basic Maintenance Amount), Receivables for Municipal Securities Sold or a
municipal security owned by the Fund that (i) is interest bearing and pays
interest at least semi-annually; (ii) is payable with respect to principal and
interest in U.S. Dollars; (iii) is publicly rated BBB or higher by S&P or, if
not rated by S&P but rated by Moody's, is rated at least A by Moody's (provided
that such Moody's-rated municipal securities will be included in S&P Eligible
Assets only to the extent the Market Value of such municipal securities does not
exceed 50% of the aggregate Market Value of S&P Eligible Assets; and further
provided that, for purposes of determining the S&P Discount Factor applicable to
any such Moody's-rated municipal security, such municipal security will be
deemed to have an S&P rating which is one full rating category lower than its
Moody's rating); (iv) is not part of a private placement of municipal
securities; and (v) is part of an issue of municipal securities with an original
issue size of at least $20 million or, if 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. Solely for
purposes of this definition, the term "municipal securities" means any
obligation
B-32
the interest on which is exempt from regular Federal income taxation and which
issued by any of the fifty United States, the District of Columbia or any of the
territories of the United States, their subdivisions, counties, cities, towns,
villages, school districts and agencies (including authorities and special
districts created by the states), and federally sponsored agencies such as local
housing authorities. Notwithstanding the foregoing limitations:
16. Municipal securities of any one issuer or guarantor
(excluding bond insurers) shall be considered S&P Eligible Assets only to the
extent the Market Value of such municipal securities does not exceed 10% of the
aggregate Market Value of S&P Eligible Assets provided that 2% is added to the
applicable S&P Discount Factor for every 1% by which the Market Value of such
municipal securities exceeds 5% of the aggregate Market Value of S&P Eligible
Assets;
17. Municipal securities guaranteed or insured by any one bond
insurer shall be considered S&P Eligible Assets only to the extent the Market
Value of such municipal securities does not exceed 25% of the aggregate Market
Value of S&P Eligible Assets; and
18. Long-term municipal securities issued by issuers in any
one state or territory shall be considered S&P Eligible Assets only to the
extent the Market Value of such municipal securities does not exceed 20% of the
aggregate Market Value of S&P Eligible Assets.
"S&P Exposure Period" shall mean the maximum period of time following a
Valuation Date that the Fund has under this Certificate of Vote to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the APS Basic Maintenance Amount (as described in
paragraph (a) of Section 9 of this Part I).
"S&P Hedging Transactions" means futures contracts based on the
Municipal Index or Treasury Bonds, put and call options on such contracts
purchased by the Fund and covered call options and secured put options on
portfolio securities written by the Fund.
"Special Dividend Period," with respect to any series of APS, shall
mean any Subsequent Dividend Period commencing on the date designated by the
Fund in accordance with Section 4 of this Part I and ending on the last day of
the last Dividend Period thereof, with such number of consecutive days or whole
years as the Board of Trustees shall specify, including the terms of any
Specific Redemption Provisions, if any.
"Specific Redemption Provisions" means, with respect to any Special
Dividend Period of 365 or more days, either, or any combination of, (i) period
(a "Non-Call Period") determined by the Board of Trustees, after consultation
with the Broker-Dealers, during which the shares subject to such Special
Dividend Period are not subject to redemption at the option of the Fund and (ii)
a period (a "Premium Call Period"), consisting of a number of whole years and
determined by the Board of Trustees, after consultation with the Broker-Dealers,
during each year of which the shares subject to such Special Dividend Period
shall be redeemable at the Fund's option at a price per share equal to $50,000
plus accumulated but unpaid dividends plus a premium expressed as a percentage
of $50,000 as determined by the Board of Trustees after consultation with the
Broker-Dealers; provided, that during any Special Dividend Period of 365 or more
days if on the date of determination of the Applicable Rate for such series,
such Applicable Rate equaled or exceeded the Treasury Rate, the Fund may redeem
APS without regard to any Non-Call Period or Premium Call Period at the
Mandatory Redemption Price.
"Subsequent Dividend Period," with respect to any series of APS, shall
mean the period from and including the first day following the Initial Rate
Period thereof to but excluding the next Dividend
B-33
Payment Date which follows a scheduled Auction for such series and any period
thereafter from and including one Dividend Payment Date which follows a
scheduled Auction for such series to but excluding the next succeeding Dividend
Payment Date which follows a scheduled Auction for such series; provided,
however, that if any Subsequent Dividend Period is also a Special Dividend
Period, such term shall mean the period commencing on the first day of such
Special Dividend Period and ending on the last day of the last Dividend Period
thereof.
"Substitute Commercial Paper Dealer" shall mean The First Boston
Company or Morgan Stanley & Co. Incorporated or their respective affiliates or
successors, if such entity is a Commercial Paper Dealer; provided that none of
such entities shall be a Commercial Paper Dealer.
"Substitute U.S. Government Securities Dealer" shall mean The First
Boston Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated or their
respective affiliates or successors, if such entity is a U.S. Government
securities dealer; provided that none of such entities shall be a U.S.
Government Securities Dealer.
"Treasury Bonds" shall mean United States Treasury Bonds backed by the
full faith and credit of the United States government with remaining maturities
of 10 years or more.
"Treasury Rate," on any date for any Rate Period, shall mean (i) the
yield on the most recently auctioned non-callable direct obligations of the U.S.
Government (excluding "flower" bonds) with a remaining maturity within three
months of the duration of such Rate Period, as quoted in The Wall Street Journal
on such date for the Business Day next preceding such date; or (ii) in the event
that any such rate is not published by The Wall Street Journal, then the
arithmetic average of the yields (expressed as an interest equivalent in the
case of a Rate Period consisting of four Dividend Periods and express as a bond
equivalent in the case of any longer Rate Period) on the most recently auctioned
non-callable direct obligations of the U.S. Government (excluding "flower"
bonds) with a remaining maturity within three months of the duration of such
Rate Period as quoted on a discount basis or otherwise by the U.S. Government
Securities Dealers to the Auction Agent for the close of business on the
Business Day immediately preceding such date. If any U.S. Government Securities
Dealer does not quote a rate required to determine the Treasury Rate, the
Treasury Rate shall be determined on the basis of the quotation or quotations
furnished by the remaining U.S. Government Securities Dealer or U.S. Government
Securities Dealers and any Substitute U.S. Government Securities Dealers
selected by the Fund to provide such rate or rates not being supplied by any
U.S. Government Securities Dealer or U.S. Government Securities Dealers, as the
case may be, or, if the Fund does not select any such Substitute U.S. Government
Securities Dealer or Substitute U.S. Government Securities Dealers, by the
remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers.
"U.S. Government Securities Dealer" shall mean Goldman, Sachs & Co.,
Lehman Government Securities Incorporated, Smith Barney, Harris Upham & Co. and
Morgan Guaranty Trust Company of New York or their respective affiliates or
successors, if such entity is a U.S. Government securities dealer.
"Valuation Date" shall mean, for purposes of determining whether the
Fund is maintaining the APS Basic Maintenance Amount and the Minimum Liquidity
Level, each Business Day.
"Variation Margin" shall mean, in connection with outstanding purchase
or sale positions in futures contracts and outstanding sales positions with
respect to options thereon, the amount of cash and securities paid to and
received from a futures commission merchant (subsequent to the Initial Margin
payment) from time to time as the value of such position fluctuates.
"Voting Period" shall have the meaning set forth in paragraph (b) of
Section 5 of this Part I.
B-34
PART II
1. Certain Definitions. Capitalized terms not defined in
Section 1 of this Part II shall have the respective meaning specified in Part I
hereof. As used in this Part II, the following terms shall have the following
meanings, unless the context otherwise requires:
"Affiliate" shall mean any Person known to the Auction Agent to be
controlled by, in control of or under common control with the Fund; provided
that no Broker-Dealer controlled by, in control of or under common control with
the Fund shall be deemed to be an Affiliate nor shall any fund or any Person
controlled by, in control of or under common control with such fund one of the
trustees or executive officers of which is also a trustee of the Fund be deemed
to be an Affiliate solely because such trustee or executive officer is also a
trustee of the Fund.
"Agent Member" shall mean a member of or participant in the Securities
Depository that will act on behalf of a Bidder and is identified as such in such
Bidder's Master Purchaser's Letter.
"Applicable Percentage" for any series of APS on any Auction Date shall
mean the percentage, determined as set forth below, based on the prevailing
rating of such series in effect at the close of business on the Business Day
next preceding such Auction Date.
Prevailing Rating Percentage
----------------- ----------
"aa3"/AA- or higher..................................... 110%
"a3"/A-................................................. 125%
"baa3"/BBB-............................................. 150%
"ba3"/BB-............................................... 200%
Below "ba3"/BB-......................................... 250%
provided, however, that in the event the Fund has notified the Auction Agent of
its intent to allocate income taxable for federal income tax purposes to the APS
prior to the Auction establishing the Applicable Rate for such shares the
applicable percentage in the foregoing table shall be divided by the quantity 1
minus 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, provided further, however, that the Applicable
Percentage shall be divided in the foregoing manner only to the extent of the
portion of the dividend on the APS for such Rate Period that represents the
allocation of taxable income to the APS.
For purposes of this definition, the "prevailing rating" of shares of a
series of APS shall be (i) "aa3"/AA- or higher if shares of such series of APS
have a rating of "aa3" or better by Moody's and AA- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (ii) if not "aa3"/AA- or
higher, then "a3"/A- if the shares of such series of APS have a rating of "a3"
or better by Moody's and A- or better by S&P or the equivalent of such ratings
by such agencies or a substitute rating agency or substitute rating agencies
selected as provided below, (iii) if not "aa3"/AA- or higher or "a3"/A-, then
"baa3"/BBB- if the shares of such series of APS have a rating of "baa3" or
better by Moody's and BBB- or better by S&P or the equivalent of such ratings by
such agencies or a substitute rating agency or substitute rating agencies
selected as provided below, (iv) if not "aa3"/AA- or higher, "a3"/A- or
"baa3"/BBB-, then "ba3"/BB- if the shares of such series of APS have a rating of
"ba3" or better by Moody's and BB- or better by S&P or the equivalent of such
ratings by such agencies or substitute rating agency or substitute rating
agencies selected as provided below, and (v) if not "aa3"/AA- or higher,
"a3"/A-, "baa3"/BBB- or "ba3"/BB-, then
B-35
below "ba3"/BB-, provided, however, that if the APS are rated by only one rating
agency, the prevailing rating will be determined without reference to the rating
of any other rating agency. The Fund shall take all reasonable action necessary
to enable either S&P or Moody's to provide a rating for each series of APS. If
neither S&P nor Moody's shall make such a rating available, Goldman, Sachs & Co.
or Smith Barney, Harris Upham & Co. Incorporated or their successors as
Broker-Dealers shall select a nationally recognized statistical rating
organization (as that term is used in the rules and regulations of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time) to act as a substitute rating agency in respect of
the APS and the Fund shall take all reasonable action to enable such rating
agency or agencies to provide a rating for shares of such series.
"Available APS" shall have the meaning specified in paragraph (a) of
Section 4 of this Part II.
"Bid" and "Bids" shall have the respective meanings specified in
paragraph (a) of Section 2 of this Part II.
"Bidder" and "Bidders" shall have the respective meanings specified in
paragraph (a) of Section 2 of this Part II.
"Broker-Dealer" shall mean any broker-dealer, commercial bank or other
entity permitted by law to perform the functions required of a Broker-Dealer in
this Part II, that is a member of, or a participant in, the Securities
Depository or is an affiliate of such member or participant, has been selected
by the Fund and has entered into a Broker-Dealer Agreement that remains
effective.
"Broker-Dealer Agreement" shall mean an agreement between the Auction
Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow
the procedures specified in this Part II.
"Existing Holder," when used with respect to shares of any series of
APS, shall mean a Person who has signed a Master Purchaser's Letter and is
listed as the beneficial owner of such APS in the records of the Auction Agent.
"Hold Order" and "Hold Orders" shall have the respective meanings
specified in paragraph (a) of Section 2 of this Part II.
"Master Purchaser's Letter" shall mean a letter, addressed to the Fund,
the Auction Agent, a Broker-Dealer and an Agent Member in which a Person agrees,
among other things, to offer to purchase, to purchase, to offer to sell and/or
to sell APS as set forth in this Part II.
"Maximum Rate," for any series of APS on any Auction Date, shall mean:
(i) in the case of any Auction Date
which is not the Auction Date immediately prior to the first day of any
proposed Special Dividend Period designated by the Fund pursuant to
Section 4 of Part I of the Certificate of Vote, the product of (A) the
"AA" Composite Commercial Paper Rate on such Auction Date for the next
Rate Period of such series and (B) the Applicable Percentage on such
Auction Date, unless such series has or had a Special Dividend Period
(other than a Special Dividend Period of 28 Rate Period Days or less)
and an Auction at which Sufficient Clearing Bids existed has not yet
occurred for a Minimum Dividend Period of such series after such
Special Dividend Period, in which case the higher of:
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(A) the dividend rate on shares of
such series for the then-ending Rate Period, and
(B) the product of (1) the higher of
(x) the "AA" Composite Commercial Paper Rate on such Auction Date for
the then-ending Rate Period of such series, if such Rate Period
consists of less than four Dividend Periods, or the Treasury Rate on
such Auction Date for such Rate Period, if such Rate Period consists of
four or more Dividend Periods, and (y) the "AA" Composite Commercial
Paper Rate on such Auction Date for such Special Dividend Period of
such series, if such Special Dividend Period consists of less than four
Dividend Periods, or the Treasury Rate on such Auction Date for such
Special Dividend Period, if such Special Dividend Period consists of
four or more Dividend Periods and (2) the Applicable Percentage on such
Auction Date; or
(ii) in the case of any Auction Date
which is the Auction Date immediately prior to the first day of any
proposed Special Dividend Period of more than 28 Rate Period Days
designated by the Fund pursuant to Section 4 of Part I of the
Certificate of Vote, the product of (A) the highest of (1) the "AA"
Composite Commercial Paper Rate on such Auction Date for the
then-ending Rate Period of such series, if such Rate Period consists of
less than four Dividend Periods, or the Treasury Rate on such Auction
Date for such Rate Period, if such Rate Period consists of four or more
Dividend Periods, (2) the "AA" Composite Commercial Paper Rate on such
Auction Date for the Special Dividend Period for which the Auction is
being held if such Special Dividend Period consists of less than four
Dividend Periods or the Treasury Rate on such Auction Date for the
Special Dividend Period for which the Auction is being held if such
Special Dividend Period consists of four or more Dividend Periods, and
(3) the "AA" Composite Commercial Paper Rate on such Auction Date for
Minimum Dividend Periods and (B) the Applicable Percentage on such
Auction Date.
"Order" and "Orders" shall have the respective meanings specified in
paragraph (a) of Section 2 of this Part II.
"Outstanding" shall mean, as of any Auction Date with respect to shares
of any series of APS, the number of shares of such series theretofore issued by
the Fund except, without duplication, (i) any shares of such series of APS
theretofore cancelled or delivered to the Auction Agent for cancellation or
redeemed by the Fund or as to which a notice of redemption shall have been given
by the Fund, (ii) any shares of such series of APS as to which the Fund or any
Affiliate thereof shall be an Existing Holder and (iii) any shares of such
series of APS represented by any certificate in lieu of which a new certificate
has been executed and delivered by the Fund.
"Person" shall mean and include an individual, a partnership, a fund, a
trust, an unincorporated association, a joint venture or other entity or a
government or any agency or political subdivision thereof.
"Potential Holder," when used with respect to shares of any series of
APS, shall mean any Person, including any Existing Holder of shares of such
series of APS, (i) who shall have executed a Master
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Purchaser's Letter and (ii) who may be interested in acquiring shares of such
series of APS (or, in the case of an Existing Holder of shares of such series of
APS, additional shares of such series of APS).
"Securities Depository" shall mean The Depository Trust Company and its
successors and assigns or any other securities depository selected by the Fund
which agrees to follow the procedures required to be followed by such securities
depository in connection with the APS.
"Sell Order" and "Sell Orders" shall have the respective meanings
specified in paragraph (a) of Section 2 of this Part II.
"Submission Deadline" shall mean 1:30 p.m., New York City time, on any
Auction Date or such other time on any Auction Date by which Brokers-Dealers are
required to submit Orders to the Auction Agent as specified by the Auction Agent
from time to time.
"Submitted Bid" and "Submitted Bids" shall have the respective meanings
specified in paragraph (a) of Section 4 of this Part II.
"Submitted Hold Order" and "Submitted Hold Orders" shall have the
respective meanings specified in paragraph (a) of Section 4 of this Part II.
"Submitted Order" and "Submitted Orders" shall have the respective
meanings specified in paragraph (a) of Section 4 of this Part II.
"Submitted Sell Order" and "Submitted Sell Orders" shall have the
respective meanings specified in paragraph (a) of Section 4 of this Part II.
"Sufficient Clearing Bids" shall have the meaning specified in
paragraph (a) of Section 4 of this Part II.
"Winning Bid Rate" shall have the meaning specified in paragraph (a) of
Section 4 of this Part II.
2. Orders by Existing Holders and Potential Holders. (a) Prior
to the Submission Deadline on each Auction Date:
(i) each Existing Holder of shares of
any series of APS subject to an Auction on such Auction Date may submit
to a Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding
shares, if any, of such series of APS held by such Existing Holder
which such Existing Holder desires to continue to hold without regard
to the Applicable Rate for such series for the next succeeding Rate
Period of such series;
(B) the number of Outstanding
shares, if any, of such series of APS which such Existing Holder offers
to sell if the Applicable Rate for such series for the next succeeding
Rate Period of such series shall be less than the rate per annum
specified by such Existing Holder; and/or
(C) the number of Outstanding
shares, if any, of such series of APS held by such Existing Holder
which such Existing Holder
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offers to sell without regard to the Applicable Rate for such series
for the next succeeding Rate Period of such series;
and
(ii) one or more Broker-Dealers, using
lists of Potential Holders, shall in good faith for the purpose of
conducting a competitive Auction in a commercially reasonable manner,
contact Potential Holders (by telephone or otherwise), including
Persons that are not Existing Holders, on such lists to determine the
number of shares, if any, of such series of APS which each such
Potential Holder offers to purchase if the Applicable Rate for such
series for the next succeeding Rate Period of such series shall not be
less than the rate per annum specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of information
referred to in clause (i)(A), (i)(B), (i)(C) or (ii) of this paragraph (a) is
hereinafter referred to as an "Order" and collectively as "Orders" and each
Existing Holder and each Potential Holder placing an Order is hereinafter
referred to as a "Bidder" and collectively as "Bidders"; an Order containing the
information referred to in clause (i)(A) of this paragraph (a) is hereinafter
referred to as a "Hold Order" and collectively as "Hold Orders"; an Order
containing the information referred to in clause (i)(B) or (ii) of this
paragraph (a) is hereinafter referred to as a "Bid" and collectively as "Bids";
and an Order containing the information referred to in clause (i)(C) of this
paragraph (a) is hereinafter referred to as a "Sell Order" and collectively as
"Sell Orders."
(b) (i) A bid by an Existing Holder of shares of any
series of APS subject to an Auction on any Auction Date shall constitute an
irrevocable offer to sell:
(A) the number of Outstanding shares
of such series of APS specified in such Bid if the Applicable Rate for
such series determined on such Auction Date shall be less than the rate
specified therein:
(B) such number or a lesser number
of Outstanding shares of such series of APS to be determined as set
forth in clause (iv) of paragraph (a) of Section 5 of this Part II if
the Applicable Rate for such series determined on such Auction Date
shall be equal to the rate specified therein; or
(C) the number of Outstanding shares
of such series of APS specified in such Bid if the rate specified
therein shall be higher than the Maximum Rate for such series, or such
number or a lesser number of Outstanding shares of such series of APS
to be determined as set forth in clause (iii) of paragraph (b) of
Section 5 of this Part II if the rate specified therein shall be higher
than the Maximum Rate for such series and Sufficient Clearing Bids for
such series do not exist.
(ii) A Sell Order by an Existing Holder
of shares of any series of APS subject to an Auction on any Auction
Date shall constitute an irrevocable offer to sell:
B-39
(A) the number of Outstanding shares
of such series of APS specified in such Sell Order; or
(B) such number or a lesser number
of Outstanding shares of such series of APS as set forth in clause
(iii) of paragraph (b) of Section 5 of this Part II if Sufficient
Clearing Bids for such series do not exist.
(iii) A Bid by a Potential Holder of
shares of any series of APS subject to an Auction on any Auction Date
shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares
of such series of APS specified in such Bid if the Applicable Rate for
such series determined on such Auction Date shall be higher than the
rate specified therein; or
(B) such number or a lesser number
of Outstanding shares of such series of APS as set forth in clause (v)
of paragraph (a) of Section 5 of this Part II if the Applicable Rate
for such series determined on such Auction Date shall be equal to the
rate specified therein.
(c) No Order for any number of shares of any series
of APS other than whole shares shall be valid.
3. Submission of Orders by Broker-Dealers to Auction Agent.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders for shares of any series of
APS subject to an Auction on such Auction Date obtained by such Broker-Dealer
and shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such
Order;
(ii) the aggregate number of shares of
such series of APS that are the subject of such Order;
(iii) to the extent that such Bidder is
an Existing Holder of shares of such series of APS:
(A) the number of shares, if any, of
such series of APS subject to any Hold Order placed by such Existing
Holder;
(B) the number of shares, if any, of
such series of APS subject to any Bid placed by such Existing Holder
and the rate specified in such Bid; and
(C) the number of shares, if any, of
such series of APS subject to any Sell Order placed by such Existing
Holder; and
B-40
(iv) to the extent such Bidder is a
Potential Holder of shares of such series of APS, the rate and number
of shares of such series of APS specified in such Potential Holder's
Bid.
(b) If any rate specified in any Bid contains more
than three figures to the right of the decimal point, the Auction Agent shall
round such rate up to the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the
Outstanding shares of any series of APS held by any Existing Holder is not
submitted to the Auction Agent prior to the Submission Deadline, the Auction
Agent shall deem a Hold Order to have been submitted on behalf of such Existing
Holder covering the number of Outstanding shares of such series of APS held by
such Existing Holder and not subject to Orders submitted to the Auction Agent.
(d) If any Existing Holder submits through a
Broker-Dealer to the Auction Agent one or more Orders covering in the aggregate
more than the number of Outstanding shares of any series of APS subject to an
Auction held by such Existing Holder, such Orders shall be considered valid in
the following order of priority:
(i) all Hold Orders for shares of such
series of APS shall be considered valid, but only up to and including
in the aggregate the number of Outstanding shares of such series of APS
held by such Existing Holder, and if the number of shares of such
series of APS subject to such Hold Orders exceeds the number of
Outstanding shares of such series of APS held by such Existing Holder,
the number of shares subject to each such Hold Order shall be reduced
pro rata to cover the number of Outstanding shares of such series of
APS held by such Existing Holder;
(ii) (A) any Bid for shares of such
series of APS shall be considered valid up to and including the excess
of the number of Outstanding shares of such series of APS held by such
Existing Holder over the number of shares of such series of APS subject
to any Hold Orders referred to in clause (i) above;
(B) subject to subclause (A), if
more than one Bid for shares of such series of APS with the same rate
is submitted on behalf of such Existing Holder and the number of
Outstanding shares of such series of APS subject to such Bids is
greater than such excess, such Bids shall be considered valid up to and
including the amount of such excess, and the number of shares of such
series of APS subject to each Bid with the same rate shall be reduced
pro rata to cover the number of shares of such series of APS equal to
such excess;
(C) subject to subclauses (A) and
(B), if more than one Bid for shares of such series of APS with
different rates is submitted on behalf of such Existing Holder, such
Bids shall be considered valid in the ascending order of their
respective rates up to and including the amount of such excess; and
B-41
(D) in any such event, the number,
if any, of such Outstanding shares of such series of APS subject to any
portion of Bids considered not valid in whole or in part under the
clause (ii) shall be treated as the subject of a Bid for shares of such
series of APS by a Potential Holder at the rate therein specified; and
(iii) all Sell Orders for shares of such
series of APS shall be considered valid up to and including the excess
of the number of Outstanding shares of such series of APS held by such
Existing Holder over the sum of the APS subject to valid Hold Orders
referred to in clause (i) above and valid Bids by such Existing Holder
referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of
any series of APS is submitted on behalf of any Potential Holder, each such Bid
submitted shall be a separate Bid with the rate and number of shares therein
specified.
(f) An Order submitted by a Broker-Dealer to the
Auction Agent prior to the Submission Deadline on any Auction Date shall be
irrevocable.
4. Determination of Sufficient Clearing Bids, Winning Bid Rate
and Applicable Rate. (a) Not earlier than the Submission Deadline on each
Auction Date, the Auction Agent shall assemble all valid 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 collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders" and shall for each series of APS for which an Auction is
being held determine:
(i) the excess of the number of
Outstanding shares of such series of APS over the number of Outstanding
shares of such series of APS subject to Submitted Hold Orders (such
excess being hereinafter referred to as the "Available APS" of such
series);
(ii) from the Submitted Orders for such
series whether:
(A) the number of Outstanding shares
of such series of APS subject to Submitted Bids by Potential Holders
specifying one or more rates equal to or lower than the Maximum Rate
for such series
exceeds or is equal to the sum of
(B) the number of Outstanding shares
of such series of APS subject to Submitted Bids by Existing Holders
specifying one or more rates higher than the Maximum Rate for such
series; and
(C) the number of Outstanding shares
of such series of APS subject to Submitted Sell Orders
B-42
(in the event such excess or such equality exists (other than because the number
of shares of such series of APS in subclauses (B) and (C) above is zero because
all of the Outstanding shares of such series of APS are subject to Submitted
Hold Orders), such Submitted Bids in subclause (A) above being hereinafter
referred to collectively as "Sufficient Clearing Bids" for such series); and
(iii) if Sufficient Clearing Bids for
such series exist, the lowest rate specified in such Submitted Bids
(the "Winning Bid Rate" for such series) which if:
(A) (I) each such Submitted Bid from
Existing Holders specifying such lowest rate and (II) all other such
Submitted Bids from Existing Holders specifying lower rates were
rejected, thus entitling such Existing Holders to continue to hold the
shares of such series of APS that are subject to such Submitted Bids;
and
(B) (I) each such Submitted Bid from
Potential Holders specifying such lowest rate and (II) all other such
Submitted Bids from Potential Holders specifying lower rates were
accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such series of
APS which, when added to the number of Outstanding shares of such series of APS
to be purchased by such Potential Holders described in subclause (B) above,
would equal not less than the Available APS of such series.
(b) Promptly after the Auction Agent has made the
determinations pursuant to paragraph (a) of this Section 4, the Auction Agent
shall advise the Fund of the Maximum Rate for each series of APS for which an
Auction is being held on the Auction Date and, based on such determination, the
Applicable Rate for each such series for the next succeeding Rate Period thereof
as follows:
(i) if Sufficient Clearing Bids for such
series exist, that the Applicable Rate for such series for the next
succeeding Rate Period thereof shall be equal to the Winning Bid Rate
for such series to determined;
(ii) if Sufficient Clearing Bids for
such series do not exist (other than because all of the Outstanding
shares of such series of APS are subject to Submitted Hold Orders),
that the Applicable Rate for such series for the next succeeding Rate
Period, which shall be a Minimum Dividend Period, thereof shall be
equal to the Maximum Rate for such series; or
(iii) if all of the Outstanding shares
of such series of APS are subject to Submitted Hold Orders, that the
Applicable Rate for such series for the next succeeding Rate Period
thereof shall be equal to the product of (A) (I) the "AA" Composite
Commercial Paper Rate on such Auction Date for such Rate Period, if
such Rate Period consists of less than four Dividend Periods or (II)
the Treasury Rate on such Auction Date for such Rate Period, if such
Rate Period consists of four or more Dividend Periods and (B) 1 minus
the maximum marginal regular federal individual income tax rate
applicable to ordinary income
B-43
or the maximum marginal regular federal corporate income tax rate,
whichever is greater; provided, however, that if the Fund has notified
the Auction Agent of its intent to allocate to the APS in such Rate
Period any net capital gains or other income taxable for Federal income
tax purposes, the Applicable Rate in respect of that portion of the
dividend on the APS for such Rate Period that represents the allocation
of net capital gains or other income taxable for Federal income tax
purposes shall be the rate described in the preceding clause (A)(I) or
(II), as applicable, without being multiplied by the factor set forth
in the preceding clause (B).
5. Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares. Existing Holders shall continue to hold
the APS that are subject to Submitted Hold Orders, and, based on the
determinations made pursuant to paragraph (a) of Section 4 of this Part II, 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:
(a) If Sufficient Clearing Bids for any series of APS
have been made, all Submitted Sell Orders shall be accepted and, subject to the
provisions of paragraphs (d) and (e) of this Section 5, Submitted Bids shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids for such series shall be rejected:
(i) Existing Holders' Submitted Bids for
shares of such series of APS specifying any rate that is higher than
the Winning Bid Rate for such series shall be accepted, thus requiring
each such Existing Holder to sell the APS subject to such Submitted
Bids;
(ii) Existing Holders' Submitted Bids
for shares of such series of APS specifying any rate that is lower than
the Winning Bid Rate for such series shall be rejected, thus entitling
each such Existing Holder to continue to hold the APS subject to such
Submitted Bids;
(iii) Potential Holders' Submitted Bids
for shares of such series of APS specifying any rate that is lower than
the Winning Bid Rate shall be accepted;
(iv) each Existing Holder's Submitted
Bid for shares of such series of APS specifying a rate that is equal to
the Winning Bid Rate for such series shall be rejected, thus entitling
such Existing Holder to continue to hold the APS subject to such
Submitted Bid, unless the number of Outstanding shares of such series
of APS subject to all such Submitted Bids shall be greater than the
number of shares of such series of APS ("remaining shares") in the
excess of the Available APS of such series over the number of the APS
subject to Submitted Bids described in clauses (ii) and (iii) of this
paragraph (a), in which event such Submitted Bid of such Existing
Holder shall be rejected in part, and such Existing Holder shall be
entitled to continue to hold the APS subject to such Submitted Bid, but
only in an amount equal to the number of shares of such series of APS
obtained by multiplying the number of remaining shares by a fraction,
the numerator of which shall be the number of Outstanding shares of
such series of APS held by such Existing Holder subject to such
Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding shares of such series of APS subject to such
Submitted Bids made by all such Existing Holders that specified a rate
equal to the Winning Bid Rate for such series; and
(v) each Potential Holder's Submitted
Bid for shares of such series of APS specifying a rate that is equal to
the Winning Bid Rate for such series shall be accepted but only in an
amount equal to the number of shares of such series of APS obtained by
multiplying the number of shares in the excess of the Available APS of
such series over the number of the APS subject to Submitted Bids
described in clauses (ii) through (iv) of this paragraph (a) by a
fraction, the
B-44
numerator of which shall be the number of Outstanding shares of such
series of APS subject to such Submitted Bid and the denominator of
which shall be the aggregate number of Outstanding shares of such
series of APS subject to such Submitted Bids made by all such Potential
Holders that specified a rate equal to the Winning Bid Rate for such
series; and
(b) If Sufficient Clearing Bids for any series of APS
have not been made (other than because all of the Outstanding shares of such
series of APS are subject to Submitted Hold Orders), subject to the provisions
of paragraph (d) of this Section 5, Submitted Orders for such series shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids for such series shall be rejected:
(i) Existing Holders' Submitted Bids for
shares of such series of APS specifying any rate that is equal to or
lower than the Maximum Rate for such series shall be rejected, thus
entitling such Existing Holders to continue to hold the APS subject to
such Submitted Bids;
(ii) Potential Holders' Submitted Bids
for shares of such series of APS specifying any rate that is equal to
or lower than the Maximum Rate for such series shall be accepted; and
(iii) Each Existing Holder's Submitted
Bid for shares of such series of APS specifying any rate that is higher
than the Maximum Rate of such series and the Submitted Sell Orders for
shares of such series of APS of each Existing Holder shall be accepted,
thus entitling each Existing Holder that submitted any such Submitted
Bid or Submitted Sell Order to sell the shares of such series of APS
subject to such Submitted Bid or Submitted Sell Order, but in both
cases only in an amount equal to the number of shares of such series of
APS obtained by multiplying the number of shares of such series of APS
subject to Submitted Bids described in clause (ii) of this paragraph
(b) by a fraction, the numerator of which shall be the number of
Outstanding shares of such series of APS held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the aggregate number of Outstanding
shares of such series of APS subject to all such Submitted Bids and
Submitted Sell Orders.
B-45
(c) If all of the Outstanding shares of any series of
APS are subject to Submitted Hold Orders, all Submitted Bids for such series
shall be rejected.
(d) If, as a result of the procedures described in
clause (iv) or (v) of paragraph (a) or clause (iii) of paragraph (b) of this
Section 5, 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 APS of any series on any Auction Date, the Auction Agent shall, in such
manner as it shall determine in its sole discretion, round up or down the number
of shares of such series of APS to be purchased or sold by any Existing Holder
or Potential Holder on such Auction Date as a result of such procedures so that
the number of shares of such series so purchased or sold by each Existing Holder
or Potential Holder on such Auction Date shall be whole shares of APS.
(e) If, as a result of the procedures described in
clause (v) of paragraph (a) of this Section 5, any Potential Holder would be
entitled or required to purchase less than a whole share of any series of APS on
any Auction Date, the Auction Agent shall, in such manner as it shall determine
in its sole discretion, allocate shares of such series of APS for purchase among
Potential Holders so that only whole shares of such series of APS are purchased
on such Auction Date as a result of such procedures by any Potential Holder,
even if such allocation results in one or more Potential Holders not purchasing
the APS on such Auction Date.
(f) Based on the results of each Auction for a series
of APS, the Auction Agent shall determine the aggregate number of shares of such
series of APS to be purchased and the aggregate number of shares of such series
of APS to be sold by Potential Holders and Existing Holders on whose behalf each
Broker-Dealer submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate number of shares to be
purchased and such aggregate number of shares to be sold differ, determine to
which other Broker-Dealer or Broker-Dealers acting for one or more purchasers of
shares of such series of APS such Broker-Dealer shall deliver, or from which
other Broker-Dealer or Broker-Dealers acting for one or more sellers of shares
of such series of APS such Broker-Dealer shall receive, as the case may be,
shares of such series of APS.
6. Notification of Allocations. In normal circumstances,
whenever the Fund intends to include any net capital gains or other income
taxable for Federal income tax purposes in any dividend on the APS, the Fund
will notify the Auction Agent of the amount to be so included 15 days prior to
the Auction Date on which the Applicable Rate for such dividend is to be
established. Whenever the Auction Agent receives such notice from the Fund, it
will in turn notify each Broker-Dealer, who, on or prior to such Auction Date,
in accordance with its Broker-Dealer Agreement, will notify its Existing Holders
and Potential Holders believed by it to be interested in submitting an Order in
the Auction to be held on such Auction Date.
7. Miscellaneous. (a) To the extent permitted by applicable
law, the Board of Trustees may interpret or adjust the provisions of this
Certificate of Vote to resolve any inconsistency or ambiguity or to remedy any
formal defect, and may amend this Certificate of Vote with respect to any series
of APS prior to the issuance of such series.
B-46
(b) An Existing Holder may sell, transfer or
otherwise dispose of the APS only in whole shares and only pursuant to a Bid or
Sell Order in accordance with the procedures described in this Part II or to or
through a Broker-Dealer or to a Person that has delivered a signed copy of a
Master Purchaser's Letter to the Auction Agent; provided, that in the case of
all transfers other than pursuant to Auctions, such Existing Holder, its
Broker-Dealer or its Agent Member advises the Auction Agent of such transfer.
(c) All of the shares of each series of APS
outstanding from time to time shall be represented by one global certificate
registered in the name of the Securities Depository or its nominee.
(d) Neither the Fund nor any affiliate thereof may
submit an Order in any Auction, except that any Broker-Dealer that is an
affiliate of the Fund may submit Orders in an Auction, but only if such Orders
are not for its own account.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of Vote
to be executed as of March , 1992.
---------------------------
Ronald A. Nyberg
Secretary
State of )
) ss
County of )
Then personally appeared before me Ronald A. Nyberg, who acknowledged
the foregoing instrument to be his free act and deed and the free act and deed
in his capacity as Secretary of Van Kampen Merritt Trust For Investment Grade
California Municipals.
Before me,
---------------------------
Notary Public
My commission expires:
---------------------------
B-47
ARTICLES OF AMENDMENT TO
THE CERTIFICATE OF VOTE OF TRUSTEES
ESTABLISHING FOUR SERIES OF PREFERRED SHARES OF
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
Van Kampen Trust for Investment Grade Municipals, a
Massachusetts business trust (the "Fund"), certifies to the Secretary of State
of the Commonwealth of Massachusetts as follows:
FIRST: On October 8, 1998, the Board of Trustees, pursuant to
the provisions of Article VI of the Amended and Restated Declaration of Trust
(the "Declaration of Trust") of the Fund and Section 5 of Part I and Section 7
of Part II of the Certificate of Vote of Trustees Establishing Four Series of
Preferred Shares (the "Certificate of Vote") of the Fund, authorized and
declared a 2-for-1 split of the preferred shares of beneficial interest of the
Fund, par value $.01 per share, liquidation preference $50,000 per share,
designated respectively, Auction Preferred Shares, Series A ("APS Series A"),
Auction Preferred Shares, Series B ("APS Series B"), Auction Preferred Shares,
Series C ("APS Series C") and Auction Preferred Shares, Series D ("APS Series
D") (collectively, the APS Series A, APS Series B, APS Series C and APS Series D
are referred to as "APS"). The stock split is to be effected by means of a
division of each outstanding share of APS into two preferred shares of
beneficial interest, par value $.01 per share, liquidation preference $25,000
per share.
SECOND: Pursuant to the provisions of Article VI of the
Declaration of Trust and Section 5 of Part I and Section 7 of Part II of the
Certificate of Vote, the following amendments to the Certificate of Vote have
been duly adopted and approved by a majority of the Trustees of the Fund.
a. The first paragraph of the vote establishing a class of
preferred shares of beneficial interest is hereby amended by
replacing such paragraph with the following:
First: Pursuant to authority expressly vested in the Board of
Trustees of the Fund by Article VI of its Declaration of Trust
(which, as amended or restated from time to time is, together
with this Certificate of Vote, herein called the "Declaration
of Trust"), the Board of Trustees hereby authorizes the
issuance of four series of 10,600 shares of its authorized
preferred shares of beneficial interest, par value $.01 per
share ("Preferred Shares"), liquidation preference of $25,000
per share, designated, respectively, Auction Preferred Shares,
Series A ("APS Series A"), Auction Preferred Shares, Series B
("APS Series B"), Auction Preferred Shares, Series C ("APS
Series C") and Auction Preferred Shares, Series D ("APS Series
D") (collectively, the APS Series A, APS Series B, APS Series
C and APS Series D are referred to as "APS").
B-48
The first four paragraphs under the heading "DESIGNATION" of the
Certificate of Vote are hereby amended by replacing such
paragraphs with the following:
APS Series A: A series of 3,000 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated "Auction Preferred Shares, Series
A" (hereinafter, "APS Series A"). Each share of APS Series A
shall be issued on March 10, 1992; have an Applicable Rate for
its Initial Dividend Period equal to 3.30% per annum, have an
Initial Dividend Payment Date of Monday, April 6, 1992; and
have such other preferences, limitations and relative voting
rights, in addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in
Part I and Part II of this Certificate of Vote. The APS Series
A shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series
A shall be identical except as provided in Section 3 of Part I
of this Certificate of Vote.
APS Series B: A series of 3,000 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated "Auction Preferred Shares, Series
B" (hereinafter, "APS Series B"). Each share of APS Series B
shall be issued on March 10, 1992; have an Applicable Rate for
its Initial Dividend Period equal to 3.30% per annum, have an
Initial Dividend Payment Date of Monday, April 13, 1992; and
have such other preferences, limitations and relative voting
rights, in addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in
Part I and Part II of this Certificate of Vote. The APS Series
B shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series
B shall be identical except as provided in Section 3 of Part I
of this Certificate of Vote.
APS Series C: A series of 3,000 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated "Auction Preferred Shares, Series
C" (hereinafter, "APS Series C"). Each share of APS Series C
shall be issued on March 10, 1992; have an Applicable Rate for
its Initial Dividend Period equal to 3.40% per annum, have an
Initial Dividend Payment Date of Monday, July 6, 1992; and
have such other preferences, limitations and relative voting
rights, in addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in
Part I and Part II of this Certificate of Vote. The APS Series
C shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series
C shall be identical except as provided in Section 3 of Part I
of this Certificate of Vote.
B-49
APS Series D: A series of 1,600 preferred shares of beneficial
interest, $.01 par value, liquidation preference $25,000 per
share, is hereby designated "Auction Preferred Shares, Series
D" (hereinafter, "APS Series D"). Each share of APS Series D
shall be issued on March 10, 1992; have an Applicable Rate for
its Initial Dividend Period equal to 3.40% per annum, have an
Initial Dividend Payment Date of Monday, July 6, 1992; and
have such other preferences, limitations and relative voting
rights, in addition to those required by applicable law or set
forth in the Declaration of Trust applicable to preferred
shares of beneficial interest of the Fund, as are set forth in
Part I and Part II of this Certificate of Vote. The APS Series
D shall constitute a separate series of Preferred Shares of
beneficial interest of the Fund, and each share of APS Series
D shall be identical except as provided in Section 3 of Part I
of this Certificate of Vote.
Section 2 (c)(ii) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
The amount of dividends per share payable on shares of any
series of APS on any date on which dividends shall be payable
on shares of such series shall be computed by multiplying the
respective Applicable Rate in effect for such series in effect
for such Dividend Period or Dividend Periods or part thereof
for which dividends have not been paid by a fraction, the
numerator of which shall be the number of days in such
Dividend Period of Dividend Periods or part thereof and the
denominator of which shall be 365 if such Dividend Period is a
Rate Period, or is contained in a Rate Period, of less than
one year and 360 for all other Dividend periods, and applying
the rate obtained against $25,000.
Section 3 (a)(i) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
After the Initial Dividend Period with respect to any series
of APS and upon giving a Notice of Redemption, as provided
below, the Fund at its option may redeem shares of any series
of APS, in whole or in part, on the second Business Day next
preceding any Dividend Payment Date applicable to those shares
of APS called for redemption, out of funds legally available
therefor, at the Optional Redemption Price; provided that
during a Special Dividend Period of 365 days or more no share
of APS will be subject to optional redemption during any
Non-Call Period; provided, that shares of any series of APS
may not be redeemed in part of any such partial redemption
fewer than 500 shares of such series remain outstanding.
Section 5 (g) of Part I of the Certificate of Vote is hereby amended
to replace such section with the following:
B-50
Right to Vote with Respect to Certain Other Matters. If the
Fund has more than one series of APS outstanding, the
affirmative vote of the holders of a majority (unless a higher
percentage vote is required under the Declaration of Trust or
under this Certificate of Vote) of the outstanding shares of
each series of APS, each voting as a separate class, is
required with respect to any matter that materially affects
the series in a manner different from that of other series of
classes of the Fund's shares, including without limitation any
proposal to do the following: (1) increase or decrease the
aggregate number of authorized shares of the series; (2)
effect any exchange, reclassification, or cancellation of all
or part of the shares of the series; (3) effect an exchange,
or create a right of exchange, of all or any part of the
shares of the series; (4) change the rights or preferences of
the shares of the series; (5) change the shares of the series,
whether with or without par value, of the same or another
class or series; (6) create a new class or series of shares
having rights and preferences prior and superior to the shares
of the series, or increase the rights and preferences or the
number of authorized shares of a series having rights and
preferences prior or superior to the shares of the series; or
(7) cancel or otherwise affect distributions on the shares of
the series that have accrued but have not been declared. To
the extent that the interest of a series of APS affected by a
matter are substantially identical to the interests of another
series of APS affected by such matter (e.g., a vote of
shareholders required under Section 13(a) of the 1940 Act),
each such series shall vote together collectively as one
class. The vote of holders of each series of APS described
above will in each case be in addition to a separate vote of
the requisite percentage of Common Shares and APS necessary to
authorize the action in question.
Section 6 (a) of Part I of the Certificate of Vote is hereby amended
to replace such section with the following:
Upon the dissolution, liquidation or winding up of the affairs
of the Fund, whether voluntary or involuntary, the Holders of
the APS then outstanding shall be entitled to receive and to
be paid out of the assets of the Fund available for
distribution to its shareholders, before any payment or
distribution shall be made on the Common Shares or on any
other class of shares of the Fund ranking junior to the APS
upon dissolution, liquidation or winding up, an amount equal
to the liquidation preference with respect to such shares. The
liquidation preference for the APS shall be $25,000 per share,
plus an amount equal to all dividends thereon (whether or not
earned or declared) accumulated but unpaid to the date of
final distribution in same-day funds, together with any
payments required to be made pursuant to Section 12 in
connection with the liquidation of the Fund.
Section 15(f) of Part I of the Certificate of Vote is hereby amended
to replace such section with the following:
B-51
"APS Basic Maintenance Amount," as of any Valuation Date,
shall mean the dollar amount equal to the sum of (i)(A) the
product of the number of APS Outstanding on such date
multiplied by $25,000; (B) the aggregate amount of dividends
that will have accumulated at the Applicable Rate (whether or
not earned or declared) to (but not including) the first
respective Dividend Payment Dates for each of the APS
Outstanding that follow such Valuation Date; (C) the amount
equal to the Projected Dividend Amount (based on the number of
APS Outstanding on such date); (D) the amount of anticipated
expenses of the Fund for the 90 days subsequent to such
Valuation Date; (E) the amount of the Fund's Maximum Potential
Additional Dividend Liability as of such Valuation Date; (F)
the amount of any premium payable pursuant to a Premium Call
Period; and (G) any current liabilities as of such Valuation
Date to the extent not reflected in any of (i)(A) through
(i)(F) (including, without limitation, any amounts described
in Section 13 of Part I as required to be treated as
liabilities in connection with the Fund's transactions in
futures and options and including any payables for municipal
securities purchased as of such Valuation Date) less (ii)
either (A) the face value of any of the Fund's assets
irrevocably deposited by the Fund for the payment of any of
(i)(A) thorough (i)(G) if such assets mature within the
Moody's Exposure Period and are either securities issued or
guaranteed by the United States Government or have a rating
assigned by Moody's of P-1, VMIG-1 or MIG-1 (or, with respect
to S&P, SP-1+ or A-1+) or (B) the Discounted Value of such
assets. For purposes of the APS Basic Maintenance Amount in
connection with S&P's ratings of the APS, with respect to any
transactions by the Fund in futures contracts, the Fund shall
include as liabilities (i) 30% of the aggregate settlement
value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the
Fund plus (ii) 25% of the aggregate settlement value, as
marked to market, of any outstanding futures contracts based
on Treasury Bonds which contracts are owned by the Fund. For
purposes of the APS Basic Maintenance Amount in connection
with Moody's rating of the APS, with respect to any
transactions by the Fund in securities options, the Fund shall
include as liabilities (i) 10% of the exercise price of a call
option written by the Fund and (ii) the exercise price of any
written put option.
Section 15 (ii) of Part I of the Certificate of Vote is hereby amended
to replace such section with the following:
"Mandatory Redemption Price" means $25,000 per share of APS
plus an amount equal to accumulated but unpaid dividends
thereon to the date fixed for redemption (whether or not
earned or declared).
Section 15 (yy) of Part I of the Certificate of Vote is hereby amended
to replace such section with the following:
B-52
"Optional Redemption Price" shall mean (i) $25,000 per share
of APS in the case of a 28-day, three-month or a six month
Dividend Period or a Special Dividend Period of less than 365
days or (ii) with respect to a Special Dividend Period of 365
days or more the Optional Redemption Price set forth in the
Specific Redemption Provisions in connection therewith; in
each case plus an amount equal to accumulated but unpaid
dividends thereon to the date of redemption (whether or not
earned or declared).
Section 15 (ppp) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
"Specific Redemption Provisions" means, with respect to any
Special Dividend Period of 365 or more days, either, or any
combination of, (i) a period (a "Non-Call Period") determined
by the Board of Trustees, after consultation with the
Broker-Dealers, during which the shares subject to such
Special Dividend Period are not subject to redemption at the
option of the Fund, and (ii) a period (a "Premium Call
Period"), consisting of a number of whole years and determined
by the Board of Trustees, after consultation with the
Broker-Dealers, during each year of which the shares subject
to such Special Dividend Period shall be redeemable at the
Fund'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 Trustees
after consultation with the Broker-Dealers; provided, that
during any Special Dividend Period of 365 or more days if, on
the date of determination of the Applicable Rate for such
Series, such Applicable Rate equaled or exceeded the Treasury
Rate, the Fund may redeem APS without regard to any Non-Call
Period or Premium Call Period at the Mandatory Redemption
Price.
B-53
ARTICLES OF AMENDMENT TO
THE CERTIFICATE OF VOTE OF TRUSTEES
CHANGING THE TIMING OF CERTAIN REPORTS TO RATING
AGENCIES
Van Kampen Trust for Investment Grade Municipals, a
Massachusetts business trust (the "Fund"), certifies to the Secretary of State
of the Commonwealth of Massachusetts as follows:
FIRST: On September 25, 2003, the Board of Trustees of the Fund,
pursuant to the provisions of Article VI of the Amended and Restated Declaration
of Trust (the "Declaration of Trust") of the Fund and Section 5 of Part I of the
Certificate of Vote of Trustees Establishing a Class of Preferred Shares (the
"Certificate of Vote") of the Fund, authorized an amendment to the Certificate
of Vote to change the timing of filing certain reports with rating agencies from
quarterly to annually and to make conforming changes to the Certificate of Vote.
SECOND: Pursuant to the provisions of Article VI of the Declaration of
Trust and Section 5 of Part I of the Certificate of Vote of the Fund, the
following amendments to the Certificate of Vote have been duly adopted and
approved by a majority of the Trustees of the Fund.
a. Section 5 (d) (ii) of Part I of the Certificate of Vote is hereby
amended to replace the term "Quarterly Valuation Date" with the term "Annual
Valuation Date."
b. The second and third sentences of Section 9(b) of Part I of the
Certificate of Vote are hereby amended to replace such sentences with the
following:
The Fund shall also deliver to S&P (if S&P is then rating the
APS), Moody's (if Moody's is then rating the APS) and the Auction Agent (if
either S&P or Moody's is then rating the APS) an APS Basic Maintenance Report as
of the last Valuation Date of each month on or before the third Business Day
after such day. The Fund shall also deliver to S&P (if S&P is then rating the
APS) and Moody's (if Moody's is then rating the APS) an APS Basic Maintenance
Report whenever (i) the Fund shall have redeemed APS or Common Shares, (ii) the
Fund shall fail to have S&P Eligible Assets or Moody's Eligible Assets with an
aggregate Discounted Value at least equal to 105% of the APS Basic Maintenance
Amount, or (iii) whenever requested by Moody's or S&P, in each case on or before
the third Business Day after such day.
c. Section 9 (c) of Part I of the Certificate of Vote is hereby amended
to replace such section with the following:
Within ten Business Days after the date of delivery of an APS
Basic Maintenance Report in accordance with paragraph (b) of this Section 9
relating to an Annual Valuation Date, the Fund shall cause the Independent
Accountant to confirm in
B-54
writing to S&P (if S&P is then rating the APS), Moody's (if Moody's is then
rating the APS) and the Auction Agent (if either S&P or Moody's is then rating
the APS) (i) the mathematical accuracy of the calculations reflected in such
Report and (ii) that, in such Report, the Fund determined in accordance with
this Certificate of Vote whether the Fund had, at such Annual Valuation Date,
S&P Eligible Assets (if S&P is then rating the APS) of an aggregate Discounted
Value at least equal to the APS Basic Maintenance Amount and Moody's Eligible
Assets (if Moody's is then rating the APS) of an aggregate Discounted Value at
least equal to the APS Basic Maintenance Amount (such confirmation being herein
called the "Accountant's Confirmation").
d. The final clause of Section 13 (a) (i) of Part I of the Certificate
of Vote, which read "there shall be a quarterly audit made of the Fund's futures
and options transactions by the Fund's independent accountants to confirm that
the Fund is in compliance with these standards; or" is hereby amended to replace
such clause with the following:
there shall be an annual audit made of the Fund's futures and
options transactions by the Fund's independent accountants to confirm that the
Fund is in compliance with these standards; or
e. Section 15 (h) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
"APS Basic Maintenance Report" shall mean a report signed by
any of the President, Treasurer, any Senior Vice President or any Vice President
of the Fund which sets forth, as of the related Valuation Date, the assets of
the Fund, the Market Value and the Discounted Value thereof (seriatim and in
aggregate), the APS Basic Maintenance Amount, the net asset value and market
trading price per Common Share, and the total return percentage for the relevant
valuation period.
f. Section 15 (ddd) of Part I of the Certificate of Vote is hereby
amended to replace such section with the following:
"Annual Valuation Date" shall mean the last Business Day of
each fiscal year of the Fund.
IN WITNESS WHEREOF, the undersigned has caused this
Certificate of Vote to be executed as of March 8, 2004.
-----------------------------
A. Thomas Smith III
Vice President and Secretary
State of New York )
) ss
B-55
County of New York )
Then personally appeared before me A. Thomas Smith
III, who acknowledged the foregoing instrument to be his free act and deed and
the free act and deed in his capacity as Vice President and Secretary of Van
Kampen Trust for Investment Grade Municipals.
Before me,
-----------------------------
Notary Public
My commission expires:
------------------------
B-56
APPENDIX C
ACQUIRING FUND ANNUAL REPORT DATED OCTOBER 31, 2004
[To be filed by amendment]
C-1
APPENDIX D
TARGET FUND ANNUAL REPORT DATED JUNE 30, 2004
[To be filed by amendment]
D-1
APPENDIX E
TARGET FUND SEMI-ANNUAL REPORT DATED DECEMBER 31, 2004
[To be filed by amendment]
E-1
APPENDIX F
MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
IV. POLICY STATEMENT
Introduction -- Morgan Stanley Investment Management's ("MSIM") policy
and procedures for voting proxies ("Proxy Voting Policy and Procedures") with
respect to securities held in the accounts of clients apply to those MSIM
entities that provide discretionary investment management services and for which
a MSIM entity has authority to vote proxies. The policies and procedures and
general guidelines in this section will be reviewed and updated, as necessary,
to address new or revised proxy voting issues. The MSIM entities covered by
these policies and procedures currently include the following: Morgan Stanley
Investment Advisors Inc., Morgan Stanley AIP GP LP, Morgan Stanley Investment
Management Inc., Morgan Stanley Investment Management Limited, Morgan Stanley
Investment Management Company, Morgan Stanley Asset & Investment Trust
Management Co., Limited, Morgan Stanley Investment Management Private Limited,
Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP,
Van Kampen Asset Management, and Van Kampen Advisors Inc. (each a "MSIM
Affiliate" and collectively referred to as the "MSIM Affiliates").
Each MSIM Affiliate will use its best efforts to vote proxies as part
of its authority to manage, acquire and dispose of account assets. With respect
to the MSIM registered management investment companies (Van Kampen,
Institutional and Advisor Funds) (collectively referred to as the "MSIM Funds"),
each MSIM Affiliate will vote proxies pursuant to authority granted under its
applicable investment advisory agreement or, in the absence of such authority,
as authorized by the Boards of Directors or Trustees of the MSIM Funds. A MSIM
Affiliate will not vote proxies if the "named fiduciary" for an ERISA account
has reserved the authority for itself, or in the case of an account not governed
by ERISA, the Investment Management or Investment Advisory Agreement does not
authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in a prudent
and diligent manner, vote proxies in the best interests of clients, including
beneficiaries of and participants in a client's benefit plan(s) for which the
MSIM Affiliates manage assets, consistent with the objective of maximizing
long-term investment returns ("Client Proxy Standard"). In certain situations, a
client or its fiduciary may provide a MSIM Affiliate with a proxy voting policy.
In these situations, the MSIM Affiliate will comply with the client's policy
unless to do so would be inconsistent with applicable laws or regulations or the
MSIM Affiliate's fiduciary responsibility.
Proxy Research Services -- To assist the MSIM Affiliates in their
responsibility for voting proxies and the overall global proxy voting process,
Institutional Shareholder Services ("ISS") and the Investor Responsibility
Research Center ("IRRC") have been retained as experts in the proxy voting and
corporate governance area. ISS and IRRC are independent advisers that specialize
in providing a variety of fiduciary-level proxy-related services to
institutional investment managers, plan sponsors, custodians, consultants, and
other institutional investors. The services provided to MSIM Affiliates include
in-depth research, global issuer analysis, and voting recommendations. While the
MSIM Affiliates may review and utilize the ISS and IRRC recommendations in
making proxy voting decisions, they are in no way obligated to follow the ISS
and IRRC recommendations. In addition to research, ISS provides vote execution,
reporting, and recordkeeping. MSIM's Proxy Review Committee (see Section IV.A.
below) will carefully monitor and supervise the services provided by the proxy
research services.
F-1
Voting Proxies for Certain Non-US Companies -- While the proxy voting
process is well established in the United States and other developed markets
with a number of tools and services available to assist an investment manager,
voting proxies of non-US companies located in certain jurisdictions,
particularly emerging markets, may involve a number of problems that may
restrict or prevent a MSIM Affiliate's ability to vote such proxies. These
problems include, but are not limited to: (i) proxy statements and ballots being
written in a language other than English; (ii) untimely and/or inadequate notice
of shareholder meetings; (iii) restrictions on the ability of holders outside
the issuer's jurisdiction of organization to exercise votes; (iv) requirements
to vote proxies in person, (v) the imposition of restrictions on the sale of the
securities for a period of time in proximity to the shareholder meeting; and
(vi) requirements to provide local agents with power of attorney to facilitate
the MSIM Affiliate's voting instructions. As a result, clients' non-U.S. proxies
will be voted on a best efforts basis only, after weighing the costs and
benefits of voting such proxies, consistent with the Client Proxy Standard. ISS
has been retained to provide assistance to the MSIM Affiliates in connection
with voting their clients' non-US proxies.
III. GENERAL PROXY VOTING GUIDELINES
To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad range of issues, including board size and
composition, executive compensation, anti-takeover proposals, capital structure
proposals and social responsibility issues and are meant to be general voting
parameters on issues that arise most frequently. The MSIM Affiliates, however,
may, pursuant to the procedures set forth in Section IV. below, vote in a manner
that is not in accordance with the following general guidelines, provided the
vote is approved by the Proxy Review Committee and is consistent with the Client
Proxy Standard.
VI. GUIDELINES
A. MANAGEMENT PROPOSALS
1. When voting on routine ballot items, unless otherwise
determined by the Proxy Review Committee, the following
proposals will be voted in support of management.
o Selection or ratification of auditors.
o Approval of financial statements, director and auditor
reports.
o General updating/corrective amendments to the chatter.
o Approval of the payment of a dividend.
o Proposals to limit Directors' liability and/or broaden
indemnification of Directors.
o Proposals requiring that a certain percentage (up to
66%) of the company's Board members be independent
Directors.
o Proposals requiring that members of the company's
compensation, nominating and audit committees be
comprised of independent or unaffiliated Directors.
F-2
o Proposals recommending set retirement ages or requiring
specific levels of stock ownership by Directors.
o Proposals to eliminate cumulative voting.
o Proposals to eliminate preemptive rights.
o Proposals for confidential voting and independent
tabulation of voting results.
o Proposals related to the conduct of the annual meeting
except those proposals that relate to the "transaction
of such other business which may come before the
meeting."
2. Election of Directors. In situations where no conflict exists,
and where no specific governance deficiency has been noted,
unless otherwise determined by the Proxy Review Committee,
will be voted in support of nominees of management.
Unless otherwise determined by the Proxy Review
Committee, a withhold vote will be made where:
(i) A nominee has, or any time during the previous
three years had, a relationship with the issuer
(e.g., investment banker, counsel or other
professional service provider, or familial
relationship with a senior officer of the
issuer) that may impair his or her independence;
(ii) A direct conflict exists between the interests
of the nominee and the public shareholders; or
(iii) Where the nominees standing for election have
not taken action to implement generally accepted
governance practices for which there is a
"bright line" test. These would include
elimination of dead hand or slow hand poison
pills, requiring Audit, Compensation or
Nominating Committees to be composed of
independent directors and requiring a majority
independent board.
3. The following non-routine proposals, which potentially may
have a substantive financial or best interest impact on a
shareholder, unless otherwise determined by the Proxy Review
Committee, will be voted in support of management.
CAPITALIZATION CHANGES
o Proposals relating to capitalization changes that
eliminate other classes of stock and voting rights.
o Proposals to increase the authorization of existing
classes of common stock (or securities convertible into
common stock) if. (i) a clear and legitimate business
purpose is stated; (ii) the number of shares requested
F-3
is reasonable in relation to the purpose for which
authorization is requested; and (iii) the authorization
does not exceed 100% of shares currently authorized and
at least 30% of the new authorization will be
outstanding.
o Proposals to create a new class of preferred stock or
for issuances of preferred stock up to 50% of issued
capital.
o Proposals for share repurchase plans.
o Proposals to reduce the number of authorized shares of
common or preferred stock, or to eliminate classes of
preferred stock.
o Proposals to effect stock splits.
o Proposals to effect reverse stock splits if management
proportionately reduces the authorized share amount set
forth in the corporate charter. Reverse stock splits
that do not adjust proportionately to the authorized
share amount will generally be approved if the resulting
increase in authorized shares coincides with the proxy
guidelines set forth above for common stock increases.
COMPENSATION
o Proposals relating to Director fees, provided the
amounts are not excessive relative to outer companies in
the country or industry.
o Proposals for employee stock purchase plans that permit
discounts up to 15%, but only for grants that are part
of a broad based employee plan, including all
non-executive employees.
o Proposals for the establishment of Employee Stock Option
Plans and other employee ownership plans.
ANTI-TAKEOVER MATTERS
o Proposals to modify or rescind existing supermajority
vote requirements to amend the charters or bylaws.
o Proposals relating to the adoption of anti-greenmail
provisions provided that the proposal: (i) defines
greenmail; (ii) prohibits buyback offers to large block
holders not made to all shareholders or not approved by
disinterested shareholders; and (iii) contains no
anti-takeover measures or other provisions restricting
the rights of shareholders.
4. The following non-routine proposals, which potentially may
have a substantive financial or best interest impact on the
shareholder, unless otherwise determined by the Proxy Review
Committee, will be voted against (notwithstanding management
support).
F-4
o Proposals to establish cumulative voting rights in the
election of directors.
o Proposals relating to capitalization changes that add
classes of stock which substantially dilute the voting
interests of existing shareholders.
o Proposals to increase the authorized number of shares of
existing classes of stock that carry preemptive rights
or super-voting rights.
o Proposals to create "blank check" preferred stock.
o Proposals relating to changes in capitalization by 100%
or more.
o Compensation proposals that allow for discounted stock
options that have not been offered to employees in
general.
o Proposals to amend bylaws to require a supermajority
shareholder vote to pass or repeal certain provisions.
o Proposals to indemnify auditors.
5. The following types of non-routine proposals, which
potentially may have a substantive financial or best interest
impact on an issuer, will be voted as determined by the Proxy
Review Committee.
CORPORATE TRANSACTIONS
o Proposals relating to mergers, acquisitions and other
special corporate transactions (i.e., takeovers,
spin-offs, sales of assets, reorganizations,
restructurings and recapitalizations) will be examined
on a case-by-case basis. In all cases, ISS and IRRC
research and analysis will be used along with MSIM
Affiliates' research and analysis, including, among
other things, MSM internal company-specific knowledge.
o Proposals relating to change-in-control provisions in
non-salary compensation plans, employment contracts, and
severance agreements that benefit management and would
be costly to shareholders if triggered.
o Proposals relating to shareholders rights plans that
allow appropriate offers to shareholders to be blocked
by the board or trigger provisions that prevent
legitimate offers from proceeding.
o Proposals relating to Executive/ Director stock option
plans. Generally, stock option plans should meet the
following criteria:
(i) Whether the stock option plan is incentive
based;
(ii) For mature companies, should be no more than 5%
of the issued capital at the time of approval;
F-5
(iii) For growth companies, should be no more than 10%
of the issued capital at the time of approval.
ANTI-TAKEOVER PROVISIONS
o Proposals requiring shareholder ratification of poison
pills.
o Proposals relating to anti-takeover and related
provisions that serve to prevent the majority of
shareholders from exercising their rights or effectively
deter the appropriate tender offers and other offers.
B. SHAREHOLDER PROPOSALS
1. The following shareholder proposals will be supported, unless
otherwise determined by the Proxy Review Committee:
o Proposals requiring auditors to attend the annual
meeting of shareholders.
o Proposals requiring non-U.S. companies to have a
separate Chairman and CEO.
o Proposals requiring that members of the company's
compensation, nominating and audit committees be
comprised of independent or unaffiliated Directors.
o Proposals requiring that a certain percentage of the
company's members be comprised of independent and
unaffiliated Directors.
o Proposals requiring confidential voting.
o Proposals to reduce or eliminate of supermajority voting
requirements.
o Proposals requiring shareholder approval for shareholder
rights plan or poison pill.
o Proposals to require the company to expense stock
options.
2. The following shareholder proposals will be voted as
determined by the Proxy Review Committee.
o Proposals that limit tenure of directors.
o Proposals to limit golden parachutes.
o Proposals requiring directors to own large amounts of
stock to be eligible for election.
o Proposals that request or require disclosure of
executive compensation in addition to the disclosure
required by the Securities and Exchange Commission
("SEC") regulations.
F-6
o Proposals that limit retirement benefits or executive
compensation.
o Proposals requiring shareholder approval for bylaw or
charter amendments.
o Proposals requiring shareholder approval of executive
compensation.
o Proposals requiring shareholder approval of golden
parachutes.
o Proposals to eliminate certain anti-takeover related
provisions.
o Proposals to prohibit payment of greenmail.
3. The following shareholder proposals will not be supported,
unless otherwise determined by the Proxy Review Committee.
o Proposals to declassify the Board of Directors (if
management supports a classified board).
o Proposals requiring a U.S. company to have a separate
Chairman and CEO.
o Proposals requiring that the company prepare reports
that are costly to provide or that would require
duplicative efforts or expenditures that are of a
non-business nature or would provide no pertinent
information from the perspective of institutional
shareholders.
o Proposals to add restrictions related to social,
political or special interest issues that impact the
ability of the company to do business or be competitive
and that have a significant financial or best interest
impact to the shareholders.
o Proposals that require inappropriate endorsements or
corporate actions.
VII. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible
for creating and implementing MSIM's Proxy Voting Policy and
Procedures and, in this regard, has expressly adopted them.
(a) The Committee, which is appointed by MSIM's Chief
Investment Officer ("CIO"), consists of senior
investment professionals who represent the different
investment disciplines and geographic locations of the
firm. The Committee is responsible for establishing
MSIM's proxy voting policy and guidelines and
determining how MSIM will vote proxies on an ongoing
basis.
F-7
(b) The Committee will periodically review and have the
authority to amend, as necessary, these Proxy Voting
Policy and Procedures and establish and direct voting
positions consistent with the Client Proxy Standard.
(c) The Committee will meet at least monthly to (among other
matters): (1) address any outstanding issues relating to
MSIM's Proxy Voting Policy and Procedures; and (2)
review proposals at upcoming shareholder meetings of
MSIM portfolio companies in accordance with this Policy
including, as appropriate, the voting results of prior
shareholder meetings of the same issuer where a similar
proposal was presented to shareholders. The Committee,
or its designee, will timely communicate to ISS MSIM's
Proxy Voting Policy and Procedures (and any amendments
to them and/or any additional guidelines or procedures
it may adopt).
(d) The Committee will meet on an ad hoc basis to (among
other matters): (1) authorize "split voting" (i.e.,
allowing certain shares of the same issuer that are the
subject of the same proxy solicitation and held by one
or more MSIM portfolios to be voted differently than
other shares) and/or "override voting" (i.e., voting all
MSIM portfolio shares in a manner contrary to the Proxy
Voting Policy and Procedures); (2) review and approve
upcoming votes, as appropriate, for matters for which
specific direction has been provided in these Policy and
Procedures; and (3) determine how to vote matters for
which specific direction has not been provided in these
Policy and Procedures. Split votes will generally not be
approved within a single Global Investor Group team. The
Committee may take into account ISS and IRRC
recommendations and the research as well as any other
relevant information they may request or receive.
(e) In addition to the procedures discussed above, if the
Committee determines that an issue raises a potential
material conflict of interest, or gives rise to the
appearance of a potential material conflict of interest,
the Committee will request a special committee to
review, and recommend a course of action with respect
to, the conflict(s) in question ("Special Committee").
The Special Committee shall be comprised of the Chairman
of the Proxy Review Committee, the Compliance Director
for the area of the firm involved or his/her designee, a
senior portfolio manager (if practicable, one who is a
member of the Proxy Review Committee) designated by the
Proxy Review Committee and MSIM's Chief Investment
Officer or his/her designee. The Special Committee may
request the assistance of MSIM's General Counsel or
his/her designee and will have sole discretion to cast a
vote. In addition to the research provided by ISS and
IRRC, the Special Committee may request analysis from
MSIM Affiliate investment professionals and outside
sources to the extent it deems appropriate.
(f) The Committee and the Special Committee, or their
designee(s), will document in writing all of their
decisions and actions, which documentation will be
maintained by the Committee and the Special Committee,
or their designee(s), for a period of at least 6 years.
To the
F-8
extent these decisions relate to a security held by a
MSIM U.S. registered investment company, the Committee
and Special Committee, or their designee(s), will report
their decisions to each applicable Board of Trustees/
Directors of those investment companies at each Board's
next regularly scheduled Board meeting. The report will
contain information concerning decisions made by the
Committee and Special Committee during the most recently
ended calendar quarter immediately preceding the Board
meeting.
(g) The Committee and Special Committee, or their
designee(s), will timely communicate to applicable
portfolio managers, the Compliance Departments and, as
necessary, ISS, decisions of the Committee and Special
Committee so that, among other things, ISS will vote
proxies consistent with their decisions.
B. IDENTIFICATION OF MATERIAL CONFLICTS OF INTEREST
1. If there is a possibility that a vote may involve a material
conflict of interest, the vote must be decided by the Special
Committee in consultation with MSIM's General Counsel or
his/her designee.
2. A material conflict of interest could exist in the following
situations, among others:
(a) The issuer soliciting the vote is a client of MSIM or an
affiliate of MSIM and the vote is on a material matter
affecting the issuer;
(b) The proxy relates to Morgan Stanley common stock or any
other security issued by Morgan Stanley or its
affiliates; or
(c) Morgan Stanley has a material pecuniary interest in the
matter submitted for a vote (e.g., acting as a financial
advisor to a merger or acquisition for which Morgan
Stanley will be paid a success fee if completed).
C. PROXY VOTING REPORTS
1. MSIM will promptly provide a copy of these Policy and
Procedures to any client requesting it. MSIM will also, upon
client request, promptly provide a report indicating how each
proxy was voted with respect to securities held in that
client's account.
2. MSIM's legal department is responsible for filing an annual
Form N-PX on behalf of each registered management investment
company for which such filing is required, indicating how all
proxies were voted with respect to such investment company's
holdings.
F-9
APPENDIX G
PRO FORMA FINANCIAL STATEMENTS
The following presents the pro forma financial statements for the combination of
Van Kampen Municipal Income Trust and Van Kampen Trust for Investment Grade
Municipals. The statements are presented as of October 31, 2004, the most recent
interim period for which financial information is currently available.
The unaudited Pro Forma Portfolio of Investments and Pro Forma Statement of
Assets and Liabilities reflect the financial position as if the transaction
occurred on October 31, 2004. The Pro Forma Statement of Operations reflects the
expenses for the twelve months ended October 31, 2004. The pro forma statements
give effect to the proposed exchange of Van Kampen Trust for Investment Grade
Municipals shares for the assets and liabilities of the Van Kampen Municipal
Income Trust, with Van Kampen Trust for Investment Grade Municipals being the
surviving entity. The proposed transaction will be accounted for as a tax-free
reorganization in accordance with accounting principles generally accepted in
the United States. The historical cost basis of the investments is carried over
to the surviving entity. It is not anticipated that Van Kampen Trust for
Investment Grade Municipals will sell any securities of Van Kampen Municipal
Income Trust acquired in the reorganization other than in the ordinary course of
business.
G-1
VAN KAMPEN MUNICIPAL INCOME TRUST
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PROFORMA PORTFOLIO OF INVESTMENTS
October 31, 2004
(Unaudited)
MUNICIPAL TRUST FOR
INCOME INVESTMENT TRUST FOR
TRUST GRADE PROFORMA INVESTMENT
PAR MUNICIPAL PAR MUNICIPAL GRADE
AMOUNT PAR AMOUNT AMOUNT INCOME TRUST MUNICIPAL PROFORMA
(000) (000) (000) DESCRIPTION COUPON MATURITY MARKET VALUE MARKET VALUE MARKET VALUE
--------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
MUNICIPAL BONDS 153.6%
ALABAMA 1.1%
$3,660 $ - $ 3,660 Alabama St Brd Ed Rev & Impt Southn
Univ St Cmnty Rfdg (MBIA Insd) (a) 5.250% 07/01/20 $ 3,988,009 $ - $ 3,988,009
1,320 - 1,320 Alabama St Univ Rev Tuit Ser B
(Prerefunded @ 01/01/12) (MBIA Insd) 5.250 03/01/33 1,507,664 - 1,507,664
- 750 750 Birmingham Baptist Med Ctr AL Baptist
Hlth Sys Ser A 5.875 11/15/24 - 781,710 781,710
- 1,565 1,565 Jefferson Cnty, AL Swr Rev Impt Wts
Ser A (Prerefunded @ 02/01/11)
(FGIC Insd) 5.000 02/01/41 - 1,745,554 1,745,554
- 435 435 Jefferson Cnty, AL Swr Rev Impt Wts
Ser A (Prerefunded @ 02/01/11)
(FGIC Insd) 5.000 02/01/41 - 487,296 487,296
------------------------- ------------
5,495,673 3,014,560 8,510,233
------------------------- ------------
ALASKA 0.7%
3,650 - 3,650 Alaska St Intl Arpt Rev Ser B
(AMBAC Insd) 5.250 10/01/27 3,858,999 - 3,858,999
1,575 - 1,575 Matanuska-Susitna Boro, AK Ctf Part
Pub Safety Bldg Lease (FSA Insd) 5.750 03/01/16 1,775,954 - 1,775,954
------------------------- ------------
5,634,953 - 5,634,953
------------------------- ------------
ARIZONA 2.0%
1,000 - 1,000 Arizona Hlth Fac Auth Hosp John C
Lincoln Hlth Network 6.375 12/01/37 1,061,500 - 1,061,500
- 3,095 3,095 Arizona Sch Fac Brd Ctfs Ser B
(FSA Insd) 5.250 09/01/19 - 3,429,539 3,429,539
- 4,225 4,225 Arizona Tourism & Sports Auth
Multipurpose Stadium Fac Ser A
(MBIA Insd) 5.375 07/01/23 - 4,606,517 4,606,517
- 2,800 2,800 Phoenix, AZ Civic Impt Corp Arpt Rev
Jr Lien (AMT) (FGIC Insd) 5.375 07/01/29 - 2,847,796 2,847,796
- 3,125 3,125 Salt River Proj AZ Agric Impt Salt
River Proj Ser A Rfdg 5.250 01/01/06 - 3,248,125 3,248,125
------------------------- ------------
1,061,500 14,131,977 15,193,477
------------------------- ------------
CALIFORNIA 12.4%
- 2,895 2,895 ABC CA Uni Sch Dist Cap Apprec
Ser B (FGIC Insd) * 08/01/20 - 1,389,195 1,389,195
- 1,300 1,300 Anaheim, CA Pub Fin Auth Lease Rev
Pub Impt Proj Ser C (FSA Insd) 6.000 09/01/16 - 1,580,137 1,580,137
2,500 - 2,500 California St (AMBAC Insd) 5.000 04/01/21 2,645,100 - 2,645,100
4,500 3,000 7,500 California St (AMBAC Insd) 5.125 10/01/27 4,691,565 3,127,710 7,819,275
1,000 - 1,000 California St Dept Wtr Res Ctr Wtr
Sys Ser X (FGIC Insd) 5.000 12/01/29 1,030,470 - 1,030,470
1,000 1,000 2,000 California St Dept Wtr Res Pwr Ser A 6.000 05/01/15 1,170,685 1,170,680 2,341,360
1,000 - 1,000 California St Dept Wtr Res Pwr Ser A
(AMBAC Insd) 5.500 05/01/16 1,142,280 - 1,142,280
2,500 4,000 6,500 California St Dept Wtr Res Pwr Ser A
(AMBAC Insd) (b) 5.375 05/01/18 2,773,000 4,436,800 7,209,800
- 1,320 1,320 California St Dept Wtr Res Pwr Ser A
(MBIA Insd) 5.125 05/01/19 - 1,430,180 1,430,180
- 1,000 1,000 California St Pub Wks Brd UCLA
Replacement Hosp Ser A (FSA Insd) 5.375 10/01/20 - 1,097,880 1,097,880
5,000 - 5,000 California St Univ Rev & Co
Systemwide Ser A (AMBAC Insd) 5.000 11/01/33 5,124,250 - 5,124,250
5,000 - 5,000 Contra Costa, CA Home Mtg Fin Auth
Home Mtg Rev (Escrowed to Maturity)
(MBIA Insd) * 09/01/17 2,735,750 - 2,735,750
- 2,000 2,000 El Dorado, CA Irr Dist Ctfs Ser A
(FGIC Insd) 5.000 03/01/21 - 2,126,660 2,126,660
- 2,000 2,000 Florin, CA Res Consv Dist Cap Impt
Elk Grove Wtr Svc Ser A (MBIA Insd) 5.000 09/01/33 - 2,051,040 2,051,040
- 3,000 3,000 Florin, CA Res Consv Dist Cap Impt
Elk Grove Wtr Svc Ser B (MBIA Insd) 5.000 03/01/33 - 3,073,620 3,073,620
- 2,000 2,000 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Cap Apprec Rfdg (MBIA Insd) * 01/15/17 - 1,091,480 1,091,480
- 20,750 20,750 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Sr Lien Ser A (Escrowed to
Maturity) * 01/01/23 - 8,817,920 8,817,920
- 3,000 3,000 Fremont, CA Uni Sch Dist Ser A
(FGIC Insd) 5.000 08/01/25 - 3,139,410 3,139,410
4,000 - 4,000 Los Angeles, CA Dept Wtr & Pwr Ser A
(FGIC Insd) 5.125 07/01/40 4,104,280 - 4,104,280
2,500 2,500 5,000 Los Angeles, CA Uni Sch Dist Ser A
(FSA Insd) 5.250 07/01/20 2,743,275 2,743,275 5,486,550
2,000 - 2,000 Los Angeles, CA Wtr & Pwr Rev Pwr Sys
Ser B (FSA Insd) 5.000 07/01/28 2,068,840 - 2,068,840
1,500 - 1,500 Metropolitan Wtr Dist Southn CA Auth
Ser B 1 (FGIC Insd) 5.000 10/01/33 1,542,900 - 1,542,900
- 4,020 4,020 Oakland, CA Uni Sch Dist
(FGIC Insd) (a) 5.250 08/01/18 - 4,472,049 4,472,049
1,750 1,750 3,500 Palm Springs, CA Fin Auth Lease Rev
Convention Ctr Proj Ser A (MBIA Insd) 5.500 11/01/35 1,927,835 1,927,835 3,855,670
- 3,000 3,000 Port Oakland, CA Ser M (FGIC Insd) 5.250 11/01/18 - 3,342,060 3,342,060
- 2,000 2,000 Salinas, CA Uni High Sch Dist Ser A
(MBIA Insd) 5.000 06/01/27 - 2,072,680 2,072,680
G-3
- 3,000 3,000 San Francisco, CA City & Cnty Second Ser
Issue 29 B Rfdg (FGIC Insd) 5.125 05/01/20 - 3,237,930 3,237,930
- 1,210 1,210 Santa Clara, CA Elec Rev Sub Ser A (MBIA
Insd) 5.250 07/01/19 - 1,332,428 1,332,428
1,000 - 1,000 Santa Clara Cnty, CA Brd Ed Rfdg (MBIA
Insd) 5.000 04/01/25 1,041,460 - 1,041,460
- 3,745 3,745 Santa Clarita, CA Cmnty College (FGIC
Insd) 5.000 08/01/23 - 3,941,575 3,941,575
- 3,000 3,000 Temecula, CA Redev Agy Tax Temecula Redev
Proj No 1 (MBIA Insd) 5.250 08/01/36 - 3,136,740 3,136,740
--------------------------- -------------
34,741,685 60,739,284 95,480,969
--------------------------- -------------
COLORADO 2.7%
- 4,000 4,000 Adams & Arapahoe Cntys CO Sch Dist 28 Ser
A (FSA Insd) 5.250 12/01/20 - 4,401,720 4,401,720
1,500 - 1,500 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj (Prerefunded @ 08/31/05) 7.000 08/31/26 1,609,095 1,609,095
1,000 1,000 2,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj Ser B (Prerefunded @ 08/31/05) 6.950 08/31/20 1,072,310 1,072,310 2,144,620
- 2,000 2,000 Aurora, CO Ctfs Part (AMBAC Insd) 5.500 12/01/30 - 2,174,700 2,174,700
3,405 - 3,405 Colorado Ed & Cultural Fac Impt Charter
Sch Rfdg (XLCA Insd) 5.250 12/01/23 3,642,124 - 3,642,124
1,000 1,000 2,000 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives Ser A (Escrowed to Maturity) 5.500 03/01/32 1,050,690 1,050,690 2,101,380
- 1,125 1,125 Colorado Hlth Fac Auth Rev Hosp
Portercare Adventist Hlth 6.500 11/15/31 - 1,236,645 1,236,645
- 61 61 Colorado Hsg Fin Auth Single Family Pgm
Sr Ser B1 (AMT) 7.650 11/01/26 - 61,310 61,310
1,000 - 1,000 El Paso Cnty, CO Ctf Part Detention Fac
Proj Ser B (AMBAC Insd) 5.375 12/01/18 1,123,200 - 1,123,200
- 1,805 1,805 Lakewood, CO Ctfs Part (AMBAC Insd) (a) 5.300 12/01/16 - 2,011,131 2,011,131
--------------------------- -------------
8,497,419 12,008,506 20,505,925
--------------------------- -------------
CONNECTICUT 1.0%
- 2,750 2,750 Bridgeport, CT Ser A Rfdg (FGIC Insd) 5.375 08/15/14 - 3,120,012 3,120,012
1,750 1,830 3,580 Connecticut St Spl Oblig Pkg Rev Bradley
Intl Arpt Ser A (AMT) (ACA Insd) 6.600 07/01/24 1,896,633 1,983,336 3,879,969
1,000 - 1,000 Hartford, CT Pkg Sys Rev Ser A 6.500 07/01/25 1,035,080 - 1,035,080
--------------------------- -------------
2,931,713 5,103,348 8,035,061
--------------------------- -------------
DISTRICT OF COLUMBIA 0.9%
2,775 - 2,775 District of Columbia Hosp Rev Medlantic
Hlthcare Ser A Rfdg (Escrowed to
Maturity) (MBIA Insd) 5.250 08/15/12 2,972,469 - 2,972,469
2,000 2,000 District of Columbia Rev Friendship Pub
Charter Sch Inc (ACA Insd) 5.750 06/01/18 - 2,202,700 2,202,700
5 5 District of Columbia Ser E (FSA Insd) 6.000 06/01/13 - 5,066 5,066
2,000 2,000 Metropolitan Washington DC Arpt Auth Sys
Ser A (AMT) (FGIC Insd) 5.250 10/01/32 - 2,066,380 2,066,380
------------- ------------ -------------
2,972,469 4,274,146 7,246,615
------------- ------------ -------------
FLORIDA 9.4%
- 6,635 6,635 Dade Cnty, FL Spl Oblig Cap Apprec Ser B
Rfdg (Prerefunded @ 10/01/08) (AMBAC Insd) * 10/01/26 - 2,005,495 2,005,495
2,000 3,000 5,000 Escambia Cnty, FL Hlth Fac Auth Hlth Fac
Rev FL Hlthcare Fac Ln (AMBAC Insd) 5.950 07/01/20 2,054,520 3,081,780 5,136,300
- 2,500 2,500 Florida St Brd Ed Cap Outlay Pub Ed Ser C
(FGIC Insd) 5.750 06/01/29 - 2,800,550 2,800,550
1,000 - 1,000 Florida St Brd Ed Lottery Rev Ser A (FGIC
Insd) 5.750 07/01/11 1,151,140 - 1,151,140
- 1,000 1,000 Florida St Brd Ed Lottery Rev Ser A (FGIC
Insd) 6.000 07/01/14 - 1,159,550 1,159,550
- 1,400 1,400 Florida St Dept Corrections Ctf Part
Okeechobee Correctional (AMBAC Insd) 6.250 03/01/15 - 1,448,174 1,448,174
2,000 - 2,000 Florida St Dept Environmental Prot
Preservtn Rev Ser A (FGIC Insd) 5.750 07/01/10 2,296,620 - 2,296,620
- 605 605 Gulf Breeze, FL Rev Loc Govt Ln Ser E
(FGIC Insd) (c) 5.050 12/01/20 - 656,812 656,812
- 1,900 1,900 Gulf Breeze, FL Rev Loc Govt Ln Ser E
(FGIC Insd) (c) 5.150 12/01/20 - 2,104,326 2,104,326
- 1,000 1,000 Highlands Cnty, FL Hlth Fac Auth Rev Hosp
Adventist Hlth Sys Ser D 5.375 11/15/35 - 1,035,450 1,035,450
1,745 - 1,745 Hillsborough Cnty, FL Port Dist Tampa
Port Auth Proj Ser A (AMT) (MBIA Insd) 5.375 06/01/27 1,841,935 - 1,841,935
- 4,550 4,550 Hillsborough Cnty, FL Sch Dist (AMBAC
Insd) 5.375 10/01/17 - 5,088,083 5,088,083
- 2,000 2,000 Jacksonville, FL Sales Tax Rev Better
Jacksonville (MBIA Insd) 5.250 10/01/19 - 2,215,420 2,215,420
1,000 1,000 2,000 Jea, FL Elec Sys Rev Ser 3 Ser A
(Prerefunded @10/01/07) 5.500 10/01/41 1,067,250 1,067,250 2,134,500
1,000 - 1,000 Marion Cnty, FL Sch Brd Ctf (FSA Insd) 5.250 06/01/18 1,104,990 - 1,104,990
1,500 - 1,500 Miami Beach, FL Stormwtr Rev (FGIC Insd) 5.250 09/01/25 1,606,245 - 1,606,245
- 2,000 2,000 Miami-Dade Cnty, FL Aviation Miami Rev
Intl Arpt (AMT) (FGIC Insd) 5.375 10/01/27 - 2,093,480 2,093,480
1,720 - 1,720 Miami-Dade Cnty, FL Aviation Miami Rev
Intl Arpt (AMT) (FGIC Insd) 5.375 10/01/32 1,788,834 - 1,788,834
- 2,000 2,000 Miami-Dade Cnty, FL Aviation Ser A (AMT)
(FSA Insd) 5.125 10/01/35 - 2,037,320 2,037,320
- 2,000 2,000 Miami-Dade Cnty, FL Hlth Fac Miami
Children Hosp Ser A Rfdg (AMBAC Insd) 5.000 08/15/20 - 2,111,420 2,111,420
- 1,980 1,980 Miami-Dade, FL Sch Brd Ser C (Prerefunded
@10/01/11) (FSA Insd) (a) 5.500 10/01/13 - 2,279,950 2,279,950
3,000 - 3,000 Orange Cnty, FL Sch Brd Ctf Part Ser A
(AMBAC Insd) 5.250 08/01/14 3,376,440 - 3,376,440
4,000 - 4,000 Orange Cnty, FL Tourist Dev Tax Rev
(AMBAC Insd) 5.625 10/01/14 4,497,520 - 4,497,520
2,000 - 2,000 Orange Cnty, FL Tourist Dev Tax Rev
(AMBAC Insd) 5.500 10/01/31 2,174,000 - 2,174,000
G-4
- 2,000 2,000 Palm Beach Cnty, FL Sch Brd
Ctf Ser E Rfdg (AMBAC Insd) 5.250 08/01/11 - 2,259,780 2,259,780
1,190 - 1,190 Polk Cnty FL Util Sys Rev
(FGIC Insd) 5.250 10/01/20 1,309,666 - 1,309,666
- 1,655 1,655 Reedy Creek Impt Dist FL Ser A
Rfdg (AMBAC Insd) 5.500 06/01/11 - 1,894,048 1,894,048
- 3,465 3,465 Reedy Creek Impt Dist FL Ser C
(AMBAC Insd) 4.750 06/01/15 - 3,540,225 3,540,225
- 1,210 1,210 Saint Lucie Cnty, FL Sch Brd
Ctf Ser A (FSA Insd) (a) 5.500 07/01/14 - 1,381,360 1,381,360
- 1,000 1,000 Tallahassee, FL Lease Rev FL
St Univ Proj Ser A (MBIA Insd)
(a) 5.500 08/01/17 - 1,121,350 1,121,350
1,115 - 1,115 Tallahassee, FL Lease Rev FL
St Univ Proj Ser A (MBIA Insd)
(a) 5.500 08/01/19 1,250,305 - 1,250,305
- 1,250 1,250 Tampa, FL Hosp Rev Cap Impt H
Lee Moffitt Ser A 5.750 07/01/19 - 1,319,562 1,319,562
- 2,880 2,880 Tampa, FL Occupational License
Ser A Rfdg (FGIC Insd) 5.375 10/01/15 - 3,257,107 3,257,107
- 1,000 1,000 Village Ctr Cmnty Dev Dist FL
Recreational Rev Ser A (MBIA
Insd) 5.125 11/01/36 - 1,042,130 1,042,130
----------------------------- ------------
25,519,465 47,000,622 72,520,087
----------------------------- ------------
GEORGIA 5.4%
- 2,000 2,000 Atlanta, GA Arpt Passenger Fac
Charge Rev Gen Sub Lien Ser C
(FSA Insd) 5.000 01/01/33 - 2,064,140 2,064,140
- 3,715 3,715 Atlanta, GA Wtr & Wastewtr Rev
(FSA Insd) 5.000 11/01/22 - 3,976,127 3,976,127
4,023 - 4,023 Fulton Cnty, GA Lease Rev
(Acquired 12/23/94, Cost
$4,023,144) (d) 7.250 06/15/10 4,169,707 - 4,169,707
- 1,500 1,500 George L Smith II GA World
Congress Cent Auth Rev Domed
Stadium Proj Rfdg (AMT) (MBIA
Insd) 5.500 07/01/20 - 1,636,230 1,636,230
2,635 - 2,635 Georgia Muni Elec Auth Pwr Rev
Ser A (MBIA Insd) 6.500 01/01/20 3,369,954 - 3,369,954
3,000 - 3,000 Georgia Muni Elec Auth Pwr Rev
Ser A Rfdg (FGIC Insd) (a) 6.250 01/01/17 3,712,440 - 3,712,440
- 5,660 5,660 Georgia Muni Elec Auth Pwr Rev
Ser Y (MBIA Insd) 6.500 01/01/17 - 6,990,440 6,990,440
- 240 240 Georgia Muni Elec Auth Pwr Rev
Ser Y (Escrowed to Maturity)
(MBIA Insd) 6.500 01/01/17 - 296,887 296,887
2,500 - 2,500 Georgia St Ser D 6.000 10/01/05 2,595,450 - 2,595,450
2,335 - 2,335 Georgia St Ser D 6.000 10/01/06 2,512,297 - 2,512,297
- 4,000 4,000 Municipal Elec Auth GA
Combustion Turbine Proj Ser A
(MBIA Insd) 5.250 11/01/16 - 4,491,280 4,491,280
2,000 - 2,000 Municipal Elec Auth GA
Combustion Turbine Proj Ser A
(MBIA Insd) 5.250 11/01/22 2,157,740 - 2,157,740
800 - 800 Royston, GA Hosp Auth Hosp Rev
Ctf Hlthcare Sys Inc 6.700 07/01/16 820,096 - 820,096
2,500 - 2,500 Royston, GA Hosp Auth Hosp Rev
Ctf Hlthcare Sys Inc 6.500 07/01/27 2,493,250 - 2,493,250
----------------------------- ------------
21,830,934 19,455,104 41,286,038
----------------------------- ------------
HAWAII 0.2%
- 1,285 1,285 Honolulu, HI City & Cnty Ser B
(FGIC Insd) 5.500 10/01/11 - 1,474,049 1,474,049
----------------------------- ------------
ILLINOIS 15.2%
- 2,000 2,000 Bedford Park, IL Ser A Rfdg
(FSA Insd) 5.250 12/15/20 - 2,205,540 2,205,540
- 2,000 2,000 Chicago, IL Brd of Ed
(Prerefunded @ 12/01/10) (FGIC
Insd) 5.500 12/01/31 - 2,284,800 2,284,800
4,000 - 4,000 Chicago, IL Brd Ed Chicago Sch
Reform Ser A (AMBAC Insd) 5.250 12/01/27 4,190,120 - 4,190,120
- 2,000 2,000 Chicago, IL Brd of Ed Chicago
Sch Reform (Prerefunded @
12/01/07) (AMBAC Insd) 5.750 12/01/20 - 2,251,520 2,251,520
1,400 - 1,400 Chicago, IL Brd Ed Ser A (MBIA
Insd) 5.500 12/01/28 1,521,800 - 1,521,800
- 4,865 4,865 Chicago, IL Cap Apprec
(Prerefunded @ 07/01/05)
(AMBAC Insd) * 07/01/16 - 2,393,288 2,393,288
- 1,500 1,500 Chicago, IL Lakefront
Millennium Pk Facs (MBIA Insd) 5.125 01/01/28 - 1,547,745 1,547,745
2,250 - 2,250 Chicago, IL Neighborhoods
Alive 21 Ser A (FGIC Insd) 5.500 01/01/13 2,538,338 - 2,538,338
- 7,000 7,000 Chicago, IL O'Hare Intl Arpt
Rev Gen Arpt Second Lien Ser A
Rfdg (MBIA Insd) 6.375 01/01/12 - 7,189,560 7,189,560
1,500 - 1,500 Chicago, IL O'Hare Intl Arpt
Rev Gen Arpt Third Lien C-2
Rfdg (AMT) (FSA Insd) 5.250 01/01/30 1,551,195 - 1,551,195
1,500 1,500 3,000 Chicago, IL O'Hare Intl Arpt
Rev Gen Arpt Third Lien C-2
Rfdg (AMT) (XLCA Insd) 5.250 01/01/34 1,548,945 1,548,945 3,097,890
1,000 - 1,000 Chicago, IL O'Hare Intl Arpt
Rev Second Lien Passenger Fac
Ser B (AMBAC Insd) 5.500 01/01/16 1,116,410 - 1,116,410
- 2,000 2,000 Chicago, IL O'Hare Intl Arpt
Rev Second Lien Passenger Fac
Ser B (AMBAC Insd) 5.500 01/01/17 - 2,232,820 2,232,820
- 3,500 3,500 Chicago, IL Proj Ser A Rfdg
(MBIA Insd) (b) 5.000 01/01/31 - 3,572,695 3,572,695
1,000 - 1,000 Chicago, IL Proj Ser C Rfdg
(FGIC Insd) 5.750 01/01/14 1,144,940 - 1,144,940
1,000 - 1,000 Chicago, IL Proj Ser C Rfdg
(FGIC Insd) 5.750 01/01/15 1,141,860 - 1,141,860
4,895 - 4,895 Chicago, IL Pub Bldg Comm Bldg
Rev Ser A (Escrowed to
Maturity) (MBIA Insd) * 01/01/07 4,654,753 - 4,654,753
1,000 - 1,000 Chicago, IL Ser B Rfdg (AMBAC
Insd) 5.125 01/01/15 1,117,590 - 1,117,590
2,000 2,000 4,000 Chicago, IL Wastewtr
Transmission Rev Second Lien
(Prerefunded @ 01/01/10) (MBIA
Insd) 5.750 01/01/25 2,300,020 2,300,020 4,600,040
- 1,000 1,000 Chicago, IL Wastewtr
Transmission Rev Second Lien
(Prerefunded @ 01/01/10) (MBIA
Insd) 6.000 01/01/30 - 1,161,970 1,161,970
1,960 - 1,960 Cook Cnty, IL Cmnty Cons Sch
Dist (FSA Insd) (a) 5.500 12/01/13 2,263,192 - 2,263,192
1,000 - 1,000 Cook Cnty, IL Ser A (FGIC Insd) 5.500 11/15/31 1,082,670 - 1,082,670
3,230 - 3,230 Cook Cnty, IL Ser A Rfdg (MBIA
Insd) 5.625 11/15/16 3,570,604 - 3,570,604
- 3,500 3,500 Du Page Cnty, IL Fst Presv Dist * 11/01/10 - 2,862,370 2,862,370
- 2,545 2,545 Du Page Cnty, IL Trans Rev
(FSA Insd) 5.750 01/01/15 - 2,905,728 2,905,728
G-5
- 805 805 East Peoria, IL Ser C Rfdg 7.000 05/01/17 - 836,548 836,548
- 1,310 1,310 Elgin, IL Ser B Rfdg 5.750 12/15/13 - 1,538,320 1,538,320
- 1,600 1,600 Grundy, Kendall, & Will
Cntys (AMBAC Insd) (a) 5.500 05/01/15 - 1,786,704 1,786,704
2,310 - 2,310 Illinois Dev Fin Auth Rev
Adventist Hlth Ser A (MBIA
Insd) 5.500 11/15/13 2,632,823 - 2,632,823
2,500 - 2,500 Illinois Dev Fin Auth Rev
Adventist Hlth Ser A (MBIA
Insd) 5.500 11/15/15 2,862,150 - 2,862,150
1,335 1,250 2,585 Illinois Dev Fin Auth Rev
Bradley Univ Proj
(Prerefunded @ 08/01/09)
(AMBAC Insd) 5.375 08/01/24 1,510,312 1,414,150 2,924,462
- 1,475 1,475 Illinois Dev Fin Auth Rev
Loc Govt Pgm Geneva Cmnty
304 Ser B (FSA Insd) (a) 5.750 01/01/15 - 1,689,848 1,689,848
- 1,145 1,145 Illinois Dev Fin Auth Rev
Loc Govt Pgm Geneva Cmnty
304 Ser B (FSA Insd) (a) 5.750 01/01/17 - 1,307,876 1,307,876
- 3,285 3,285 Illinois Dev Fin Auth Rev
Presbyterian Home Lake
Proj Ser B (FSA Insd) 6.300 09/01/22 - 3,592,575 3,592,575
- 2,000 2,000 Illinois Ed Fac Auth Rev
Lewis Univ 6.100 10/01/16 - 2,010,580 2,010,580
2,000 - 2,000 Illinois Ed Fac Auth Rev
Lewis Univ 6.125 10/01/26 1,936,680 - 1,936,680
- 1,250 1,250 Illinois Hlth Fac Auth Rev
Evangelical Hosp Ser C
(FSA Insd) 6.750 04/15/17 - 1,549,062 1,549,062
- 700 700 Illinois Hlth Fac Auth Rev
Highland Park Hosp Proj
Ser A (Prerefunded @
10/01/07) (MBIA Insd) 5.750 10/01/17 - 784,252 784,252
- 2,275 2,275 Illinois Hlth Fac Auth Rev
South Suburban Hosp
(Escrowed to Maturity) 7.000 02/15/18 - 2,852,509 2,852,509
- 1,000 1,000 Illinois St (FGIC Insd) 5.250 12/01/20 - 1,047,910 1,047,910
1,500 2,000 3,500 Illinois St First Ser
(LOC: Bank of America)
(FGIC Insd) 5.375 11/01/14 1,696,260 2,261,680 3,957,940
- 2,000 2,000 Illinois St Sales Tax Rev
Build Illinois 5.000 06/15/19 - 2,164,240 2,164,240
1,900 - 1,900 Kendall, Kane & Will
Cntys, IL Cmnty Unit Sch
Dist No. 308 Ser B (FGIC
Insd) 5.250 10/01/21 2,049,796 - 2,049,796
- 250 250 Metropolitan Pier & Expo
Auth IL Dedicated St Tax
Rev McCormick Pl Expn Proj
(FGIC Insd) 5.375 12/15/18 - 278,710 278,710
- 8,845 8,845 Metropolitan Pier & Expo
Auth IL Dedicated St Tax
Rev McCormick Pl Expn Ser
A (FGIC Insd) * 06/15/16 - 5,374,930 5,374,930
- 1,005 1,005 Naperville, IL Ser A 5.000 12/01/10 - 1,118,615 1,118,615
- 1,105 1,105 Saint Clair Cnty, IL Pub
Bldg Comm Bldg Rev Cap
Apprec Ser B (FGIC Insd) * 12/01/15 - 694,062 694,062
1,250 - 1,250 Sangamon Cnty, IL Ctf Part 10.000 12/01/06 1,441,900 - 1,441,900
1,000 - 1,000 Schaumburg, IL Ser B (FGIC
Insd) 5.000 12/01/41 1,013,810 - 1,013,810
- 1,000 1,000 Southern IL Univ Rev Cap
Apprec Hsg & Aux (MBIA
Insd) * 04/01/29 - 277,010 277,010
7,455 - 7,455 Will Cnty, IL Fst Presv
Dist Ser B (FGIC Insd) * 12/01/12 5,485,836 - 5,485,836
---------------------------- -------------
50,372,004 67,036,582 117,408,586
---------------------------- -------------
INDIANA 3.3%
2,420 - 2,420 Brownsburg, IN Sch Bldg
Corp First Mtg Brownsburg
Cmnty Sch (MBIA Insd) 5.550 02/01/24 2,680,973 - 2,680,973
1,000 - 1,000 Clark Pleasant, IN Cmnty
Sch First Mtg (AMBAC Insd) 5.500 07/15/18 1,126,430 - 1,126,430
- 2,560 2,560 East Washington, IN Multi
Sch Bldg Corp First Mtg
(FGIC Insd) 5.375 07/15/28 - 2,725,171 2,725,171
4,000 - 4,000 Indiana Hlth Fac Fin Auth
Rev Deaconess Hosp Ser A
(AMBAC Insd) 5.375 03/01/34 4,247,920 - 4,247,920
2,000 2,000 4,000 Indiana Transn Fin Auth
Toll Rd Lease Rev Rfdg
(AMBAC Insd) 5.375 07/01/09 2,141,680 2,141,680 4,283,360
- 1,935 1,935 Logansport, IN Sch Bldg
Corp First Mtg (FGIC Insd) 5.500 07/15/13 - 2,197,638 2,197,638
- 1,000 1,000 Marion Cnty, IN Convention
& Rec Fac Auth Excise Tax
Rev (MBIA Insd) * 06/01/14 - 676,980 676,980
- 1,200 1,200 North Adams, IN Cmnty Schs
Renovation Bldg Corp Cap
Apprec First Mtg (FSA
Insd) (a) * 07/15/15 - 766,416 766,416
- 1,280 1,280 North Adams, IN Cmnty Schs
Renovation Bldg Corp Cap
Apprec First Mtg (FSA
Insd) (a) * 01/15/19 - 667,533 667,533
- 1,500 1,500 Petersburg, IN Pollutn Ctl
Rev IN Pwr & Lt (AMT) 5.950 12/01/29 - 1,515,630 1,515,630
- 1,605 1,605 Richland Beanblossom, IN
Sch First Mtg (Prerefunded
@ 07/15/11) (FGIC Insd) (a) 5.500 07/15/12 - 1,840,149 1,840,149
- 2,530 2,530 Vigo Cnty, IN Sch Bldg
Corp First Mtg Impt & Rfdg
(FSA Insd) 5.250 07/10/24 - 2,695,310 2,695,310
---------------------------- -------------
10,197,003 15,226,507 25,423,510
---------------------------- -------------
IOWA 0.5%
- 1,685 1,685 Des Moines, IA Pub Pkg Sys
Ser A (FGIC Insd) (a) 5.750 06/01/15 - 1,915,710 1,915,710
- 1,785 1,785 Des Moines, IA Pub Pkg Sys
Ser A (FGIC Insd) (a) 5.750 06/01/16 - 2,026,457 2,026,457
---------------------------- -------------
3,942,167 3,942,167
---------------------------- -------------
KANSAS 1.3%
3,810 - 3,810 Kansas St Dev Fin Auth Rev
KS Proj Ser N (AMBAC Insd)
(a) 5.250 10/01/22 4,105,580 - 4,105,580
1,250 - 1,250 Kansas St Dev Fin Auth Rev
KS St Proj (AMBAC Insd) 5.500 03/01/16 1,397,738 - 1,397,738
2,235 - 2,235 Sedgwick Cnty, KA Uni Sch
Dist No. 259 Wichita
(Prerefunded @ 09/01/10)
(MBIA Insd) 5.500 09/01/11 2,527,673 - 2,527,673
- 1,975 1,975 Sedgwick Cnty, KS Uni Sch
Dist No 259 Wichita (MBIA
Insd) 6.000 09/01/09 - 2,268,801 2,268,801
---------------------------- -------------
8,030,991 2,268,801 10,299,792
---------------------------- -------------
KENTUCKY 2.4%
- 1,000 1,000 Kenton Cnty, KY Arpt Brd
Rev Cincinnati/Northn KY
Intl Arpt Ser A Rfdg (AMT)
(MBIA Insd) 6.200 03/01/08 - 1,109,160 1,109,160
2,190 1,500 3,690 Kenton Cnty, KY Arpt Brd
Rev Cincinnati/Northn KY
Intl Arpt Ser A Rfdg (AMT)
(MBIA Insd) 6.250 03/01/09 2,449,537 1,677,765 4,127,302
G-6
- 1,500 1,500 Kentucky St Ppty & Bldg Proj No 69 Ser A 5.000 08/01/05 - 1,535,955 1,535,955
Kentucky St Ppty & Bldgs Commn Proj No.
74 Rfdg (Prerefunded 02/01/12) (FSA
5,000 - 5,000 Insd) 5.375 02/01/16 5,712,150 - 5,712,150
Kentucky St Tpk Auth Econ Dev
2,000 - 2,000 Revitalization Proj Rfdg (FSA Insd) 5.500 07/01/07 2,176,560 - 2,176,560
Kentucky St Tpk Auth Econ Dev
Revitalization Proj Rfgd (Prerefunded @
- 1,000 1,000 01/01/11) (FSA Insd) 5.625 07/01/14 - 1,145,950 1,145,950
Louisville & Jefferson Cnty, KY Swr Ser
- 2,450 2,450 A (MBIA Insd) (a) 5.500 05/15/16 - 2,780,921 2,780,921
---------------------------- ---------
10,338,247 8,249,751 18,587,998
---------------------------- ---------
LOUISIANA 2.0%
Ernest N Morial New Orleans LA Sr Sub
4,395 - 4,395 Ser A (AMBAC Insd) 5.250 07/15/22 4,760,137 - 4,760,137
3,000 - 3,000 Lafayette, LA Util Rev (MBIA Insd) 5.250 11/01/21 3,302,820 - 3,302,820
Louisiana Hsg Fin Agy Rev Azalea
Estates Rfdg Ser A (AMT) (GNMA
1,000 1,500 2,500 Collateralized) 5.375 10/20/39 1,015,880 1,523,820 2,539,700
Louisiana Loc Govt Environmental Rev
2,580 - 2,580 Southeastn LA Student Hsg A (MBIA Insd) 5.250 08/01/21 2,824,042 - 2,824,042
1,500 - 1,500 Louisiana St Ser A (FGIC Insd) 5.500 11/15/08 1,676,355 - 1,676,355
---------------------------- ---------
13,579,234 1,523,820 15,103,054
---------------------------- ---------
MARYLAND 0.9%
Baltimore, MD Cap Apprec Ser A (FGIC
2,180 - 2,180 Insd) * 10/15/09 1,680,061 - 1,680,061
Maryland St Trans Auth Arpt
Baltimore/Wash Intl Arpt B (AMT) (AMBAC
- 2,250 2,250 Insd) 5.125 03/01/24 - 2,355,322 2,355,322
Northeast, MD Waste Disp Auth Rfdg
- 2,350 2,350 (AMT) (AMBAC Insd) 5.500 04/01/16 - 2,586,621 2,586,621
---------------------------- ---------
1,680,061 4,941,943 6,622,004
---------------------------- ---------
MASSACHUSETTS 2.8%
Massachusetts St College Bldg Auth Proj
2,305 - 2,305 Rev Ser A (MBIA Insd) 5.000 05/01/20 2,488,616 - 2,488,616
Massachusetts St Cons Ln Ser B
4,000 - 4,000 (Prerefunded @ 03/01/12) (FSA Insd) 5.500 03/01/17 4,564,200 - 4,564,200
Massachusetts St Fed Hwy Grant Antic Nt
- 1,500 1,500 Ser A 5.750 06/15/14 - 1,699,830 1,699,830
Massachusetts St Fed Hwy Grant Antic Nt
1,500 - 1,500 Ser A 5.750 06/15/15 1,699,830 - 1,699,830
Massachusetts St Hlth & Ed Fac Auth Rev
- 500 500 Hlthcare Sys Covenant Hlth 6.000 07/01/31 - 527,880 527,880
Massachusetts St Hlth & Ed Fac Auth Rev
- 1,000 1,000 Partn Hlthcare Sys Ser C 5.750 07/01/32 - 1,093,230 1,093,230
Massachusetts St Indl Fin Agy Rev
Higher Ed Hampshire College Proj
1,000 - 1,000 (Prerefunded @ 10/01/07) (a) 5.625 10/01/12 1,105,960 - 1,105,960
Massachusetts St Indl Fin Agy Rev
- 1,000 1,000 Wentworth Institute Tech 5.650 10/01/18 - 1,063,270 1,063,270
Massachusetts St Port Auth Rev Ser A
- 2,805 2,805 (MBIA Insd) 5.000 07/01/22 - 2,978,068 2,978,068
Massachusetts St Spl Oblig Dedicated
2,000 2,500 4,500 Tax Rev (FGIC Insd) 5.000 01/01/34 2,059,940 2,574,925 4,634,865
---------------------------- ---------
11,918,546 9,937,203 21,855,749
---------------------------- ---------
MICHIGAN 4.7%
Detroit, MI Downtown Dev Auth Tax
- 3,015 3,015 Increment Rev Ser C1 * 07/01/17 - 1,648,783 1,648,783
Detroit, MI Downtown Dev Auth Tax
- 3,050 3,050 Increment Rev Ser C1 (a) * 07/01/18 - 1,575,569 1,575,569
Detroit, MI Downtown Dev Auth Tax
- 3,050 3,050 Increment Rev Ser C1 (a) * 07/01/19 - 1,486,295 1,486,295
Detroit, MI Downtown Dev Auth Tax
- 3,050 3,050 Increment Rev Ser C1 (a) * 07/01/22 - 1,222,684 1,222,684
Detroit, MI Downtown Dev Auth Tax
- 3,050 3,050 Increment Rev Ser C1 (a) * 07/01/23 - 1,142,194 1,142,194
Detroit, MI Downtown Dev Auth Tax
- 3,050 3,050 Increment Rev Ser C1 (a) * 07/01/24 - 1,061,064 1,061,064
Detroit, MI Wtr Supply Sys Ser C (MBIA
- 2,965 2,965 Insd) (a) 5.250 07/01/20 - 3,233,036 3,233,036
Grand Rapids, MI Downtown Dev Cap
- 3,500 3,500 Apprec (MBIA Insd) * 06/01/15 - 2,272,620 2,272,620
Grand Rapids, MI Downtown Dev Cap
- 2,765 2,765 Apprec (MBIA Insd) * 06/01/16 - 1,704,180 1,704,180
Grand Rapids, MI Wtr Supply Sys Rfdg
1,000 1,000 2,000 (FGIC Insd) 5.750 01/01/13 1,140,850 1,140,850 2,281,700
Hillsdale, MI Hosp Fin Auth Hosp Rev
1,180 - 1,180 Hillsdale Cmnty Hlth Ctr 5.750 05/15/18 1,221,005 - 1,221,005
Michigan Muni Bd Auth Rev Clean Wtr Rev
1,000 2,000 3,000 Fd 5.250 10/01/18 1,115,740 2,231,480 3,347,220
Michigan St Hosp Fin Auth Rev Ascension
Hlth Cr Ser A (Prerefunded @ 11/15/09)
- 2,850 2,850 (MBIA Insd) 5.750 11/15/18 - 3,274,935 3,274,935
Michigan St Strategic Fd Detroit Edison
1,000 1,500 2,500 Co Proj C Rfdg (AMT) (XLCA Insd) 5.450 12/15/32 1,047,100 1,570,650 2,617,750
Michigan St Strategic Fd Detroit Edison
- 2,500 2,500 Co Proj Ser A (AMT) (XLCA Insd) 5.500 06/01/30 - 2,647,400 2,647,400
Michigan St Strategic Fd Detroit Edison
Conv Rfdg (Variable Rate Coupon) (AMBAC
2,500 - 2,500 Insd) 4.850 09/01/30 2,713,875 - 2,713,875
Michigan St Strategic Fd Detroit Edison
1,000 - 1,000 Pollutn Ctl Ser B Rfdg (AMT) 5.650 09/01/29 1,037,180 - 1,037,180
Zeeland, MI Pub Schs Sch Bldg & Site
- 1,355 1,355 (MBIA Insd) (a) 5.250 05/01/21 - 1,485,026 1,485,026
---------------------------- ---------
8,275,750 27,696,766 35,972,51
---------------------------- ---------
MINNESOTA 1.1%
Minneapolis & Saint Paul, MN Metro
- 5,000 5,000 Arpts Comm Arpt Rev Ser A (FGIC Insd) 5.125 01/01/31 - 5,152,700 5,152,700
G-7
Minnesota Agriculture & Econ Dev Brd
Rev Hlthcare Sys Fairview Hosp Ser A
- 2,800 2,800 (MBIA Insd) 5.750 11/15/26 - 3,075,520 3,075,520
-------------------------------------
- 8,228,220 8,228,220
-------------------------------------
MISSISSIPPI 1.0%
Medical Cent Ed Bldg Corp MS Rev Univ
MS Med Cent Proj (Prerefunded @
- 3,000 3,000 12/01/04) (MBIA Insd) 5.900 12/01/23 - 3,070,890 3,070,890
Mississippi Business Fin Corp MS
- 3,250 3,250 Pollutn Ctl Rev Sys Energy Res Inc Proj 5.875 04/01/22 - 3,261,375 3,261,375
Mississippi Hosp Equip & Fac MS Baptist
1,500 - 1,500 Med Ctr Rfdg (MBIA Insd) 6.000 05/01/13 1,558,935 - 1,558,935
-------------------------------------
1,558,935 6,332,265 7,891,200
-------------------------------------
MISSOURI 1.8%
Bi-State Dev Agy MO IL Met Metrolink
2,530 - 2,530 Cross Cnty Proj B (FSA Insd) 5.250 10/01/18 2,790,211 2,790,211
Cape Girardeau Cnty, MO Indl Dev Auth
- 1,500 1,500 Hlthcare Fac Rev Southeast MO Hosp Assoc 5.625 06/01/27 - 1,529,205 1,529,205
Cole Cnty, MO Indl Dev Auth Sr Living
1,250 - 1,250 Fac Rev Lutheran Sr Svcs Heisinger Proj 5.500 02/01/35 1,285,950 - 1,285,950
Jefferson Cnty, MO Reorg Sch Dist No
- 1,625 1,625 R-6 (FGIC Insd) 5.625 03/01/20 - 1,834,349 1,834,349
Kansas City, MO Met Cmnty Impt
- 1,500 1,500 Leasehold Jr College Rfdg (FGIC Insd) 5.500 07/01/17 - 1,683,705 1,683,705
Missouri St Hwys & Trans Commn Rd Rev
3,400 - 3,400 Ser A 5.500 02/01/08 3,745,780 - 3,745,780
1,250 - 1,250 Saint Charles, MO Ctf Part Ser B
5.500 05/01/18 1,345,300 - 1,345,300
-------------------------------------
9,167,241 5,047,259 14,214,500
-------------------------------------
NEBRASKA 0.5%
Dodge Cnty, NE Sch Dist No 001 Fremont
- 1,190 1,190 (Prerefunded @12/15/10) (FSA Insd) 5.750 12/15/13 - 1,376,509 1,376,509
University NE Univ Rev Lincoln Student
- 2,260 2,260 Fees & Fac Ser B 5.000 07/01/23 - 2,378,605 2,378,605
-------------------------------------
- 3,755,114 3,755,114
-------------------------------------
NEVADA 2.7%
Clark Cnty, NV Arpt Rev Sub Lien Ser
4,000 4,000 8,000 A-2 (FGIC Insd) 5.000 07/01/36 4,075,320 4,075,320 8,150,640
3,965 - 3,965 Clark Cnty, NV Bd Bk (FGIC Insd) 5.500 06/01/09 4,444,844 - 4,444,844
Clark Cnty, NV Indl Dev Rev Southwest
3,000 - 3,000 Gas Corp Proj Ser A (AMT) (AMBAC Insd) 5.250 07/01/34 3,096,000 - 3,096,000
Clark Cnty, NV Indl Dev Rev Southwest
- 3,500 3,500 Gas Corp Proj Ser D (AMT) (FGIC Insd) 5.250 03/01/38 - 3,579,660 3,579,660
Reno, NV Sr Lien Retrac Reno Trans Proj
- 1,500 1,500 (AMBAC Insd) 5.125 06/01/32 - 1,549,320 1,549,320
-------------------------------------
11,616,164 9,204,300 20,820,4
-------------------------------------
NEW HAMPSHIRE 0.3%
New Hampshire Hlth & Ed Fac Auth Rev
- 1,000 1,000 Derryfield Sch 7.000 07/01/30 - 1,001,330 1,001,330
New Hampshire St Bus Fin Auth Wtr Fac
Rev Pennichuck Wtrwks Inc (AMT) (AMBAC
- 1,000 1,000 Insd) 6.300 05/01/22 - 1,103,160 1,103,160
-------------------------------------
- 2,104,490 2,104,490
-------------------------------------
NEW JERSEY 10.2%
Casino Reinv Dev Auth NJ Hotel Room Fee
3,000 - 3,000 Rev (AMBAC Insd) 5.250 01/01/22 3,312,210 - 3,312,21
Essex Cnty, NJ Impt Auth Rev Proj
- 4,000 4,000 Consolidation Rfdg (MBIA Insd) 5.125 10/01/21 - 4,339,840 4,339,840
Garden St Preservation Tr NJ Ser A (FSA
- 5,650 5,650 Insd) 5.250 11/01/19 - 6,261,217 6,261,217
1,200 - 1,200 New Jersey Econ Dev Auth Cigarette Tax 5.750 06/15/29 1,231,944 - 1,231,944
- 1,500 1,500 New Jersey Econ Dev Auth Cigarette Tax 5.750 06/15/34 - 1,541,400 1,541,400
New Jersey Econ Dev Auth Mtr Veh Surp
1,500 1,500 3,000 Rev Ser A (MBIA Insd) 5.000 07/01/23 1,591,425 1,591,425 3,182,850
New Jersey Econ Dev Auth Rev Trans Proj
Sublease Ser A (Prerefunded @ 05/01/09)
- 1,500 1,500 (FSA Insd) 5.250 05/01/17 - 1,669,665 1,669,665
New Jersey Econ Dev Auth St Contract
- 25,000 25,000 Econ Recovery (MBIA Insd) 5.900 03/15/21 - 30,338,250 30,338,250
New Jersey Hlthcare Fac Fin Auth Rev
Gen Hosp Ctr Passaic (Escrowed to
- 2,000 2,000 Maturity) (FSA Insd) 6.000 07/01/06 - 2,088,000 2,088,000
New Jersey St Ed Fac Auth Higher Ed Cap
- 3,000 3,000 Impt Ser A (AMBAC Insd) 5.250 09/01/19 - 3,321,270 3,321,270
New Jersey St Ed Fac Auth Higher Ed Cap
1,835 - 1,835 Impt Ser A (AMBAC Insd) 5.250 09/01/21 2,007,839 - 2,007,839
New Jersey St Tpk Auth Tpk Rev Ser A
- 710 710 (MBIA Insd) 6.000 01/01/11 - 826,341 826,341
New Jersey St Tpk Auth Tpk Rev Ser A
- 290 290 (Escrowed to Maturity) (MBIA Insd) 6.000 01/01/11 - 338,584 338,584
New Jersey St Trans Corp Cap Grant
1,000 - 1,000 Antic Nt Ser B (AMBAC Insd) 5.500 02/01/08 1,099,060 - 1,099,060
New Jersey St Trans Corp Ctf Fed Trans
2,000 - 2,000 Admin Gnts Ser A (AMBAC Insd) 5.500 09/15/13 2,294,340 - 2,294,340
New Jersey St Trans Corp Ctfs Fed Trans
Admin Gnts Ser A (Prerefunded @
- 2,385 2,385 09/15/09) (AMBAC Insd) 5.750 09/15/11 - 2,707,357 2,707,357
New Jersey St Trans Tr Fd Auth Trans
- 4,500 4,500 Sys Ser A (FGIC Insd) 5.000 06/15/20 - 4,850,865 4,850,865
New Jersey St Trans Tr Fd Auth Trans
2,095 - 2,095 Sys Ser A 5.750 06/15/17 2,477,338 - 2,477,338
New Jersey St Trans Tr Fd Auth Trans
- 4,000 4,000 Sys Ser C (FSA Insd) 5.500 06/15/20 - 4,444,760 4,444,760
-------------------------------------
14,014,156 64,318,974 78,333,130
-------------------------------------
G-8
NEW MEXICO 0.8%
- 1,250 1,250 Jicarilla, NM Apache Nation
Rev Ser A (Acquired
10/23/2003, Cost
$1,274,428) (d) 5.500 09/01/23 - 1,335,587 1,335,587
4,000 - 4,000 Santa Fe, NM Gross Rcpt Tax
Impt (AMBAC Insd) 5.250 06/01/13 4,506,000 - 4,506,000
---------------------------- --------------
4,506,000 1,335,587 5,841,587
---------------------------- --------------
NEW YORK 19.9%
- 3,000 3,000 Metropolitan Trans Auth NY
Commuter Fac Rev Ser A
(Prerefunded @ 01/01/08)
(MBIA Insd) 5.625 07/01/27 - 3,362,430 3,362,430
- 2,000 2,000 Metropolitan Trans Auth NY
Trans Fac Rev Svc Contract
Ser R (Prerefunded @
07/01/15) 5.500 07/01/17 - 2,358,460 2,358,460
3,000 - 3,000 Metropolitan Trans Auth NY
Ser A Rfdg (AMBAC Insd) 5.500 11/15/18 3,428,760 - 3,428,760
2,500 - 2,500 Metropolitan Trans Auth NY
Ser A Rfdg (FGIC Insd) 5.250 11/15/31 2,657,050 - 2,657,050
2,500 2,000 4,500 Nassau Cnty, NY Interim Fin
Auth Sales Tax Secd Ser A
(Prerefunded @ 11/15/10) 5.750 11/15/13 2,899,900 2,319,920 5,219,820
5,700 - 5,700 New York City Muni Wtr Fin
Auth Ser A (FSA Insd) (a) 5.375 06/15/17 6,327,228 - 6,327,228
- 2,500 2,500 New York City Ser A Rfdg 7.000 08/01/05 - 2,593,000 2,593,000
- 3,000 3,000 New York City Ser A Rfdg 7.000 08/01/06 - 3,248,400 3,248,400
4,500 - 4,500 New York City Ser B (AMBAC
Insd) 7.250 08/15/07 5,112,585 - 5,112,585
445 - 445 New York City Ser C 7.000 08/15/08 446,784 - 446,784
1,305 1,305 New York City Ser G 5.875 10/15/14 - 1,434,352 1,434,352
545 545 New York City Ser G
(Prerefunded @ 10/15/07) 5.875 10/15/14 - 610,171 610,171
1,000 1,000 2,000 New York City Ser H 5.750 03/15/13 1,132,340 1,132,340 2,264,680
- 3,055 3,055 New York City Ser I 6.000 04/15/12 - 3,330,408 3,330,408
- 2,500 2,500 New York City Ser I (MBIA
Insd) 5.000 08/01/17 - 2,752,150 2,752,150
- 1,945 1,945 New York City Ser I
(Prerefunded @ 4/15/07) 6.000 04/15/12 - 2,151,909 2,151,909
6,930 10,000 16,930 New York City Trans Auth
Trans Fac Livingston Plaza
Proj Rfdg (Escrowed to
Maturity) (FSA Insd) 5.400 01/01/18 7,960,006 11,486,300 19,446,306
3,000 3,000 6,000 New York City Transitional
Future Tax Secd Ser A Rfdg
(e) 5.500/14.000 11/01/26 3,396,060 3,396,060 6,792,120
- 5,305 5,305 New York City Transitional
Future Tax Secd Ser C
(AMBAC Insd) 5.250 08/01/20 - 5,774,439 5,774,439
- 2,000 2,000 New York City Transitional
Future Tax Secd Ser C
(AMBAC Insd) 5.250 08/01/22 - 2,160,320 2,160,320
- 4,545 4,545 New York City Transitional
Future Tax Secd Ser D (MBIA
Insd) 5.250 02/01/21 - 4,952,505 4,952,505
- 2,500 2,500 New York St Dorm Auth Lease
Rev Muni Hlth Fac Impt Pgm
Ser A (FSA Insd) 5.500 05/15/25 - 2,696,600 2,696,600
3,000 - 3,000 New York St Dorm Auth Rev
Hosp (MBIA Insd) 5.000 08/01/33 3,099,210 - 3,099,210
2,000 - 2,000 New York St Dorm Auth Rev
Sch Dist Fin Pgm Ser D
(MBIA Insd) 5.500 10/01/17 2,282,040 - 2,282,040
- 1,250 1,250 New York St Dorm Auth Lease
Rev St Univ Dorm Fac Ser C
(Prerefunded @ 07/01/09)
(MBIA Insd) 5.500 07/01/29 - 1,425,175 1,425,175
- 13,500 13,500 New York St Dorm Auth Rev
City Univ Sys Ser C 7.500 07/01/10 - 15,542,145 15,542,145
- 3,000 3,000 New York St Dorm Auth Rev
St Univ Ed Fac (Prerefunded
@ 05/15/10) (FGIC Insd) 5.750 05/15/24 - 3,482,280 3,482,280
- 2,000 2,000 New York St Dorm Auth Rev
St Univ Ed Fac 1989 Res
(MBIA Insd) 6.000 05/15/16 - 2,317,400 2,317,400
- 1,880 1,880 New York St Dorm Auth Rev
St Univ Ed Fac Ser B 5.250 05/15/10 - 2,092,628 2,092,628
- 1,500 1,500 New York St Environmental
Fac Revolving Fds Ser C 5.000 07/15/21 - 1,601,160 1,601,160
- 2,840 2,840 New York St Loc Govt
Assistance Corp Ser E Rfdg 6.000 04/01/14 - 3,373,721 3,373,721
- 3,000 3,000 New York St Med Care Fac
Fin Agy Rev NY Hosp Mtg Ser
A (Prerefunded @ 02/15/05)
(AMBAC Insd) 6.750 08/15/14 - 3,103,740 3,103,740
- 5,875 5,875 New York St Med Care Fac
Fin Agy Rev Saint Peter's
Hosp Proj Ser A (AMBAC Insd) 5.375 11/01/20 - 5,946,616 5,946,616
3,000 - 3,000 New York St Urban Dev Corp
Rev Personal Income Tax Ser
C (Prerefunded @ 03/15/13)
(FGIC Insd) 5.500 03/15/18 3,413,850 - 3,413,850
- 1,500 1,500 New York St Urban Dev Corp
Rev Proj Cent for Indl
Innovation Rfdg 5.500 01/01/13 - 1,709,835 1,709,835
3,000 - 3,000 New York, NY City Muni Wtr
Fin Auth Wtr & Sew Sys Rev
Ser A (AMBAC Insd) 5.000 06/15/35 3,084,930 - 3,084,930
2,680 - 2,680 Port Auth NY & NJ Cons
119th Ser (AMT) (FGIC Insd) 5.500 09/15/17 2,823,407 - 2,823,407
- 3,000 3,000 Port Auth NY & NJ Spl Oblig
Rev Spl Proj JFK Intl Arpt
Terminal 6 (AMT) (MBIA Insd) 5.750 12/01/22 - 3,269,700 3,269,700
- 3,000 3,000 Port Auth NY & NJ Spl Oblig
Rev Spl Proj JFK Intl Arpt
Terminal 6 (AMT) (MBIA Insd) 5.750 12/01/25 - 3,210,870 3,210,870
2,500 - 2,500 Sales Tax Asset Receivable
Corp Ser A (MBIA Insd) (f) 5.000 10/15/23 2,666,625 - 2,666,625
---------------------------- --------------
50,730,775 102,835,034 153,565,809
---------------------------- --------------
NORTH CAROLINA 5.3%
2,000 - 2,000 Charlotte, NC Ctf Part
Convention Fac Proj Ser A
Rfdg 5.500 08/01/19 2,248,760 - 2,248,760
- 2,000 2,000 Johnston Cnty, NC (FGIC
Insd) 5.900 03/01/19 - 2,310,120 2,310,120
3,000 1,000 4,000 North Carolina Eastern Muni
Pwr Agy Pwr Sys Rev Ser D 6.750 01/01/26 3,344,460 1,114,820 4,459,280
10,000 15,000 25,000 North Carolina Muni Pwr Agy
No 1 Catawba Elec Rev Rfdg
(MBIA Insd) 6.000 01/01/12 11,742,700 17,614,050 29,356,750
- 2,500 2,500 North Carolina Muni Pwr Agy
Ser A (MBIA Insd) 5.250 01/01/19 - 2,729,525 2,729,525
---------------------------- --------------
17,335,920 23,768,515 41,104,435
---------------------------- --------------
NORTH DAKOTA 0.2%
G-9
- 1,225 1,225 North Dakota St Hsg Fin Agy
Rev Hsg Fin Pgm Home Mtg Fin
Ser B (AMT) (MBIA Insd) 5.500 07/01/29 - 1,258,785 1,258,785
----------------------------- ------------
OHIO 4.2%
- 1,400 1,400 Bowling Green St Univ OH Gen
Rcpt (FGIC Insd) 5.750 06/01/12 - 1,605,450 1,605,450
1,000 - 1,000 Cleveland, OH Muni Sch Dist
(FSA Insd) 5.250 12/01/23 1,085,020 - 1,085,020
3,000 - 3,000 Columbus, OH City Sch Dist Sch
Fac Constr & Impt (FSA Insd) 5.250 12/01/22 3,294,330 - 3,294,330
1,000 1,000 2,000 Cuyahoga Cnty, OH Hosp Fac Rev
Canton Inc Proj 7.500 01/01/30 1,108,460 1,108,460 2,216,920
1,000 1,000 Delaware Cnty, OH Cap Fac
(Prerefunded @12/01/10) 6.000 12/01/25 - 1,178,470 1,178,470
3,000 - 3,000 Franklin Cnty, OH Convention
Fac Auth Tax & Lease Rev Antic
Bds Rfdg (AMBAC Insd) 5.250 12/01/19 3,318,210 - 3,318,210
- 1,000 1,000 Hamilton, OH One Renaissance
Ctr Ser A (AMBAC Insd) 5.500 11/01/16 - 1,135,820 1,135,820
2,660 - 2,660 Licking Heights, OH Loc Sch
Dist (FGIC Insd) 5.250 12/01/23 2,897,112 - 2,897,112
1,000 - 1,000 Lorain Cnty, OH Hosp Rev
Catholic Hlthcare 5.375 10/01/30 1,032,490 - 1,032,490
2,000 - 2,000 Lorain, OH City Sch Dist
Classroom Fac Impt (MBIA Insd) 5.250 12/01/20 2,198,140 - 2,198,140
- 1,000 1,000 Mahoning Cnty, OH Hosp Fac
Forum Hlth Oblig Group Ser A 6.000 11/15/32 - 1,059,030 1,059,030
1,925 - 1,925 Ohio Muni Elec Generation Agy
Jt Venture Ctf Ben Int Rfdg
(AMBAC Insd) 5.000 02/15/22 2,046,179 - 2,046,179
1,000 1,000 2,000 Ohio St Air Quality Dev Auth
Rev JMG Fdg Ltd Part Proj Rfdg
(AMT) (AMBAC Insd) 6.375 04/01/29 1,023,300 1,023,300 2,046,600
1,500 - 1,500 Ohio St Bldg Auth St Fac Admin
Bldg Fd Proj A (FSA Insd) 5.500 04/01/15 1,700,850 - 1,700,850
1,840 1,840 Pickerington, OH Loc Sch Dist
Cap Apprec Sch Fac Contr (FGIC
Insd) * 12/01/12 - 1,367,819 1,367,819
3,000 1,000 4,000 University Cincinnati OH Gen
Ser A (FGIC Insd) 5.500 06/01/09 3,371,340 1,123,780 4,495,120
----------------------------- ------------
23,075,431 9,602,129 32,677,560
----------------------------- ------------
OKLAHOMA 0.9%
1,000 - 1,000 Central, OK Trans & Pkg Auth
Pkg Sys (AMBAC Insd) 5.000 07/01/18 1,079,080 - 1,079,080
- 1,500 1,500 Jenks, OK Aquarium Auth Rev
First Mtg (Prerefunded @
07/01/10) (MBIA Insd) 6.100 07/01/30 - 1,765,935 1,765,935
- 1,575 1,575 Oklahoma City, OK Arpt Tr Jr
Lien 27th Ser B (AMT) (FSA
Insd) 5.750 07/01/16 - 1,726,925 1,726,925
- 2,250 2,250 Tulsa Cnty, OK Pub Fac Auth
Cap Impt Rev (AMBAC Insd) 6.250 11/01/22 - 2,628,945 2,628,945
----------------------------- ------------
1,079,080 6,121,805 7,200,885
----------------------------- ------------
OREGON 2.7%
1,000 - 1,000 Clackamas Cnty, OR Sch Dist 5.500 06/01/10 1,135,720 - 1,135,720
1,350 4,000 5,350 Oregon Hlth Sciences Univ Insd
Ser A (MBIA Insd) 5.250 07/01/22 1,459,242 4,323,680 5,782,922
2,060 3,000 5,060 Oregon St Dept Admin Ser C
Rfdg (MBIA Insd) 5.250 11/01/17 2,293,274 3,339,720 5,632,994
- 1,075 1,075 Oregon St Veterans Welfare Ser
76A 6.050 10/01/28 - 1,089,384 1,089,384
1,250 1,190 2,440 Portland, OR Cmnty College
Dist Ser B 5.250 06/01/12 1,403,313 1,335,954 2,739,267
1,135 - 1,135 Portland, OR Swr Sys Rev
Second Lien Ser A Rfdg (FSA
Insd) 5.250 06/01/19 1,247,183 - 1,247,183
- 1,985 1,985 Portland, OR Urban Renewal &
Redev Downtown Wtrfront Ser A
(AMBAC Insd) 5.750 06/15/16 - 2,263,615 2,263,615
- 1,000 1,000 Washington Multnomah & Yamhill
(MBIA Insd) 5.000 06/01/13 - 1,102,890 1,102,890
----------------------------- ------------
7,538,732 13,455,243 20,993,975
----------------------------- ------------
PENNSYLVANIA 5.2%
1,500 - 1,500 Allegheny Cnty, PA San Auth
Swr Rev (MBIA Insd) 5.500 12/01/30 1,635,660 - 1,635,660
- 1,250 1,250 Allegheny Cnty, PA San Auth
Swr Rev (MBIA Insd) 5.750 12/01/16 - 1,443,225 1,443,225
1,000 - 1,000 Allegheny Cnty, PA Ser C-53
Rfdg (FGIC Insd) 5.500 11/01/14 1,133,170 - 1,133,170
- 4,680 4,680 Erie, PA Sch Dist Cap Apprec
Rfdg (FSA Insd) * 09/01/19 - 2,397,049 2,397,049
- 3,535 3,535 Falls Twp, PA Hosp Auth Hosp
Rev DE Vly Med Rfdg (FHA Gtd) 7.000 08/01/22 - 3,665,088 3,665,088
1,000 - 1,000 Greensburg Salem, PA Sch Dist
Rfdg (FGIC Insd) 5.375 09/15/15 1,130,280 - 1,130,280
2,000 2,000 4,000 Harrisburg, PA Auth Res Gtd
Sub Ser D-2 (Variable Rate
Coupon) (FSA Insd) 5.000 12/01/33 2,194,220 2,194,220 4,388,440
- 1,905 1,905 Harrisburg, PA Cap Apprec Ser
D Rfdg (AMBAC Insd) (a) * 09/15/16 - 1,149,306 1,149,306
- 1,710 1,710 Harrisburg, PA Cap Apprec Ser
D Rfdg (AMBAC Insd) * 03/15/19 - 894,245 894,245
1,200 - 1,200 Harrisburg, PA Cap Apprec Ser
F Rfdg (AMBAC Insd) * 09/15/14 806,004 - 806,004
- 1,385 1,385 Harrisburg, PA Cap Apprec Ser
F Rfdg (AMBAC Insd) * 09/15/19 - 708,151 708,151
- 1,500 1,500 Penn Cambria Sch Dist PA Cap
Apprec (FGIC Insd) (a) * 08/15/20 - 725,730 725,730
- 60 60 Penn Hills, PA (Prerefunded @
12/01/07) (FGIC Insd) 5.900 12/01/17 - 66,747 66,747
- 1,000 1,000 Pennsylvania St Higher Ed Fac
Auth College & Univ Rev Bryn
Mawr College (MBIA Insd) 5.625 12/01/27 - 1,085,210 1,085,210
- 1,000 1,000 Philadelphia, PA Auth Indl Dev
Philadelphia Arpt Sys Proj Ser
A (AMT) (FGIC Insd) 5.125 07/01/19 - 1,059,740 1,059,740
2,600 - 2,600 Philadelphia, PA Auth Indl Ser
B (FSA Insd) 5.500 10/01/16 2,939,300 2,939,300
2,400 - 2,400 Philadelphia, PA Gas Wks Rev
1998 Gen Ordinance Fourth Ser
(FSA Insd) 5.250 08/01/22 2,580,144 2,580,144
1,290 - 1,290 Philadelphia, PA Gas Wks Rev
Eighteenth Ser (AGC Insd) 5.250 08/01/19 1,405,507 1,405,507
- 1,400 1,400 Philadelphia, PA Sch Dist Ser
A (Prerefunded @ 02/01/11)
(FSA Insd) 5.750 02/01/12 - 1,617,000 1,617,000
G-10
4,570 - 4,570 Pittsburgh, PA Ser A (AMBAC
Insd) 5.500 09/01/16 5,044,777 - 5,044,777
- 1,500 1,500 Pittsburgh, PA Ser A
(Prerefunded @ 09/01/09)
(FGIC Insd) 5.750 09/01/23 - 1,698,735 1,698,735
2,000 - 2,000 Ridley Park, PA Hosp Auth Rev
Taylor Hosp Ser A (Escrowed
to Maturity) 6.000 12/01/13 2,284,840 - 2,284,840
- 1,005 1,005 Southeast Delco Sch Dist PA
Cap Apprec (MBIA Insd) * 02/01/17 - 590,247 590,247
---------------------------- -------------
21,153,902 19,294,693 40,448,595
---------------------------- -------------
RHODE ISLAND 0.2%
- 1,490 1,490 Providence, RI Redev Agy Rev
Pub Safety & Muni Bldgs Ser A
(AMBAC Insd) 5.500 04/01/14 - 1,682,970 1,682,970
------------ -------------
SOUTH CAROLINA 2.8%
- 2,275 2,275 Beaufort Cnty, SC Tax
Increment New River Redev
Proj Area (MBIA Insd) (a) 5.500 06/01/19 - 2,577,120 2,577,120
- 2,375 2,375 Berkeley Cnty, SC Sch Dist
Ctfs Part Berkeley Sch Facs
Grp Inc (Escrowed to
Maturity) (MBIA Insd) 5.250 02/01/16 - 2,490,164 2,490,164
- 2,700 2,700 Charleston Cnty, SC Solid
Waste (Prerefunded @
01/01/05) (MBIA Insd) 6.000 01/01/14 - 2,773,602 2,773,602
1,000 - 1,000 Chesterfield Cnty, SC Sch
Dist (FSA Insd) 5.375 03/01/18 1,122,440 - 1,122,440
- 1,840 1,840 Myrtle Beach, SC Hospitality
Fee Rev Ser A (FGIC Insd) (a) 5.375 06/01/21 - 2,032,832 2,032,832
- 1,935 1,935 Myrtle Beach, SC Hospitality
Fee Rev Ser A (FGIC Insd) (a) 5.375 06/01/22 - 2,126,488 2,126,488
1,000 3,500 4,500 South Carolina Jobs Econ Dev
Auth Indl Rev Elec & Gas Co
Proj Ser A (AMBAC Insd) 5.200 11/01/27 1,052,450 3,683,575 4,736,025
- 3,750 3,750 South Carolina Jobs Econ Dev
Auth Indl Rev Elec & Gas Co
Proj Ser B (AMT) (AMBAC Insd) 5.450 11/01/32 - 3,942,975 3,942,975
---------------------------- -------------
2,174,890 19,626,756 21,801,646
---------------------------- -------------
SOUTH DAKOTA 0.6%
875 1,375 2,250 Deadwood, SD Ctf Part (ACA
Insd) 6.375 11/01/20 944,545 1,484,285 2,428,830
- 1,000 1,000 South Dakota St Hlth & Ed Fac
Auth Rev Childrens Care Hosp
Rfdg 6.125 11/01/29 - 1,063,240 1,063,240
- 990 990 South Dakota St Hlth & Ed Fac
Auth Vocational Ed Pgm Ser A
(AMBAC Insd) 5.400 08/01/13 - 1,089,465 1,089,465
---------------------------- -------------
944,545 3,636,990 4,581,535
---------------------------- -------------
TENNESSEE 1.7%
2,000 1,500 3,500 Johnson City, TN Hlth & Ed
Fac Brd Hosp Rev First Mtg
Mtn States Rfdg (MBIA Insd) 7.500 07/01/25 2,523,280 1,892,460 4,415,740
2,500 - 2,500 Memphis, TN (Prerefunded @
10/01/06) 5.250 10/01/14 2,680,175 - 2,680,175
- 410 410 Montgomery Cnty, TN Pub Impt
Rfdg (FGIC Insd) (a) 5.500 05/01/16 - 464,583 464,583
- 5,090 5,090 Montgomery Cnty, TN Pub Impt
Rfdg (Prerefunded @ 05/01/12)
(FGIC Insd) (a) 5.500 05/01/16 - 5,873,707 5,873,707
---------------------------- -------------
5,203,455 8,230,750 13,434,205
---------------------------- -------------
TEXAS 13.0%
2,050 - 2,050 Austin, TX Wtr & Wastewtr
Rfdg (MBIA Insd) 5.750 05/15/12 2,320,621 - 2,320,621
1,000 - 1,000 Austin, TX Wtr & Wastewtr
Rfdg (MBIA Insd) 5.250 11/15/19 1,094,620 - 1,094,620
- 2,685 2,685 Beaumont, TX Wtrwks & Swr Sys
(FGIC Insd) (a) 6.250 09/01/15 - 3,129,529 3,129,529
400 - 400 Brazos Cnty, TX Hlth Fac Dev
Oblig Grp 5.375 01/01/32 406,336 - 406,336
- 1,275 1,275 Cameron Cnty, TX Ctf Oblig
(AMBAC Insd) (a) 5.750 02/15/13 - 1,437,282 1,437,282
1,430 - 1,430 Cameron Cnty, TX Ctf Oblig
(AMBAC Insd) (a) 5.750 02/15/15 1,613,283 - 1,613,283
1,500 - 1,500 Corpus Christi, TX Util Sys
Rev Impt Rfdg (Prerefunded @
07/15/12) (FSA Insd) 5.250 07/15/19 1,650,960 - 1,650,960
- 3,000 3,000 Dallas Cnty, TX Util &
Reclamation Dist Ser B Rfdg
(AMBAC Insd) 5.875 02/15/29 - 3,032,340 3,032,340
- 2,000 2,000 Dallas, TX Wtrwks & Swr Sys
Rev Rfdg 5.750 10/01/17 - 2,273,680 2,273,680
- 4,000 4,000 Dallas-Fort Worth, TX Intl
Arpt Rev Impt Jt Ser A Rfdg
(AMT) (FGIC Insd) 5.500 11/01/31 - 4,185,480 4,185,480
- 4,000 4,000 Dallas-Fort Worth, TX Intl
Arpt Rev Jt Ser A (AMT) (FGIC
Insd) 5.750 11/01/30 - 4,268,920 4,268,920
2,000 - 2,000 Fort Worth, TX Wtr & Swr Rev
Impt Rfdg 5.500 02/15/05 2,021,940 - 2,021,940
1,000 - 1,000 Harris Cnty, TX Hlth Fac Dev
Mem Hermann Hlthcare Ser A 6.375 06/01/29 1,098,900 - 1,098,900
2,000 - 2,000 Harris Cnty, TX Perm Impt &
Rfdg 5.000 10/01/11 2,143,820 - 2,143,820
4,820 - 4,820 Harris Cnty, TX Toll Rd
(Prerefunded @ 08/15/09)
(AMBAC Insd) * 08/15/18 2,244,867 - 2,244,867
1,000 - 1,000 Harris Cnty, TX Toll Rd
(Prerefunded @ 08/15/09)
(AMBAC Insd) * 08/15/21 378,880 - 378,880
- 1,000 1,000 Houston, TX Arpt Sys Rev Sub
Lien Ser A (AMT) (FSA Insd) 5.625 07/01/30 - 1,062,540 1,062,540
2,105 3,000 5,105 Houston, TX Hotel Occupancy
Tax & Spl Rev Convention &
Entmt Ser B (AMBAC Insd) 5.750 09/01/15 2,407,236 3,430,740 5,837,976
95 130 225 Houston, TX Pub Impt Rfdg
(FSA Insd) 5.750 03/01/15 108,320 148,227 256,547
905 1,370 2,275 Houston, TX Pub Impt Rfdg
(Prerefunded 09/01/10) (FSA
Insd) 5.750 03/01/15 1,034,641 1,566,253 2,600,894
- 6,000 6,000 Houston, TX Util Sys Rev
First Lien Ser A Rfdg (FSA
Insd) 5.250 05/15/21 - 6,562,680 6,562,680
- 6,000 6,000 Houston, TX Util Sys Rev
First Lien Ser A Rfdg (FGIC
Insd) 5.250 05/15/23 - 6,488,640 6,488,640
2,000 - 2,000 Houston, TX Wtr & Swr Sys Rev
Jr Lien Ser B Rfdg (Escrowed
to Maturity) (FGIC Insd) 6.250 12/01/05 2,095,160 - 2,095,160
- 1,925 1,925 Houston, TX Wtr & Swr Sys Rev
Jr Lien Ser C (Prerefunded @
12/01/07) (FGIC Insd) 5.375 12/01/27 - 2,124,565 2,124,565
1,500 - 1,500 Mesquite, TX Hlth Fac Dev
Retirement Fac Christian A 7.500 02/15/18 1,608,735 - 1,608,735
G-11
1,100 - 1,100 Metropolitan Hlth Fac Dev Corp
TX Wilson N Jones Mem Hosp Proj 7.200 01/01/21 1,099,846 - 1,099,846
- 1,500 1,500 Metropolitan Hlth Fac Dev Corp
TX Wilson N Jones Mem Hosp Proj 7.250 01/01/31 - 1,450,065 1,450,065
1,000 1,500 2,500 North Cent TX Hlth Fac Dev
Hosp Baylor Hlthcare Sys Proj
Ser A 5.125 05/15/29 1,016,360 1,524,540 2,540,900
1,750 4,000 5,750 North Cent TX Hlth Fac Dev
Hosp Childrens Med Ctr Dallas
(AMBAC Insd) 5.250 08/15/32 1,827,525 4,177,200 6,004,725
- 3,000 3,000 San Antonio, TX Elec & Gas Sys
Rfdg 5.375 02/01/16 - 3,355,470 3,355,470
2,805 - 2,805 Tarrant Regl Wtr Dist TX Wtr
Impt Rfdg (FSA Insd) 5.250 03/01/19 3,064,911 - 3,064,911
3,297 - 3,297 Texas Mun Pwr Agy Rev (AMBAC
Insd) * 09/01/07 3,081,079 - 3,081,079
228 - 228 Texas Mun Pwr Agy Rev
(Escrowed to Maturity) (AMBAC
Insd) * 09/01/07 213,189 - 213,189
1,995 - 1,995 Texas St Pub Ppty Fin Corp Rev
Mental Hlth & Retardation Rfdg
(FSA Insd) 5.500 09/01/13 2,037,613 - 2,037,613
- 2,750 2,750 Texas St Vets Housing
Assistance Pgm Vet Ser B (AMT)
(FHA Gtd) 6.100 06/01/31 - 2,939,365 2,939,365
1,000 - 1,000 Texas Tech Univ Rev Fin Sys
Seventh (MBIA Insd) 5.000 08/15/25 1,035,450 - 1,035,450
1,500 - 1,500 Texas Wtr Dev Brd Rev St
Revolving Fd Sr Lien Ser B 5.250 07/15/17 1,646,820 - 1,646,820
1,000 - 1,000 Trinity River Auth TX Rev
Tarrant Cnty Wtr Proj Impt &
Rfdg (MBIA Insd) 5.500 02/01/21 1,118,310 - 1,118,310
- 3,000 3,000 University of TX Univ Rev Fin
Sys Ser A 5.250 08/15/20 - 3,281,370 3,281,370
2,500 - 2,500 University of TX Univ Rev Fin
Sys Ser B 5.250 08/15/20 2,734,475 - 2,734,475
- 2,300 2,300 University of TX Univ Rev Fin
Sys Ser C (Prerefunded @
08/15/11) 5.375 08/15/19 - 2,622,782 2,622,782
---------------------------- ------------
41,103,897 59,061,668 100,165,565
---------------------------- ------------
UTAH 0.7%
1,000 - 1,000 Salt Lake Cnty, UT College Rev
Westminster College Proj 5.750 10/01/27 1,018,710 - 1,018,710
- 105 105 Utah St Hsg Fin Agy Single
Family Mtg Mezzanine Issue H1
(AMBAC Insd) 6.000 07/01/12 - 109,318 109,318
135 - 135 Utah St Hsg Fin Agy Single
Family Mtg Ser B Class 2 (AMT)
(FHA/VA Gtd) 6.250 07/01/14 135,142 - 135,142
- 3,625 3,625 Utah St Ser A 5.000 07/01/07 - 3,902,095 3,902,095
---------------------------- ------------
1,153,852 4,011,413 5,165,265
---------------------------- ------------
VIRGINIA 0.3%
- 1,320 1,320 Fairfax Cnty, VA Ctf Part 5.300 04/15/23 - 1,417,654 1,417,654
- 1,000 1,000 Henrico Cnty, VA Indl Dev Auth
Pub Fac Lease Rev Henrico Cnty
Regl Jail Proj (Prerefunded @
08/01/05) 7.125 08/01/21 - 1,059,810 1,059,810
---------------------------- ------------
- 2,477,464 2,477,464
---------------------------- ------------
WASHINGTON 5.5%
3,410 - 3,410 Clark Cnty, WA Pub Util Dist
Rfdg (FSA Insd) (a) 5.500 01/01/08 3,740,224 - 3,740,224
2,595 - 2,595 Clark Cnty, WA Pub Util Dist
Rfdg (FSA Insd) 5.500 01/01/09 2,891,167 - 2,891,167
1,300 - 1,300 Energy Northwest WA Elec Rev
Proj No 3 Ser A Rfdg (FSA Insd) 5.500 07/01/17 1,461,291 - 1,461,291
- 2,500 2,500 Energy Northwest WA Elec Rev
Proj No 3 Ser A Rfdg (FSA Insd) 5.500 07/01/18 - 2,810,175 2,810,175
- 5,360 5,360 Energy Northwest WA Elec Rev
Proj No 3 Ser B Rfdg (FSA Insd) 6.000 07/01/16 - 6,262,356 6,262,356
4,400 - 4,400 King Cnty, WA Ser B Rfdg (MBIA
Insd) 5.250 01/01/34 4,605,040 - 4,605,040
- 1,485 1,485 Pierce Cnty, WA (AMBAC Insd)
(a) 5.750 08/01/14 - 1,690,910 1,690,910
- 1,000 1,000 Port Seattle, WA Rev Ser B
(AMT) (MBIA Insd) 5.625 02/01/24 - 1,085,740 1,085,740
- 1,435 1,435 Radford Ct Pptys WA Student
Hsg Rev (MBIA Insd) (a) 6.000 06/01/15 - 1,651,900 1,651,900
- 1,585 1,585 Radford Ct Pptys WA Student
Hsg Rev (MBIA Insd) (a) 6.000 06/01/16 - 1,824,573 1,824,573
- 1,150 1,150 Seattle, WA Muni Lt & Pwr Rev 5.250 12/01/08 - 1,265,633 1,265,633
- 1,315 1,315 Seattle, WA Muni Lt & Pwr Rev 5.500 12/01/09 - 1,475,706 1,475,706
- 1,000 1,000 Seattle, WA Muni Lt & Pwr Rev 5.625 12/01/18 - 1,086,730 1,086,730
1,000 - 1,000 Spokane, WA Pub Fac Dist Hotel
(MBIA Insd) 5.750 12/01/20 1,162,420 - 1,162,420
2,100 - 2,100 Spokane, WA Pub Fac Dist Hotel
(MBIA Insd) 5.750 12/01/21 2,433,165 - 2,433,165
- 3,000 3,000 Spokane, WA Pub Fac Dist Hotel
Motel & Sales Use Tax (MBIA
Insd) 5.250 09/01/33 - 3,160,470 3,160,470
- 1,350 1,350 Tacoma, WA Elec Sys Rev Ser A
Rfdg (FSA Insd) 5.750 01/01/15 - 1,537,799 1,537,799
- 1,650 1,650 Tacoma, WA Elec Sys Rev Ser B
Rfdg (FSA Insd) 5.500 01/01/12 - 1,884,036 1,884,036
---------------------------- ------------
16,293,307 25,736,028 42,029,335
---------------------------- ------------
WISCONSIN 1.5%
2,345 - 2,345 Appleton, WI Wtrwks Rev Rfdg
(FGIC Insd) 5.375 01/01/19 2,618,802 - 2,618,802
- 1,225 1,225 De Pere, WI Unit Sch Dist Rfdg
(FGIC Insd) 5.000 10/01/13 - 1,350,281 1,350,281
3,500 - 3,500 Milwaukee, WI Redev Auth Rev
Milwaukee Pub Schs (AMBAC Insd) 5.125 08/01/22 3,734,115 - 3,734,115
- 1,340 1,340 Oconto Falls, WI Pub Sch Dist
Ser A Rfdg (Prerefunded @
03/01/11) (FSA Insd) (a) 5.750 03/01/15 - 1,548,879 1,548,879
- 2,000 2,000 Southeast WI Professional
Baseball Pk Dist Sales Tax Rev
Ser A Rfdg (MBIA Insd) 5.500 12/15/20 - 2,352,620 2,352,620
---------------------------- ------------
6,352,917 5,251,780 11,604,697
---------------------------- ------------
GUAM 0.8%
2,800 3,000 5,800 Guam Pwr Auth Rev Ser A (AMBAC
Insd) 5.250 10/01/34 2,960,048 3,171,480 6,131,528
---------------------------- ------------
PUERTO RICO 0.8%
- 1,110 1,110 Puerto Rico Comwlth Aqueduct &
Swr Auth Rev Rfdg (Comwlth Gtd) 5.000 07/01/15 - 1,146,963 1,146,963
G-12
Puerto Rico Indl Tourist Ed Med & Environmental
1,000 - 1,000 Ctl Fac Fin Auth Higher Ed Rev 5.375 02/01/19 1,044,910 - 1,044,910
Puerto Rico Pub Bldgs Auth Rev Gtd Govt Facs
- 3,500 3,500 Ser I (Comwlth Gtd) 5.250 07/01/33 - 3,667,405 3,667,405
-------------------------- -------------
1,044,910 4,814,368 5,859,278
-------------------------- -------------
TOTAL LONG-TERM INVESTMENTS 153.6%
(Cost $428,284,650, $655,054,667, and $1,083,339,317) 462,085,804 722,389,216 1,184,475,020
SHORT-TERM INVESTMENTS 0.5%
(Cost $2,415,000, $1,300,000, and $3,715,000) 2,415,000 1,300,000 3,715,000
-------------------------- -------------
TOTAL INVESTMENTS 154.1%
(Cost $430,699,650, $656,354,667, and $1,087,054,317) 464,500,804 723,689,216 1,188,190,020
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7% 2,975,956 9,867,943 12,843,899
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (55.8%) (165,143,422) (265,222,637) (430,366,059)
-------------------------- -------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0% 302,333,338 $468,334,522 770,667,860(g)
========================== =============
Percentages are calculated as a percentage of net assets applicable to common
shares.
* Zero coupon bond
(a) The Trust owns 100% of the bond issuance.
(b) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(c) Security includes a put feature allowing the Trust to periodically put the
security back to the issuer at amortized cost on specified put dates. The
interest rate shown represents the current interest rate earned by the Trust
based on the most recent reset date.
(d) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with qualified
institutional buyers. Restricted securities comprise 1.4%, 0.3% and 0.7% of net
assets applicable to common shares of Municipal Income Trust, Trust for
Investment Grade Municipal and Pro-Forma, respectively.
(e) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(f) Securities purchased on a when-issued or delayed delivery basis.
(g) Does not reflect a non-recurring cost associated with this transaction of
approximately $399,000, with $223,000 to be borne by the common shareholders of
Van Kampen Municipal Income Trust and $176,000 to be borne by the common
shareholders of Van Kampen Trust for Investment Grade Municipals.
ACA - American Capital Access
AGC - AGC Insured Custody Certificates
AMBAC - AMBAC Indemnity Corp.
AMT - Alternative Minimum Tax
Comwth Gtd - Commonwealth of Puerto Rico
FGIC - Financial Guaranty Insurance Co.
FHA/VA - Federal Housing Administration
FSA - Financial Security Assurance Inc.
GNMA - Government National Mortgage Association
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance Corp.
XLCA - XL Capital Assurance Inc.
G-13
VAN KAMPEN MUNICIPAL INCOME TRUST -
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PROFORMA STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2004
(UNAUDITED)
AMOUNTS IN THOUSANDS
VAN KAMPEN
VAN KAMPEN TRUST FOR
MUNICIPAL INVESTMENT
INCOME TRUST GRADE MUNICIPALS ADJUSTMENTS PROFORMA
------------ ---------------- ----------- ------------
ASSETS:
Total Investments (Cost of $430,700
$656,354 and $1,087,054, respectively) $ 464,501 $ 723,689 $ 1,188,190
Cash 38 20 58
Receivable: 0
Interest 6,379 10,507 16,886
Investments Sold 456 456
Other 10 13 23
----------- ----------- ---------- -----------
Total Assets 470,928 734,685 $ 1,205,613
----------- ----------- ---------- -----------
LIABILITIES:
Payables:
Investments Purchased 2,665 2,665
Investment Advisory Fee 237 371 608
Variation Margin on Futures 19 134 153
Income Distributions-Common Shares 96 103 199
Other Affiliates 13 34 47
Trustee's Deferred Compensation and Retirement Plans 289 333 622
Accrued Expenses 132 152 284
Merger Costs 0 0 $ 399 (3) 399
----------- ----------- ---------- -----------
Total Liabilities 3,451 1,127 399 4,977
Preferred Shares (including accrued distributions) 165,144 265,223 430,367
----------- ----------- ---------- -----------
NET ASSETS APPLICABLE TO COMMON SHARES $ 302,333 $ 468,335 $ (399) $ 770,269
=========== =========== ========== ===========
NET ASSET VALUE PER COMMON SHARE $ 10.54 $ 17.34 $ 27.88
=========== =========== ===========
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited
number of shares authorized, 28,685, 27,013
and 44,426 shares issued and outstanding) $ 287 $ 270 $ (113)(3) $ 444
Paid in Surplus 265,829 399,274 (286)(3) 664,817
Net Unrealized Appreciation 33,745 66,944 100,689
Accumulated Undistributed Net Investment Income 2,046 2,903 4,949
Accumulated Net Realized Gain (Loss) 426 (1,056) (630)
----------- ----------- -----------------------------
NET ASSETS APPLICABLE TO COMMON SHARES $ 302,333 $ 468,335 $ (399) $ 770,269
=========== =========== =============================
PREFERRED SHARES $ 165,000 $ 265,000 $ 430,000
=========== =========== ========== ===========
NET ASSETS INCLUDING PREFERRED SHARES $ 467,333 $ 733,335 $ (399) $ 1,200,269
=========== =========== ========== ===========
(1) THE PRO FORMA STATEMENTS ARE PRESENTED AS IF THE REORGANIZATION WAS
EFFECTIVE OCTOBER 31, 2004. THE PRO FORMA STATEMENTS GIVE EFFECT TO THE PROPOSED
EXCHANGE OF STOCK FOR ASSETS AND LIABILITIES WITH THE VAN KAMPEN TRUST FOR
INVESTMENT GRADE MUNICIPALS BEING THE SURVIVING ENTITY. THE PROPOSED TRANSACTION
WILL BE ACCOUNTED FOR IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES OF AMERICA, AS A TAX-FREE REORGANIZATION. THE
HISTORICAL COST BASIS OF THE INVESTMENTS IS CARRIED OVER TO THE SURVIVING
ENTITY.
(2) THE PRO FORMA STATEMENTS PRESUME THE ISSUANCE BY THE VAN KAMPEN TRUST FOR
INVESTMENT GRADE MUNICIPAL OF APPROXIMATELY 17,422,742 COMMON SHARES IN EXCHANGE
FOR THE ASSETS AND LIABILITIES OF THE VAN KAMPEN MUNICIPAL INCOME TRUST.
(3) A NON-RECURRING COST ASSOCIATED WITH THIS TRANSACTION OF APPROXIMATELY
$399,000 WILL BE INCURRED. APPROXIMATELY $223,000, OR $.008 WILL BE BORNE BY THE
COMMON SHAREHOLDERS OF THE VAN KAMPEN MUNICIPAL INCOME TRUST, WHILE
APPROXIMATELY $176,000, OR $.006 WILL BE BORNE BY THE COMMON SHAREHOLDERS OF THE
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS.
G-14
VAN KAMPEN MUNICIPAL INCOME TRUST - VAN KAMPEN TRUST FOR INVESTMENT GRADE
MUNICIPALS
PROFORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 2004
(UNAUDITED)
AMOUNTS IN THOUSANDS
VAN KAMPEN
VAN KAMPEN TRUST FOR
MUNICIPAL INVESTMENT
INCOME TRUST GRADE MUNICIPALS ADJUSTMENTS PROFORMA
-------------- ---------------- -------------- --------------
INVESTMENT INCOME:
Interest $ 22,066 $ 35,602 $ 57,668
-------------- -------------- -------------- --------------
EXPENSES:
Investment Advisory Fee 2,782 4,366 7,148
Preferred Share Maintenance 437 716 $ (17)(1) 1,136
Administrative Fee 213 213
Trustees' Fees and Related Expenses 105 134 (124)(1) 115
Legal 50 79 (29)(1) 100
Custody 27 41 (2)(1) 66
Other 281 306 (120)(1) 467
-------------- -------------- -------------- --------------
Total Expenses 3,682 5,855 (292) 9,245
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME $ 18,384 $ 29,747 $ 292 $ 48,423
============== ============== ============== ==============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments $ 882 $ 2,203 $ 3,085
Futures (711) (5,329) (6,040)
-------------- -------------- -------------- --------------
Net Realized Gain/Loss: 171 (3,126) (2,955)
-------------- -------------- -------------- --------------
Unrealized Appreciation/Depreciation:
Beginning of the Period 27,661 55,619 83,280
-------------- -------------- -------------- --------------
End of the Period:
Investments 33,801 67,335 101,136
Futures (56) (391) (447)
-------------- -------------- -------------- --------------
33,745 66,944 100,689
-------------- -------------- -------------- --------------
Net Unrealized Appreciation/Depreciation During the Period 6,084 11,325 17,409
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN $ 6,255 $ 8,199 $ 14,454
============== ============== ============== ==============
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS $ (1,880) $ (3,048) $ (4,928)
============== ============== ============== ==============
NET INCREASE IN NET ASSETS APPLICABLE TO
COMMON SHARES FROM OPERATIONS $ 22,759 $ 34,898 $ 292 $ 57,949
============== ============== ============== ==============
(1) Reflects the reduction in other operating expenses as a result of the
elimination of certain duplicative expenses and the result of operating a
larger, more efficient fund.
G-15
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Section 5.3 of the Registrant's Declaration of Trust, a copy of which
is filed as an exhibit hereto, provides for indemnification, as set forth below:
Section 5.3 Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is or has been a Trustee or officer of the
Trust shall be indemnified by the Trust to the fullest
extent permitted by law against all liability and against
all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue
of his being or having been a Trustee or officer and
against amounts paid or incurred by him in the settlement
thereof;
(ii) the words, "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil,
criminal, administrative or other, including appeals),
actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or its Shareholders by
reason of a final adjudication by the court or other body
before which the proceeding was brought that he engaged in
willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest
of the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph
(b)(i) or (b)(ii) resulting in a payment by a Trustee or
officer, unless there has been either a determination that
such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office by the court or other body approving the settlement
or other disposition or a reasonable determination, based
upon a review of readily available facts (as opposed to a
full trial-type inquiry) that he did not engage in such
conduct:
C-1
(A) by vote of a majority of the Disinterested Trustees
acting on the matter (pro vided that a majority of
the Disinterested Trustees then in office act on the
matter); or
(B) by written opinion of independent legal counsel.
(C) The rights of indemnification herein provided by be
insured against by policies maintained by the Trust,
shall be severable, shall not effect any other rights
to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a Person who has
ceased to be such Trustee or officer and shall inure
to the benefit of the heirs, executors,
administrators, and assigns of such Person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.
(D) Expenses of preparation and presentation of a defense
to any claim, action, suit, or proceeding of the
character described in paragraph (a) of this Section
5.3 shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if
it is ultimately determined that he is not entitled
to indemnification under this Section 5.3, provided
that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security or the Trust
shall be insured against losses arising out of
any such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the
Disinterested Trustees then in office act on
the matter) or an independent legal counsel in
a written opinion shall determine, based upon a
review of readily available facts (as opposed
to a full trial-type inquiry), that there is
reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 5.3, a "Disinterested Trustee" is one (i) who
is not an "Interested Person" of the Trust (including anyone who has
been exempted from being an "Interested Person" by any rule, regulation
or order of the Commission), and (ii) against whom none of such
actions, suits or other proceedings or another action, suit or other
proceeding on the same or similar grounds is thenor had been pending.
ITEM 16. EXHIBITS
(1) (a) Declaration of Trust of the Registrant and amendments
thereto ++
C-2
(b) Form of Certificate of Vote Establishing Preferred Shares
and amendments thereteo (included as Appendix B to the
Statement of Additional Information contained in this
Registration Statement)+
(2) Bylaws of the Registrant++
(3) Not applicable
(4) Form of Agreement and Plan of Reorganization between the
Registrant and the Target Fund (included as Appendix A to
the Statement of Additional Information contained in this
Registration Statement)+
(5) (a) Specimen share certificate for common shares of the
Registrant++
(b) Specimen share certificate for preferred shares of the
Registrant++
(6) (a) Investment Advisory Agreement++
(b) Form of Administration Agreement++
(7) Not Applicable
(8) Not Applicable
(9) Custodian Contract++
(10) Not Applicable
(11) (a) Consent of Skadden, Arps, Slate, Meagher & Flom
LLP+
(b) Opinion of Skadden, Arps, Slate, Meagher & Flom LLP++
(12) Tax opinion of Skadden, Arps, Slate, Meagher & Flom LLP++
(13) (a) Transfer Agency Agreement++
(b) Auction Agency Agreement++
(c) Form of Broker-Dealer Agreement++
(d) Form of Letter of Representations++
(14) (a) Consent of Independent Registered Public Accounting Firm
for the Registrant++
(b) Consent of Independent Registered Public Accounting Firm
for the Target Fund++
(15) Not Applicable
(16) Power of Attorney+
(17) (a) Code of Ethics of the Investment Adviser++
(b) Codes of Ethics of the Funds++
(99) (a) Proxy card for the Target Fund Common Shares++
(b) Proxy card for the Target Fund APS++
(c) Proxy card for the Acquiring Fund Common Shares++
C-3
+ Filed herewith.
++ To be filed by further amendment.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through use of a
prospectus which is part of this Registration Statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, as
amended, the reoffering prospectus will contain information
called for by the applicable registration form for reofferings
by persons who may be deemed underwriters, in addition to the
information called for by other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, as amended, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of securities at that time shall be deemed to be
the initial bona fide offering of them.
(3) The undersigned Registrant agrees that, if the Reorganization
discussed in the registration statement closes, it shall file
by post-effective amendment either a copy of the Internal
Revenue Service private letter ruling applied for or an
opinion supporting the tax matters discussed in the
registration statement.
C-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of New York,
and the Sate of New York, on March 18, 2005.
VAN KAMPEN MUNICIPAL TRUST
By: /s/ Lou Anne McInnis
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Lou Anne McInnis
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
SIGNATURES TITLE
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PRINCIPAL EXECUTIVE OFFICER:
/s/ Ronald E. Robison Executive Vice President
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Ronald E. Robison
PRINCIPAL FINANCIAL OFFICER:
/s/ James W. Garrett Chief Financial Officer and Treasurer
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James W. Garrett
TRUSTEES:
/s/ David C. Arch* Trustee
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David C. Arch
/s/ Jerry D. Choate* Trustee
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Jerry D. Choate
/s/ Rod Dammeyer* Trustee
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Rod Dammeyer
C-5
/s/ Linda Hutton Heagy* Trustee
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Linda Hutton Heagy
/s/ R. Craig Kennedy* Trustee
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R. Craig Kennedy
/s/ Howard J Kerr* Trustee
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Howard J Kerr
/s/ Michell M. Merin* Trustee
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Michell M. Merin
/s/ Jack E. Nelson* Trustee
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Jack E. Nelson
/s/ Richard F. Powers, III* Trustee
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Richard F. Powers, III
/s/ Hugo F. Sonnenschein* Trustee
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Hugo F. Sonnenschein
/s/ Wayne W. Whalen* Trustee
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Wayne W. Whalen
/s/ Suzanne H. Woolsey* Trustee
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Suzanne H. Woolsey
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* Signed by Lou Anne McInnis pursuant to a power of attorney filed herewith.
/s/ Lou Anne McInnis March 18, 2005
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Lou Anne McInnis
Attorney-in-Fact
C-6
EXHIBIT INDEX
(11) (a) Consent of Skadder, Arps, Slate, Meagher & Flom LLP
(16) Power of Attorney