As filed with the Securities and Exchange Commission on July 28, 2003
1940 Act File No. 811-21235
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 12 .................................... X
FEDERATED PREMIER MUNICIPAL INCOME FUND
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Leslie K. Ross, Esquire
Reed Smith LLP
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037
It is proposed that this filing will become effective immediately upon
filing.
CROSS-REFERENCE SHEET
PARTS A AND B
ITEM NO. CAPTION LOCATION IN PROSPECTUS
1. Outside Front Cover Page Outside Front Cover Page
2. Inside Front and Outside Back Inside Front and Outside Back
3. Fee Table and Synopsis Prospectus Summary
4. Financial Highlights Financial Highlights (unaudited)
5. Plan of Distribution Outside Front Cover Page;
Prospectus Summary;
Underwriting
6. Selling Shareholders Not Applicable
7. Use of Proceeds Use of Proceeds; The Fund's
Investments
8. General Description of the Outside Front Cover Page;
The Fund's Investments;
Registrant Risks; Description of the AMPS
9. Management Management of the Fund
10. Capital Stock, Long-Term Debt Description of the AMPS;
Description of Common
and Other Securities Shares; Certain Provisions in
the Agreement and
Declaration of Trust; Tax Matters
11. Defaults and Arrears on Senior Not Applicable
Securities
12. Legal Proceedings Not Applicable
13. Table of Contents of SAI Table of Contents (SAI)
14. Cover Page of SAI Cover Page (SAI)
15. Table of Contents of SAI Table of Contents (SAI)
16. General Information and Cover Page (SAI)
History
17. Investment Objective and Fundamental Investment
Objective, Policy and
Policies Limitations; Non-fundamental
Investment Limitations
18. Management Management of the Fund (SAI)
19. Control Persons and Principal Management of the Fund (SAI)
Holders of Securities
20. Investment Adisory and Other Management of the Fund (SAI)
Services
21. Brokerage Allocation and Other Brokerage Transactions
(SAI)
Practices
22. Tax Status Tax Matters
23. Financial Statements Financial Statements (SAI)
FEDERATED PREMIER MUNICIPAL INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
Federated Premier Municipal Income Fund (the "Fund") is a recently
organized, diversified, closed-end management investment company. This
Statement of Additional Information relating to the Fund's Auction Market
Preferred Shares Series A (the "AMPS") does not constitute a prospectus,
but should be read in conjunction with the prospectus relating thereto
dated February 13, 2003. This Statement of Additional Information does not
include all information that a prospective investor should consider before
purchasing AMPS, and investors should obtain and read the prospectus prior
to purchasing such AMPS. A copy of the prospectus may be obtained without
charge by calling 1-800-341-7400. You may also obtain a copy of the
prospectus on the Securities and Exchange Commission's web site
(http://www.sec.gov). Capitalized terms used but not defined in this
Statement of Additional Information have the meanings ascribed to them in
the prospectus.
TABLE OF CONTENTS
Page
Use Of Proceeds........................................................3
Investment Strategies..................................................3
Fundamental Investment Objective, Policy And Limitations...............3
Non-Fundamental Investment Limitations.................................6
Investment Securities..................................................6
Management Of The Fund................................................13
Brokerage Transactions................................................20
Additional Information Concerning
The Auctions For AMPS.................................................21
Description Of Common Shares..........................................23
Repurchase Of Common Shares...........................................23
Tax Matters...........................................................25
Experts...............................................................30
Additional Information................................................30
Independent Auditors' Report..........................................31
Financial Statements..................................................32
Appendix A Statement Of Preferences Of Auction Market ..............AA-1
Appendix B Investment Ratings.......................................BB-1
This Statement of Additional Information is dated February 13,
2003 (revised June 30, 2003 and July 28, 2003).
46
USE OF PROCEEDS
Pending investment in tax exempt securities that meet the Fund's
investment objective and policies, the net proceeds of the offering will
be invested in high-quality, short-term tax exempt money market securities
or in high-quality tax exempt securities with relatively low volatility,
such as pre-refunded and intermediate-term bonds, to the extent such
securities are available. If necessary to invest fully the net proceeds of
the offering immediately, the Fund may also purchase, as temporary
investments, short-term taxable investments the income on which is subject
to federal regular income tax, and securities of other open- or closed-end
investment companies that invest primarily in tax exempt securities of the
type in which the Fund may invest directly.
INVESTMENT STRATEGIES
Under normal circumstances, the Fund will maintain a dollar-weighted
average portfolio maturity of 15 to 30 years and a dollar-weighted average
duration of 7 to 13 years.
The Fund's average portfolio maturity represents an average based on
the actual stated maturity dates of the debt securities in the Fund's
portfolio, except that: (1) variable-rate securities are deemed to mature
at the next interest-rate adjustment date, unless subject to a demand
feature; (2) variable-rate securities subject to a demand feature are
deemed to mature on the longer of the next interest-rate adjustment date
or the date on which principal can be recovered through demand; (3)
floating-rate securities subject to a demand feature are deemed to mature
on the date on which the principal can be recovered through demand; and
(4) securities being hedged with futures contracts may be deemed to have a
longer maturity, in the case of purchases of futures contracts, and a
shorter maturity, in the case of sales of futures contracts, than they
would otherwise be deemed to have. The average portfolio maturity of the
Fund is dollar weighted based upon the market value of the Fund's
securities at the time of calculation.
The Fund cannot accurately predict its portfolio turnover rate but
anticipates that its annual portfolio turnover rate will not exceed 100%.
The Fund generally will not trade securities for the purpose of realizing
short-term profits, but it will adjust its portfolio as it deems advisable
in view of prevailing or anticipated market conditions to accomplish its
investment objective. Other than for consideration of tax consequences,
frequency of portfolio turnover will not be a limiting factor if the Fund
considers it advantageous to purchase or sell securities.
FUNDAMENTAL INVESTMENT OBJECTIVE, POLICY AND LIMITATIONS
The following fundamental investment objective, policy and
limitations may not be changed by the Fund's Board without the approval of
the holders of a majority of (1) the outstanding Common Shares and AMPS
and any preferred shares that may in the future be issued voting together
as a class, and (2) the outstanding AMPS and any preferred shares that may
in the future be issued, voting as a separate class. When used with
respect to particular shares of the Fund, "majority of the outstanding"
means (a) 67% or more of the shares present at a meeting, if the holders
of more than 50% of the shares are present or represented by proxy, or (b)
more than 50% of the shares, whichever is less.
Investment Objectives
The Fund's investment objective is to provide current income exempt
from regular federal income tax.
Investment Policy
The Fund will invest its assets so that at least 80% of the income
that it distributes will be exempt from federal income tax, including AMT.
Investment Limitations
Concentration. The Fund will not make investments that will result
in the concentration of its investments in the securities of issuers
primarily engaged in the same industry, but may invest more than 25% of
its total assets in securities of issuers in the same economic sector.
Diversification of Investments. With respect to securities
comprising 75% of the value of its total assets, the Fund will not
purchase the securities of any one issuer (other than cash, cash items,
securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized
by such U.S. government securities, and securities of other investment
companies) if as a result more than 5% of the value of its total assets
would be invested in the securities of that issuer, or it would own more
than 10% of the outstanding voting securities of that issuer.
Underwriting. The Fund will not underwrite any issue of securities,
except as it may be deemed to be an underwriter under the Securities Act
of 1933 in connection with the sale of securities in accordance with its
investment objective, policy and limitations.
Investing in Real Estate. The Fund will not buy or sell real estate,
although it may invest in tax exempt securities secured by real estate or
interests in real estate.
Investing in Commodities. The Fund may not purchase or sell physical
commodities, provided that the Fund may purchase securities of companies
that deal in commodities. For purposes of this restriction, investments
in transactions involving futures contracts and options, swap
transactions, and other financial contracts that settle by payment of cash
are not deemed to be investments in commodities.
Lending. The Fund will not make loans, but may acquire publicly or
non-publicly issued tax exempt securities as permitted by its investment
objective, policies and limitations.
Borrowing Money and Issuing Senior Securities. The Fund may borrow
money, directly or indirectly, and issue senior securities to the maximum
extent permitted under the Investment Company Act of 1940 (the "1940 Act").
For purposes of applying the concentration limitation, securities of
the U.S. government, its agencies or instrumentalities, and securities
backed by the credit of a governmental entity are not considered to
represent industries. However, obligations backed only by the assets and
revenues of non-governmental issuers may for this purpose be deemed to be
issued by such non-governmental issuers. Thus, the 25% limitation would
apply to such obligations.
For the purpose of applying the concentration limitation, a
non-governmental issuer will be deemed the sole issuer of a security when
its assets and revenues are separate from other governmental entities and
its securities are backed only by its assets and revenues. Similarly, in
the case of a non-governmental issuer, such as an industrial corporation
or a privately owned or operated hospital, if the security is backed only
by the assets and revenues of the non-governmental issuer, then such
non-governmental issuer would be deemed to be the sole issuer. Where a
security is also backed by the enforceable obligation of a superior or
unrelated governmental or other entity (other than a bond insurer), it
will also be included in the computation of securities owned that are
issued by such governmental or other entity. Where a security is
guaranteed by a governmental entity or some other facility, such as a bank
guarantee or letter of credit, such a guarantee or letter of credit would
be considered a separate security and would be treated as an issue of such
government, other entity or bank.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS
The Fund is also subject to the following non-fundamental investment
limitations, which may be changed by the Board without shareholder
approval.
Short Sales
The Fund will not make any short sale of securities except in
conformity with applicable laws, rules and regulations and unless after
giving effect to such sale, the market value of all securities sold short
does not exceed 25% of the value of the Fund's total assets and the Fund's
aggregate short sales of a particular class of securities does not exceed
25% of the then outstanding securities of that class.
Investing in Other Investment Companies
The Fund may purchase securities of open-end or closed-end
investment companies in compliance with the 1940 Act or any exemptive
relief obtained thereunder.
Exercise of Control
The Fund will not purchase securities of companies for the purpose
of exercising control.
Illiquid Securities
The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time
deposits maturing in more than seven days, if immediately after and as a
result, the value of such securities would exceed, in the aggregate, 15%
of the Fund's net assets.
INVESTMENT SECURITIES
The following information supplements the discussion of the Fund's
investment securities that are described in the prospectus.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at
a specified rate. The rate may be a fixed percentage of the principal or
adjusted periodically. In addition, the issuer of a fixed income security
must repay the principal amount of the security, normally within a
specified time. Fixed income securities provide more regular income than
equity securities. However, the returns on fixed income securities are
limited and normally do not increase with the issuer's earnings. This
limits the potential appreciation of fixed income securities as compared
to equity securities.
A security's yield measures the annual income earned on a security
as a percentage of its price. A security's yield will increase or decrease
depending upon whether it costs less (a discount) or more (a premium) than
the principal amount. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security
may change based upon the probability of an early redemption. Securities
with higher risks generally have higher yields.
The Fund may invest in tax exempt securities, which pay interest
that is not subject to regular income taxes, including AMT. Typically,
states, counties, cities and other political subdivisions and authorities
issue tax exempt securities. The market categorizes tax exempt securities
by their source of repayment.
Following is a description of non-principal tax exempt securities in
which the Fund may invest.
Variable Rate Demand Instruments. Variable rate demand instruments
are tax exempt securities that require the issuer or a third party, such
as a dealer or bank, to repurchase the security for its face value upon
demand. The securities also pay interest at a variable rate intended to
cause the securities to trade at their face value. The Fund treats demand
instruments as short-term securities because their variable interest rate
adjusts in response to changes in market rates, even though their stated
maturity may extend beyond 13 months.
Municipal Notes. Municipal notes are short-term tax exempt
securities. Many municipalities issue such notes to fund their current
operations before collecting taxes or other municipal revenues.
Municipalities may also issue notes to fund capital projects prior to
issuing long-term bonds. The issuers typically repay the notes at the end
of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
Tax Increment Financing Bonds. Tax increment financing (TIF) bonds
are payable from increases in taxes or other revenues attributable to
projects financed by the bonds. For example, a municipality may issue TIF
bonds to redevelop a commercial area. The TIF bonds would be payable
solely from any increase in sales taxes collected from merchants in the
area. The bonds could default if merchants' sales, and related tax
collections, failed to increase as anticipated.
Municipal Mortgage Back Securities. Municipal mortgage backed
securities are special revenue bonds the proceeds of which may be used to
provide mortgage loans for single family homes or to finance multifamily
housing. Municipal mortgage backed securities represent interests in pools
of mortgages. The mortgages that comprise a pool normally have similar
interest rates, maturities and other terms. Municipal mortgage backed
securities generally have fixed interest rates.
PACS. PACs (planned amortization classes) are a sophisticated form
of mortgage backed security issued with a companion class. PACs receive
principal payments and prepayments at a specified rate. In addition, PACs
will receive the companion classes' share of principal payments, if
necessary, to cover a shortfall in the prepayment rate. This helps PACs to
control prepayment risks by increasing the risks to their companion
classes.
Credit Enhancement
Common types of credit enhancement include guarantees, letters of
credit, bond insurance and surety bonds. Credit enhancement also includes
arrangements where securities or other liquid assets secure payment of a
fixed income security. If a default occurs, these assets may be sold and
the proceeds paid to a security's holders. Each form of credit enhancement
reduces credit risks by providing another source of payment for a fixed
income security.
Structured Notes
The Fund may invest in "structured" notes, which are privately
negotiated debt obligations where the principal and/or interest is
determined by reference to the performance of a benchmark asset, market or
interest rate, such as selected securities, an index of securities or
specified interest rates or the differential performance of two assets or
markets, such as indices reflecting taxable and tax exempt bonds.
Depending on the terms of the note, the Fund may forgo all or part of the
interest and principal that would be payable on a comparable conventional
note.
The rate of return on structured notes may be determined by applying
a multiplier to the performance or differential performance of the
referenced index(es) or other assets(s). Application of a multiplier
involves leverage that will serve to magnify the potential for gain and
the risk of loss.
The Fund currently intends that any use of structured notes will be
for the purpose of reducing the interest rate sensitivity of the Fund's
portfolio (and thereby decreasing the Fund's exposure to interest rate
risk) and, in any event, that the interest income on the notes will
normally be exempt from federal income tax. The Fund will only invest in
structured notes if it has received an opinion of counsel for the issuer
or the advice of another authority believed by the Adviser to be reliable
that the interest income on the notes will be exempt from federal income
tax. Like other sophisticated strategies, the Fund's use of structured
notes may not work as intended; for example, the change in value of the
structured notes may not match very closely the change in the value of
bonds that the structured notes were purchased to hedge.
Derivative Contracts
Derivative contracts are financial instruments that require payments
based upon changes in the values of designated or underlying securities,
currencies, commodities, financial indices or other assets or instruments.
Some derivative contracts such as futures, forwards and options require
payments relating to a future trade involving the underlying asset. Other
derivative contracts such as swaps require payments relating to the income
or returns from the underlying asset or instrument. The other party to a
derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities
exchanges. In this case, the exchange sets all the terms of the contract
except for the price. Investors make payments due under their contracts
through the exchange. Most exchanges require investors to maintain margin
accounts through their brokers to cover their potential obligations to the
exchange. Parties to the contract make (or collect) daily payments to the
margin accounts to reflect losses (or gains) in the value of their
contracts. This protects investors against potential defaults by the
counterparty. Trading contracts on an exchange also allows investors to
close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an
asset at a future date by entering into an offsetting contract to sell the
same asset on the same date. If the offsetting sale price is more than the
original purchase price, the Fund realizes a gain; if it is less, the Fund
realizes a loss. Exchanges may limit the amount of open contracts
permitted at any one time. Such limits may prevent the Fund from closing
out a position. If this happens, the Fund will be required to keep the
contract open even if it is losing money on the contract, and to make any
payments required under the contract even if it has to sell portfolio
securities at unfavorable prices to do so. Inability to close out a
contract could also harm the Fund by preventing it from disposing of or
trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC)
in transactions negotiated directly between the Fund and the counterparty.
OTC contracts do not necessarily have standard terms, so they cannot be
directly offset with other OTC contracts. In addition, OTC contracts with
more specialized terms may be more difficult to price than exchange traded
contracts.
Depending upon how the Fund uses derivative contracts and the
relationships between the market value of a derivative contract and the
underlying asset or instrument, derivative contracts may increase or
decrease the Fund's exposure to interest rate risks, and may also expose
the Fund to liquidity, leverage and tax risks. OTC contracts also expose
the Fund to credit risks in the event that a counterparty defaults on the
contract.
The Fund may trade in the following types of derivative contracts,
as well as combinations of these contracts, including, but not limited to,
options on futures contracts, options on forward contracts and options on
swaps.
Futures Contracts. Futures contracts provide for the future sale by
one party and purchase by another party of a specified amount of an
underlying asset or instrument at a specified price, date and time.
Entering into a contract to buy an underlying asset is commonly referred
to as buying a contract or holding a long position in the asset. Entering
into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures
contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
The Fund may buy or sell the interest rate futures contracts and
index financial futures contracts. The Fund may also buy or sell futures
contracts on tax exempt securities and U.S. government and agency
securities.
Options. Options are rights to buy or sell an underlying asset or
instrument for a specified price (the exercise price) during, or at the
end of, a specified period. A call option gives the holder (buyer) the
right to buy the underlying asset or instrument from the seller (writer)
of the option. A put option gives the holder the right to sell the
underlying asset or instrument to the writer of the option. The writer of
the option receives a payment, or premium, from the buyer, which the
writer keeps regardless of whether the buyer uses or exercises the option.
If the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Swaps. Swaps are contracts in which two parties agree to pay each
other (swap) the returns derived from underlying assets or instruments
with differing characteristics. Most swaps do not involve the delivery of
the underlying assets or instruments by either party, and the parties
might not own the assets or instruments underlying the swap. The payments
are usually made on a net basis so that, on any given day, the Fund would
receive (or pay) only the amount by which its payment under the contract
is less than (or exceeds) the amount of the other party's payment. Swap
agreements are sophisticated instruments that can take many different
forms, and are known by a variety of names including caps, floors and
collars. Common swap agreements that the Fund may use include:
Interest Rate Swaps. Interest rate swaps are contracts in which one
party agrees to make regular payments equal to a fixed or floating
interest rate times a stated, notional principal amount of fixed income
securities, in return for payments equal to a different fixed or floating
rate times the same notional principal amount, for a specific period. For
example, a $10 million LIBOR swap would require one party to pay the
equivalent of the London Interbank Offer Rate of interest (which
fluctuates) on $10 million notional principal amount in exchange for the
right to receive the equivalent of a stated fixed rate of interest on
$10 million notional principal amount.
Caps and Floors. Caps and floors are contracts in which one party
agrees to make payments only if an interest rate or index goes above (cap)
or below (floor) a certain level in return for a fee from the other party.
Total Return Swaps. Total return swaps are contracts in which one
party agrees to make payments of the total return from the underlying
asset or instrument during the specified period, in return for payments
equal to a fixed or floating rate of interest or the total return from
another underlying asset or instrument.
Municipal Market Data Rate Locks. The Fund may purchase and sell
Municipal Market Data Rate Locks ("MMD Rate Locks"). An MMD Rate Lock
permits the Fund to lock in a specified municipal interest rate for a
portion of its portfolio to preserve a return on a particular investment
or a portion of its portfolio as a duration management technique or to
protect against any increase in the price of securities to be purchased at
a later date. The Fund will ordinarily use these transactions as a hedge
or for duration or risk management although it is permitted to enter into
them to enhance income or gain. An MMD Rate Lock is a contract between
the Fund and an MMD Rate Lock provider pursuant to which the parties agree
to make payments to each other on a notional amount, contingent upon
whether the Municipal Market Data AAA General Obligation Scale is above or
below a specified level on the expiration date of the contract. For
example, if the Fund buys an MMD Rate Lock and the Municipal Market Data
AAA General Obligation Scale is below the specified level on the
expiration date, the counterparty to the contract will make a payment to
the Fund equal to the specified level minus the actual level, multiplied
by the notional amount of the contract. If the Municipal Market Data AAA
General Obligation Scale is above the specified level on the expiration
date, the Fund will make a payment to the counterparty equal to the actual
level minus the specified level, multiplied by the notional amount of the
contract. In entering into MMD Rate Locks, there is a risk that municipal
yields will move in the direction opposite the direction anticipated by
the Fund.
Short Sales
The Fund may make short sales of securities as part of its overall
portfolio management strategy and to offset potential declines in long
positions in securities in the Fund's portfolio. A short sale is a
transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. Although
short sale transactions are not currently available with respect to
municipal bonds, the Fund may engage in short sales on taxable bonds and
on futures contracts with respect to Municipal Bonds and taxable bonds.
When the Fund makes a short sale on a security, it must borrow the
security sold short and deliver it to the broker-dealer through which it
made the short sale as collateral for its obligation to deliver the
security upon conclusion of the sale. The Fund may have to pay a fee to
borrow particular securities and is often obligated to pay over any
accrued interest and dividends on such borrowed securities.
If the price of the security sold short increases between the time
of the short sale and the time the Fund replaces the borrowed security,
the Fund will incur a loss; conversely, if the price declines, the Fund
will realize a capital gain. Any gain will be decreased, and any loss
increased, by the transaction costs described above. The successful use of
short selling may be adversely affected by imperfect correlation between
movements in the price of the security sold short and the securities being
hedged.
To the extent that the Fund engages in short sales, it will provide
collateral to the broker-dealer. A short sale is "against the box" to the
extent that the Fund contemporaneously owns, or has the right to obtain at
no added cost, securities identical to those sold short. The Fund may also
engage in so-called "naked" short sales (i.e., short sales that are not
"against the box"), in which case the Fund's losses could theoretically be
unlimited in cases where the Fund is unable for whatever reason to close
out its short position. The Fund has the flexibility to engage in short
selling to the extent permitted by the 1940 Act and rules and
interpretations thereunder.
Investing In Securities Of Other Investment Companies
The Fund may invest its assets in securities of other open-end or
closed-end investment companies, including the securities of affiliated
investment companies, as an efficient means of carrying out its investment
policies and managing its uninvested cash.
Temporary Defensive Investments
The Fund may make temporary defensive investments in the following
taxable securities:
Treasury Securities. Treasury securities are direct obligations of
the federal government of the United States.
Agency Securities. Agency securities are issued or guaranteed by a
federal agency or other government sponsored entity ("GSE") acting under
federal authority. The United States supports some GSEs with its full
faith and credit. Other GSEs receive support through federal
subsidies, loans or other benefits. A few GSEs have no explicit financial
support, but are regarded as having implied support because the federal
government sponsors their activities.
Bank Instruments. Bank instruments are unsecured interest bearing
deposits with banks. Bank instruments include bank accounts, time
deposits, certificates of deposit and banker's acceptances.
Corporate Debt Securities. Corporate debt securities are fixed
income securities issued by businesses. Notes, bonds, debentures and
commercial paper are the most prevalent types of corporate debt securities.
Commercial Paper. Commercial paper is an issuer's obligation with a
maturity of less than nine months. Companies typically issue commercial
paper to pay for current expenditures. Most issuers constantly reissue
their commercial paper and use the proceeds (or bank loans) to repay
maturing paper. If the issuer cannot continue to obtain liquidity in this
fashion, its commercial paper may default. The short maturity of
commercial paper reduces both the market and credit risks as compared to
other debt securities of the same issuer.
Repurchase Agreements. Repurchase agreements are transactions in
which the Fund buys a security from a dealer or bank and agrees to sell
the security back at a mutually agreed upon time and place. The repurchase
price exceeds the sale price, reflecting the Fund's return on the
transaction. This return is unrelated to the interest rate on the
underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian
will monitor the value of the underlying security each day to ensure that
the value of the security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
MANAGEMENT OF THE FUND
Board of Trustees
The Board is responsible for managing the Fund's business affairs
and for exercising all the Fund's powers except those reserved for the
shareholders. The following tables give information about each Board
member and the senior officers of the Fund. Where required, the tables
separately list Board members who are "interested persons" of the Fund
(i.e., "Interested" Board members) and those who are not (i.e.,
"Independent" Board members). Unless otherwise noted, the address of each
person listed is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA. The Federated Fund Complex consists of 44 investment
companies (comprising 138 portfolios). Unless otherwise noted, each Board
member oversees all portfolios in the Federated Fund Complex; serves for
an indefinite term; and also serves as a Board member of the following
investment company complexes: Banknorth Funds--five portfolios; CCMI
Funds--two portfolios; Regions Funds--nine portfolios; Riggs Funds--eight
portfolios; and WesMark Funds--five portfolios.
Interested Trustees Background And Compensation
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Name Birth Date Principal Occupation(s) for Past Five Years, Aggregate Total
Address Other Directorships Held and Previous Positions Compensation Compensation
Positions Held From From
with Fund Fund + Fund and
Federated
Fund
Complex
(past
calendar
year)
---------------------------------------------------------------------------------------
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John F. Principal Occupations: Chairman and Director or $0 $0
Donahue* Birth Trustee of the Federated Fund Complex; Chairman
Date: July28, and Director, Federated Investors, Inc.;
1924 CHAIRMAN Chairman, Federated Investment Management
AND Company, Federated Global Investment Management
TRUSTEE(1)(2) Corp. and Passport Research, Ltd. Previous
Positions: Trustee, Federated Investment
Management Company and Chairman and Director,
Federated Investment Counseling.
J. Christopher Principal Occupations: President and Chief $0 $0
Donahue* Birth Executive Officer of the Federated Fund
Date: April11, Complex; Director or Trustee of some of the
1949 PRESIDENT Funds in the Federated Fund Complex; President,
AND Chief Executive Officer and Director, Federated
TRUSTEE(1)(2) Investors, Inc.; President, Chief Executive
Officer and Trustee, Federated Investment
Management Company; Trustee, Federated
Investment Counseling; President, Chief
Executive Officer and Director, Federated
Global Investment Management Corp.; President
and Chief Executive Officer, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.
Previous Position: President, Federated
Investment Counseling.
Lawrence D. Principal Occupations: Director or Trustee of $0 $148,500.00
Ellis, M.D.* the Federated Fund Complex; Professor of
Birth Date: Medicine, University of Pittsburgh; Medical
October11, 1932 Director, University of Pittsburgh Medical
3471 Fifth Center Downtown; Hematologist, Oncologist and
Avenue Suite Internist, University of Pittsburgh Medical
1111 Center. Other Directorships Held: Member,
Pittsburgh, PA National Board of Trustees, Leukemia Society of
TRUSTEE(1)(2) America. Previous Positions: Trustee,
University of Pittsburgh; Director, University
of Pittsburgh Medical Center.
*Family relationships and reasons for "interested" status: John F. Donahue
is the father of J. Christopher Donahue; both are "interested" due to the
positions they hold with Federated Investors, Inc. and its subsidiaries.
Lawrence D. Ellis, M.D. is "interested" because his son-in-law is employed
by, Federated Securities Corp., a subsidiary of Federated Investors, Inc.
+ Board members will not receive compensation from the Fund during the
Fund's first fiscal year. Thereafter, the Fund will be subject to a base
charge of $250 per quarter; the remainder of the "Total Compensation" in
column two will be allocated to each fund in the Federated Fund Complex
based on the net assets of each such fund.
Independent Trustees Background And Compensation
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Name Birth Date Principal Occupation(s) for Past Five Years, Aggregate Total
Address Other Directorships Held and Previous Positions Compensation Compensation
Positions Held From From
with Fund Fund + Fund and
Federated
Fund
Complex
(past
calendar
year)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Thomas G. Principal Occupation: Director or Trustee of $0 $163,350.00
Bigley Birth the Federated Fund Complex. Other
Date: Directorships Held: Director, Member of
February3, 1934 Executive Committee, Children's Hospital of
15 Old Timber Pittsburgh; Director, University of
Trail Pittsburgh. Previous Position: Senior Partner,
Pittsburgh, PA Ernst & Young LLP.
TRUSTEE(1)(2)
John T. Conroy, Principal Occupations: Director or Trustee of $0 $163,350.00
Jr. Birth Date: the Federated Fund Complex; Chairman of the
June23, 1937 Board, Investment Properties Corporation;
Grubb & Partner or Trustee in private real estate
Ellis/Investment ventures in Southwest Florida. Previous
Properties Positions: President, Investment Properties
Corporation Corporation; Senior Vice President, John R.
3838 Tamiami Wood and Associates, Inc., Realtors;
Trail North President, Naples Property Management, Inc.
Naples, FL and Northgate Village Development Corporation.
TRUSTEE(1)(2)
Nicholas P. Principal Occupation: Director or Trustee of $0 $163,350.00
Constantakis the Federated Fund Complex; Previous
Birth Date: Position: Partner, Andersen Worldwide SC.
September3, Other Directorships Held: Director, Michael
1939 175 Baker Corporation (engineering and energy
Woodshire Drive services worldwide).
Pittsburgh, PA
TRUSTEE (1)(2)
John F. Principal Occupation: Director or Trustee of $0 $148,500.00
Cunningham the Federated Fund Complex. Other
Birth Date: Directorships Held: Chairman, President and
March5, 1943 Chief Executive Officer, Cunningham & Co.,
353 El Brillo Inc. (strategic business consulting); Trustee
Way Palm Beach, Associate, Boston College. Previous Positions:
FL TRUSTEE(1)(2) Director, Redgate Communications and EMC
Corporation (computer storage systems);
Chairman of the Board and Chief Executive
Officer, Computer Consoles, Inc.; President
and Chief Operating Officer, Wang
Laboratories; Director, First National Bank of
Boston; Director, Apollo Computer, Inc.
Peter E. Madden Principal Occupation: Director or Trustee of $0 $148,500.00
Birth Date: the Federated Fund Complex; Management
March16, 1942 Consultant.
One Royal Palm Other Directorships Held: Board of Overseers,
Way 100 Royal Babson College
Palm Way Palm
Beach, FL Previous Positions: Representative,
TRUSTEE(1)(2) Commonwealth of Massachusetts General Court;
President, State Street Bank and Trust Company
and State Street Corporation (retired);
Director, VISA USA and VISA International;
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust
Corporation; Director, The Boston Stock
Exchange.
Charles F. Principal Occupations: Director or Trustee of $0 $163,350.00
Mansfield, Jr. the Federated Fund Complex; Management
Birth Date: Consultant; Executive Vice President, DVC
April10, 1945 Group, Inc. (marketing, communications and
80 South Road technology) (prior to 9/1/00). Previous
Westhampton Positions: Chief Executive Officer, PBTC
Beach, NY International Bank; Partner, Arthur Young &
TRUSTEE(1)(2) Company (now Ernst & Young LLP); Chief
Financial Officer of Retail Banking Sector,
Chase Manhattan Bank; Senior Vice President,
HSBC Bank USA (formerly, Marine Midland Bank);
Vice President, Citibank; Assistant Professor
of Banking and Finance, Frank G. Zarb School
of Business, Hofstra University.
John E. Murray, Principal Occupations: Director or Trustee of $0 $178,200.00
Jr., J.D., the Federated Fund Complex; Chancellor and Law
S.J.D. Birth Professor, Duquesne University; Consulting
Date: Partner, Mollica & Murray. Other Directorships
December20, Held: Director, Michael Baker Corp.
1932 (engineering, construction, operations and
Chancellor, technical services). Previous Positions:
Duquesne President, Duquesne University; Dean and
University Professor of Law, University of Pittsburgh
Pittsburgh, PA School of Law; Dean and Professor of Law,
TRUSTEE(1)(2) Villanova University School of Law.
Marjorie P. Principal Occupations: Director or Trustee of $0 $148,500.00
Smuts Birth the Federated Fund Complex; Public Relations/
Date: June21, Marketing Consultant/Conference Coordinator.
1935 4905 Previous Positions: National Spokesperson,
Bayard Street Aluminum Company of America; television
Pittsburgh, PA producer; President, Marj Palmer Assoc.;
TRUSTEE(1)(2) Owner, Scandia Bord.
+ Board members will not receive compensation from the Fund during the
Fund's first fiscal year. Thereafter, the Fund will be subject to a base
charge of $250 per quarter; the remainder of the "Total Compensation" in
column two will be allocated to each fund in the Federated Fund Complex
based on the net assets of each such fund.
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Name Birth Date Principal Occupation(s) for Past Five Years, Aggregate Total
Address Other Directorships Held and Previous Positions Compensation Compensation
Positions Held From From
with Fund Fund + Fund and
Federated
Fund
Complex
(past
calendar
year)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
John S. Walsh Principal Occupations: Director or Trustee of $0 $148,500.00
Birth Date: the Federated Fund Complex; President and
November28, Director, Heat Wagon, Inc. (manufacturer of
1957 2604 construction temporary heaters); President and
William Drive Director, Manufacturers Products, Inc.
Valparaiso, IN (distributor of portable construction
TRUSTEE(1)(2) heaters); President, Portable Heater Parts, a
division of Manufacturers Products, Inc.
Previous Position: Vice President, Walsh &
Kelly, Inc.
OFFICERS**
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Name Birth Principal Occupation(s) and Previous Positions
Date Address
Positions Held
with Fund
---------------------------------------------------------------------------------------
John W. Principal Occupations: Executive Vice President and Secretary of the
McGonigle Federated Fund Complex; Executive Vice President, Secretary and
Birth Date: Director, Federated Investors, Inc. Previous Positions: Trustee,
October26, Federated Investment Management Company and Federated Investment
1938 EXECUTIVE Counseling; Director, Federated Global Investment Management Corp.,
VICE PRESIDENT Federated Services Company and Federated Securities Corp.
AND SECRETARY
Richard J. Principal Occupations: Treasurer of the Federated Fund Complex;
Thomas Birth Senior Vice President, Federated Administrative Services. Previous
Date: June17, Positions: Vice President, Federated Administrative Services; held
1954 TREASURER various management positions within Funds Financial Services
Division of Federated Investors, Inc.
Richard B. Principal Occupations: President or Vice President of some of the
Fisher Birth Funds in the Federated Fund Complex; Vice Chairman, Federated
Date: May17, Investors, Inc.; Chairman, Federated Securities Corp. Previous
1923 VICE Positions: Director or Trustee of some of the Funds in the Federated
PRESIDENT Fund Complex; Executive Vice President, Federated Investors, Inc.
and Director and Chief Executive Officer, Federated Securities Corp.
William D. Principal Occupations: Chief Investment Officer of this Fund and
Dawson III various other Funds in the Federated Fund Complex; Executive Vice
Birth Date: President, Federated Investment Counseling, Federated Global
March3, 1949 Investment Management Corp., Federated Investment Management Company
CHIEF and Passport Research, Ltd.; Director, Federated Global Investment
INVESTMENT Management Corp. and Federated Investment Management Company;
OFFICER Portfolio Manager, Federated Administrative Services; Vice
President, Federated Investors, Inc. Previous Positions: Executive
Vice President and Senior Vice President, Federated Investment
Counseling Institutional Portfolio Management Services Division;
Senior Vice President, Federated Investment Management Company and
Passport Research, Ltd.
Mary Jo Ochson Mary Jo Ochson is the Portfolio Manager of the Fund. She is Vice
Birth Date: President of the Fund. Ms. Ochson joined Federated in 1982 and has
September 12, been a Senior Portfolio Manager and a Senior Vice President of the
1953 SENIOR Fund's Adviser since 1996. From 1988 through 1995, Ms. Ochson served
VICE PRESIDENT as a Portfolio Manager and a Vice President of the Fund's Adviser.
Ms. Ochson is a Chartered Financial Analyst and received her M.B.A.
in Finance from the University of Pittsburgh.
+ Board members will not receive compensation from the Fund during the
Fund's first fiscal year. Thereafter, the Fund will be subject to a base
charge of $250 per quarter; the remainder of the "Total Compensation" in
column two will be allocated to each fund in the Federated Fund Complex
based on the net assets of each such fund.
(1) After a Trustee's initial term, each Trustee is expected to serve a
three year term concurrent with the class of trustees for which he or
she serves:
-- Messrs. John F. Donahue, Thomas G. Bigley, John T. Conroy, Jr., and
John S. Walsh, as Class I trustees, are expected to stand for
re-election at the Fund's 2004 meeting of shareholders.
-- Messrs. J. Christopher Donahue, Nicholas P. Constantakis, John F.
Cunningham, and Majorie P. Smuts, as Class II trustees, are expected to
stand for re-election at the Fund's 2005 meeting of shareholders.
-- Messrs. Lawrence D. Ellis, M.D., Peter E. Madden, Charles F.
Mansfield, Jr. and John E. Murray, Jr., J.D, S.J.D., as Class III
trustees, are expected to stand for re-election at the Fund's 2006
meeting of shareholders.
** Officers do not receive any compensation from the Fund.
Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer and
Assistant Secretary of Federated Investors, Inc. and an officer of its
various advisory and underwriting subsidiaries, has served as a Term
Member on the Board of Directors of Duquesne University, Pittsburgh,
Pennsylvania, since May 12, 2000. Mr. John E. Murray, Jr., an Independent
Trustee of the Fund, served as President of Duquesne from 1988 until his
retirement from that position in 2001, and became Chancellor of Duquesne
on August 15, 2001. It should be noted that Mr. Donahue abstains on any
matter that comes before Duquesne's Board that affects Mr. Murray
personally.
Committees of the Board
--------------------------------------------------------------------------------------
Board Committee Committee Functions Meetings
Committee Members Held
During
Last
Fiscal
Year
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Executive John F. In between meetings of the full Board, the None
Donahue John Executive Committee generally may exercise all
E. Murray, the powers of the full Board in the management
Jr., J.D., and direction of the business and conduct of the
S.J.D. affairs of the Fund in such manner as the
Executive Committee shall deem to be in the best
interests of the Fund. However, the Executive
Committee cannot elect or remove Board members,
increase or decrease the number of Trustees,
elect or remove any Officer, declare dividends,
issue shares or recommend to shareholders any
action requiring shareholder approval.
Audit Thomas G. The Audit Committee reviews and recommends to One
Bigley John T. the full Board the independent auditors to be
Conroy, Jr. selected to audit the Fund's financial
Nicholas P. statements; meets with the independent auditors
Constantakis periodically to review the results of the audits
Charles F. and report the results to the full Board;
Mansfield, Jr. evaluates the independence of the auditors,
reviews legal and regulatory matters that may
have a material effect on the financial
statements, related compliance policies and
programs, and the related reports received from
regulators; reviews the Fund's internal audit
function; review compliance with the Fund's code
of conduct/ethics; review valuation issues;
monitors inter-fund lending transactions;
reviews custody services and issues and
investigate any matters brought to the
Committee's attention that are within the scope
of its duties.
Board Ownership of Shares in the Fund and in the Federated Family of
Investment Companies as of December 31, 2002
--------------------------------------------
Aggregate
Dollar Dollar
Range Range of
of Shares
Interested Board Shares Owned in
Member Name Owned Federated
in Fund Family of
Investment
Companies
--------------------------------------------
--------------------------------------------
John F. Donahue $0 Over
$100,000
J. Christopher $50,001-100 Over
Donahue $100,000
Lawrence D. Ellis, $0 Over
M.D. $100,000
Independent Board
Member Name
Thomas G. Bigley $0 Over
$100,000
John T. Conroy, Jr. $0 Over
$100,000
Nicholas P. $0 Over
Constantakis $100,000
John F. Cunningham $0 Over
$100,000
Peter E. Madden $0 Over
$100,000
Charles F. $0 $50,001 -
Mansfield, Jr. $100,000
John E. Murray, $0 Over
Jr., J.D., S.J.D. $100,000
Marjorie P. Smuts $0 Over
$100,000
John S. Walsh $0 Over
$100,000
The Trustees and Officers of the Fund beneficially and as a group
owned less than 1% of the outstanding Shares of the Fund as of January 31,
2003.
Code of Ethics
As required by SEC rules, the Fund, its Adviser and the Fund's
principal underwriters have adopted codes of ethics. These codes permit
personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the Fund. These codes can be
reviewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Securities and
Exchange Commission at 1-202-942-8090. The codes of ethics are available
on the EDGAR Database on the Security and Exchange Commission's web site
(http://www.sec.gov), and copies of these codes may be obtained, after
paying a duplicating fee, by electronic request at the following e-mail
address: publicinfo@sec.gov, or by writing the Security and Exchange
Commission's Public Reference Section, Washington, D.C. 20549-0102.
Investment Adviser
The Adviser conducts investment research and makes investment
decisions for the Fund.
The Adviser is a wholly owned subsidiary of Federated.
Pursuant to an investment management agreement between the Adviser
and the Fund, the Fund has agreed to pay for the investment advisory
services and facilities provided by the Adviser a fee payable monthly in
arrears at an annual rate equal to 0.55% of the average daily value of the
Fund's Managed Assets (the "Management Fee"). The Adviser has
contractually agreed to waive receipt of a portion of its Management Fee
in the amount of 0.20% of the average daily value of the Fund's Managed
Assets for the first five years of the Fund's operations (through December
31, 2007), and for a declining amount for an additional three years
(through December 31, 2010). Managed Assets means the total assets of the
Fund including any assets attributable to any AMPS, any other preferred
shares that may be issued in the future or borrowings that may be
outstanding, minus the sum of accrued liabilities other than indebtedness
attributable to financial leverage. The liquidation preference of AMPS or
any other preferred shares that may be issued in the future is not a
liability.
The Adviser shall not be liable to the Fund or any Fund shareholder
for any losses that may be sustained in the purchase, holding or sale of
any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties imposed upon it by its contract with the
Fund.
As required by the 1940 Act, the Board has reviewed the Fund's
investment advisory contract. During its review of the contract, the
Board considered many factors, among the most material of which are: the
Fund's investment objectives; the Adviser's management philosophy,
personnel and processes; the preferences and expectations of Fund
shareholders and their relative sophistication; the continuing state of
competition in the mutual fund industry; comparable fees in the mutual
fund industry; the range and quality of services provided to the Fund and
its shareholders by the Federated organization in addition to investment
advisory services; and the Fund's relationship to other funds in the
Federated Fund family ("Federated Funds").
The Board also considered the compensation and benefits received by
the Adviser. This includes fees to be received for services provided to
the Fund by other entities in the Federated organization and research
services to be received by the Adviser from brokers that execute Fund
trades, as well as advisory fees. In this regard, the Board is aware that
various courts have interpreted provisions of the 1940 Act and have
indicated in their decisions that the following factors may be relevant to
an adviser's compensation: the nature and quality of the services
provided by the adviser, including the performance of the fund; the
adviser's cost of providing the services; the extent to which the adviser
may realize "economies of scale" as the fund grows larger; any indirect
benefits that may accrue to the adviser and its affiliates as a result of
the adviser's relationship with the fund; performance and expenses of
comparable funds; and the extent to which the independent Board members
are fully informed about all facts bearing on the adviser's services and
fee. The Fund's Board is aware of these factors and has taken them into
account in its review of the Fund's advisory contract.
The Board considered and weighed these circumstances in light of its
accumulated experience in working with Federated on matters relating to
the Federated Funds, and was assisted in its deliberations by the advice
of independent legal counsel. In this regard, the Board requested and
received a significant amount of information about the Fund, the Federated
Funds and the Federated organization. Thus, the Board's evaluation of the
Fund's advisory contract included an analysis of reports covering such
matters as: the Adviser's investment philosophy, personnel and processes;
the short- and long-term performance of other Federated Funds (in absolute
terms as well as in relationship to their particular investment programs
and certain competitor or "peer group" funds) and comments on the reasons
for performance; the Fund's proposed expenses, including the advisory fee
itself and the overall expense structure of the Fund, both in absolute
terms and relative to similar and/or competing funds, with due regard for
contractual or voluntary expense limitations; the possible use and
allocation of brokerage commissions derived from trading the Fund's
portfolio securities; the nature and extent of the advisory and other
services to be provided to the Fund by the Adviser and its affiliates;
compliance and audit reports concerning the Federated Funds and the
Federated companies that service them; and relevant developments in the
mutual fund industry and how the Federated Funds and/or Federated are
responding to them.
The Board also received financial information about Federated,
including reports on the compensation and benefits Federated derives from
its relationships with the Federated Funds. These reports cover not only
the fees under the advisory contracts, but also fees received by
Federated's subsidiaries for providing other services to the Federated
Funds under separate contracts (e.g., for serving as administrator and
transfer agent to the Federated Funds). The reports also discuss any
indirect benefit Federated may derive from its receipt of research
services from brokers who execute fund trades.
The Board based its decision to approve the Fund's advisory contract
on the totality of the circumstances and relevant factors, and with a view
to past and future long-term considerations. The Board did not consider
any one of the factors and considerations identified above to be
determinative. Because the totality of circumstances included considering
the relationship of each Fund to the Federated Funds, the Board did not
approach consideration of the Fund's advisory contract as if that were the
only Federated Fund.
Custodian
State Street Bank and Trust Company, Boston, Massachusetts,
is custodian for the securities and cash of the Fund.
Independent Auditors
The independent auditor for the Fund, Ernst & Young LLP, conducts
its audits in accordance with auditing standards generally accepted in the
United States of America, which require it to plan and perform its audits
to provide reasonable assurance about whether the Fund's financial
statements and financial highlights are free of material misstatement.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale
of portfolio instruments, the Adviser looks for prompt execution of the
order at a favorable price. The Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. In selecting
among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling shares of the
Fund and other funds under common control with the Fund. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those
of other accounts managed by the Adviser. When the Fund and one or more
of those accounts invests in, or disposes of, the same security, available
investments or opportunities for sales will be allocated among the Fund
and the accounts(s) in a manner believed by the Adviser to be equitable.
While the coordination and ability to participate in volume transactions
may benefit the Fund, it is possible that this procedure could adversely
impact the price paid or received and/or the position obtained or disposed
of by the Fund.
ADDITIONAL INFORMATION CONCERNING
THE AUCTIONS FOR AMPS
General
Securities Depository. The Depository Trust Company ("DTC") will
act as the Securities Depository with respect to the AMPS. One
certificate for all of the AMPS will be registered in the name of Cede &
Co., as nominee of the Securities Depository. Such certificate will bear
a legend to the effect that such certificate is issued subject to the
provisions restricting transfers of AMPS contained in the Statement of
Preferences of Auction Market Preferred Shares. The Fund will also issue
stop-transfer instructions to the transfer agent for AMPS. Prior to the
commencement of the right of holders of AMPS to elect a majority of the
Fund's trustees, as described under "Description of the AMPS--Voting
Rights" in the prospectus, Cede & Co. will be the holder of record of the
AMPS and owners of AMPS will not be entitled to receive certificates
representing their ownership interest in such shares.
DTC, a New York-chartered limited purpose trust company, performs
services for its participants, some of whom (and/or their representatives)
own DTC. DTC maintains lists of its participants and will maintain the
positions (ownership interests) held by each such participant in shares of
AMPS, whether for its own account or as a nominee for another person.
Concerning the Auction Agent
The auction agent will act as agent for the Fund in connection with
auctions. In the absence of bad faith or negligence on its part, the
auction agent will not be liable for any action taken, suffered or omitted
or for any error of judgment made by it in the performance of its duties
under the auction agency agreement between the Fund and the auction agent
and will not be liable for any error of judgment made in good faith unless
the auction agent was negligent in ascertaining the pertinent facts.
The auction agent may rely upon, as evidence of the identities of
the holders of AMPS, the auction agent's registry of holders, the results
of auctions and notices from any Broker-Dealer (or other person, if
permitted by the Fund) with respect to transfers described under "The
Auction--Secondary Market Trading and Transfers of AMPS" in the prospectus
and notices from the Fund. The auction agent is not required to accept any
such notice for an auction unless it is received by the auction agent by
3:30 p.m., New York City time, on the business day preceding such auction.
The auction agent may terminate its auction agency agreement with
the Fund upon notice to the Fund on a date no earlier than 45 days after
such notice. If the auction agent should resign, the Fund will use its
best efforts to enter into an agreement with a successor auction agent.
The Fund may remove the auction agent provided that prior to such removal
the Fund shall have entered into such an agreement with a successor
auction agent.
Broker-Dealers
The auction agent after each auction for AMPS will pay to each
Broker-Dealer, from funds provided by the Fund, a service charge at the
annual rate of 1/4 of 1%, in the case of any auction before a rate period
of seven days, or a percentage agreed to by the Fund and the Broker-Dealer
in the case of any auction before a special rate period, of the purchase
price of the AMPS placed by such Broker-Dealer at such auction.
The Fund may request the auction agent to terminate one or more
Broker-Dealer agreements at any time, provided that at least one
Broker-Dealer agreement is in effect after such termination.
The Broker-Dealer agreement provides that a Broker-Dealer, other
than an affiliate of the Fund, may submit orders in auctions for its own
account. Any Broker-Dealer that is an affiliate of the Fund may submit
orders in auctions, but only if such orders are not for its own account.
If a Broker-Dealer submits an order for its own account in any auction, it
might have an advantage over other bidders because it would have knowledge
of all orders submitted by it in that auction; such Broker-Dealer,
however, would not have knowledge of orders submitted by other
Broker-Dealers in that auction.
DESCRIPTION OF COMMON SHARES
A description of Common Shares is contained in the prospectus. The
Fund intends to hold annual meetings of shareholders so long as the Common
Shares are listed on a national securities exchange and such meetings are
required as a condition to such listing.
Other Shares
The Board, subject to applicable law and the Fund's Agreement and
Declaration of Trust, may authorize an offering, without the approval of
the Common Shareholders or holders of AMPS, of other classes or series of
shares, as it determines to be necessary, desirable or appropriate, having
such terms, rights, preferences, privileges, limitations and restrictions
as the Board sees fit. The Fund currently does not expect to issue any
other classes of shares, or series of shares, except for the Common Shares
and the AMPS.
REPURCHASE OF COMMON SHARES
The Fund is a closed-end management investment company and as such
its Common Shareholders will not have the right to cause the Fund to
redeem their shares. Instead, the Fund's Common Shares will trade in the
open market at a price that will be a function of several factors,
including dividend levels (which are in turn affected by expenses), NAV,
call protection, dividend stability, relative demand for and supply of
such shares in the market, general market and economic conditions and
other factors. Because shares of a closed-end investment company may
frequently trade at prices lower than NAV, the Fund's Board may consider
action that might be taken to reduce or eliminate any material discount
from NAV in respect of Common Shares, which may include the repurchase of
such Common Shares in the open market or in private transactions, the
making of a tender offer for such Common Shares or the conversion of the
Fund to an open-end investment company. The Board may decide not to take
any of these actions. In addition, there can be no assurance that share
repurchases or tender offers, if undertaken, will reduce market discount.
Notwithstanding the foregoing, at any time when AMPS are
outstanding, the Fund may not purchase, redeem or otherwise acquire any of
its Common Shares unless (1) all accrued AMPS dividends have been paid and
(2) at the time of such purchase, redemption or acquisition, the NAV of
the Fund's portfolio, determined after deducting the acquisition price of
the Common Shares, is at least 200% of the liquidation value of the
outstanding AMPS (the original purchase price per share plus any accrued
and unpaid dividends thereon). Any service fees incurred in connection
with any tender offer made by the Fund will be borne by the Fund and will
not reduce the stated consideration to be paid to tendering shareholders.
Subject to its investment restrictions, the Fund may borrow to
finance the repurchase of shares or to make a tender offer. Interest on
any borrowings to finance share repurchase transactions or the
accumulation of cash by the Fund in anticipation of share repurchases or
tenders will reduce the Fund's net income. Any share repurchase, tender
offer or borrowing that might be approved by the Fund's Board would have
to comply with the Securities Exchange Act of 1934, as amended, the 1940
Act and the rules and regulations thereunder.
Although the decision to take action in response to a discount from
NAV will be made by the Board at the time it considers such issue, it is
the Board's present policy, which may be changed by the Board, not to
authorize repurchases of Common Shares or a tender offer for such Common
Shares if: (1) such transactions, if consummated, would (a) result in the
delisting of the Common Shares from the New York Stock Exchange or (b)
impair the Fund's status as a regulated investment company under the Code
(which would make the Fund a taxable entity, causing the Fund's income to
be taxed at the corporate level in addition to the taxation of
shareholders who receive dividends from the Fund) or as a registered
closed-end investment company under the Investment Company Act; (2) the
Fund would not be able to liquidate portfolio securities in an orderly
manner and consistent with the Fund's investment objective and policies in
order to repurchase shares; or (3) there is, in the Board's judgment, any
(a) material legal action or proceeding instituted or threatened
challenging such transactions or otherwise materially adversely affecting
the Fund, (b) general suspension of or limitation on prices for trading
securities on the New York Stock Exchange, (c) declaration of a banking
moratorium by federal or state authorities or any suspension of payment by
United States or New York banks, (d) material limitation affecting the
Fund or the issuers of its portfolio securities by federal or state
authorities on the extension of credit by lending institutions or on the
exchange of foreign currency, (e) commencement of war, armed hostilities
or other international or national calamity directly or indirectly
involving the United States, or (f) other events or conditions which would
have a material adverse effect, including any adverse tax effect, on the
Fund or its shareholders if shares were repurchased. The Board may in the
future modify these conditions in light of experience.
The repurchase by the Fund of its shares at prices below NAV will
result in an increase in the NAV of those shares that remain outstanding.
However, there can be no assurance that share repurchases or tender offers
at or below NAV will result in the Fund's shares trading at a price equal
to their net asset value. Nevertheless, the fact that the Fund's shares
may be the subject of repurchase or tender offers from time to time, or
that the Fund may be converted to an open-end investment company, may
reduce any spread between market price and NAV that might otherwise exist.
In addition, a purchase by the Fund of its Common Shares will
decrease the Fund's Managed Assets which would likely have the effect of
increasing the Fund's expense ratio. Any purchase by the Fund of its
Common Shares at a time when AMPS are outstanding will increase the
leverage applicable to the outstanding Common Shares then remaining.
Before deciding whether to take any action if the Common Shares
trade below NAV, the Fund's Board would likely consider all relevant
factors, including the extent and duration of the discount, the liquidity
of the Fund's portfolio, the impact of any action that might be taken on
the Fund or its shareholders and market considerations. Based on these
considerations, even if the Fund's shares should trade at a discount, the
Board may determine that, in the interest of the Fund and its
shareholders, no action should be taken.
TAX MATTERS
The following is a description of certain federal income tax
consequences to a shareholder acquiring, holding and disposing of AMPS.
The discussion reflects applicable tax laws of the United States as of the
date of this prospectus, which tax laws may be changed or subject to new
interpretations by the courts or the Internal Revenue Service
retroactively or prospectively.
The Fund intends to elect to be treated and to qualify to be taxed
as a regulated investment company under Subchapter M of the Code. In order
to qualify as a regulated investment company, the Fund must satisfy
certain requirements relating to the source of its income, diversification
of its assets and distributions of its income to its shareholders. First,
the Fund must derive at least 90% of its annual gross income (including
tax exempt interest) from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies or other income (including but not
limited to gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or
currencies (the "90% gross income test"). Second, the Fund must diversify
its holdings so that, at the close of each quarter of its taxable year,
(1) at least 50% of the value of its total assets is comprised of cash,
cash items, United States government securities, securities of other
regulated investment companies and other securities, limited in respect of
any one issuer to an amount not greater in value than 5% of the value of
the Fund's total assets and to not more than 10% of the outstanding voting
securities of such issuer and (2) not more than 25% of the value of the
total assets is invested in the securities of any one issuer, other than
United States government securities and securities of other regulated
investment companies or two or more issuers controlled by the Fund and
engaged in the same, similar or related trades or businesses.
As a regulated investment company, the Fund will not be subject to
federal income tax on income and gains that it distributes each taxable
year to its shareholders, provided that in such taxable year it
distributes at least 90% of the sum of (1) its "investment company taxable
income" (which includes, among other items, dividends, taxable interest,
taxable original issue discount and market discount income, income from
securities lending, net short-term capital gain in excess of net long-term
capital loss and any other taxable income other than "net capital gain"
(as defined below) and is reduced by deductible expenses) determined
without regard to the deduction for dividends paid and (2) its net tax
exempt interest (the excess of its gross tax exempt interest income over
certain disallowed deductions). The Fund may retain for investment its net
capital gain, which consists of the excess of its net long-term capital
gain over its net short-term capital loss. However, if the Fund retains
any net capital gain or any investment company taxable income, it will be
subject to tax at regular corporate rates on the amount retained. If the
Fund retains any net capital gain, it may designate the retained amount as
undistributed capital gains in a notice to its shareholders who, if
subject to federal income tax on long-term capital gains, (1) will be
required to include in income for federal income tax purposes, as
long-term capital gain, their share of such undistributed amount and (2)
will be entitled to credit their proportionate shares of the tax paid by
the Fund against their federal income tax liabilities, if any, and to
claim refunds to the extent the credit exceeds such liabilities. For
federal income tax purposes, the tax basis of shares owned by a
shareholder of the Fund will be increased by the amount of undistributed
capital gains included in the gross income of the shareholder less the tax
deemed paid by the shareholder under clause (2) of the preceding sentence.
The Fund intends to distribute at least annually to its shareholders all
or substantially all of its net tax exempt interest and any investment
company taxable income and net capital gain.
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain, to
elect, unless it has made a special taxable year election for excise tax
purposes) to treat all or part of any net capital loss, any net long-term
capital loss or any net foreign currency loss incurred after October 31 as
if it had been incurred in the succeeding year.
Distributions by the Fund of investment company taxable income, if
any, whether received in cash or additional shares, will be taxable to
shareholders as ordinary income, to the extent of the current or
accumulated earnings and profits of the Fund and generally will not
qualify for the dividends received deduction in the case of corporate
shareholders. Net long-term capital gains realized by the Fund and
distributed to shareholders in cash or additional shares will be taxable
to shareholders as long-term capital gains regardless of the length of
time investors have owned shares of the Fund. Distributions by the Fund
that do not constitute ordinary income dividends, capital gain
distributions or exempt-interest dividends (as defined below) will be
treated as a return of capital to the extent of, and in reduction of, the
shareholder's tax basis in his or her shares. Any excess will be treated
as gain from the sale of his or her shares, as discussed below.
The Fund intends to invest in sufficient tax exempt securities to
permit payment of "exempt-interest dividends," as defined in the Code.
Except as provided below, exempt-interest dividends paid to holders of
AMPS are not includable in the holder's gross income for federal income
tax purposes.
If the Fund engages in hedging transactions involving financial
futures and options, these transactions will be subject to special tax
rules, the effect of which may be to accelerate income to the Fund, defer
the Fund's losses, cause adjustments in the holding periods of the Fund's
securities, convert long-term capital gains into short-term capital gains
and convert short-term capital losses into long-term capital losses. These
rules could therefore affect the amount, timing and character of
distributions to holders of AMPS.
Prior to purchasing shares in the Fund, an investor should carefully
consider the impact of dividends which are expected to be or have been
declared, but not paid. Any dividend declared shortly after a purchase of
such shares prior to the record date will have the effect of reducing the
per share net asset value by the per share amount of the dividend.
Although dividends generally will be treated as distributed when
paid, dividends declared in October, November or December, payable to
holders of common shares of record on a specified date in one of those
months and paid during the following January, will be treated as having
been distributed by the Fund and received by the holder of common shares
on December 31.
The Internal Revenue Service's position in a published revenue
ruling indicates that the Fund is required to designate distributions paid
with respect to its Common Shares and its AMPS as consisting of a portion
of each type of income distributed by the Fund. The portion of each type
of income deemed received by the holders of each class of shares will be
equal to the portion of total Fund dividends received by such class. Thus,
the Fund will designate dividends paid as exempt-interest dividends in a
manner that allocates such dividends between Common Shareholders and
holders of AMPS in proportion to the total dividends paid to each such
class during or with respect to the taxable year, or otherwise as required
by applicable law. Capital gain dividends and ordinary income dividends
will similarly be allocated between the two classes.
Exempt-interest dividends are included in determining what portion,
if any, of a person's Social Security and railroad retirement benefits
will be includable in gross income subject to federal income tax.
Although exempt-interest dividends generally may be treated by
holders of AMPS as items of interest excluded from their gross income,
each holder of AMPS is advised to consult his tax advisor with respect to
whether exempt-interest dividends retain their exclusion if the
shareholder would be treated as a "substantial user," or a "related
person" of a substantial user, of the facilities financed with respect to
any of the tax exempt obligations held by the Fund.
Federal income tax law imposes an alternative minimum tax with
respect to both corporations and individuals based on certain items of tax
preference. Interest on certain "private activity bonds" is an item of tax
preference subject to the alternative minimum tax on individuals and
corporations. In addition, for corporations alternative minimum taxable
income is increased by 75% of the difference between an alternative
measure of income ("adjusted current earnings") and the amount otherwise
determined to be the alternative minimum taxable income. Interest on
municipal bonds, and therefore all exempt-interest dividends received from
the Fund, are included in calculating adjusted current earnings.
Accordingly, investment in the Fund could cause holders of AMPS to be
subject to or result in an increased liability under the AMT. The Fund
will annually supply holders of AMPS a report indicating the amount and
nature of amounts distributed to them.
The redemption, sale or exchange of AMPS normally will result in
capital gain or loss to holders of AMPS who hold their AMPS as capital
assets. Generally, a holder of AMPS gain or loss will be long-term capital
gain or loss if the shares have been held for more than one year even
though the increase in value in such preferred shares is attributable to
tax exempt interest income. In addition, gain realized by the Fund from
the disposition of a tax exempt security that is attributable to accrued
market discount will be treated as ordinary income rather than capital
gain, and thus may increase the amount of ordinary income dividends
received by holders of AMPS. Present law taxes both long- and short-term
capital gains of corporations at the rates applicable to ordinary income.
For non-corporate taxpayers, however, long-term capital gains will be
taxed at a maximum rate of 20% (or 18% for capital assets that have been
held for more than five years and whose holding periods began after
December 31, 2000), while short-term capital gains and other ordinary
income will currently be taxed at a maximum rate of 38.6%1. Because of
the limitations on itemized deductions and the deduction for personal
exemptions applicable to higher income taxpayers, the effective tax rate
may be higher in certain circumstances.
All or a portion of a sales charge paid in purchasing AMPS cannot be
taken into account for purposes of determining gain or loss on the
redemption, sale or exchange of such Shares within 90 days after their
purchase to the extent AMPS or shares of another fund are subsequently
acquired without payment of a sales charge pursuant to the reinvestment or
exchange privilege. Any disregarded portion of such charge will result in
an increase in the shareholder's tax basis in the shares subsequently
acquired. In addition, no loss will be allowed on the redemption, sale or
exchange of AMPS if the holder of AMPS purchases other AMPS of the Fund
(whether through reinvestment of distributions or otherwise) or the
shareholder acquires or enters into a contract or option to acquire shares
that are substantially identical to AMPS of the Fund within a period of 61
days beginning 30 days before and ending 30 days after such redemption,
sale or exchange. If disallowed, the loss will be reflected in an
adjustment to the basis of the shares acquired. Further, any losses
realized on the redemption, sale or exchange of AMPS held for six months
or less will be disallowed to the extent of any exempt-interest dividends
received with respect to such AMPS and, if not disallowed, such losses
will be treated as long-term capital losses to the extent of any capital
gain dividends received, or amounts credited as undistributed capital
gains, with respect to such AMPS.
In order to avoid a 4% federal excise tax, the Fund must distribute
or be deemed to have distributed by December 31 of each calendar year the
sum of at least 98% of its taxable ordinary income for such year, at least
98% of its capital gain net income (the excess of its realized capital
gains over its realized capital losses, generally computed on the basis of
the one-year period ending on October 31 of such year) and 100% of any
taxable ordinary income and capital gain net income for the prior year
that was not distributed during such year and on which the Fund paid no
federal income tax. For purposes of the excise tax, a regulated investment
company may reduce its capital gain net income (but not below its net
capital gain) by the amount of any net ordinary loss for the calendar
year. The Fund intends to make timely distributions in compliance with
these requirements and consequently it is anticipated that it generally
will not be required to pay the excise tax.
If in any tax year the Fund should fail to qualify under Subchapter
M for tax treatment as a regulated investment company, the Fund would
incur a regular corporate federal income tax upon its taxable income for
that year, and distributions to its shareholders would be taxable to
shareholders as ordinary dividend income for federal income tax purposes
to the extent of the Fund's earnings and profits.
----------
1 The Economic Growth and Tax Relief Reconciliation Act of 2001,
effective for taxable years beginning after December 31, 2000, creates
a new 10 percent income tax bracket and reduces the tax rates
applicable to ordinary income over a six year phase-in period.
Beginning in the taxable year 2006, ordinary income will be subject to
a 35% maximum rate, with approximately proportionate reductions in the
other ordinary rates. The Bush Administration has announced a tax
proposal which would accelerate the changes in tax rates and apply the
maximum 35% tax rate in 2003.
---------
The Fund is required to withhold tax at a rate equal to the fourth
lowest rate applicable to unmarried individuals (currently, 30%) on
taxable dividends and certain other payments paid to non-corporate
shareholders who have not furnished to the Fund their correct taxpayer
identification number (in the case of individuals, their Social Security
number) and certain certifications, or who are otherwise subject to backup
withholding. Backup withholding is not an additional tax and any amount
withheld may be refunded or credited against the shareholder's federal
income tax liability, provided the required information is furnished to
the Internal Revenue Service.
If at any time when the Fund's AMPS are outstanding the Fund fails
to meet the Preferred Shares Basic Maintenance Amount or the Investment
Company Act Preferred Shares Asset Coverage, the Fund will be required to
suspend distributions to holders of its Common Shares until such
maintenance amount or asset coverage, as the case may be, is restored. See
"Description of the AMPS--Dividends and Rate Periods-Restrictions on
Dividends and Other Distributions" in the prospectus. This may prevent the
Fund from distributing at least an amount equal to the sum of 90% of its
investment company taxable income (determined without regard to dividends
paid) and 90% of its net tax exempt income, and may therefore jeopardize
the Fund's qualification for taxation as a regulated investment company or
cause the Fund to incur a tax liability or a non-deductible 4% excise tax
on the undistributed taxable income, including net capital gain, or both.
Upon failure to meet the Preferred Shares Basic Maintenance Amount or the
Investment Company Act Preferred Shares Asset Coverage, the Fund will be
required to redeem AMPS in order to maintain or restore such maintenance
amount or asset coverage and avoid the adverse consequences to the Fund
and its shareholders of failing to qualify as a regulated investment
company. There can be no assurance, however, that any such redemption
would achieve such objectives.
The Fund may, at its option, redeem AMPS in whole or in part, and is
required to redeem AMPS to the extent required to maintain the Preferred
Shares Basic Maintenance Amount and the Investment Company Act Preferred
Shares Asset Coverage. Gain or loss, if any, resulting from a redemption
of AMPS will be taxed as gain or loss from the sale or exchange of AMPS
under Section 302 of the Code rather than as a dividend, but only if the
redemption distribution (a) is deemed not to be essentially equivalent to
a dividend, (b) is in complete redemption of an shareholder's interest in
the Fund, (c) is substantially disproportionate with respect to the
shareholder or (d) with respect to a non-corporate shareholder, is in
partial liquidation of the shareholder's interest in the Fund. For
purposes of (a), (b) and (c) above, a holder of AMPS ownership of Common
Shares will be taken into account.
Based in part on a lack of present intention on the part of the Fund
to redeem the AMPS at any time in the future, the Fund intends to take the
position that under present law the AMPS will constitute stock, rather
than debt of the Fund. It is possible, however, that the Internal Revenue
Service could take a contrary position asserting for example that the AMPS
constitutes debt of the Fund. If that position was upheld, distributions
in the AMPS would be considered interest, taxable as ordinary income
regardless of the taxable earnings of the Fund.
The foregoing is a general and abbreviated summary of the provisions
of the Code and the Treasury Regulations presently in effect as they
directly govern the taxation of the Fund and its shareholders. For
complete provisions, reference should be made to the pertinent Code
sections and Treasury Regulations. The Code and the Treasury Regulations
are subject to change by legislative or administrative action, and any
such change may be retroactive with respect to Fund transactions. Holders
of AMPS are advised to consult their own tax advisers for more detailed
information concerning the federal income taxation of the Fund and the
income tax consequences to its holders of Common Shares.
EXPERTS
The financial statements of the Fund at December 16, 2002 appearing
in this Statement of Additional Information have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A registration statement on Form N-2, including amendments thereto,
relating to the shares offered hereby, has been filed by the Fund with the
Securities and Exchange Commission, Washington, D.C. The prospectus and
this Statement of Additional Information do not contain all of the
information set forth in the registration statement, including any
exhibits and schedules thereto. For further information with respect to
the Fund and the shares offered hereby, reference is made to the
registration statement. Statements contained in the prospectus and this
Statement of Additional Information as to the contents of any contract or
other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference. A copy of the
registration statement may be inspected without charge on the EDGAR
Database at the Commission's website at http://www.sec.gov or at the
Commission's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from the Commission upon the payment of
certain fees prescribed by the Commission.
INDEPENDENT AUDITORS' REPORT
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and
Board of Trustees of
Federated Premier Municipal Income Fund
We have audited the accompanying statement of assets and liabilities of
Federated Premier Municipal Income Fund (the Fund) as of December 16,
2002. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with the auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statement referred to above present fairly,
in all material respects, the financial position of Federated Premier
Municipal Income Fund at December 16, 2002, in conformity with accounting
principles generally accepted in the United States of America.
[GRAPHIC
OMITTED][GRAPHIC OMITTED]
Boston, Massachusetts
December 16, 2002
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES December 16, 2002
Assets:
Cash $100,003
Deferred Offering Costs 200,000
Total Assets 300,003
Liabilities:
Offering Costs Payable (200,000)
Total Liabilities (200,000)
Net Assets (6,981 shares of $0.01 par value shares of beneficial interest
issued and outstanding; unlimited authorized shares)
$100,003
Net Asset Value Per Share
$14.33
Maximum Offering Price Per Share (100/95.50 of $14.33)
$15.00
NOTES TO FINANCIAL STATEMENTS
1. Organization
Federated Premier Municipal Income Fund ("the Fund") was organized as a
Delaware Statutory Trust on October 16, 2002. The Fund has had no
operations to date other than matters relating to its organization and
registration as a diversified, closed-end management investment company
under the Investment Company Act of 1940, as amended, and the sale and
issuance to Federated Investment Management Company ("the Investment
Adviser"), a wholly owned subsidiary of Federated Investors, Inc., of
6,981 shares of beneficial interest at an aggregate purchase price of
$100,003.
2. Accounting Policies
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ
from those estimates.
3. Investment Adviser and Related Parties
The Fund has entered into an Investment Management Agreement (the
"Agreement") with the Investment Adviser to serve as investment manager to
the Fund. Pursuant to the Agreement, the Fund pays the Investment Adviser
an annual management fee, payable daily, at the annual rate of 0.55 % of
the Fund's average daily net assets.
In order to reduce fund expenses, the Investment Adviser has contractually
agreed to waive a portion of its management fee at the annual rate of
0.20% of the Fund's average daily net assets, not inclusive of any net
assets attributable to any preferred shares that may be issued, from the
commencement of operations through December 31, 2007, and for a declining
amount thereafter through December 31, 2010.
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services.
The fee paid to FServ is based on a scale that ranges from 0.150% to
0.075% of the average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum
per portfolio and $30,000 per each additional class.
4. Organization Expenses and Offering Costs
Based on an estimated Fund offering of 5,850,000 shares, organization
expenses and offering costs are estimated to be $461,114. The Investment
Advisor has agreed to pay i) all organizational costs; and ii) the amount
by which the aggregate of all of the Fund's offering costs (other than
sales load) exceed $0.03 per share. Such amount to be paid by the
Investment Adviser is $285,614. The Fund will pay offering costs
estimated at $175,500 from the proceeds of the offering. Offering costs
paid by the Fund will be charged as a reduction of paid-in capital at the
completion of the Fund offering.
5. Federal Income Taxes
The Fund intends to comply with the provisions of the Internal Revenue
Code, as amended, applicable to regulated investment companies and to
distribute to shareholders each year substantially all of its income.
Accordingly, no provision for federal tax is necessary. In addition, by
distributing substantially all of its ordinary income and long-term
capital gains, if any, during each calendar year, the Fund intends not to
be subject to federal excise tax.
6. Contingent Receivable from Investment Adviser
In the event that the public offering of the Fund does not occur, the
Investment Adviser has agreed to reimburse the Fund for all offering costs.
FEDERATED PREMIER MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
(For a Common Share Outstanding Throughout the Period)
Period Ended February 3
(Unaudited) 20031
Net Asset Value, Beginning of $14.32
Period
Income From Investment
Operations:
Net investment income 0.06 2
Net realized and unrealized
loss on investments (0.04)
Total from investment
operations 0.02
Capital charge with respect to
issuance of common shares (0.03)
Net Asset Value, End of Period $14.31
Market Value, End of Period $14.55
Total Investment Return3 (3.00)%
Ratios to Average Net Assets:
Expenses 0.55 %
Net investment income 3.81 %
Expense waiver/reimbursement4 0.35 %
Supplemental Data:
Net assets, end of period (000 $87,421
omitted)
Portfolio turnover 16 %
(1) Reflects operations for the period from December 20, 2002
(commencement of investment operations) to February 3, 2003.
---------------------------------------------------------------------------
(2) Calculated using average shares outstanding.
(3) Total investment return is calculated assuming a purchase of common
shares at the current market price on the first day and a sale at the
current market price on the last day of the period reported. Dividends
and distributions, if any, are assumed for purposes of this calculation to
be reinvested at prices obtained under the Fund's dividend reinvestment
plan. Total investment return does not reflect brokerage commissions or
sales charges. Returns for a period less than one year are not annualized.
(4) This voluntary expense decrease is reflected in both the expense and
the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
PORTFOLIO OF INVESTMENTS
--------------------------------------------------------------------------------
Federated Premier Municipal Income Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
February 3, 2003 (Unaudited)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Principal Amount Value
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LONG-TERM MUNICIPALS - 103.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Alabama - 4.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$2,000,000 Alabama Water PCA, Revolving Fund Loan $ 1,992,180
Revenue Bonds (Series 2003A), 4.80% (AMBAC
INS)/(Original Issue Yield: 4.90%), 8/15/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Jefferson County, AL Sewer Revenue Bonds
2,000,000 (Series 2002D), 5.25%, 2/1/2026 2,062,600
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
4,054,780
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Arizona - 2.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Salt River, AZ Agricultural Improvements and
1,500,000 Power System Distribution, Electric System 1,513,365
Revenue Bonds (Series 2002A), 5.00% (Salt
River Project), 1/1/2031
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Tempe, AZ IDA, Senior Living Revenue Bonds
750,000 (Series A), 6.75% (Friendship Village of 717,360
Tempe), 12/1/2030
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
2,230,725
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
California - 8.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
California State Department of Water
2,000,000 Resources Power Supply Program, Power Supply 2,040,900
Revenue Bonds (Series A), 5.375% (Original
Issue Yield: 5.48%), 5/1/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
California State Public Works Board,
3,000,000 Department of General Services, Revenue 3,001,170
Bonds, 5.000%, 12/1/2027
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Golden State, CA Tobacco Securitization
2,000,000 Corp., Tobacco Settlement Revenue Bonds 1,950,880
(Series 2003A1), 6.75%, 6/1/2039
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
La Verne, CA, Revenue Certificates of
500,000 Participation (Series 2003B), 6.625% 494,845
(Brethren Hillcrest Homes)/(Original Issue
Yield: 6.70%), 2/15/2025
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
7,487,795
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Colorado - 1.1%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Colorado Health Facilities Authority, Revenue
1,000,000 Bonds (Series 2002A), 6.125% (Covenant 998,520
Retirement Communities, Inc.)/(Original Issue
Yield: 6.40%), 12/1/2033
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Connecticut - 3.2%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Connecticut State Transportation
2,750,000 Infrastructure Authority, Transportation 2,826,148
Infrastructure Special Tax Revenue Bonds
(Series 2002B), 5.00% (AMBAC INS), 12/1/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
District of Columbia - 2.7%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
District of Columbia, (Series 2000) Weekly
2,500,000 VRDNs (Public Welfare Foundation, 2,399,300
Inc.)/(SunTrust Bank LOC)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Florida - 4.4%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Capital Trust Agency, FL, Revenue Bonds
1,000,000 (Series 2001), 10.00% (Seminole Tribe of 1,028,230
Florida Convention and Resort Hotel
Facilities), 10/1/2033
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Citrus County, FL Hospital Board Revenue
1,490,000 Bonds, 6.375% (Citrus Memorial Hospital), 1,472,373
8/15/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Harbor Bay, FL Community Development
1,320,000 District, Special Assessment Revenue Bonds, 1,320,330
6.75%, 5/1/2034
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
3,820,933
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Georgia - 3.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Athens, GA Housing Authority, Lease Revenue
1,500,000 Bonds, 5.25% (University of Georgia-East 1,556,460
Campus)/(AMBAC INS), 12/1/2023
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Athens, GA Housing Authority, Student Housing
1,500,000 Lease Revenue Bonds , 5.25% (University of 1,572,060
Georgia-East Campus)/(AMBAC INS), 12/1/2021
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
3,128,520
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Hawaii - 1.1%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Hawaii State Department of Budget and
1,000,000 Finance, Special Purpose Revenue Bonds 983,420
(Series 2003A), 8.00% (Kahala Nui Project),
11/15/2033
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Illinois - 2.3%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Chicago, IL Special Assessment , Improvement
1,000,000 Revenue Bonds , 6.75% (Lakeshore East 997,960
Project)/(Original Issue Yield: 6.769%),
12/1/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Illinois Educational Facilities Authority
1,000,000 Revenue Bonds (Series 2003A), 5.70% 974,920
(Augustana College), 10/1/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
1,972,880
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Kentucky - 2.3%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Kentucky Economic Development Finance
2,000,000 Authority, Health System Revenue Bonds 2,051,380
(Series 2000A), 6.625% (Norton Healthcare,
Inc.), 10/1/2028
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Massachusetts - 4.7%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Commonwealth of Massachusetts, Construction
3,000,000 Loan LT GO Bonds (Series 2002E), 5.25% (FGIC 3,135,450
INS), 1/1/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Commonwealth of Massachusetts, Development
1,000,000 Financing Agency Revenue Bonds, 5.75% 969,250
(Pharmacy & Allied Health Sciences), 7/1/2033
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
4,104,700
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Michigan - 2.3%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cornell Township, MI Economic Development
2,000,000 Revenue Bonds, 5.875% (Meadwestvaco-Escanaba 2,002,760
Project), 5/1/2018
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Missouri - 1.1%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Missouri State Finance Board, Infrastructure
1,000,000 Facilities Revenue Bonds (Series 2003A), 1,000,290
5.50%, 12/1/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Mississippi - 2.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Lowndes County, MS Solid Waste Disposal and
2,000,000 Pollution Control Revenue Bonds, 6.70% 2,236,140
(Weyerhauser Co. Project), 4/1/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
North Carolina - 1.2%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Haywood County, NC Industrial Facilities and
1,000,000 Pollution Control Financing Authority, 1,009,980
Revenue Bonds, 6.00% (Champion International
Corp. Project), 3/1/2020
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
North Dakota - 2.3%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Ward County, ND Health Care Facilities
2,000,000 Revenue Bonds, 6.25% (Trinity Obligated 2,012,960
Group), 7/1/2026
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Pennsylvania - 5.1%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Allegheny County, PA HDA, Health System
1,000,000 Revenue Bonds (Series 2000), 9.25% (West Penn 1,099,770
Allegheny Health System)/(Original Issue
Yield: 9.70%), 11/15/2030
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cumberland County, PA Municipal Authority,
1,295,000 Retirement Community Revenue Bonds (Series 1,268,103
2002A), 7.25% (Wesley Affiliated Services,
Inc. Obligated Group)/(Original Issue Yield:
7.50%), 1/1/2035
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Pennsylvania State Higher Education
2,000,000 Facilities Authority, Revenue Bonds, Series 2,064,880
A, 6.00% (UPMC Health System)/(Original Issue
Yield: 6.16%), 1/15/2031
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
4,432,753
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
South Carolina - 5.2%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
South Carolina Jobs-EDA, Health System
2,500,000 Revenue Bonds (Series A), 5.625% (Bon Secours 2,478,925
Health System)/(Original Issue Yield: 5.84%),
11/15/2030
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
South Carolina State Public Service
2,000,000 Authority, Refunding Revenue Bonds (Series 2,067,040
2002D), 5.00% (FSA INS), 1/1/2020
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
4,545,965
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Tennessee - 7.8%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Johnson City, TN Health and Educational
2,000,000 Facilities Board, Hospital Revenue Bonds, 2,169,300
7.50%,7/1/2025
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Knox County, TN Health Education & Housing
1,500,000 Facilities Board, Revenue Bonds , 6.375% 1,527,615
(Baptist Health System of East
Tennessee)/(Original Issue Yield: 6.50%),
4/15/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Knox County, TN Health Education & Housing
1,000,000 Facilities Board, Revenue Bonds , 6.50% 1,021,170
(Baptist Health System of East
Tennessee)/(Original Issue Yield: 6.50%),
4/15/2031
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Shelby County, TN Health Education & Housing
2,000,000 Facilities Board, Revenue Bonds , 6.50% 2,112,940
(Methodist Healthcare)/(Original Issue Yield:
6.60%), 9/1/2026
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
6,831,025
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Texas - 7.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Leander, TX Independent School District,
1,900,000 Refunding UT GO Bonds , 5.375% (PSFG INS), 2,048,314
8/15/2017
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
North Central Texas Health Facilities
1,000,000 Development Revenue Bonds (Series 1999A), 1,020,420
7.50% (Retirement Facilities, Northwest
Senior Housing), 11/15/2029
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Spring Branch, TX Independent School
2,000,000 District, Refunding LT GO Bonds , 5.20% (PSFG 2,076,800
INS)/(Original Issue Yield: 5.23%), 2/1/2020
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Texas State University System, Refunding
1,500,000 Revenue Bonds , 5.00% (FSA INS), 3/15/2020 1,540,260
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
6,685,794
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Utah - 6.2%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Emery County, UT Pollution Control Revenue
3,400,000 Bonds, Daily VRDNs (Pacificorp 3,400,000
Project)/(AMBAC INS)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Utah Transit Authority, Sales Tax Revenue
2,000,000 Bonds (Series 2002A), 5.00% (FSA INS), 2,011,640
6/15/2027
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
5,411,640
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Virginia - 3.8%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Hampton, VA Convention Center, Revenue Bonds,
1,280,000 5.125%, 1/15/2028 1,308,198
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Peninsula Ports Authority, VA, Residential Care Facilit972,870
1,000,000 Revenue Bonds, 7.375% (Virginia Baptist Homes), 12/1/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Richmond, VA, UT GO Bonds (Series 2002A),
1,000,000 5.00% (FSA INS), 7/15/2019 1,047,670
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
3,328,738
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Washington - 9.7%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Everett, WA, LT GO Refunding Bonds, 5.00%
1,000,000 (MBIA Insurance Corp. INS), 12/1/2020 1,029,280
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Seattle, WA Municipal Light & Power,
3,915,000 Improvement & Refunding Revenue Bonds , 3,956,616
5.125% (FSA INS)/(Original Issue Yield:
5.30%), 3/1/2026
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Tobacco Settlement Authority, WA, Tobacco
1,500,000 Settlement Asset Backed Revenue Bonds , 1,452,780
6.625% (Original Issue Yield: 6.875%),
6/1/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Washington State, UT GO Bonds (Series B),
2,000,000 5.00% (FSA INS)/(Original Issue Yield: 2,042,460
5.05%), 1/1/2021
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
8,481,136
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Wisconsin - 6.9%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Wisconsin State HEFA, Health Facilities
4,000,000 Revenue Bonds (Series A), 5.25% (Ministry 4,041,560
Health Care)/(MBIA INS)/(Original Issue
Yield: 5.38%), 2/15/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Wisconsin State HEFA, Health Facilities
1,000,000 Revenue Bonds, 6.00% (Synergyhealth, 992,620
Inc.)/(Original Issue Yield: 6.100%),
11/15/2023
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Wisconsin State HEFA, Health Facilities
1,000,000 Revenue Bonds, 7.25% (Community Memorial 978,910
Hospital, Inc. Project)/(Original Issue
Yield: 7.45%), 1/15/2033
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL
6,013,090
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $90,272,90,051,372
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The cost of investments for federal tax purposes amounts to
1 $90,272,010. The net unrealized depreciation of investments
on a federal tax basis amounts to $220,638 which is comprised
of $158,065 appreciation and $378,703 depreciation at
February 3, 2003.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Note: The categories of investments are shown as a percentage of net assets
($87,420,823) at February 3, 2003.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following acronyms were used throughout this portfolio:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AMBAC --American Municipal Bond Assurance Corporation
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EDA --Economic Development Authority
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FGIC --Financial Guaranty Insurance Corporation
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FSA --Financial Security Assurance
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
GO --General Obligation
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
GTD --Guaranteed
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
HDA --Hospital Development Authority
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
HEFA --Health and Education Facilities Authority
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
IDA --Industrial Development Authority
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
INS --Insured
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LOC --Letter of Credit
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LT --Limited Tax
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
MBIA --Municipal Bond Insurance Association
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PCA --Pollution Control Authority
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UT --Unlimited Tax
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VRDNs --Variable Rate Demand Notes
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FEDERATED PREMIER MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
February 3, 2003 (Unaudited)
Assets:
Total investments in securities, at value
(identified cost $90,272,010) $ 90,051,372
Cash 7,787
Receivable for investments sold 1,244,348
Income receivable 1,052,814
Total assets 92,356,321
Liabilities:
Payable for investments purchased $ 4,899,838
Accrued expenses 35,660
Total liabilities 4,935,498
Net assets for 6,106,981 shares outstanding 87,420,823
Net Assets Consist of:
Paid in capital 87,268,792
Net unrealized depreciation of investments (220,638)
Accumulated net realized loss on
investments (4,072)
Undistributed net investment income 376,741
Total Net Assets 87,420,823
Net Asset Value Per Share
$87,420,823 / 6,106,981 shares outstanding $14.31
Market Value Per Share $14.55
See Notes which are an integral part of the Financial Statements
---------------------------------------------------------------------------
FEDERATED PREMIER MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
Period Ended February 3, 2003 (Unaudited) (1)
Investment Income:
Interest $ 431031
Expenses:
Investment adviser fee $ 54,290
Administrative personnel and
services fee 14,726
Custodian fees 543
Transfer and dividend
disbursing agent fees and
expenses 3,455
Auditing fees 2,122
Legal fees 987
Portfolio accounting fees 5,430
Printing and postage 1,974
Insurance premiums 148
Miscellaneous 5,083
Total expenseS 88,758
Waivers and Expense Reduction:
Waiver of investment adviser fee (19,742)
Waiver of administrative
personnel and services fee (14,726)
Total waivers and expense
reduction (34,468)
Net expenses 54,290
Net investment income 376,741
Realized and Unrealized Gain
(Loss) on Investments:
Net realized loss on
investments (4,072)
Net change in unrealized
depreciation of investments (220,638)
Net realized and unrealized
loss on investments (224,710)
Change in net assets resulting
from operations 152,031
(1) Reflects operations for the period from December 20, 2002
(commencement of investment operations) to February 3, 2003.
===========================================================================
See Notes which are an integral part of the Financial Statements
FEDERATED PREMIER MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
Period
Ended
February 3, 2003
(1)
Unaudited
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 376,741
Net realized loss on investments (4,072 )
Net change in unrealized depreciation of
investments (220,638 )
Change in net assets resulting from operations 152,031
Distributions to Shareholders:
Distributions from net investment income --
Share Transactions:
Net proceeds from the issuance of common shares 87,268,792
Change in net assets 87,420,823
Net Assets:
Beginning of period --
End of period (including undistributed net
investment income of $376,741) $ 83,420,823
(1) Reflects operations for the period from December 20, 2002
(commencement of investment operations) to February 4, 2003.
===========================================================================
See Notes which are an integral part of the Financial Statements
Federated Premier Municipal Income Fund
NOTES TO FINANCIAL STATEMENTS
February 3, 2003 (Unaudited)
---------------------------------------------------------------------------
ORGANIZATION
Federated Premier Municipal Income Fund (the "Fund") was organized as a
Delaware statutory trust on October 16, 2002 and is registered under the
Investment Company Act of 1940, as amended (the "Act") as a diversified,
closed-end management investment company. The investment objective of the
Fund is to provide current income exempt from federal regular income tax,
including alternative minimum tax.
Prior to commencing operations on December 20, 2002, the Fund had no
operations other than matters relating to their organization and
registration and the sales and issuance of 6,981 shares of common stock to
Federated Investment Management Company. The Fund issued 5,850,000 shares
of common stock in its initial public offering on December 20, 2002.
These shares were issued at $15.00 per share before underwriting discount
of $0.68 per share. Offering costs of $175,709 (representing $0.03 per
share) were offset against proceeds of the offering and have been charged
to paid-in capital. The Investment Adviser has paid all offering cost
(other than sales load) and organizational expenses exceeding $0.03 per
share of the Fund. An additional 250,000 shares were issued on February 3,
2003 at $15.00 per share.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles
("GAAP") in the United States of America.
Investment Valuation
Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity,
type of issue, and any other factors or market data the pricing service
deems relevant. Short-term securities are valued at the prices provided
by an independent pricing service. However, short-term securities with
remaining maturities of 60 days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.
Securities for which no quotations are readily available are valued at
fair value as determined in good faith using methods approved by the Board
of Trustees (the "Trustees").
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. All discount/premiums are
accreted/amortized for financial reporting purposes as required. Dividend
income and distributions to shareholders are recorded on the ex-dividend
date. Non-cash dividends included in dividend income, if any, are
recorded at fair value.
Federal Taxes
It is the Fund's policy to comply with the provisions of the Internal
Revenue Code, as amended, (the "Code"), applicable to regulated investment
companies and to distribute to shareholders each year substantially all of
its income. Accordingly, no provision for federal tax is necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The
Fund records when-issued securities on the trade date and maintains
security positions such that sufficient liquid assets will be available to
make payment for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis are marked to market daily and begin
earning interest on the settlement date. Losses may occur on these
transactions due to changes in market conditions or the failure of
counterparties to perform under the contract.
Restricted Securities
Restricted securities are securities that may only be resold upon
registration under federal securities laws or in transactions exempt from
such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense
either upon demand by the Fund or in connection with another registered
offering of the securities. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. Such
restricted securities may be determined to be liquid under criteria
established by the Trustees. The Fund will not incur any registration
costs upon such resales. The Fund's restricted securities are valued at
the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined in good faith using
methods approved by the Trustees.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts of
assets, liabilities, expenses and revenues reported in the financial
statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis.
CAPITAL STOCK
At February 3, 2003, there is an unlimited number of par value shares
($0.01 per share) authorized. Of the 6,106,981 common shares outstanding
at February 3, 2003, the advisor owned 6,981 shares.
INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The Fund has entered into an Investment Management Agreement (the
"Agreement") with the Federated Investment Management Company (the
"Adviser") to serve as investment manager to the Fund. Pursuant to the
Agreement, the Fund pays the Adviser an annual management fee, payable
daily, at the annual rate of 0.55% of the Fund's managed assets.
In order to reduce fund expenses, the Adviser has contractually agreed to
waive a portion of its investment adviser fee at the annual rate of 0.20%
of the averaged daily value of the Fund's managed assets, not inclusive of
any assets attributable to any preferred shares that may be issued, from
the commencement of operations through December 31, 2007, and for a
declining amount thereafter through December 31, 2010.
Administrative Fee
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services.
The fee paid to FServ is based on a scale that ranges from 0.150% to
0.075% of the average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum
per portfolio and $30,000 per each additional class. FServ may
voluntarily choose to waive any portion of its fee. FServ can modify or
terminate this voluntary waiver at any time at its sole discretion.
Transfer and Dividend Disbursing Agent Fees and Expenses
EquiServe Trust Company, N.A. ("EquiServe") serves as transfer and
dividend disbursing agent for the Fund. The fee paid to EquiServe is
based on the size, type and number of accounts and transactions made by
shareholders.
Portfolio Accounting Fees
FServ maintains the Fund's accounting records for which it receives a
fee. The fee is based on the level of the Fund's average daily net
assets for the period, plus out-of-pocket expenses.
Interfund Transactions
During the period ended February 3, 2003, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment advisers), common Trustees/Trustees, and/or common
Officers. These purchase and sale transactions complied with Rule 17a-7
under the Act and amounted to $36,477,250 and $55,960,000, respectively.
General
Certain of the Officers and Trustees of the Corporation are Officers and
Trustees or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities (and
in-kind contributions), for the period ended February 3, 2003, were as
follows:
-----------------------------------------------------------------
Purchases $ 98,863,982
-----------------------------------------------------------------
-----------------------------------------------------------------
Sales $ 11,974,404
-----------------------------------------------------------------
AA-55105105
APPENDIX A
FEDERATED PREMIER MUNICIPAL INCOME FUND
STATEMENT OF PREFERENCES OF
AUCTION MARKET PREFERRED SHARES
("AMPS")
TABLE OF CONTENTS
Definitions.............................................................. AA-2
Part I................................................................... AA-19
1. Number of Authorized Shares........................................... AA-19
2. Dividends............................................................. AA-19
3. Gross-up Payments..................................................... AA-23
4. Designation of Special Rate Periods................................... AA-24
5. Voting Rights......................................................... AA-26
6. Investment Company Act Preferred Shares Asset Coverage................ AA-30
7. Preferred Shares Basic Maintenance Amount............................. AA-30
8. Reserved.............................................................. AA-31
9. Restrictions on Dividends and Other Distributions..................... AA-32
10.............................................Rating Agency Restrictions AA-33
11.............................................................Redemption AA-38
12.....................................................Liquidation Rights AA-41
13..........................................................Miscellaneous AA-42
Part II.................................................................. AA-43
1. Orders................................................................ AA-43
2. Submission of Orders by Broker-Dealers to Auction Agent............... AA-45
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and AA-47
Applicable Rate.......................................................
4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares.............................................. AA-49
5. Notification of Allocations........................................... AA-51
6. Auction Agent......................................................... AA-51
7. Transfer of AMPS...................................................... AA-52
8. Global Certificate.................................................... AA-52
Exhibit A................................................................ AA-54
FEDERATED PREMIER MUNICIPAL INCOME FUND, a Delaware statutory trust
(the "Fund"), certifies that:
First: Pursuant to authority expressly vested in the Board of
Trustees of the Fund by Article VI of the Fund's Agreement and Declaration
of Trust, as amended and restated (which, as hereafter restated, amended
and supplemented from time to time is, together with this Statement,
herein called the "Declaration"), the Board of Trustees has, by
resolution, authorized the issuance of shares of the Fund's authorized
preferred shares, liquidation preference $25,000 per share, having such
designation or designations as to series as is set forth in Section 1 of
Exhibit A hereto and such number of shares per such series as is set forth
in Section 2 of Exhibit A hereto.
Second: The preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption, of the shares of each series of preferred shares now or
hereafter described in Section 1 of Exhibit A hereto ("AMPS") are as
follows (each such series being referred to herein as a series of AMPS,
and shares of all such series being referred to herein individually and
collectively as AMPS).
DEFINITIONS
Except as otherwise specifically provided in Section 3 of Exhibit A
hereto, as used in this Statement, the following terms shall have the
following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context
otherwise requires:
(1) "'AA' FINANCIAL COMPOSITE COMMERCIAL PAPER RATE," on any date for
any Rate Period of shares of a series of AMPS, shall mean (i) (A) in the
case of any Minimum Rate Period or any Special Rate Period of fewer than
49 Rate Period Days, the interest equivalent of the 30-day rate; provided,
however, that if such Rate Period is a Minimum Rate Period and the "AA"
Financial Composite Commercial Paper Rate is being used to determine the
Applicable Rate for shares of such series when all of the Outstanding
shares of such series are subject to Submitted Hold Orders, then the
interest equivalent of the seven- day rate, and (B) in the case of any
Special Rate Period of (1) 49 or more but fewer than 70 Rate Period Days,
the interest equivalent of the 60-day rate; (2) 70 or more but fewer than
85 Rate Period Days, the arithmetic average of the interest equivalent of
the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate Period
Days, the interest equivalent of the 90-day rate; (4) 99 or more but fewer
than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than
141 Rate Period Days, the interest equivalent of the 120-day rate; (6) 141
or more but fewer than 162 Rate Period Days, the arithmetic average of the
interest equivalents of the 120-day and 180-day rates; and (7) 162 or more
but fewer than 183 Rate Period Days, the interest equivalent of the
180-day rate, in each case on commercial paper placed on behalf of issuers
whose corporate bonds are rated "AA" by S&P or the equivalent of such
rating by S&P or another rating agency, as made available on a discount
basis or otherwise by the Board of Governors of the Federal Reserve System
("Federal Reserve") for the Business Day next preceding such date; or (ii)
in the event that the Federal Reserve 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" Financial Composite Commercial Paper Rate, the "AA" Financial
Composite Commercial Paper Rate shall be determined on the basis of the
quotation or quotations furnished by the remaining Commercial Paper Dealer
or Commercial Paper Dealers and any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Fund to provide such
rate or rates not being supplied by any Commercial Paper Dealer or
Commercial Paper Dealers, as the case may be, or, if the Fund does not
select any such Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers, by the remaining Commercial Paper Dealer or
Commercial Paper Dealers. For purposes of this definition, the "interest
equivalent" of a rate stated on a discount basis (a "discount rate") for
commercial paper of a given days' maturity shall be equal to the quotient
(rounded upwards to the next higher one-thousandth (.001) of 1%) of (A)
the discount rate divided by (B) the difference between (x) 1.00 and (y) a
fraction, the numerator of which shall be the product of the discount rate
times the number of days in which such commercial paper matures and the
denominator of which shall be 360.
(2) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.
(3) "AFFILIATE" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by,
in control of or under common control with the Fund; provided, however,
that no Broker-Dealer controlled by, in control of or under common control
with the Fund shall be deemed to be an Affiliate, nor shall any Person, or
any Person controlled by, in control of or under common control with such
Person, one of the trustees, directors or executive officers of which is a
Trustee of the Fund be deemed to be an Affiliate solely because such
trustee, director or executive officer is also a Trustee of the Fund.
(4) "AGENT MEMBER" shall mean a member of or participant in the
Securities Depository that will act on behalf of a Bidder.
(5) "AMPS" shall have the meaning set forth on the first page of this
Statement.
(6) "APPLICABLE RATE" shall have the meaning specified in subparagraph
(e) (i) of Section 2 of Part I of this Statement.
(7) "AUCTION" shall mean each periodic implementation of the Auction
Procedures.
(8) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the Fund
and the Auction Agent which provides, among other things, that the Auction
Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for shares of a series of AMPS so long as the Applicable
Rate for shares of such series is to be based on the results of an Auction.
(9) "AUCTION AGENT" shall mean the entity appointed as such by a
resolution of the Board of Trustees or the Executive Committee of the
Board of Trustees in accordance with Section 6 of Part II of this
Statement.
(10) "AUCTION DATE," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
(11) "AUCTION PROCEDURES" shall mean the procedures for conducting
Auctions set forth in Part II of this Statement.
(12) "AVAILABLE AMPS" shall have the meaning specified in paragraph (a)
of Section 3 of Part II of this Statement.
(13) "BENCHMARK RATE" shall have the meaning specified in paragraph
(b)(iii) of Section 3 of Part II of this Statement.
(14) "BENEFICIAL OWNER," with respect to shares of a series of AMPS,
means a customer of a Broker-Dealer who is listed on the records of that
Broker-Dealer (or, if applicable, the Auction Agent) as a holder of shares
of such series.
(15) "BID" and "BIDS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
(16) "BIDDER" and "BIDDERS" shall have the respective meanings specified
in paragraph (a) of Section 1 of Part II of this Statement; provided,
however, that neither the Fund nor any affiliate thereof shall be
permitted to be a Bidder in an Auction, except that any Broker-Dealer that
is an affiliate of the Fund may be a Bidder in an Auction, but only if the
Orders placed by such Broker-Dealer are not for its own account.
(17) "BOARD OF TRUSTEES" shall mean the Board of Trustees of the Fund or
any duly authorized committee thereof.
(18) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or
other entity permitted by law to perform the functions required of a
Broker-Dealer in Part II of this Statement, that is a member of, or a
participant in, the Securities Depository or is an affiliate of such
member or participant, has been selected by the Fund and has entered into
a Broker-Dealer Agreement that remains effective.
(19) "BROKER-DEALER AGREEMENT" shall mean an agreement among the Fund,
the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
agrees to follow the procedures specified in Part II of this Statement.
(20) "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.
(21) "CODE" means the Internal Revenue Code of 1986, as amended.
(22) "COMMERCIAL PAPER DEALERS" shall mean Merrill Lynch Money Markets
Inc., Lehman Brothers Inc. and Goldman Sachs Group, Inc., and any other
commercial paper dealer selected by the Fund as to which Moody's, Fitch or
any substitute rating agency then rating the AMPS shall not have objected
or, in lieu of any thereof, their respective affiliates or successors, if
such entity is a commercial paper dealer.
(23) "COMMON SHARES" shall mean the common shares of beneficial interest,
par value $.01 per share, of the Fund.
(24) "CURE DATE" shall mean the Preferred Shares Basic Maintenance Cure
Date or the Investment Company Act Cure Date, as the case may be.
(25) "DATE OF ORIGINAL ISSUE," with respect to shares of a series of
AMPS, shall mean the date on which the Fund initially issued such shares.
(26) "DECLARATION" shall have the meaning specified on the first page of
this Statement.
(27) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations rated
at least P-1, MIG-1 or VMIG-1 by Moody's, or F1 by Fitch.
(28) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i)(a)
with respect to a Moody's Eligible Asset that is not currently callable as
of such Valuation Date at the option of the issuer thereof, the quotient
of the Market Value thereof divided by the applicable Moody's Discount
Factor, or (b) with respect to a Moody's Eligible Asset that is currently
callable as of such Valuation Date at the option of the issuer thereof,
the quotient of (1) the lesser of the Market Value or next call price
thereof, including any call premium, divided by (2) the applicable Moody's
Discount Factor, and (ii) with respect to a Fitch Eligible Asset that is
not currently callable as of such Valuation Date at the option of the
issuer thereof, the quotient of the Market Value thereof divided by the
applicable Fitch Discount Factor, or (b) with respect to a Fitch Eligible
Asset that is currently callable as of such Valuation Date at the option
of the issuer thereof, the quotient of (1) the lesser of the Market Value
or next call price thereof, including any call premium, divided by (2) the
applicable Fitch Discount Factor.
(29) "DIVIDEND PAYMENT DATE," with respect to shares of a series of AMPS,
shall mean any date on which dividends are payable on shares of such
series pursuant to the provisions of paragraph (d) of Section 2 of Part I
of this Statement.
(30) "DIVIDEND PERIOD," with respect to shares of a series of AMPS, shall
mean the period from and including the Date of Original Issue of shares of
such series to but excluding the initial Dividend Payment Date for shares
of such series and any period thereafter from and including one Dividend
Payment Date for shares of such series to but excluding the next
succeeding Dividend Payment Date for shares of such series.
(31) "EXISTING HOLDER," with respect to shares of a series of AMPS, shall
mean a Broker-Dealer (or any such other Person as may be permitted by the
Fund) that is listed on the records of the Auction Agent as a holder of
shares of such series.
(32) "EXPOSURE PERIOD" shall mean the period commencing on a given
Valuation Date and ending 49 days thereafter.
(33) "FAILURE TO DEPOSIT," with respect to shares of a series of AMPS,
shall mean a failure by the Fund to pay to the Auction Agent, not later
than 12:00 noon, New York City time, (A) on the Business Day next
preceding any Dividend Payment Date for shares of such series, in funds
available on such Dividend Payment Date in The City of New York, New York,
the full amount of any dividend (whether or not earned or declared) to be
paid on such Dividend Payment Date on any share of such series or (B) on
the Business Day next preceding any redemption date in funds available on
such redemption date for shares of such series in The City of New York,
New York, the Redemption Price to be paid on such redemption date for any
share of such series after notice of redemption is mailed pursuant to
paragraph (c) of Section 11 of Part I of this Statement; provided,
however, that the foregoing clause (B) shall not apply to the Fund's
failure to pay the Redemption Price in respect of AMPS when the related
Notice of Redemption provides that redemption of such shares is subject to
one or more conditions precedent and any such condition precedent shall
not have been satisfied at the time or times and in the manner specified
in such Notice of Redemption.
(34) "FEDERAL TAX RATE INCREASE" shall have the meaning specified in the
definition of "Fitch Volatility Factor" and "Moody's Volatility
Factor."
(35) "FITCH" shall mean Fitch Ratings and its successors.
(36) "FITCH DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any Fitch 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 Exposure Period, in accordance with the table set forth below.
RATING CATEGORY
Exposure Period AAA* AA* A* BBB* F1** UNRATED***
7 weeks.............. 151% 159% 166% 173% 136% 225%
8 weeks or less but
greater than 7 weeks. 154% 161% 168% 176% 137% 231%
9 weeks or less but
greater than 8 weeks. 158% 163% 170% 177% 138% 240%
___________
* Fitch rating (or, if not rated by Fitch, see the definition of "Fitch
Eligible Asset" below).
** Municipal Obligations rated F1 by Fitch (or, if not rated by Fitch,
see the definition of "Fitch Eligible Asset" below), which do not mature
or have a demand feature at par exercisable in 30 days and which do not
have a long-term rating.
*** Municipal Obligations rated less than BBB by Fitch (or, if not rated
by Fitch, see the definition of "Fitch Eligible Asset" below) or unrated.
Notwithstanding the foregoing, (i) the Fitch Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated at least F2 by Fitch (or, if not rated by Fitch,
rated MIG-1, VMIG-1 or P-1 by Moody's or at least A-1+ or SP-1+ by S&P)
and mature or have a demand feature at par exercisable in 30 days or less,
and (ii) no Fitch Discount Factor will be applied to cash or to
Receivables for Municipal Obligations Sold.
(37).. "FITCH ELIGIBLE ASSET" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash,
(ii) does not have its Fitch rating, as applicable, suspended by Fitch,
and (iii) is part of an issue of Municipal Obligations of at least
$10,000,000. Municipal Obligations issued by any one issuer and rated BB
or lower or not rated (for the purposes of this definition only, "Other
Securities") may comprise no more than 4% of total Fitch Eligible Assets;
such Other Securities, if any, together with any Municipal Obligations
issued by the same issuer and rated BBB by Fitch may comprise no more than
6% of total Fitch Eligible Assets; such Other Securities and BBB-rated
Municipal Obligations, if any, together with any Municipal Obligations
issued by the same issuer and rated A by Fitch, may comprise no more than
10% of total Fitch Eligible Assets; and such Other Securities, and BBB and
A-rated Municipal Obligations, if any, together with any Municipal
Obligations issued by the same issuer and rated AA by Fitch, may comprise
no more than 20% of total Fitch Eligible Assets. For purposes of the
foregoing sentence (i) any Municipal Obligation backed by the guaranty,
letter of credit or insurance issued by a third party shall be deemed to
be issued by such third party if the issuance of such third party credit
is the sole determinant of the rating on such Municipal Obligation; and
(ii) any Municipal Obligation for which the nominal issuer is a conduit
for a third party the obligations of which are the sole source of revenues
for the payment of such Municipal Obligation shall be deemed to be issued
by such third party. Other Securities issued by issuers located within a
single state or territory may comprise no more than 12% of total Fitch
Eligible Assets; such Other Securities, if any, together with any
Municipal Obligations issued by issuers located within the same state or
territory and rated BBB by Fitch, may comprise no more than 20% of total
Fitch Eligible Assets; such Other Securities, BBB-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by
issuers located within the same state or territory and rated A by Fitch,
may comprise no more than 40% of total Fitch Eligible Assets; and such
Other Securities and BBB and A-rated Municipal Obligations, if any,
together with any Municipal Obligations issued by issuers located within
the same state or territory and rated AA by Fitch, may comprise no more
than 60% of total Fitch Eligible Assets. For purposes of applying the
foregoing requirements and applying the applicable Fitch Discount Factor,
if a Municipal Obligation is not rated by Fitch but is rated by Moody's
and S&P, such Municipal Obligation (excluding short-term Municipal
Obligations) will be deemed to have the Fitch rating which is the lower of
the Moody's and S&P rating. If a Municipal Obligation is not rated by
Fitch but is rated by Moody's or S&P, such Municipal Obligation (excluding
short-term Municipal Obligations) will be deemed to have such rating. For
the purposes of applying the foregoing percentage test requirements,
Eligible Assets shall be calculated without including cash; and Municipal
Obligations rated F1 by Fitch or, if not rated by Fitch, rated MIG-1,
VMIG-1 or P-1 by Moody's; or, if not rated by Moody's, rated A-1+/AA or
SP-1+/AA by S&P shall be considered to have a long-term rating of A. When
the Fund sells a Municipal Obligation and agrees to repurchase such
Municipal Obligation at a future date, such Municipal Obligation shall be
valued at its Discounted Value for purposes of determining Fitch Eligible
Assets, and the amount of the repurchase price of such Municipal
Obligation shall be included as a liability for purposes of calculating
the Preferred Shares Basic Maintenance Amount. When the Fund purchases a
Fitch Eligible Asset and agrees to sell it at a future date, such Fitch
Eligible Asset shall be valued at the amount of cash to be received by the
Fund upon such future date, provided that the counterparty to the
transaction has a long-term debt rating of at least A by Fitch and the
transaction has a term of no more than 30 days; otherwise, such Fitch
Eligible Asset shall be valued at the Discounted Value of such Fitch
Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Fitch Eligible Asset for purposes of determining the Preferred Shares
Basic Maintenance Amount to the extent it is (i) subject to any material
lien, mortgage, pledge, security interest or security agreement of any
kind (collectively, "Liens"), except for (a) Liens which are being
contested in good faith by appropriate proceedings and which Fitch (if
Fitch is then rating the AMPS) has indicated to the Fund will not affect
the status of such asset as a Fitch 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 the Fund's investment adviser, custodian or the
Auction Agent, (d) Liens by virtue of any repurchase agreement, and (e)
Liens in connection with any futures margin account; or (ii) deposited
irrevocably for the payment of any liabilities for purposes of determining
the Preferred Shares Basic Maintenance Amount.
(38) "FITCH HEDGING TRANSACTIONS" shall have the meaning specified in
paragraph (b)(1) of Section 10 of Part I of this Statement.
(39) "FITCH VOLATILITY FACTOR" shall mean, as of any Valuation Date, (i)
in the case of any Minimum Rate Period, any Special Rate Period of 28 Rate
Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or
more, a multiplicative factor equal to 275%, except as otherwise provided
in the last sentence of this definition; (ii) in the case of any Special
Rate Period of more than 28 but fewer than 36 Rate Period Days, a
multiplicative factor equal to 203%; (iii) in the case of any Special Rate
Period of more than 35 but fewer than 43 Rate Period Days, a
multiplicative factor equal to 217%; and (iv) in the case of any Special
Rate Period of more than 42 but fewer than 50 Rate Period Days, a
multiplicative factor equal to 226%; and (v) in the case of any special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a
multiplicative factor equal to 235%. If, as a result of the enactment of
changes to the Code, the greater of the maximum marginal Federal
individual income tax rate applicable to ordinary income and the maximum
marginal Federal corporate income tax rate applicable to ordinary income
will increase, such increase being rounded up to the next five percentage
points (the "Federal Tax Rate Increase"), until the effective date
described in (i) above in this definition instead shall be determined by
reference to the following table:
Federal Tax Rate Increase Fitch Volatility Factor
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
(40) "FORWARD COMMITMENTS" shall have the meaning specified in paragraph
(a)(iv) of Section 10 of Part I of this Statement.
(41) "FUND" shall mean the entity named on the first page of this
Statement, which is the issuer of the AMPS.
(42) "GROSS-UP PAYMENT" means payment to a Holder of AMPS of an amount
which, when taken together with the aggregate amount of Taxable
Allocations made to such Holder to which such Gross-up Payment relates,
would cause such Holder's dividends in dollars (after Federal income tax
consequences) from the aggregate of such Taxable Allocations and the
related Gross-up Payment to be at least equal to the dollar amount of the
dividends which would have been received by such Holder if the amount of
such aggregate Taxable Allocations had been excludable from the gross
income of such Holder. Such Gross-up Payment shall be calculated (i)
without consideration being given to the time value of money; (ii)
assuming that no Holder of AMPS is subject to the Federal alternative
minimum tax with respect to dividends received from the Fund; and (iii)
assuming that each Taxable Allocation and each Gross-up Payment (except to
the extent such Gross-up Payment is designated as an exempt-interest
dividend under Section 852(b)(5) of the Code or successor provisions)
would be taxable in the hands of each Holder of AMPS at the maximum
marginal regular Federal individual income tax rate applicable to ordinary
income or net capital gain, as applicable, or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income or net
capital gain, as applicable, whichever is greater, in effect at the time
such Gross-up Payment is made.
(43) "HOLDER," with respect to shares of a series of AMPS, shall mean the
registered holder of such shares as the same appears on the record books
of the Fund.
(44) "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(45) "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.
(46) "INITIAL RATE PERIOD," with respect to shares of a series of AMPS,
shall have the meaning specified with respect to shares of such series in
Section 5 of Exhibit A hereto.
(47) "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.
(48) "INVESTMENT COMPANY ACT" shall mean the Investment Company Act of
1940, as amended from time to time.
(49) "INVESTMENT COMPANY ACT CURE DATE," with respect to the failure by
the Fund to maintain the Investment Company Act Preferred Shares Asset
Coverage (as required by Section 6 of Part I of this Statement) as of the
last Business Day of each month, shall mean the last Business Day of the
following month.
(50) "INVESTMENT COMPANY ACT PREFERRED SHARES ASSET COVERAGE" shall mean
asset coverage, as defined in Section 18(h) of the Investment Company Act,
of at least 200% with respect to all outstanding senior securities of the
Fund which are shares of beneficial interest, including all outstanding
AMPS (or such other asset coverage as may in the future be specified in or
under the Investment Company Act as the minimum asset coverage for senior
securities which are shares or stock of a closed-end investment company as
a condition of declaring dividends on its common shares or stock).
(51) "KENNY INDEX," shall mean the Kenny S&P 30 day High Grade Index or
any successor index (provided, however, that any such successor index must
be approved by Moody's (if Moody's is then rating the AMPS) and Fitch (if
Fitch is then rating the AMPS)), made available by Kenny S&P Evaluation
Services or any successor thereto, based upon 30-day yield evaluations at
par of short-term bonds the interest on which is excludable for regular
Federal income tax purposes under the Code of "high grade" component
issuers selected by Kenny S&P Evaluation Services or any such successor
from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds, but
shall exclude any bonds the interest on which constitutes an item of tax
preference under Section 57 (a)(5) of the Code, or successor provisions,
for purposes of the "alternative minimum tax."
(52) "LATE CHARGE" shall have the meaning specified in subparagraph (e)
(1) (B) of Section 2 of Part I of this Statement.
(53) "LIQUIDATION PREFERENCE," with respect to a given number of AMPS,
means $25,000 times that number.
(54) "MARKET VALUE" of any asset of the Fund shall be the market value
thereof determined by J.J. Kenny or any other pricing service or services
designated by the Board of Trustees of the Fund, provided that the Fund
obtains written assurance from Moody's and Fitch, if Moody's and Fitch are
then rating the AMPS, and from any substitute rating agency then rating
the AMPS that such designation will not impair the rating then assigned by
Moody's, Fitch or such substitute rating agency to the AMPS (the "Pricing
Service"). Market Value of any asset shall include any interest accrued
thereon. The Pricing Service shall value portfolio securities at the mean
between the quoted bid and ask price or the yield equivalent when
quotations are not readily available. Securities for which quotations are
not readily available shall be valued at fair value as determined by the
Pricing Service using methods which include consideration of: yields or
prices of municipal obligations 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. If
the Pricing Service fails to provide the Market Value of any Municipal
Obligation, such Municipal Obligation shall be valued at the lower of two
bid quotations (one of which shall be in writing) obtained by the Fund
from two dealers who are members of the National Association of Securities
Dealers, Inc. and are making a market in such Municipal Obligations.
Futures contracts and options are valued at closing prices for such
instruments established by the exchange or board of trade on which they
are traded, or if market quotations are not readily available, are valued
at fair value as determined by the Pricing Service or if the Pricing
Service is not able to value such instruments, they shall be valued at
fair value on a consistent basis using methods determined in good faith by
the Board of Trustees.
(55) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any Valuation
Date, shall mean the aggregate amount of Gross-up Payments that would be
due if the Fund were to make Taxable Allocations, with respect to any
taxable year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned
by the Fund, as of the end of the calendar month immediately preceding
such Valuation Date, and assuming such Gross-up Payments are fully taxable.
(56) "MAXIMUM RATE," for shares of a series of AMPS on any Auction Date
for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction
Date immediately prior to the first day of any proposed Special Rate
Period designated by the Fund pursuant to Section 4 of Part I of
this Statement, the product of (A) the Reference Rate on such
Auction Date for the next Rate Period of shares of such series and
(B) the Rate Multiple on such Auction Date, unless shares of such
series have or had a Special Rate Period (other than a Special Rate
Period of 28 Rate Period Days or fewer) and an Auction at which
Sufficient Clearing Bids existed has not yet occurred for a Minimum
Rate Period of shares of such series after such Special Rate Period,
in which case the higher of:
(A) the dividend rate on shares of such series for the
then-ending Rate Period; and
(B) the product of (1) the higher of (x) the Reference
Rate on such Auction Date for a Rate Period equal in length to
the then-ending Rate Period of shares of such series, if such
then-ending Rate Period was 364 Rate Period Days or fewer, or
the Treasury Note Rate on such Auction Date for a Rate Period
equal in length to the then-ending Rate Period of shares of
such series, if such then-ending Rate Period was more than 364
Rate Period Days, and (y) the Reference Rate on such Auction
Date for a Rate Period equal in length to such Special Rate
Period of shares of such series, if such Special Rate Period
was 364 Rate Period Days or fewer, or the Treasury Note Rate
on such Auction Date for a Rate Period equal in length to such
Special Rate Period, if such Special Rate Period was more than
364 Rate Period Days and (2) the Rate Multiple on such Auction
Date; or
(ii) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate
Period designated by the Fund pursuant to Section 4 of Part I of
this Statement, the product of (A) the highest of (1) the Reference
Rate on such Auction Date for a Rate Period equal in length to the
then-ending Rate Period of shares of such series, if such
then-ending Rate Period was 364 Rate Period Days or fewer, or the
Treasury Note Rate on such Auction Date for a Rate Period equal in
length to the then-ending Rate Period of shares of such series, if
such then-ending Rate Period was more than 364 Rate Period Days, (2)
the Reference Rate on such Auction Date for the Special Rate Period
for which the Auction is being held if such Special Rate Period is
364 Rate Period Days or fewer or the Treasury Note Rate on such
Auction Date for the Special Rate Period for which the Auction is
being held if such Special Rate Period is more than 364 Rate Period
Days, and (3) the Reference Rate on such Auction Date for Minimum
Rate Periods and (B) the Rate Multiple on such Auction Date.
(57) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of 7
Rate Period Days.
(58) "MOODY'S" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
(59) "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 Exposure Period, in accordance with the table set
forth below:
RATING CATEGORY
Exposure Period Aaa* Aa* A* Baa* Other**(V)MIG-1***SP-1+****UNRATED*****
7 weeks........... 151% 159% 166% 173% 187% 136% 148% 225%
8 weeks or less
but greater than 154% 161% 168% 176% 190% 137% 149% 231%
7 weeks...........
9 weeks or less
but greater than 158% 163% 170% 177% 192% 138% 150% 240%
8 weeks...........
___________
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1, which do not mature or
have a demand feature at par exercisable in 30 days and which do not
have a long-term rating.
**** Municipal Obligations not rated by Moody's but rated A-1+ or SP-1+
by S&P, which do not mature or have a demand feature at par
exercisable in 30 days and which do not have a long-term rating.
***** Municipal Obligations rated less than Baa3 by Moody's or less than
BBB by S&P or not rated by Moody's or S&P. These Municipal
Obligations may not exceed 10% of Moody's Eligible Assets.
Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short- term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated at least MIG-1, VMIG-l or P-1 by Moody's and mature
or have a demand feature at par exercisable in 30 days or less or 125% as
long as such Municipal Obligations are rated at least A-1+/AA or SP-1+/AA
by S&P and mature or have a demand feature at par exercisable in 30 days
or less and (ii) no Moody's Discount Factor will be applied to cash or to
Receivables for Municipal Obligations Sold.
(60) "MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash,
(ii) does not have its Moody's rating, as applicable, suspended by
Moody's, and (iii) is part of an issue of Municipal Obligations of at
least $10,000,000. Municipal Obligations issued by any one issuer and
rated BBB or lower by S&P, or Ba or lower by Moody's or not rated by S&P
or Moody's (for the purposes of this definition only, "Other Securities")
may comprise no more than 4% of total Moody's Eligible Assets; such Other
Securities, if any, together with any Municipal Obligations issued by the
same issuer and rated Baa by Moody's or A by S&P, may comprise no more
than 6% of total Moody's Eligible Assets; such Other Securities, Baa and
A-rated Municipal Obligations, if any, together with any Municipal
Obligations issued by the same issuer and rated A by Moody's or AA by S&P,
may comprise no more than 10% of total Moody's Eligible Assets; and such
Other Securities, Baa, A and AA-rated Municipal Obligations, if any,
together with any Municipal Obligations issued by the same issuer and
rated Aa by Moody's or AAA by S&P, may comprise no more than 20% of total
Moody's Eligible Assets. For purposes of the foregoing sentence (i) any
Municipal Obligation backed by the guaranty, letter of credit or insurance
issued by a third party shall be deemed to be issued by such third party
if the issuance of such third party credit is the sole determinant of the
rating on such Municipal Obligation; and (ii) any Municipal Obligation for
which the nominal issuer is a conduit for a third party the obligations of
which are the sole source of revenues for the payment of such Municipal
Obligation shall be deemed to be issued by such third party. Other
Securities issued by issuers located within a single state or territory
may comprise no more than 12% of total Moody's Eligible Assets; such Other
Securities, if any, together with any Municipal Obligations issued by
issuers located within 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 Other Securities, Baa and A-rated Municipal
Obligations, if any, together with any Municipal Obligations 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 Other Securities, Baa, A and AA-rated Municipal
Obligations, if any, together with any Municipal Obligations 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
Obligation shall be deemed to be rated BBB by S&P if rated BBB-, BBB or
BBB+ by S&P, Moody's Eligible Assets shall be calculated without including
cash, and Municipal Obligations rated MIG-1, VMIG- 1 or P-1 or, if not
rated by Moody's, rated A-1+/AA or SP-1+/AA by S&P, shall be considered to
have a long-term rating of A. When the Fund sells a Municipal Obligation
and agrees to repurchase such Municipal Obligation at a future date, such
Municipal Obligation shall be valued at its Discounted Value for purposes
of determining Moody's Eligible Assets, and the amount of the repurchase
price of such Municipal Obligation shall be included as a liability for
purposes of calculating the Preferred Shares Basic Maintenance Amount.
When the Fund purchases a Moody's Eligible Asset and agrees to sell it at
a future date, such Eligible Asset shall be valued at the amount of cash
to be received by the Fund upon such future date, provided that the
counterparty to the transaction has a long-term debt rating of at least A2
from Moody's and the transaction has a term of no more than 30 days;
otherwise, such Eligible Asset shall be valued at the Discounted Value of
such Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent it is (i) subject to any material
lien, mortgage, pledge, security interest or security agreement of any
kind (collectively, "Liens"), except for (a) Liens which are being
contested in good faith by appropriate proceedings and which Moody's has
indicated to the Fund will not affect the status of such asset as a
Moody's Eligible Asset, (b) Liens for taxes that are not then due and
payable or that can be paid thereafter without penalty, (c) Liens to
secure payment for services rendered or cash advanced to the Fund by the
Fund's investment adviser, custodian or the Auction Agent, (d) Liens by
virtue of any repurchase agreement or (e) Liens in connection with any
futures margin account; or (ii) deposited irrevocably for the payment of
any liabilities for purposes of determining the Preferred Shares Basic
Maintenance Amount.
(61) "MOODY'S HEDGING TRANSACTIONS" shall have the meaning specified in
paragraph (a)(i) of Section 10 of Part I of this Statement.
(62) "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation Date,
(i) in the case of any Minimum Rate Period, any Special Rate Period of 28
Rate Period Days or fewer, or any Special Rate Period of 57 Rate Period
Days or more, a multiplicative factor equal to 275%, except as otherwise
provided in the last sentence of this definition; (ii) in the case of any
Special Rate Period of more than 28 but fewer than 36 Rate Period Days, a
multiplicative factor equal to 203%; (iii) in the case of any Special Rate
Period of more than 35 but fewer than 43 Rate Period Days, a
multiplicative factor equal to 217%; (iv) in the case of any Special Rate
Period of more than 42 but fewer than 50 Rate Period Days, a
multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a
multiplicative factor equal to 235%. If, as a result of the enactment of
changes to the Code, the greater of the maximum marginal Federal
individual income tax rate applicable to ordinary income and the maximum
marginal Federal corporate income tax rate applicable to ordinary income
will increase, such increase being rounded up to the next five percentage
points (the "Federal Tax Rate Increase"), until the effective date of such
increase, the Moody's Volatility Factor in the case of any Rate Period
described in (i) above in this definition instead shall be determined by
reference to the following table:
Volatility
Federal Tax Rate Increase Factor
5%......................... 295%
10%........................ 317%
15%........................ 341%
20%........................ 369%
25%........................ 400%
30%........................ 436%
35%........................ 477%
40%........................ 525%
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(63).. "MUNICIPAL INDEX" shall have the meaning specified in paragraph
(a)(i) of Section 10 of Part I of this Statement.
(64) "MUNICIPAL OBLIGATIONS" shall mean any and all instruments that pay
interest or make other distributions that are exempt from regular Federal
income tax and in which the Fund may invest consistent with the investment
policies and restrictions contained in its registration statement on Form
N-2 (333-102033) ("Registration Statement"), as the same may be amended
from time to time.
(65) "NOTICE OF REDEMPTION" shall mean any notice with respect to the
redemption of AMPS pursuant to paragraph (c) of Section 11 of Part I of
this Statement.
(66) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with respect
to a Special Rate Period of AMPS pursuant to subparagraph (d)(i) of
Section 4 of Part I of this Statement.
(67) "ORDER" and "ORDERS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
(68) "OUTSTANDING" shall mean, as of any Auction Date with respect to
shares of a series of AMPS, the number of shares of such series
theretofore issued by the Fund except, without duplication, (i) any shares
of such series theretofore cancelled or delivered to the Auction Agent for
cancellation or redeemed by the Fund, (ii) any shares of such series as to
which the Fund or any Affiliate thereof shall be an Existing Holder and
(iii) any shares of such series represented by any certificate in lieu of
which a new certificate has been executed and delivered by the Fund.
(69) "PERSON" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or
other entity or a government or any agency or political subdivision
thereof.
(70) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a series of
AMPS, shall mean a customer of a Broker-Dealer that is not a Beneficial
Owner of shares of such series but that wishes to purchase shares of such
series, or that is a Beneficial Owner of shares of such series that wishes
to purchase additional shares of such series.
(71) "POTENTIAL HOLDER," with respect to shares of a series of AMPS,
shall mean a Broker-Dealer (or any such other person as may be permitted
by the Fund) that is not an Existing Holder of shares of such series or
that is an Existing Holder of shares of such series that wishes to become
the Existing Holder of additional shares of such series.
(72) "PREFERRED SHARES 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 AMPS outstanding on such date multiplied by $25,000 (plus
the product of the number of shares of any other series of preferred
shares outstanding on such date multiplied by the liquidation preference
of such shares), plus any redemption premium applicable to the AMPS (or
other preferred shares) then subject to redemption; (B) the aggregate
amount of dividends that will have accumulated at the respective
Applicable Rates (whether or not earned or declared) to (but not
including) the first respective Dividend Payment Dates for the AMPS
outstanding that follow such Valuation Date (plus the aggregate amount of
dividends, whether or not earned or declared, that will have accumulated
in respect of other outstanding preferred shares to, but not including,
the first respective dividend payment dates for such other shares that
follow such Valuation Date); (C) the aggregate amount of dividends that
would accumulate on shares of each series of the AMPS outstanding from
such first respective Dividend Payment Date therefor through the 49th day
after such Valuation Date, at the Maximum Rate (calculated as if such
Valuation Date were the Auction Date for the Rate Period commencing on
such Dividend Payment Date) for a Minimum Rate Period of shares of such
series to commence on such Dividend Payment Date, assuming, solely for
purposes of the foregoing, that if on such Valuation Date the Fund shall
have delivered a Notice of Special Rate Period to the Auction Agent
pursuant to Section 4(d)(i) of this Part I with respect to shares of such
series, such Maximum Rate shall be the higher of (a) the Maximum Rate for
the Special Rate Period of shares of such series to commence on such
Dividend Payment Date and (b) the Maximum Rate for a Minimum Rate Period
of shares of such series to commence on such Dividend Payment Date,
multiplied by the Volatility Factor applicable to a Minimum Rate Period,
or, in the event the Fund shall have delivered a Notice of Special Rate
Period to the Auction Agent pursuant to section 4(d)(i) of this Part I
with respect to shares of such series designating a Special Rate Period
consisting of 56 Rate Period Days or more, the Volatility Factor
applicable to a Special Rate Period of that length (plus the aggregate
amount of dividends that would accumulate at the maximum dividend rate or
rates on any other preferred shares outstanding from such respective
dividend payment dates through the 56th day after such Valuation Date, as
established by or pursuant to the respective statements establishing and
fixing the rights and preferences of such other preferred shares) (except
that (1) if such Valuation Date occurs at a time when a Failure to Deposit
(or, in the case of preferred shares other than the AMPS, a failure
similar to a Failure to Deposit) has occurred that has not been cured, the
dividend for purposes of calculation would accumulate at the current
dividend rate then applicable to the shares in respect of which such
failure has occurred and (2) for those days during the period described in
this subparagraph (C) in respect of which the Applicable Rate in effect
immediately prior to such Dividend Payment Date will remain in effect (or,
in the case of preferred shares other than the AMPS, in respect of which
the dividend rate or rates in effect immediately prior to such respective
dividend payment dates will remain in effect), the dividend for purposes
of calculation would accumulate at such Applicable Rate (or other rate or
rates, as the case may be) in respect of those days); (D) the amount of
anticipated expenses of the Fund for the 90 days subsequent to such
Valuation Date; (E) the amount of the Fund's Maximum Potential Gross-up
Payment Liability in respect of AMPS (and similar amounts payable in
respect of other preferred shares pursuant to provisions similar to those
contained in Section 3 of Part I of this Statement) as of such Valuation
Date; (F) the amount of any indebtedness or obligations of the Fund senior
in right of payment to the AMPS; 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 payables for Municipal
Obligations purchased as of such Valuation Date and any liabilities
incurred for the purpose of clearing securities transactions) less (ii)
the value (i.e., for purposes of current Moody's guidelines, the face
value of cash, short-term Municipal Obligations rated MIG-1, VMIG-1 or
P-1, and short-term securities that are the direct obligation of the U.S.
Government, provided in each case that such securities mature on or prior
to the date upon which any of (i) (A) through (i) (G) become payable,
otherwise the Moody's Discounted Value) of any of the Fund's assets
irrevocably deposited by the Fund for the payment of any of (i)(A) through
(i)(G).
(73) "PREFERRED SHARES BASIC MAINTENANCE CURE DATE," with respect to the
failure by the Fund to satisfy the Preferred Shares Basic Maintenance
Amount (as required by paragraph (a) of Section 7 of Part I of this
Statement) as of a given Valuation Date, shall mean the seventh Business
Day following such Valuation Date.
(74) "PREFERRED SHARES 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 Preferred Shares Basic Maintenance
Amount.
(75) "PRICING SERVICE" shall have the meaning specified in the definition
of "Market Value" above.
(76) "QUARTERLY VALUATION DATE" shall mean the last Business Day of each
February, May, August and November of each year, commencing on the date
set forth in Section 6 of Exhibit A hereto.
(77) "RATE MULTIPLE," for a series of AMPS on any Auction Date for such
series, shall mean the percentage, determined as set forth in the columns
below (depending on whether the Fund has notified the Auction Agent of its
intent to allocate income taxable for Federal income tax purposes to
shares of such series prior to the Auction establishing the Applicable
Rate for such series as provided in this Statement) based on the lower of
the prevailing ratings of shares of such series by Moody's or Fitch in
effect at the close of business on the Business Day next preceding such
Auction Date:
PREVAILING RATING APPLICABLE APPLICABLE PERCENTAGE
PERCENTAGE- -
NO NOTIFICATION NOTIFICATION
MOODY'S FITCH
Aa3 or higher AA- or higher 110% 150%
A3 to A1 A- to A+ 125% 160%
Baa3 to Baa1 BBB- to BBB+ 150% 250%
Ba3 to Ba1 BB- to BB+ 200% 275%
Below Ba3 Below BB- 250% 300%
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If such shares are rated by only one such rating agency, the
prevailing rating will be determined without reference to the rating of
any other rating agency. If neither Moody's nor Fitch shall make such a
rating available, the Rate Multiple shall be based on the equivalent
rating or ratings by S&P and/or another 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) that acts as a substitute rating
agency in respect of the AMPS of such series, and the Fund shall take all
reasonable action to enable at least one such rating agency to provide a
rating for the AMPS.
(78) "RATE PERIOD," with respect to shares of a series of AMPS, shall
mean the Initial Rate Period of shares of such series and any Subsequent
Rate Period, including any Special Rate Period, of shares of such series.
(79) "RATE PERIOD DAYS," for any Rate Period or Dividend Period, means
the number of days that would constitute such Rate Period or Dividend
Period but for the application of paragraph (d) of Section 2 of Part I of
this Statement or paragraph (b) of Section 4 of Part I of this Statement.
(80) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean for purposes
of calculation of Moody's Eligible Assets and Fitch Eligible Assets as of
any Valuation Date, no more than the aggregate of the following: (i) the
book value of receivables for Municipal Obligations sold as of or prior to
such Valuation Date if such receivables are due within five business days
of such Valuation Date, and if the trades which generated such receivables
are (x) settled through clearing house firms with respect to which the
Fund has received prior written authorization from Moody's (if Moody's is
then rating the AMPS) and Fitch (if Fitch is then rating the AMPS) or (y)
with counterparties having a Moody's long-term debt rating of at least
Baa3 (if Moody's is then rating the AMPS) and a Fitch long-term debt
rating of at least BBB (if Fitch is then rating the AMPS); and (ii) the
Discounted Value of Municipal Obligations sold as of or prior to such
Valuation Date which generated receivables, if such receivables are due
within five business days of such Valuation Date but do not comply with
either of the conditions specified in (i) above.
(81) "REDEMPTION PRICE" shall mean the applicable redemption price
specified in paragraph (a) or (b) of Section 11 of Part I of this
Statement.
(82) "REFERENCE RATE" shall mean (i) the "AA" Financial Composite
Commercial Paper Rate in the case of Minimum Rate Periods and Special Rate
Periods of fewer than 183 Rate Period Days; and (ii) the Treasury Bill
Rate in the case of Special Rate Periods of more than 182 Rate Period Days
but fewer than 365 Rate Period Days.
(83) "REGISTRATION STATEMENT" has the meaning specified in the definition
of "Municipal Obligations."
(84) "S&P" shall mean Standard & Poor's Ratings Group, and its
successors.
(85) "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 AMPS.
(86) "SELL ORDER" and "SELL ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(87) "SPECIAL RATE PERIOD," with respect to shares of a series of AMPS,
shall have the meaning specified in paragraph (a) of Section 4 of Part I
of this Statement.
(88) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning specified in
subparagraph (a)(i) of Section 11 of Part I of this Statement.
(89) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City time, on
any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as
specified by the Auction Agent from time to time.
(90) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.
(91) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(92) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.
(93) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(94) "SUBSEQUENT RATE PERIOD," with respect to shares of a series of
AMPS, shall mean the period from and including the first day following the
Initial Rate Period of shares of such series to but excluding the next
Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to
but excluding the next succeeding Dividend Payment Date for shares of such
series; provided, however, that if any Subsequent Rate Period is also a
Special Rate Period, such term shall mean the period commencing on the
first day of such Special Rate Period and ending on the last day of the
last Dividend Period thereof.
(95) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean any commercial paper
dealer selected by the Fund as to which Moody's, Fitch or any substitute
rating agency then rating the AMPS shall not have objected; provided,
however, that none of such entities shall be a Commercial Paper Dealer.
(96) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" any U.S. Government
securities dealer selected by the Fund as to which Moody's, Fitch or any
substitute rating agency then rating the AMPS shall not have objected;
provided, however, that none of such entities shall be a U.S. Government
Securities Dealer.
(97) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(98) "TAXABLE ALLOCATION" shall have the meaning specified in Section 3
of Part I of this Statement.
(99) "TAXABLE INCOME" shall have the meaning specified in paragraph
(b)(iii) of Section 3 of Part II of this Statement.
(100) "TREASURY BILL" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of 364 days or less.
(101) "TREASURY BILL RATE," on any date for any Rate Period, shall mean
(i) the bond equivalent yield, calculated in accordance with prevailing
industry convention, of the rate on the most recently auctioned Treasury
Bill with a remaining maturity closest to the length of such Rate Period,
as quoted in The Wall Street Journal on such date for the Business Day
next preceding such date; or (ii) in the event that any such rate is not
published in The Wall Street Journal, then the bond equivalent yield,
calculated in accordance with prevailing industry convention, as
calculated by reference to the arithmetic average of the bid price
quotations of the most recently auctioned Treasury Bill with a remaining
maturity closest to the length of such Rate Period, as determined by bid
price quotations as of the close of business on the Business Day
immediately preceding such date obtained from the U.S. Government
Securities Dealers to the Auction Agent.
(102) "TREASURY FUTURES" shall have the meaning specified in paragraph
(a)(i) of Section 10 of Part I of this Statement.
(103) "TREASURY NOTE" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of five years or less
but more than 364 days.
(104) "TREASURY NOTE RATE," on any date for any Rate Period, shall mean
(i) the yield on the most recently auctioned Treasury Note with a
remaining maturity closest to the length of such Rate Period, as quoted in
The Wall Street Journal on such date for the Business Day next preceding
such date; or (ii) in the event that any such rate is not published in The
Wall Street Journal, then the yield as calculated by reference to the
arithmetic average of the bid price quotations of the most recently
auctioned Treasury Note with a remaining maturity closest to the length of
such Rate Period, as determined by bid price quotations as of the close of
business on the Business Day immediately preceding such date obtained from
the U.S. Government Securities Dealers to the Auction Agent. If any U.S.
Government Securities Dealer does not quote a rate required to determine
the Treasury Bill Rate or the Treasury Note Rate, the Treasury Bill Rate
or the Treasury Note Rate shall be determined on the basis of the
quotation or quotations furnished by the remaining U.S. Government
Securities Dealer or U.S. Government Securities Dealers and any substitute
U.S. Government Securities Dealers selected by the Fund to provide such
rate or rates not being supplied by any U.S. Government Securities Dealer
or U.S. Government Securities Dealers, as the case may be, or, if the Fund
does not select any such Substitute U.S. Government Securities Dealer or
Substitute U.S. Government Securities Dealers, by the remaining U.S.
Government Securities Dealer or U.S. Government Securities Dealers.
(105) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Merrill Lynch
Government Securities, Inc., Salomon Smith Barney Inc., UBS Warburg LLC,
and any other U.S. Government securities dealer selected by the Fund as to
which Moody's (if Moody's is then rating the AMPS) or Fitch (if Fitch is
then rating the AMPS) shall not have objected or their respective
affiliates or successors, if such entity is a U.S. Government securities
dealer.
(106) "VALUATION DATE" shall mean, for purposes of determining whether the
Fund is maintaining the Preferred Shares Basic Maintenance Amount, the
last Business Day of each month.
(107) "VOLATILITY FACTOR" shall mean, as of any Valuation Date, the
Moody's Volatility Factor and the Fitch Volatility Factor.
(108) "VOTING PERIOD" shall have the meaning specified in paragraph (b) of
Section 5 of Part I of this Statement.
(109) "WINNING BID RATE" shall have the meaning specified in paragraph (a)
of Section 3 of Part II of this Statement.
Any additional definitions specifically set forth in Section 4 of
Exhibit A hereto shall be incorporated herein and made part hereof by
reference thereto.
PART I.
1. Number of Authorized Shares.
The number of authorized shares constituting a series of the AMPS
shall be as set forth with respect to such series in Section 2 of Exhibit
A hereto.
2. Dividends.
(a) Ranking. The shares of a series of the AMPS shall rank on a
parity with each other, with shares of any other series of the AMPS and
with shares of any other series of preferred shares as to the payment of
dividends by the Fund.
(b) Cumulative Cash Dividends. The Holders of any series of AMPS
shall be entitled to receive, when, as and if declared by the Board of
Trustees, out of funds legally available therefor in accordance with the
Declaration and applicable law, cumulative cash dividends at the
Applicable Rate for shares of such series, determined as set forth in
paragraph (e) of this Section 2, and no more (except to the extent set
forth in Section 3 of this Part I), payable on the Dividend Payment Dates
with respect to shares of such series determined pursuant to paragraph (d)
of this Section 2. Holders of AMPS shall not be entitled to any dividend,
whether payable in cash, property or shares, in excess of full cumulative
dividends, as herein provided, on AMPS. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on AMPS which may be in arrears, and, except to the extent set
forth in subparagraph (e)(i) of this Section 2, no additional sum of money
shall be payable in respect of any such arrearage.
(c) Dividends Cumulative From Date of Original Issue. Dividends on
any series of AMPS shall accumulate at the Applicable Rate for shares of
such series from the Date of Original Issue thereof.
(d) Dividend Payment Dates and Adjustment Thereof. The Dividend
Payment Dates with respect to shares of a series of AMPS shall be as set
forth with respect to shares of such series in Section 7 of Exhibit A
hereto; provided, however, that:
(i) if the day on which dividends would otherwise be payable
on shares of such series is not a Business Day, then such dividends
shall be payable on such shares on the first Business Day that falls
after such day; provided, however, that if the day on which
dividends would otherwise be payable is not a Business Day because
the New York Stock Exchange is closed for business for more than
three consecutive normal trading days due to an act of God, natural
disaster, act of war, civil or military disturbance, act of
terrorism, sabotage, riots or a loss or malfunction of utilities or
communications services, or the dividend payable on such date cannot
be paid for any such reason, then:
(A) the Dividend Payment Date for the affected Dividend
Period will be the next Business Day (determined without
regard to the closure of the New York Stock Exchange) on which
the Fund and its paying agent, if any, can pay the dividend;
(B) the affected Dividend Period will end on the day it
otherwise would have ended; and
(C) the next Dividend Period will begin and end on the
dates on which it otherwise would have begun and ended; and
(ii) notwithstanding Section 7 of Exhibit A hereto, the Fund
in its discretion may establish the Dividend Payment Dates in
respect of any Special Rate Period of shares of a series of AMPS
consisting of more than 28 Rate Period Days; provided, however, that
such dates shall be set forth in the Notice of Special Rate Period
relating to such Special Rate Period, as delivered to the Auction
Agent, which Notice of Special Rate Period shall be filed with the
Secretary of the Fund; and further provided that (1) any such
Dividend Payment Date shall be a Business Day and (2) the last
Dividend Payment Date in respect of such Special Rate Period shall
be the Business Day immediately following the last day thereof, as
such last day is determined in accordance with paragraph (b) of
Section 4 of this Part I.
(e) Dividend Rates and Calculation of Dividends.
(i) Dividend Rates. The dividend rate on AMPS of any series
during the period from and after the Date of Original Issue of
shares of such series to and including the last day of the Initial
Rate Period of shares of such series shall be equal to the rate per
annum set forth with respect to shares of such series under
"Designation as to Series" in Section 1 of Exhibit A hereto. For
each Subsequent Rate Period of shares of such series thereafter, the
dividend rate on shares of such series shall be equal to the rate
per annum that results from an Auction for shares of such series on
the Auction Date next preceding such Subsequent Rate Period;
provided, however, that if:
(A) an Auction for any such Subsequent Rate Period is
not held for any reason other than as described below, the
dividend rate on shares of such series for such Subsequent
Rate Period will be the Maximum Rate for shares of such series
on the Auction Date therefor; provided, however, that if the
day which would otherwise be an Auction Date is not a Business
Day because the New York Stock Exchange is closed for business
for more than three consecutive normal trading days due to an
act of God, natural disaster, act of war, civil or military
disturbance, act of terrorism, sabotage, riots or a loss or
malfunction of utilities or communications services, then the
Applicable Rate for the Subsequent Rate Period will be the
Applicable Rate determined on the previous Auction Date;
(B) any Failure to Deposit shall have occurred with
respect to shares of such series during any Rate Period
thereof (other than any Special Rate Period consisting of more
than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not
been cured), but, prior to 12:00 Noon, New York City time, on
the third Business Day next succeeding the date on which such
Failure to Deposit occurred, such Failure to Deposit shall
have been cured in accordance with paragraph (f) of this
Section 2 and the Fund shall have paid to the Auction Agent a
late charge ("Late Charge") equal to the sum of (1) if such
Failure to Deposit consisted of the failure timely to pay to
the Auction Agent the full amount of dividends with respect to
any Dividend Period of the shares of such series, an amount
computed by multiplying (x) 200% of the Reference Rate for the
Rate Period during which such Failure to Deposit occurs on the
Dividend Payment Date for such Dividend Period by (y) a
fraction, the numerator of which shall be the number of days
for which such Failure to Deposit has not been cured in
accordance with paragraph (f) of this Section 2 (including the
day such Failure to Deposit occurs and excluding the day such
Failure to Deposit is cured) and the denominator of which
shall be 360, and applying the rate obtained against the
aggregate Liquidation Preference of the outstanding shares of
such series and (2) if such Failure to Deposit consisted of
the failure timely to pay to the Auction Agent the Redemption
Price of the shares, if any, of such series for which Notice
of Redemption has been mailed by the Fund pursuant to
paragraph (c) of Section 11 of this Part I, an amount computed
by multiplying (x) 200% of the Reference Rate for the Rate
Period during which such Failure to Deposit occurs on the
redemption date by (y) a fraction, the numerator of which
shall be the number of days for which such Failure to Deposit
is not cured in accordance with paragraph (f) of this Section
2 (including the day such Failure to Deposit occurs and
excluding the day such Failure to Deposit is cured) and the
denominator of which shall be 360, and applying the rate
obtained against the aggregate Liquidation Preference of the
outstanding shares of such series to be redeemed, no Auction
will be held in respect of shares of such series for the
Subsequent Rate Period thereof and the dividend rate for
shares of such series for such Subsequent Rate Period will be
the Maximum Rate for shares of such series on the Auction Date
for such Subsequent Rate Period;
(C) any Failure to Deposit shall have occurred with
respect to shares of such series during any Rate Period
thereof (other than any Special Rate Period consisting of more
than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not
been cured), and, prior to 12:00 Noon, New York City time, on
the third Business Day next succeeding the date on which such
Failure to Deposit occurred, such Failure to Deposit shall not
have been cured in accordance with paragraph (f) of this
Section 2 or the Fund shall not have paid the applicable Late
Charge to the Auction Agent, no Auction will be held in
respect of shares of such series for the first Subsequent Rate
Period thereof thereafter (or for any Rate Period thereof
thereafter to and including the Rate Period during which (1)
such Failure to Deposit is cured in accordance with paragraph
(f) of this Section 2 and (2) the Fund pays the applicable
Late Charge to the Auction Agent (the condition set forth in
this clause (2) to apply only in the event Moody's is rating
such shares at the time the Fund cures such Failure to
Deposit), in each case no later than 12:00 Noon, New York City
time, on the fourth Business Day prior to the end of such Rate
Period), and the dividend rate for shares of such series for
each such Subsequent Rate Period shall be a rate per annum
equal to the Maximum Rate for shares of such series on the
Auction Date for such Subsequent Rate Period (but with the
prevailing rating for shares of such series, for purposes of
determining such Maximum Rate, being deemed to be "Below
"Ba3"/BB-"); or
(D) any Failure to Deposit shall have occurred with
respect to shares of such series during a Special Rate Period
thereof consisting of more than 364 Rate Period Days, or
during any Rate Period thereof succeeding any Special Rate
Period consisting of more than 364 Rate Period Days during
which a Failure to Deposit occurred that has not been cured,
and, prior to 12:00 Noon, New York City time, on the fourth
Business Day preceding the Auction Date for the Rate Period
subsequent to such Rate Period, such Failure to Deposit shall
not have been cured in accordance with paragraph (f) of this
Section 2 or, in the event Moody's is then rating such shares,
the Fund shall not have paid the applicable Late Charge to the
Auction Agent (such Late Charge, for purposes of this
subparagraph (D), to be calculated by using, as the Reference
Rate, the Reference Rate applicable to a Rate Period (x)
consisting of more than 182 Rate Period Days but fewer than
365 Rate Period Days and (y) commencing on the date on which
the Rate Period during which Failure to Deposit occurs
commenced), no Auction will be held in respect of shares of
such series for such Subsequent Rate Period (or for any Rate
Period thereof thereafter to and including the Rate Period
during which (1) such Failure to Deposit is cured in
accordance with paragraph (f) of this Section 2 and (2) the
Fund pays the applicable Late Charge to the Auction Agent (the
condition set forth in this clause (2) to apply only in the
event Moody's is rating such shares at the time the Fund cures
such Failure to Deposit), in each case no later than 12:00
Noon, New York City time, on the fourth Business Day prior to
the end of such Rate Period), and the dividend rate for shares
of such series for each such Subsequent Rate Period shall be a
rate per annum equal to the Maximum Rate for shares of such
series on the Auction Date for such Subsequent Rate Period
(but with the prevailing rating for shares of such series, for
purposes of determining such Maximum Rate, being deemed to be
"Below "Ba3"/BB-") (the rate per annum at which dividends are
payable on shares of a series of AMPS for any Rate Period
thereof being herein referred to as the "Applicable Rate" for
shares of such series).
(ii) Calculation of Dividends. The amount of dividends per
share payable on shares of a series of AMPS on any date on which
dividends shall be payable on shares of such series shall be
computed by multiplying the Applicable Rate for shares of such
series in effect for such Dividend Period or Dividend Periods or
part thereof for which dividends have not been paid by a fraction,
the numerator of which shall be the number of days in such Dividend
Period or Dividend Periods or part thereof and the denominator of
which shall be 365 if such Dividend Period consists of 7 Rate Period
Days and 360 for all other Dividend Periods, and applying the rate
obtained against $25,000.
(f) Curing a Failure to Deposit. A Failure to Deposit shall have
been cured (if such Failure to Deposit is not solely due to the willful
failure of the Fund to make the required payment to the Auction Agent)
with respect to any Rate Period of a series of AMPS if, within the
respective time periods described in subparagraph (e)(i) of this Section
2, the Fund shall have paid to the Auction Agent (A) all accumulated and
unpaid dividends on shares of such series and (B) without duplication, the
Redemption Price for shares, if any, of such series for which Notice of
Redemption has been mailed by the Fund pursuant to paragraph (c) of
Section 11 of Part I of this Statement; provided, however, that the
foregoing clause (B) shall not apply to the Fund's failure to pay the
Redemption Price in respect of AMPS when the related Redemption Notice
provides that redemption of such shares is subject to one or more
conditions precedent and any such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice
of Redemption.
(g) Dividend Payments by Fund to Auction Agent. The Fund shall pay
to the Auction Agent, not later than 12:00 Noon, New York City time, on
the Business Day next preceding each Dividend Payment Date for shares of a
series of AMPS, an aggregate amount of funds available on the next
Business Day in The City of New York, New York, equal to the dividends to
be paid to all Holders of shares of such series on such Dividend Payment
Date.
(h) Auction Agent as Trustee of Dividend Payments by Fund. All
moneys paid to the Auction Agent for the payment of dividends (or for the
payment of any Late Charge) shall be held in trust for the payment of such
dividends (and any such Late Charge) by the Auction Agent for the benefit
of the Holders specified in paragraph (i) of this Section 2. Any moneys
paid to the Auction Agent in accordance with the foregoing but not applied
by the Auction Agent to the payment of dividends (and any such Late
Charge) will, to the extent permitted by law, be repaid to the Fund at the
end of 90 days from the date on which such moneys were so to have been
applied.
(i) Dividends Paid to Holders. Each dividend on AMPS shall be paid
on the Dividend Payment Date therefor to the Holders thereof as their
names appear on the record books of the Fund on the Business Day next
preceding such Dividend Payment Date.
(j) Dividends Credited Against Earliest Accumulated but Unpaid
Dividends. Any dividend payment made on AMPS shall first be credited
against the earliest accumulated but unpaid dividends due with respect to
such shares. Dividends in arrears for any past Dividend Period may be
declared and paid at any time, without reference to any regular Dividend
Payment Date, to the Holders as their names appear on the record books of
the Fund on such date, not exceeding 15 days preceding the payment date
thereof, as may be fixed by the Board of Trustees.
(k) Dividends Designated as Exempt-Interest Dividends. Dividends
on AMPS shall be designated as exempt-interest dividends up to the amount
of tax-exempt income of the Fund, to the extent permitted by, and for
purposes of, section 852 of the Code.
3. Gross-Up Payments.
Holders of AMPS shall be entitled to receive, when, as and if
declared by the Board of Trustees, out of funds legally available therefor
in accordance with the Declaration and applicable law, dividends in an
amount equal to the aggregate Gross-up Payments as follows:
(a) Taxable Allocation Without Notice. If, but only if, the
Fund allocates any net capital gain or other income taxable for
Federal income tax purposes to a dividend paid on AMPS without
having given advance notice thereof to the Auction Agent as provided
in Section 5 of Part II of this Statement (such allocation being
referred to herein as a "Taxable Allocation"), whether or not by
reason of the fact that such allocation is made retroactively as a
result of the redemption of all or a portion of the outstanding AMPS
or the liquidation of the Fund, the Fund shall, during the Fund's
fiscal year in which the Taxable Allocation was made or within 90
days after the end of such fiscal year, provide notice thereof to
the Auction Agent and direct the Fund's dividend disbursing agent to
send such notice and a Gross-up Payment to each Holder of such
shares that was entitled to such dividend payment during such fiscal
year at such Holder's address as the same appears or last appeared
on the record books of the Fund.
(b) Reserved.
(c) No Gross-Up Payments in the Event of a Reallocation. The
Fund shall not be required to make Gross-up Payments with respect to
any net capital gains or other taxable income determined by the
Internal Revenue Service to be allocable in a manner different from
that allocated by the Fund.
4. Designation of Special Rate Periods.
(a) Length of and Preconditions for Special Rate Period. The Fund,
at its option, may designate any succeeding Subsequent Rate Period of a
series of AMPS as a Special Rate Period consisting of a specified number
of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with paragraph (c) and
subparagraph (d)(i) of this Section 4, (B) an Auction for shares of such
series shall have been held on the Auction Date immediately preceding the
first day of such proposed Special Rate Period and Sufficient Clearing
Bids shall have existed in such Auction, and (C) if any Notice of
Redemption shall have been mailed by the Fund pursuant to paragraph (c) of
Section 11 of this Part I with respect to any shares of such series, the
Redemption Price with respect to such shares shall have been deposited
with the Auction Agent. In the event the Fund wishes to designate any
succeeding Subsequent Rate Period for a series of AMPS as a Special Rate
Period consisting of more than 28 Rate Period Days, the Fund shall notify
Moody's (if Moody's is then rating such series) and Fitch (if Fitch is
then rating such series) in advance of the commencement of such Subsequent
Rate Period that the Fund wishes to designate such Subsequent Rate Period
as a Special Rate Period and shall provide Moody's (if Moody's is then
rating such series) and Fitch (if Fitch is then rating such series) with
such documents as it may request.
(b) Adjustment of Length of Special Rate Period. The length of a
Special Rate Period for any series of AMPS shall be subject to adjustment
as provided for such series in Section 8 of Exhibit A.
(c) Notice of Proposed Special Rate Period. If the Fund proposes
to designate any succeeding Subsequent Rate Period of shares of a series
of AMPS as a Special Rate Period pursuant to paragraph (a) of this Section
4, not less than 20 (or such lesser number of days as may be agreed to
from time to time by the Auction Agent) nor more than 30 days prior to the
date the Fund proposes to designate as the first day of such Special Rate
Period (which shall be such day that would otherwise be the first day of a
Minimum Rate Period), notice shall be (i) published or caused to be
published by the Fund in a newspaper of general circulation to the
financial community in The City of New York, New York, which carries
financial news, and (ii) mailed by the Fund by first-class mail, postage
prepaid, to the Holders of shares of such series. Each such notice shall
state (A) that the Fund may exercise its option to designate a succeeding
Subsequent Rate Period of shares of such series as a Special Rate Period,
specifying the first day thereof and (B) that the Fund will, by 11:00
A.M., New York City time, on the second Business Day next preceding such
date (or by such later time or date, or both, as may be agreed to by the
Auction Agent) notify the Auction Agent of either (x) its determination,
subject to certain conditions, to exercise such option, in which case the
Fund shall specify the Special Rate Period designated, or (y) its
determination not to exercise such option.
(d) Notice of Special Rate Period. No later than 11:00 A.M., New
York City time, on the second Business Day next preceding the first day of
any proposed Special Rate Period of a series of AMPS as to which notice
has been given as set forth in paragraph (c) of this Section 4 (or such
later time or date, or both, as may be agreed to by the Auction Agent),
the Fund shall deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A)
that the Fund has determined to designate the next succeeding Rate
Period of such series as a Special Rate Period, specifying the same
and the first day thereof, (B) the Auction Date immediately prior to
the first day of such Special Rate Period, (C) that such Special
Rate Period shall not commence if (1) an Auction for shares of such
series shall not be held on such Auction Date for any reason or (2)
an Auction for shares of such series shall be held on such Auction
Date but Sufficient Clearing Bids shall not exist in such Auction,
(D) the scheduled Dividend Payment Dates for shares of such series
during such Special Rate Period and (E) the Special Redemption
Provisions, if any, applicable to shares of such series in respect
of such Special Rate Period, such notice to be accompanied by a
Preferred Shares Basic Maintenance Report showing that, as of the
third Business Day next preceding such proposed Special Rate Period,
Moody's Eligible Assets (if Moody's is then rating such series) and
Fitch Eligible Assets (if Fitch is then rating such series) each
have an aggregate Discounted Value at least equal to the Preferred
Shares Basic Maintenance Amount as of such Business Day (assuming
for purposes of the foregoing calculation that (a) the Maximum Rate
is the Maximum Rate on such Business Day as if such Business Day
were the Auction Date for the proposed Special Rate Period, and (b)
the Moody's Discount Factors applicable to Moody's Eligible Assets
and the Fitch Discount Factors applicable to Fitch Eligible Assets
are determined by reference to the first Exposure Period longer than
the Exposure Period then applicable to the Fund, as described in the
definitions of Moody's Discount Factor and Fitch Discount Factor
herein); or
(ii) a notice stating that the Fund has determined not to
exercise its option to designate a Special Rate Period of shares of
such series and that the next succeeding Rate Period of shares of
such series shall be a Minimum Rate Period.
(e) Failure to Deliver Notice of Special Rate Period. If the Fund
fails to deliver either of the notices described in subparagraphs (d)(i)
or (d)(ii) of this Section 4 (and, in the case of the notice described in
subparagraph (d)(i) of this Section 4, a Preferred Shares Basic
Maintenance Report to the effect set forth in such subparagraph (if either
Moody's or Fitch is then rating the series in question)) with respect to
any designation of any proposed Special Rate Period to the Auction Agent
by 11:00 A.M., New York City time, on the second Business Day next
preceding the first day of such proposed Special Rate Period (or by such
later time or date, or both, as may be agreed to by the Auction Agent),
the Fund shall be deemed to have delivered a notice to the Auction Agent
with respect to such Special Rate Period to the effect set forth in
subparagraph (d)(ii) of this Section 4. In the event the Fund delivers to
the Auction Agent a notice described in subparagraph (d)(i) of this
Section 4, it shall file a copy of such notice with the Secretary of the
Fund, and the contents of such notice shall be binding on the Fund. In
the event the Fund delivers to the Auction Agent a notice described in
subparagraph (d)(ii) of this Section 4, the Fund will provide Moody's (if
Moody's is then rating the series in question) and Fitch (if Fitch is then
rating the series in question) a copy of such notice.
5. Voting Rights.
(a) One Vote Per Share of AMPS. Except as otherwise provided in
the Declaration or as otherwise required by law, (i) each Holder of AMPS
shall be entitled to one vote for each AMPS held by such Holder on each
matter submitted to a vote of shareholders of the Fund, and (ii) the
holders of outstanding preferred shares, including the AMPS, and of Common
Shares shall vote together as a single class; provided, however, that, at
any meeting of the shareholders of the Fund held for the election of
Trustees, the holders of outstanding preferred shares, including the AMPS,
represented in person or by proxy at said meeting, shall be entitled, as a
class, to the exclusion of the holders of all other securities and classes
of shares of beneficial interest of the Fund, to elect two Trustees of the
Fund, each preferred share entitling the holder thereof to one vote.
Subject to paragraph (b) of this Section 5, the holders of outstanding
Common Shares and preferred shares, voting together as a single class,
shall elect the balance of the Trustees.
(b) Voting for Additional Trustees.
(i) Voting Period. Except as otherwise provided in the
Declaration or as otherwise required by law, during any period in
which any one or more of the conditions described in subparagraphs
(A) or (B) of this subparagraph (b)(i) shall exist (such period
being referred to herein as a "Voting Period"), the number of
Trustees constituting the Board of Trustees shall be automatically
increased by the smallest number that, when added to the two
Trustees elected exclusively by the holders of preferred shares,
including the AMPS, would constitute a majority of the Board of
Trustees as so increased, and the holders of preferred shares,
including the AMPS, shall be entitled, voting as a class on a
one-vote-per-share basis (to the exclusion of the holders of all
other securities and classes of shares of beneficial interest of the
Fund), to elect such smallest number of additional Trustees,
together with the two Trustees that such holders are in any event
entitled to elect. A Voting Period shall commence:
(A) if at the close of business on any dividend payment
date accumulated dividends (whether or not earned or declared)
on any outstanding preferred shares, including the AMPS, equal
to at least two full years' dividends shall be due and unpaid
and sufficient cash or specified securities shall not have
been deposited with the Auction Agent for the payment of such
accumulated dividends; or
(B) if at any time holders of preferred shares,
including the AMPS, are entitled under the Investment Company
Act to elect a majority of the Trustees of the Fund.
If the Fund shall thereafter pay, or declare and set apart for
payment (or in the case of the AMPS deposit with the Auction Agent)
all dividends accumulated on all outstanding preferred shares,
including the AMPS, through the most recent payment date therefor,
then such Voting Period shall terminate. Upon the termination of a
Voting Period, the voting rights described in this subparagraph
(b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any
of the events described in this subparagraph (b)(i).
(ii) Notice of Special Meeting. As soon as practicable after
the accrual of any right of the holders of preferred shares,
including the AMPS, to elect additional Trustees as described in
subparagraph (b)(i) of this Section 5, the Fund shall notify the
Auction Agent and 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 30 days after the
date of mailing of such notice. If the Fund fails to send such
notice to the Auction Agent or 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, including the AMPS, held during a Voting Period at which
Trustees are to be elected, such holders, voting together as a class
(to the exclusion of the holders of all other securities and classes
of shares of beneficial interest of the Fund), shall be entitled to
elect the number of Trustees prescribed in subparagraph (b)(i) of
this Section 5 on a one-vote-per-share basis.
(iii) Terms of Office of Existing Trustees. The terms of
office of all persons who are Trustees of the Fund at the time of a
special meeting of Holders and holders of other preferred shares to
elect Trustees shall continue, notwithstanding the election at such
meeting by the Holders and such other holders of the number of
Trustees that they are entitled to elect, and the persons so elected
by the Holders and such other holders, together with the two
incumbent Trustees elected by the Holders and such other holders of
preferred shares and the remaining incumbent Trustees elected by the
holders of the Common Shares and preferred shares, shall constitute
the duly elected Trustees of the Fund.
(iv) Terms of Office of Certain Trustees to Terminate Upon
Termination of Voting Period. Simultaneously with the termination
of a Voting Period, the terms of office of the additional Trustees
elected by the Holders and holders of other preferred shares
pursuant to subparagraph (b)(i) of this Section 5 shall terminate,
the remaining Trustees shall constitute the Trustees of the Fund and
the voting rights of the Holders and such other holders to elect
additional Trustees pursuant to subparagraph (b)(i) of his Section 5
shall cease, subject to the provisions of the last sentence of
subparagraph (b)(i) of this Section 5.
(c) Holders of AMPS to Vote on Certain Other Matters.
(i) Increases in Capitalization; Bankruptcy. So long as any
AMPS are outstanding, the Fund shall not, without the affirmative
vote or consent of the Holders of at least a majority of the AMPS
outstanding at the time, in person or by proxy, either in writing or
at a meeting, voting as a separate class: (a) authorize, create or
issue any class or series of shares ranking prior to or on a parity
with the AMPS with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up
of the affairs of the Fund, or authorize, create or issue additional
shares of any series of AMPS (except that, notwithstanding the
foregoing, but subject to the provisions of paragraph (c)(ii) of
Section 10 of this Part I, the Board of Trustees, without the vote
or consent of the Holders of AMPS, may from time to time authorize
and create, and the Fund may from time to time issue, additional
shares of any series of AMPS or classes or series of other preferred
shares ranking on a parity with AMPS with respect to the payment of
dividends and the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Fund if the Fund
receives written confirmation from Moody's (if Moody's is then
rating the AMPS) and Fitch (if Fitch is then rating the AMPS) or any
substitute rating agency (if such agency is then rating the AMPS)
that such authorization, creation and issuance would not impair the
rating then assigned by such rating agency to the AMPS; and if, in
any event, the Fund would, after giving effect thereto, continue to
maintain the Investment Company Act Preferred Shares Asset Coverage;
or (b) amend, alter or repeal the provisions of the Declaration or
this Statement, whether by merger, consolidation or otherwise, so as
to adversely affect any preference, right or power of such AMPS or
the Holders thereof; provided, however, that (i) none of the actions
permitted by the exception to (a) above will be deemed to affect
such preferences, rights or powers, (ii) a division or split of AMPS
will be deemed to affect such preferences, rights or powers only if
the terms of such division or split adversely affect the Holders of
AMPS and (iii) the authorization, creation and issuance of classes
or series of shares ranking junior to the AMPS 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 Fitch is then rating the AMPS and such issuance would, at
the time thereof, cause the Fund not to satisfy the Investment
Company Act Preferred Shares Asset Coverage or the Preferred Shares
Basic Maintenance Amount. So long as any AMPS are outstanding, the
Fund shall not, without the affirmative vote or consent of the
Holders of at least a majority of the AMPS outstanding at the time,
in person or by proxy, either in writing or at a meeting, voting as
a separate class, file a voluntary application for relief under
Federal bankruptcy law or any similar application under state law
for so long as the Fund is solvent and does not foresee becoming
insolvent.
(ii) Investment Company Act Matters. Unless a higher
percentage is provided for in the Declaration, (A) the affirmative
vote of the Holders of a "majority of the outstanding" (as such term
is defined in the Investment Company Act) preferred stock of the
Fund, including the AMPS, voting as a separate class, shall be
required to approve (A) any plan of reorganization (as such term is
used in the Investment Company Act) adversely affecting such shares
and (B) any action requiring a vote of security holders of the Fund
under Section 13(a) of the Investment Company Act. In the event a
vote of Holders of AMPS is required pursuant to the provisions of
section 13(a) of the Investment Company 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 AMPS) and
Fitch (if Fitch is then rating the AMPS) that such vote is to be
taken and the nature of the action with respect to which such vote
is to be taken. The Fund shall, not later than ten Business Days
after the date on which such vote is taken, notify Moody's (if
Moody's is then rating the AMPS) and Fitch (if Fitch is then rating
the AMPS) of the results of such vote.
(d) Board May Take Certain Actions Without Shareholder Approval.
The Board of Trustees, without the vote or consent of the Holders of the
AMPS, may from time to time amend, alter or repeal any or all of the
definitions of the terms listed below, or any provision of this Statement
viewed by Moody's or Fitch as a predicate for any such definition, and any
such amendment, alteration or repeal will not be deemed to affect the
preferences, rights or powers of AMPS or the Holders thereof; provided
that the Board of Trustees receives written confirmation from Moody's (if
Moody's is then rating the AMPS) and Fitch (if Fitch is then rating the
AMPS) that any such amendment, alteration or repeal would not impair the
ratings then assigned to the AMPS by such rating agency:
Accountant's Confirmation Maximum Potential Gross-up Payment
Liability
Deposit Securities Moody's Discount Factor
Discounted Value Moody's Eligible Asset
Exposure Period Moody's Hedging Transactions
Fitch Discount Factor Moody's Volatility Factor
Fitch Eligible Asset
Fitch Hedging Transactions Municipal Index
Fitch Volatility Factor Preferred Shares Basic Maintenance
Amount
Forward Commitments Preferred Shares Basic Maintenance
Cure Date
Preferred Shares Basic Maintenance
Report
Independent Accountant Quarterly Valuation Date
Investment Company Act Cure Date Receivables for Municipal Obligations
Sold
Investment Company Act Preferred Shares Treasury Futures
Asset Coverage Valuation Date
Market Value Volatility Factor
(e) Rights Set Forth Herein Are Sole Rights. Unless otherwise
required by law or otherwise provided in the Declaration, the Holders of
AMPS shall not have any relative rights or preferences or other special
rights other than those specifically set forth herein.
(f) No Preemptive Rights or Cumulative Voting. The Holders of AMPS
shall have no preemptive rights or rights to cumulative voting.
(g) Voting for Trustees Sole Remedy for Fund's Failure to Pay
Dividends. In the event that the Fund fails to pay any dividends on the
AMPS, the exclusive remedy of the Holders shall be the right to vote for
Trustees pursuant to the provisions of this Section 5.
(h)...Holders Entitled to Vote. For purposes of determining any rights of
the Holders to vote on any matter, whether such right is created
by this Statement, by the other provisions of the Declaration,
by statute or otherwise, no Holder shall be entitled to vote any
AMPS and no AMPS shall be deemed to be "outstanding" for the
purpose of voting or determining the number of shares required
to constitute a quorum if, prior to or concurrently with the
time of determination of shares entitled to vote or shares
deemed outstanding for quorum purposes, as the case may be, the
requisite Notice of Redemption with respect to such shares shall
have been mailed as provided in paragraph (c) of Section 11 of
this Part I and the Redemption Price for the redemption of such
shares shall have been deposited in trust with the Auction Agent
for that purpose. No AMPS held by the Fund or any affiliate of
the Fund (except for shares held by a Broker-Dealer that is an
affiliate of the Fund for the account of its customers) shall
have any voting rights or be deemed to be outstanding for voting
or other purposes.
6. Investment Company Act Preferred Shares Asset Coverage.
The Fund shall maintain, as of the last Business Day of each month
in which any AMPS are outstanding, the Investment Company Act Preferred
Shares Asset Coverage.
7. Preferred Shares Basic Maintenance Amount.
(a) So long as AMPS 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) Moody's Eligible Assets having an
aggregate Discounted Value equal to or greater than the Preferred Shares
Basic Maintenance Amount (if Moody's is then rating the AMPS) and (ii)
Fitch Eligible Assets having an aggregate Discounted Value equal to or
greater than the Preferred Shares Basic Maintenance Amount (if Fitch is
then rating the AMPS).
(b) On or before 5:00 P.M., New York City time, on the seventh
Business Day after a Valuation Date on which the Fund fails to satisfy the
Preferred Shares Basic Maintenance Amount, and on the seventh Business Day
after the Preferred Shares Basic Maintenance Cure Date with respect to
such Valuation Date, the Fund shall complete and deliver to Moody's (if
Moody's is then rating the AMPS), Fitch (if Fitch is then rating the AMPS)
and the Auction Agent (if either Moody's or Fitch is then rating the AMPS)
a Preferred Shares Basic Maintenance Report as of the date of such failure
or such Preferred Shares 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 Preferred Shares
Basic Maintenance Report. The Fund shall also deliver a Preferred Shares
Basic Maintenance Report as of the last Business Day of each month to the
Auction Agent (if either Moody's or Fitch is then rating the AMPS),
Moody's (if Moody's is then rating the AMPS) and Fitch (if Fitch is than
rating the AMPS) on or before the seventh Business Day after such
Valuation Date. A failure by the Fund to deliver a Preferred Shares Basic
Maintenance Report pursuant to the preceding sentence shall be deemed to
be delivery of a Preferred Shares Basic Maintenance Report indicating the
Discounted Value for all assets of the Fund is less than the Preferred
Shares Basic Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of a
Preferred Shares Basic Maintenance Report in accordance with paragraph (b)
of this Section 7 relating to a Quarterly Valuation Date, the Fund shall
cause the Independent Accountant to confirm in writing to Moody's (if
Moody's is then rating the AMPS), Fitch (if Fitch is then rating the AMPS)
and the Auction Agent (if either Moody's or Fitch is then rating the AMPS)
(i) the mathematical accuracy of the calculations reflected in such Report
(and in any other Preferred Shares Basic Maintenance Report, randomly
selected by the Independent Accountant, that was prepared by the Fund
during the quarter ending on such Quarterly Valuation Date), (ii) that, in
such Report (and in such randomly selected Report), the Fund determined in
accordance with this Statement whether the Fund had, at such Quarterly
Valuation Date (and at the Valuation Date addressed in such randomly
selected Report), Moody's Eligible Assets (if Moody's is then rating the
AMPS) and Fitch Eligible Assets (if Fitch is then rating the AMPS) of an
aggregate Discounted Value at least equal to the Preferred Shares Basic
Maintenance Amount (such confirmation being herein called the
"Accountant's Confirmation"), (iii) with respect to the Fitch ratings on
Municipal Obligations, the issuer name, issue size and coupon rate listed
in such Report, that the Independent Accountant has sought to verify such
information by reference to Bloomberg Financial Services or another
independent source approved in writing by Fitch (if Fitch is then rating
the AMPS), and the Independent Accountant shall provide a listing in its
letter of any differences, (iv) with respect to the Moody's ratings on
Municipal Obligations, the issuer name, issue size and coupon rate listed
in such Report, that the Independent Accountant has sought to verify such
information by reference to Bloomberg Financial Services or another
independent source approved in writing by Moody's (if Moody's is then
rating the AMPS), and the Independent Accountant shall provide a listing
in its letter of any differences, (v) with respect to the bid or mean
price (or such alternative permissible factor used in calculating the
Market Value) provided by the custodian of the Fund's assets to the Fund
for purposes of valuing securities in the Fund's portfolio, the
Independent Accountant has traced the price used in such Report to the bid
or mean price listed in such Report as provided to the Fund and verified
that such information agrees (in the event such information does not
agree, the Independent Accountant will provide a listing in its letter of
such differences) and (vi) with respect to such confirmation to Moody's
(if Moody's is then rating the AMPS) and Fitch (if Fitch is then rating
the AMPS), that the Fund has satisfied the requirements of Section 10 of
this Part I.
(d) Within ten Business Days after the date of delivery of a
Preferred Shares Basic Maintenance Report in accordance with paragraph (b)
of this Section 7 relating to any Valuation Date on which the Fund failed
to satisfy the Preferred Shares Basic Maintenance Amount, and relating to
the Preferred Shares Basic Maintenance Cure Date with respect to such
failure to satisfy the Preferred Shares Basic Maintenance Amount, the Fund
shall cause the Independent Accountant to provide to Moody's (if Moody's
is then rating the AMPS), Fitch (if Fitch is then rating the AMPS) and the
Auction Agent (if either Moody's or Fitch is then rating the AMPS) an
Accountant's Confirmation as to such Preferred Shares Basic Maintenance
Report.
(e) If any Accountant's Confirmation delivered pursuant to
paragraph (c) or (d) of this Section 7 shows that an error was made in the
Preferred Shares Basic Maintenance Report for a particular Valuation Date
for which such Accountant's Confirmation was required to be delivered, or
shows that a lower aggregate Discounted Value for the aggregate of all
Moody's Eligible Assets (if Moody's is then rating the AMPS) or Fitch
Eligible Assets (if Fitch is then rating the AMPS), 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 Preferred Shares Basic Maintenance
Report to Moody's (if Moody's is then rating the AMPS), Fitch (if Fitch is
then rating the AMPS) and the Auction Agent (if either Moody's or Fitch is
then rating the AMPS) promptly following receipt by the Fund of such
Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first
Business Day after the Date of Original Issue of any AMPS, the Fund shall
complete and deliver to Moody's (if Moody's is then rating the AMPS) and
Fitch (if Fitch is then rating the AMPS) a Preferred Shares Basic
Maintenance Report as of the close of business on such Date of Original
Issue.
(g) On or before 5:00 p.m., New York City time, on the seventh
Business Day after either (i) the Fund shall have redeemed Common Shares
or (ii) the ratio of the Discounted Value of the Moody's Eligible Assets
or the Fitch Eligible Assets to the Preferred Shares Basic Maintenance
Amount on any Valuation Date is less than or equal to 105%, or (iii)
whenever requested by Moody's or Fitch, the Fund shall complete and
deliver to Moody's (if Moody's is then rating the AMPS) or Fitch (if Fitch
is then rating the AMPS), as the case may be, a Preferred Shares Basic
Maintenance Report as of the date of such event.
8. [Reserved].
9. Restrictions on Dividends and Other Distributions.
(a) Dividends on Shares other than the AMPS. Except as set forth
in the next sentence, no dividends shall be declared or paid or set apart
for payment on the shares of any class or series of shares of beneficial
interest of the Fund ranking, as to the payment of dividends, on a parity
with the AMPS for any period unless full cumulative dividends have been or
contemporaneously are declared and paid on the shares of each series of
the AMPS through its most recent Dividend Payment Date. When dividends
are not paid in full upon the shares of each series of the AMPS through
its most recent Dividend Payment Date or upon the shares of any other
class or series of shares of beneficial interest of the Fund ranking on a
parity as to the payment of dividends with the AMPS through their most
recent respective dividend payment dates, all dividends declared upon the
AMPS and any other such class or series of shares of beneficial interest
ranking on a parity as to the payment of dividends with AMPS shall be
declared pro rata so that the amount of dividends declared per share on
AMPS and such other class or series of shares of beneficial interest shall
in all cases bear to each other the same ratio that accumulated dividends
per share on the AMPS and such other class or series of shares of
beneficial interest bear to each other (for purposes of this sentence, the
amount of dividends declared per share of AMPS shall be based on the
Applicable Rate for such share for the Dividend Periods during which
dividends were not paid in full).
(b) Dividends and Other Distributions with Respect to Common Shares
Under the Investment Company Act. The Board of Trustees shall not declare
any dividend (except a dividend payable in Common Shares), or declare any
other distribution, upon the Common Shares, or purchase Common Shares,
unless in every such case the AMPS have, at the time of any such
declaration or purchase, an asset coverage (as defined in and determined
pursuant to the Investment Company Act) of at least 200% (or such other
asset coverage as may in the future be specified in or under the
Investment Company Act as the minimum asset coverage for senior securities
which are shares or stock of a closed-end investment company as a
condition of declaring dividends on its common shares or stock) after
deducting the amount of such dividend, distribution or purchase price, as
the case may be.
(c) Other Restrictions on Dividends and Other Distributions. For
so long as any AMPS are outstanding, and except as set forth in paragraph
(a) of this Section 9 and paragraph (c) of Section 12 of this Part I, (A)
the Fund shall not declare, pay or set apart for payment any dividend or
other distribution (other than a dividend or distribution paid in shares
of, or in options, warrants or rights to subscribe for or purchase, Common
Shares or other shares, if any, ranking junior to the AMPS 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 AMPS 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 AMPS 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 AMPS 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 AMPS 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 AMPS required to be redeemed by any provision for
mandatory redemption pertaining thereto, and (B) the Fund shall not
declare, pay or set apart for payment any dividend or other distribution
(other than a dividend or distribution paid in shares of, or in options,
warrants or rights to subscribe for or purchase, Common Shares or other
shares, if any, ranking junior to AMPS 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
AMPS 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 AMPS as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up),
unless immediately after such transaction the Discounted Value of Moody's
Eligible Assets (if Moody's is then rating the AMPS) and Fitch Eligible
Assets (if Fitch is then rating the AMPS) would each at least equal the
Preferred Shares Basic Maintenance Amount.
10. Rating Agency Restrictions.
(a) If Moody's is rating any AMPS, then:
(i) For so long as any AMPS are rated by Moody's, the Fund
will not buy or sell futures contracts, write, purchase or sell call
options on futures contracts or purchase put options on futures
contracts or write call options (except covered call options) on
portfolio securities unless it receives written confirmation from
Moody's that engaging in such transactions would not impair the
ratings then assigned to such AMPS by Moody's, except that the Fund
may purchase or sell exchange-traded futures contracts based on the
Bond Buyer Municipal Bond Index (the "Municipal Index") or United
States Treasury Bonds, Bills or Notes ("Treasury Futures"), and
purchase, write or sell exchange-traded put options on such futures
contracts and purchase, write or sell exchange-traded call options
on such futures contracts (collectively, "Moody's Hedging
Transactions"), subject to the following limitations:
(A) the Fund will only engage in Moody's Hedging
Transactions for the purpose of hedging against changes in the
value of the Fund's portfolio securities due to anticipated
changes in interest rates or market conditions; the amount
hedged will vary from time to time and may involve the
purchase and sale of futures contracts based on the Municipal
Index or Treasury Futures to reduce or eliminate the amount
hedged;
(B) the Fund will not engage in any Moody's Hedging
Transaction which would cause the Fund, at the time of such
transaction, to own or have sold net outstanding futures
contracts having an aggregate Market Value exceeding 33 1/3%
of the aggregate Market Value of assets owned by the Fund; and
(C) the Fund will not enter into an option 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 Preferred Shares Basic
Maintenance Amount.
(ii) For purposes of determining whether the Fund has Moody's
Eligible Assets with an aggregate Discounted Value that equals or
exceeds the Preferred Shares Basic Maintenance Amount, the
Discounted Value of Moody's Eligible Assets which the Fund is
obligated to deliver or receive pursuant to an outstanding option
shall be as follows:
(A) assets subject to call options written by the Fund
which are either exchange-traded and "readily reversible" or
which expire within 49 days after the date as of which such
valuation is made shall be valued at the lesser of:
(I) Discounted Value and
(II) the exercise price of the call option written
by the Fund;
(B) assets subject to call options written by the Fund
not meeting the requirements of clause (A) of this sentence
shall have no value;
(C) assets subject to put options written by the Fund
shall be valued at the lesser of:
(I) the exercise price and
(II) the Discounted Value of the subject
security; and
(D) where delivery may be made to the Fund with any
security of a class of securities, the Fund shall assume that
it will take delivery of the security with the lowest
Discounted Value.
(iii) For purposes of determining whether the Fund has Moody's
Eligible Assets with an aggregate Discounted Value that equals or
exceeds the Preferred Shares Basic Maintenance Amount, the following
amounts shall be subtracted from the aggregate Discounted Value of
the Moody's Eligible Assets held by the Fund:
(A) 10% of the exercise price of a written call
option;
(B) the exercise price of any written put option;
(C) the settlement price of the underlying futures
contract if the Fund writes put options on a futures contract;
and
(D) 105% of the Market Value of the underlying futures
contracts if the Fund writes call options on a futures
contract and does not own the underlying contract.
(iv) For so long as any AMPS are rated by Moody's, the Fund
may enter into contracts to purchase securities for a fixed price at
a future date beyond customary settlement time ("Forward
Commitments"), provided that:
(A) the Fund will maintain in a segregated account
with its custodian cash, cash equivalents or short-term,
fixed-income securities rated P-1, MTG-1, MIG-1, or Baa or
higher by Moody's or, if not rated by Moody's, rated A1+/AA,
SP-1+/AA, A or AA or higher by S&P, and maturing prior to the
date of the Forward Commitment with a Market Value that equals
or exceeds the amount of the Fund's obligations under any
Forward Commitment to which it is from time to time a party or
long-term fixed income securities with a Market Value that
equals or exceeds the amount of the Fund's obligations under
any Forward Commitment to which it is from time to time a
party; and
(B) the Fund will not enter into a Forward Commitment
unless, after giving effect thereto, the Fund would continue
to have Moody's Eligible Assets with an aggregate Discounted
Value equal to or greater than the Preferred Shares Basic
Maintenance Amount.
For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the Preferred
Shares Basic Maintenance Amount, the Discounted Value of Forward
Commitments will be the Discounted Value as calculated by applying the
respective Moody's Discount Factor.
(b) If Fitch is rating any AMPS, then:
(i) For so long as any AMPS are rated by Fitch, the Fund
will not buy or sell futures contracts, write, purchase or sell call
options on futures contracts or purchase put options on futures
contracts or write call options (except covered call options) on
portfolio securities unless it receives written confirmation from
Fitch that engaging in such transactions would not impair the
ratings then assigned to such AMPS by Fitch, except that the Fund
may purchase or sell exchange-traded futures contracts based on the
Municipal Index or Treasury Futures, and purchase, write or sell
exchange-traded put options on such futures contracts and purchase,
write or sell exchange-traded call options on such futures contracts
(collectively, "Fitch Hedging Transactions"), subject to the
following limitations:
(A) the Fund will only engage in Fitch Hedging
Transactions for the purpose of hedging against changes in the
value of the Fund's portfolio securities due to anticipated
changes in interest rates or market conditions; the amount
hedged will vary from time to time and may involve the
purchase and sale of futures contracts based on the Municipal
Index or Treasury Futures to reduce or eliminate the amount
hedged;
(B) the Fund will not engage in any Fitch Hedging
Transaction which would cause the Fund, at the time of such
transaction, to own or have sold net outstanding futures
contracts having an aggregate Market Value exceeding 33 1/3%
of the aggregate Market Value of assets owned by the Fund; and
(C) the Fund will not enter into an option unless,
after giving effect thereto, the Fund would continue to have
Fitch Eligible Assets with an aggregate Discounted Value equal
to or greater than the Preferred Shares Basic Maintenance
Amount.
(ii) For purposes of determining whether the Fund has Fitch
Eligible Assets with an aggregate Discounted Value that equals or
exceeds the Preferred Shares Basic Maintenance Amount, the
Discounted Value of Fitch Eligible Assets which the Fund is
obligated to deliver or receive pursuant to an outstanding option
shall be as follows:
(A) assets subject to call options written by the Fund
which are either exchange-traded and "readily reversible" or
which expire within 49 days after the date as of which such
valuation is made shall be valued at the lesser of:
(I) Discounted Value and
(II) the exercise price of the call option
written by the Fund;
(B) assets subject to call options written by the Fund
not meeting the requirements of clause (A) of this sentence
shall have no value;
(C) assets subject to put options written by the Fund
shall be valued at the lesser of:
(I) the exercise price and
(II) the Discounted Value of the subject
security; and
(D) where delivery may be made to the Fund with any
security of a class of securities, the Fund shall assume that
it will take delivery of the security with the lowest
Discounted Value.
(iii) For purposes of determining whether the Fund has Fitch
Eligible Assets with an aggregate Discounted Value that equals or
exceeds the Preferred Shares Basic Maintenance Amount, the following
amounts shall be subtracted from the aggregate Discounted Value of
the Fitch Eligible Assets held by the Fund:
(A) 10% of the exercise price of a written call
option;
(B) the exercise price of any written put option;
(C) the settlement price of the underlying futures
contract if the Fund writes put options on a futures contract;
and
(D) 105% of the Market Value of the underlying
futures contracts if the Fund writes call options on a futures
contract and does not own the underlying contract.
(iv) For so long as any AMPS are rated by Fitch, the Fund may
enter into Forward Commitments, provided that:
(A) the Fund will maintain in a segregated account with
its custodian cash, cash equivalents or short-term,
fixed-income securities rated F-1 or BBB or higher by Fitch
(or, if not rated by Fitch, rated P-1, MTG-1 or MIG-1, or Baa
or higher by Moody's) and maturing prior to the date of the
Forward Commitment with a Market Value that equals or exceeds
the amount of the Fund's obligations under any Forward
Commitment to which it is from time to time a party or
long-term fixed income securities with a Market Value that
equals or exceeds the amount of the Fund's obligations under
any Forward Commitment to which it is from time to time a
party; and
(B) the Fund will not enter into a Forward Commitment
unless, after giving effect thereto, the Fund would continue
to have Fitch Eligible Assets with an aggregate Discounted
Value equal to or greater than the Preferred Shares Basic
Maintenance Amount.
For purposes of determining whether the Fund has Fitch Eligible
Assets with an aggregate Discounted Value that equals or exceeds the
Preferred Shares Basic Maintenance Amount, the Discounted Value of Forward
Commitments will be the Discounted Value as calculated by applying the
respective Fitch Discount Factor.
(c) For so long as any AMPS are outstanding and Moody's or Fitch or
both is rating such shares, the Fund will not, unless it has received
written confirmation from Moody's or Fitch or both, as applicable, that
any such action would not impair the rating then assigned by such rating
agency to such shares, engage in any one or more of the following
transactions:
(i) borrow money, except that the Fund may, without
obtaining the written confirmation described above, borrow money for
the purpose of clearing securities transactions if
(A) the Preferred Shares Basic Maintenance Amount
would continue to be satisfied after giving effect to such
borrowing and
(B) such borrowing
(I) is privately arranged with a bank or other
person and is evidenced by a promissory note or other
evidence of indebtedness that is not intended to be
publicly distributed or
(II) is for "temporary purposes," is evidenced by
a promissory note or other evidence of indebtedness and
is in an amount not exceeding 5% of the value of the
total assets of the Fund at the time of the borrowing
(for purposes of the foregoing, "temporary purposes"
means that the borrowing is to be repaid within sixty
days and is not to be extended or renewed);
(ii) except as provided in Section 5 of this Part I, issue
additional shares of any series of AMPS or any class or series of
shares ranking prior to or on a parity with AMPS with respect to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the Fund, or reissue any AMPS
previously purchased or redeemed by the Fund;
(iii) engage in any short sales of securities;
(iv) lend securities;
(v) merge or consolidate into or with any other corporation
or entity;
(vi) change the Pricing Service; or
(vii) enter into reverse repurchase agreements.
In the event any AMPS are outstanding and another
nationally-recognized statistical rating organization is rating such
shares in addition to or in lieu of Moody's or Fitch, the Fund shall
comply with any restrictions imposed by such rating agency, which
restrictions may be more restrictive than those imposed by Moody's or
Fitch.
11. Redemption.
(a) Optional Redemption.
(i) Subject to the provisions of subparagraph (v) of this
paragraph (a), AMPS of any series may be redeemed, at the option of
the Fund, as a whole or from time to time in part, on the second
Business Day preceding any Dividend Payment Date for shares of such
series, out of funds legally available therefor, at a redemption
price per share equal to the sum of $25,000 plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or
declared) to (but not including) the date fixed for redemption;
provided, however, that (1) shares of a series of AMPS may not be
redeemed in part if after such partial redemption fewer than 300
shares of such series remain outstanding; (2) unless otherwise
provided in Section 9 of Exhibit A hereto, shares of a series of
AMPS are redeemable by the Fund during the Initial Rate Period
thereof only on the second Business Day next preceding the last
Dividend Payment Date for such Initial Rate Period; and (3) subject
to subparagraph (ii) of this paragraph (a), the Notice of Special
Rate Period relating to a Special Rate Period of shares of a series
of AMPS, as delivered to the Auction Agent and filed with the
Secretary of the Fund, may provide that shares of such series shall
not be redeemable during the whole or any part of such Special Rate
Period (except as provided in subparagraph (iv) of this paragraph
(a)) or shall be redeemable during the whole or any part of such
Special Rate Period only upon payment of such redemption premium or
premiums as shall be specified therein ("Special Redemption
Provisions").
(ii) A Notice of Special Rate Period relating to shares of a
series of AMPS for a Special Rate Period thereof may contain Special
Redemption Provisions only if the Fund's Board of Trustees, after
consultation with the Broker-Dealer or Broker-Dealers for such
Special Rate Period of shares of such series, determines that such
Special Redemption Provisions are in the best interest of the Fund.
(iii) If fewer than all of the outstanding shares of a series
of AMPS are to be redeemed pursuant to subparagraph (i) of this
paragraph (a), the number of shares of such series to be redeemed
shall be determined by the Board of Trustees, and such shares shall
be redeemed pro rata from the Holders of shares of such series in
proportion to the number of shares of such series held by such
Holders.
(iv) Subject to the provisions of subparagraph (v) of this
paragraph (a), shares of any series of AMPS may be redeemed, at the
option of the Fund, as a whole but not in part, out of funds legally
available therefor, on the first Business Day following any Dividend
Period thereof included in a Rate Period consisting of more than 364
Rate Period Days if, on the date of determination of the Applicable
Rate for shares of such series for such Rate Period, such Applicable
Rate equaled or exceeded on such date of determination the Treasury
Note Rate for such Rate Period, at a redemption price per share
equal to the sum of $25,000 plus an amount equal to accumulated but
unpaid dividends thereon (whether or not earned or declared) to (but
not including) the date fixed for redemption.
(v) The Fund may not on any date mail a Notice of Redemption
pursuant to paragraph (c) of this Section 11 in respect of a
redemption contemplated to be effected pursuant to this paragraph
(a) unless on such date (a) the Fund has available Deposit
Securities with maturity or tender dates not later than the day
preceding the applicable redemption date and having a value not less
than the amount (including any applicable premium) due to Holders of
AMPS by reason of the redemption of such shares on such redemption
date and (b) the Discounted Value of Moody's Eligible Assets (if
Moody's is then rating the AMPS) and Fitch Eligible Assets (if Fitch
is then rating the AMPS) each at least equals the Preferred Shares
Basic Maintenance Amount, and would at least equal the Preferred
Shares Basic Maintenance Amount immediately subsequent to such
redemption if such redemption were to occur on such date. The Fund
shall not be required to have available Deposit Securities as
described in clause (a) of this subparagraph (v) in respect of a
redemption of any shares of AMPS, as a whole or in part,
contemplated to be effected pursuant to paragraph 11(a) where such
redemption is subject to the issuance of shares of any other series
of preferred stock of the Fund. For purposes of determining in
clause (b) of the preceding sentence whether the Discounted Value of
Moody's Eligible Assets and Fitch Eligible Assets at least equals
the Preferred Shares Basic Maintenance Amount, the Moody's Discount
Factor applicable to Moody's Eligible Assets and the Fitch Discount
Factor applicable to Fitch Eligible Assets shall be determined by
reference to the first Exposure Period longer than the Exposure
Period then applicable to the Fund, as described in the definitions
of Moody's Discount Factor and Fitch Discount Factor herein.
(b) Mandatory Redemption. The Fund shall redeem, at a redemption
price equal to $25,000 per share plus accumulated but unpaid dividends
thereon (whether or not earned or declared) to (but not including) the
date fixed by the Board of Trustees for redemption, certain of the AMPS,
if the Fund fails to have either Moody's Eligible Assets or Fitch Eligible
Assets with a Discounted Value greater than or equal to the Preferred
Shares Basic Maintenance Amount or fails to maintain the Investment
Company Act Preferred Shares Asset Coverage, in accordance with the
requirements of the rating agency or agencies then rating the AMPS, and
such failure is not cured on or before the Preferred Shares Basic
Maintenance Cure Date or the Investment Company Act Cure Date, as the case
may be. The number of AMPS to be redeemed shall be equal to the lesser of
(i) the minimum number of AMPS, together with all other preferred shares
subject to redemption or retirement, the redemption of which, if deemed to
have occurred immediately prior to the opening of business on the Cure
Date, would have resulted in the Fund's having Moody's Eligible Assets and
Fitch Eligible Assets with a Discounted Value greater than or equal to the
Preferred Shares Basic Maintenance Amount or maintaining the Investment
Company Act Preferred Shares Asset Coverage, as the case may be, on such
Cure Date (provided, however, that if there is no such minimum number of
AMPS and other preferred shares the redemption or retirement of which
would have had such result, all AMPS then outstanding shall be redeemed),
and (ii) the maximum number of AMPS, together with all other preferred
shares subject to redemption or retirement, that can be redeemed out of
funds expected to be legally available therefor in accordance with the
Declaration and applicable law. In determining the AMPS required to be
redeemed in accordance with the foregoing, the Fund shall allocate the
number required to be redeemed to satisfy the Preferred Shares Basic
Maintenance Amount or the Investment Company Act Preferred Shares Asset
Coverage, as the case may be, pro rata among AMPS and other preferred
shares (and, then, pro rata among each series of AMPS) subject to
redemption or retirement. The Fund shall effect such redemption on the
date fixed by the Fund therefor, which date shall not be earlier than 20
days nor later than 40 days after such Cure Date, except that if the Fund
does not have funds legally available for the redemption of all of the
required number of the AMPS and other preferred shares which are subject
to redemption or retirement or the Fund otherwise is unable to effect such
redemption on or prior to 40 days after such Cure Date, the Fund shall
redeem those AMPS and other preferred shares which it was unable to redeem
on the earliest practicable date on which it is able to effect such
redemption. If fewer than all of the outstanding shares of a series of
AMPS are to be redeemed pursuant to this paragraph (b), the number of
shares of such series to be redeemed shall be redeemed pro rata from the
Holders of shares of such series in proportion to the number of shares of
such series held by such Holders.
(c) Notice of Redemption. If the Fund shall determine or be
required to redeem shares of a series of AMPS pursuant to paragraph (a) or
(b) of this Section 11, it shall mail a Notice of Redemption with respect
to such redemption by first-class mail, postage prepaid, to each Holder of
the AMPS to be redeemed, at such Holder's address as the same appears on
the record books of the Fund on the record date established by the Board
of Trustees. Such Notice of Redemption shall be so mailed not less than
20 nor more than 45 days prior to the date fixed for redemption. Each
such Notice of Redemption shall state: (i) the redemption date; (ii) the
number of AMPS to be redeemed and the series thereof; (iii) the CUSIP
number for shares of such series; (iv) the Redemption Price; (v) the place
or places where the certificate(s) for such shares (properly endorsed or
assigned for transfer, if the Board of Trustees shall so require and the
Notice of Redemption shall so state) are to be surrendered for payment of
the Redemption Price; (vi) that dividends on the shares to be redeemed
will cease to accumulate on such redemption date; and (vii) the provisions
of this Section 11 under which such redemption is made. If fewer than all
shares of a series of AMPS held by any Holder are to be redeemed, the
Notice of Redemption mailed to such Holder shall also specify the number
of shares of such series to be redeemed from such Holder. The Fund may
provide in any Notice of Redemption relating to a redemption contemplated
to be effected pursuant to paragraph (a) of this Section 11 that such
redemption is subject to one or more conditions precedent and that the
Fund shall not be required to effect such redemption unless each such
condition shall have been satisfied at the time or times and in the manner
specified in such Notice of Redemption.
(d) No Redemption Under Certain Circumstances. Notwithstanding the
provisions of paragraphs (a) or (b) of this Section 11, if any dividends
on shares of a series of AMPS (whether or not earned or declared) are in
arrears, no shares of such series shall be redeemed unless all outstanding
shares of such series are simultaneously redeemed, and the Fund shall not
purchase or otherwise acquire any shares of such series; provided,
however, that the foregoing shall not prevent the purchase or acquisition
of all outstanding shares of such series pursuant to the successful
completion of an otherwise lawful purchase or exchange offer made on the
same terms to, and accepted by, Holders of all outstanding shares of such
series.
(e) Absence of Funds Available for Redemption. To the extent that
any redemption for which Notice of Redemption has been mailed is not made
by reason of the absence of legally available funds therefor in accordance
with the Declaration and applicable law, such redemption shall be made as
soon as practicable to the extent such funds become available. Failure to
redeem AMPS shall be deemed to exist at any time after the date specified
for redemption in a Notice of Redemption when the Fund shall have failed,
for any reason whatsoever, to deposit in trust with the Auction Agent the
Redemption Price with respect to any shares for which such Notice of
Redemption has been mailed; provided, however, that the foregoing shall
not apply in the case of the Fund's failure to deposit in trust with the
Auction Agent the Redemption Price with respect to any shares where (1)
the Notice of Redemption relating to such redemption provided that such
redemption was subject to one or more conditions precedent and (2) any
such condition precedent shall not have been satisfied at the time or
times and in the manner specified in such Notice of Redemption.
Notwithstanding the fact that the Fund may not have redeemed AMPS for
which a Notice of Redemption has been mailed, dividends may be declared
and paid on AMPS and shall include those AMPS for which a Notice of
Redemption has been mailed.
(f) Auction Agent as Trustee of Redemption Payments by Fund. All
moneys paid to the Auction Agent for payment of the Redemption Price of
AMPS called for redemption shall be held in trust by the Auction Agent for
the benefit of Holders of shares so to be redeemed.
(g) Shares for Which Notice of Redemption Has Been Given Are No
Longer Outstanding. Provided a Notice of Redemption has been mailed
pursuant to paragraph (c) of this Section 11, upon the deposit with the
Auction Agent (on the Business Day next preceding the date fixed for
redemption, in funds available on the next Business Day in The City of New
York, New York) of funds sufficient to redeem the AMPS that are the
subject of such notice, dividends on such shares shall cease to accumulate
and such shares shall no longer be deemed to be outstanding for any
purpose, and all rights of the Holders of the shares so called for
redemption shall cease and terminate, except the right of such Holders to
receive the Redemption Price, but without any interest or other additional
amount, except as provided in subparagraph (e)(i) of Section 2 of this
Part I and in Section 3 of this Part I. Upon surrender in accordance with
the Notice of Redemption of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Trustees
shall so require and the Notice of Redemption shall so state), the
Redemption Price shall be paid by the Auction Agent to the Holders of AMPS
subject to redemption. In the case that fewer than all of the shares
represented by any such certificate are redeemed, a new certificate shall
be issued, representing the unredeemed shares, without cost to the Holder
thereof. The Fund shall be entitled to receive from the Auction Agent,
promptly after the date fixed for redemption, any cash deposited with the
Auction Agent in excess of (i) the aggregate Redemption Price of the AMPS
called for redemption on such date and (ii) all other amounts to which
Holders of AMPS 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 AMPS so called for redemption may look only to
the Fund for payment of the Redemption Price and all other amounts to
which they may be entitled. The Fund shall be entitled to receive, from
time to time after the date fixed for redemption, any interest on the
funds so deposited.
(h) Compliance with Applicable Law. In effecting any redemption
pursuant to this Section 11, the Fund shall use its best efforts to comply
with all applicable conditions precedent to effecting such redemption
under the Investment Company Act and any applicable Delaware law, but
shall effect no redemption except in accordance with the Investment
Company Act and any applicable Delaware law.
(i) Only Whole AMPS may be Redeemed. In the case of any redemption
pursuant to this Section 11, only whole AMPS shall be redeemed, and in the
event that any provision of the Declaration would require redemption of a
fractional share, the Auction Agent shall be authorized to round up so
that only whole shares are redeemed.
12. Liquidation Rights.
(a) Ranking. The shares of a series of AMPS shall rank on a parity
with each other, with shares of any other series of AMPS and with shares
of any other series of preferred shares as to the distribution of assets
upon dissolution, liquidation or winding up of the affairs of the Fund.
(b) Distributions Upon Liquidation. Upon the dissolution,
liquidation or winding up of the affairs of the Fund, whether voluntary or
involuntary, the Holders of AMPS 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 AMPS upon dissolution, liquidation or winding up, an
amount equal to the Liquidation Preference with respect to such shares
plus an amount equal to all dividends thereon (whether or not earned or
declared) accumulated but unpaid to (but not including) the date of final
distribution in same day funds, together with any payments required to be
made pursuant to Section 3 of this Part I in connection with the
liquidation of the Fund. After the payment to the Holders of the AMPS of
the full preferential amounts provided for in this paragraph (b), the
Holders of AMPS as such shall have no right or claim to any of the
remaining assets of the Fund.
(c) Pro Rata Distributions. In the event the assets of the Fund
available for distribution to the Holders of AMPS upon any dissolution,
liquidation, or winding up of the affairs of the Fund, whether voluntary
or involuntary, shall be insufficient to pay in full all amounts to which
such Holders are entitled pursuant to paragraph (b) of this Section 12, no
such distribution shall be made on account of any shares of any other
class or series of preferred shares ranking on a parity with the AMPS 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 AMPS, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively
entitled upon such dissolution, liquidation or winding up.
(d) Rights of Junior Shares. Subject to the rights of the holders
of shares of any series or class or classes of shares ranking on a parity
with the AMPS 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 AMPS as provided in paragraph
(b) of this Section 12, but not prior thereto, any other series or class
or classes of shares ranking junior to the AMPS 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 AMPS shall not
be entitled to share therein.
(e) Certain Events not Constituting Liquidation. Neither the sale
of all or substantially all the property or business of the Fund, nor the
merger or consolidation of the Fund into or with any business trust or
corporation nor the merger or consolidation of any business trust or
corporation into or with the Fund shall be a dissolution, liquidation or
winding up, whether voluntary or involuntary, for the purposes of this
Section 12.
13. Miscellaneous.
(a) Amendment of Exhibit A to Add Additional Series. Subject to
the provisions of paragraph (c)(ii) of Section 10 of this Part I, the
Board of Trustees may, by resolution duly adopted, without shareholder
approval (except as otherwise provided by this Statement or required by
applicable law), amend Exhibit A hereto to (1) reflect any amendments
hereto which the Board of Trustees is entitled to adopt pursuant to the
terms of this Statement without shareholder approval or (2) add additional
series of AMPS or additional shares of a series of AMPS (and terms
relating thereto) to the series and AMPS theretofore described therein.
Each such additional series and all such additional shares shall be
governed by the terms of this Statement.
(b) Exhibit A Incorporated by Reference. Exhibit A hereto is
incorporated in and made a part of this Statement by reference thereto.
(c) No Fractional Shares. No fractional shares of AMPS shall be
issued.
(d) Status of AMPS Redeemed, Exchanged or Otherwise Acquired by the
Fund. AMPS which are redeemed, exchanged or otherwise acquired by the
Fund shall return to the status of authorized and unissued preferred
shares without designation as to series.
(e) Board may Resolve Ambiguities. To the extent permitted by
applicable law, the Board of Trustees may interpret or adjust the
provisions of this Statement to resolve any inconsistency or ambiguity or
to remedy any formal defect, and may amend this Statement with respect to
any series of AMPS prior to the issuance of shares of such series.
(f) Headings not Determinative. The headings contained in this
Statement are for convenience of reference only and shall not affect the
meaning or interpretation of this Statement.
(g) Notices. All notices or communications, unless otherwise
specified in the By-Laws of the Fund or this Statement, shall be
sufficiently given if in writing and delivered in person or mailed by
first-class mail, postage prepaid.
PART II.
1. Orders.
(a) Prior to the Submission Deadline on each Auction Date for
shares of a series of AMPS:
(i) each Beneficial Owner of shares of such series may submit
to its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner desires to continue to hold without regard to the
Applicable Rate for shares of such series for the next
succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner offers to sell if the Applicable Rate for shares of such
series for the next succeeding Rate Period of shares of such
series shall be less than the rate per annum specified by such
Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner offers to sell without regard to the Applicable Rate for
the next succeeding Rate Period of shares of such series; and
(ii) one or more Broker-Dealers, using lists of Potential
Beneficial Owners, shall in good faith for the purpose of conducting
a competitive Auction in a commercially reasonable manner, contact
Potential Beneficial Owners (by telephone or otherwise), including
Persons that are not Beneficial Owners, on such lists to determine
the number of shares, if any, of such series which each such
Potential Beneficial Owner offers to purchase if the Applicable Rate
for the next succeeding Rate Period of shares of such series shall
not be less than the rate per annum specified by such Potential
Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to
the Auction Agent, of information referred to in clause (i) (A), (i) (B),
(i) (C) or (ii) of this paragraph (a) is hereinafter referred to as an
"Order" and collectively as "Orders" and each Beneficial Owner and each
Potential Beneficial Owner placing an Order with a Broker-Dealer, and such
Broker-Dealer placing an Order with the Auction Agent, is hereinafter
referred to as a "Bidder" and collectively as "Bidders;" an Order
containing the information referred to in clause (i)(A) of this paragraph
(a) is hereinafter referred to as a "Hold Order" and collectively as "Hold
Orders;" an Order containing the information referred to in clause (i)(B)
or (ii) of this paragraph (a) is hereinafter referred to as a "Bid" and
collectively as "Bids;" and an Order containing the information referred
to in clause (i)(C) of this paragraph (a) is hereinafter referred to as a
"Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares
of a series of AMPS subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified
in such Bid if the Applicable Rate for shares of such series
determined on such Auction Date shall be less than the rate
specified therein;
(B) such number or a lesser number of Outstanding shares of
such series to be determined as set forth in clause (iv) of
paragraph (a) of Section 4 of this Part II if the Applicable Rate
for shares of such series determined on such Auction Date shall be
equal to the rate specified therein; or
(C) the number of Outstanding shares of such series specified
in such Bid if the rate specified therein shall be higher than the
Maximum Rate for shares of such series, or such number or a lesser
number of Outstanding shares of such series to be determined as set
forth in clause (iii) of paragraph (b) of Section 4 of this Part II
if the rate specified therein shall be higher than the Maximum Rate
for shares of such series and Sufficient Clearing Bids for shares of
such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of
shares of a series of AMPS subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified
in such Sell Order; or
(B) such number or a lesser number of Outstanding shares of
such series as set forth in clause (iii) of paragraph (b) of Section
4 of this Part II if Sufficient Clearing Bids for shares of such
series do not exist; provided, however, that a Broker-Dealer that is
an Existing Holder with respect to AMPS shall not be liable to any
Person for failing to sell such shares pursuant to a Sell Order
described in the proviso to paragraph (c) of Section 2 of this Part
II if (1) such shares were transferred by the Beneficial Owner
thereof without compliance by such Beneficial Owner or its
transferee Broker-Dealer (or other transferee person, if permitted
by the Fund) with the provisions of Section 7 of this Part II or (2)
such Broker-Dealer has informed the Auction Agent pursuant to the
terms of its Broker-Dealer Agreement that, according to such
Broker-Dealer's records, such Broker-Dealer believes it is not the
Existing Holder of such shares.
(iii) A Bid by a Potential Beneficial Holder or a Potential Holder
of shares of a series of AMPS subject to an Auction on any Auction Date
shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series specified
in such Bid if the Applicable Rate for shares of such series
determined on such Auction Date shall be higher than the rate
specified therein; or
(B) such number or a lesser number of Outstanding shares of
such series as set forth in clause (v) of paragraph (a) of Section 4
of this Part II if the Applicable Rate for shares of such series
determined on such Auction Date shall be equal to the rate specified
therein.
(c) No Order for any number of AMPS other than whole shares shall
be valid.
2. Submission of Orders by Broker-Dealers to Auction Agent.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent
prior to the Submission Deadline on each Auction Date all Orders for AMPS
of a series subject to an Auction on such Auction Date obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the Fund)
as an Existing Holder in respect of shares subject to Orders submitted or
deemed submitted to it by Beneficial Owners and as a Potential Holder in
respect of shares subject to Orders submitted to it by Potential
Beneficial Owners, and shall specify with respect to each Order for such
shares:
(i) the name of the Bidder placing such Order (which shall be
the Broker-Dealer unless otherwise permitted by the Fund);
(ii) the aggregate number of shares of such series that are
the subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of
shares of such series:
(A) the number of shares, if any, of such series
subject to any Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series
subject to any Bid of such Existing Holder and the rate
specified in such Bid; and
(C) the number of shares, if any, of such series
subject to any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of
shares of such series, the rate and number of shares of such series
specified in such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round
such rate up to the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding AMPS of a
series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold
Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such
Existing Holder and not subject to Orders submitted to the Auction Agent;
provided, however, that if an Order or Orders covering all of the
Outstanding shares of such series held by any Existing Holder is not
submitted to the Auction Agent prior to the Submission Deadline for an
Auction relating to a Special Rate Period consisting of more than 28 Rate
Period Days, the Auction Agent shall deem a Sell Order to have been
submitted by or on behalf of such Existing Holder covering the number of
outstanding shares of such series held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of
Outstanding AMPS of a series subject to an Auction held by such Existing
Holder, such Orders shall be considered valid in the following order of
priority:
(i) all Hold Orders for shares of such series shall be
considered valid, but only up to and including in the aggregate the
number of Outstanding shares of such series held by such Existing
Holder, and if the number of shares of such series subject to such
Hold Orders exceeds the number of Outstanding shares of such series
held by such Existing Holder, the number of shares subject to each
such Hold Order shall be reduced pro rata to cover the number of
Outstanding shares of such series held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be
considered valid up to and including the excess of the number of
Outstanding shares of such series held by such Existing Holder over
the number of shares of such series subject to any Hold Orders
referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an
Existing Holder for shares of such series is submitted to the
Auction Agent with the same rate and the number of Outstanding
shares of such series subject to such Bids is greater than such
excess, such Bids shall be considered valid up to and including the
amount of such excess, and the number of shares of such series
subject to each Bid with the same rate shall be reduced pro rata to
cover the number of shares of such series equal to such excess;
(C) subject to subclauses (A) and (B), if more than one Bid
of an Existing Holder for shares of such series is submitted to the
Auction Agent with different rates, such Bids shall be considered
valid in the ascending order of their respective rates up to and
including the amount of such excess; and
(D) in any such event, the number, if any, of such
Outstanding shares of such series subject to any portion of Bids
considered not valid in whole or in part under this clause (ii)
shall be treated as the subject of a Bid for shares of such series
by or on behalf of a Potential Holder at the rate therein specified;
and
(iii) all Sell Orders for shares of such series shall be
considered valid up to and including the excess of the number of
Outstanding shares of such series held by such Existing Holder over
the sum of shares of such series subject to valid Hold Orders
referred to in clause (i) above and valid Bids referred to in clause
(ii) above.
(e) If more than one Bid for one or more shares of a series of AMPS
is submitted to the Auction Agent by or on behalf of any Potential Holder,
each such Bid submitted shall be a separate Bid with the rate and number
of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, prior to the Submission Deadline on any Auction Date, shall
be irrevocable.
3. Determination of Sufficient Clearing Bids, Winning Bids Rate and
Applicable Rate.
(a) Not earlier than the Submission Deadline on each Auction Date
for shares of a series of AMPS, the Auction Agent shall assemble all valid
Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as
a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order,"
as the case may be, or as a "Submitted Order" and collectively as
"Submitted Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as
the case may be, or as "Submitted Orders") and shall determine for such
series:
(i) the excess of the number of Outstanding shares of such
series over the number of Outstanding shares of such series subject
to Submitted Hold Orders (such excess being hereinafter referred to
as the "Available AMPS");
(ii) from the Submitted Orders for shares of such series
whether:
(A) the number of Outstanding shares of such series
subject to Submitted Bids of Potential Holders specifying one
or more rates equal to or lower than the Maximum Rate for
shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series
subject to Submitted Bids of Existing Holders specifying one
or more rates higher than the Maximum Rate for shares of such
series; and
(C) the number of Outstanding shares of such series
subject to Submitted Sell Orders
(in the event such excess or such equality exists (other than
because the number of shares of such series in subclauses (B) and (C)
above is zero because all of the Outstanding shares of such series are
subject to Submitted Hold Orders), such Submitted Bids in subclause (A)
above being hereinafter referred to collectively as "Sufficient Clearing
Bids" for shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series
exist, the lowest rate specified in such Submitted Bids (the
"Winning Bid Rate") which if:
(A) (I) each such Submitted Bid of Existing Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Existing Holders specifying lower rates were rejected,
thus entitling such Existing Holders to continue to hold the
shares of such series that are subject to such Submitted Bids;
and
(B) (I) each such Submitted Bid of Potential Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Potential Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (A)
above continuing to hold an aggregate number of Outstanding shares of such
series which, when added to the number of Outstanding shares of such
series to be purchased by such Potential Holders described in subclause
(B) above, would equal not less than the Available AMPS of such series.
(b) Promptly after the Auction Agent has made the determinations
pursuant to paragraph (a) of this Section 3, the Auction Agent shall
advise the Fund of the Maximum Rate for shares of the series of AMPS for
which an Auction is being held on the Auction Date and, based on such
determination the Applicable Rate for shares of such series for the next
succeeding Rate Period thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series
exist, that the Applicable Rate for all shares of such series for
the next Succeeding Rate Period thereof shall be equal to the
Winning Bid Rate for shares of such series so determined;
(ii) if sufficient Clearing Bids for shares of such series do
not exist (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), that the Applicable
Rate for all shares of such series for the next succeeding Rate
Period thereof shall be equal to the Maximum Rate for shares of such
series; or
(iii) if all of the Outstanding shares of such series are
subject to Submitted Hold Orders, that the Applicable Rate for all
shares of such series for the next succeeding Rate Period thereof
shall be equal to the lesser of the Kenny Index (if such Rate Period
consists of fewer than 183 Rate Period Days) or the product of
(A)(I) the "AA" Financial Composite Commercial Paper Rate on such
Auction Date for such Rate Period, if such Rate Period consists of
fewer than 183 Rate Period Days; (II) the Treasury Bill Rate on such
Auction Date for such Rate Period, if such Rate Period consists of
more than 182 but fewer than 365 Rate Period Days; or (III) the
Treasury Note Rate on such Auction Date for such Rate Period, if
such Rate Period is more than 364 Rate Period Days (the rate
described in the foregoing clause (A)(I), (II) or (III), as
applicable, being referred to herein as the "Benchmark Rate") and
(B) 1 minus the maximum marginal regular Federal individual income
tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary
income, whichever is greater; provided, however, that if the Fund
has notified the Auction Agent of its intent to allocate to shares
of such series in such Rate Period any net capital gains or other
income taxable for Federal income tax purposes ("Taxable Income"),
the Applicable Rate for shares of such series for such Rate Period
will be (i) if the Taxable Yield Rate (as defined below) is greater
than the Benchmark Rate, then the Benchmark Rate, or (ii) if the
Taxable Yield Rate is less than or equal to the Benchmark Rate, then
the rate equal to the sum of (x) the lesser of the Kenny Index (if
such Rate Period consists of fewer than 183 Rate Period Days) or the
product of the Benchmark Rate multiplied by the factor set forth in
the preceding clause (B) and (y) the product of the maximum marginal
regular Federal individual income tax rate applicable to ordinary
income or the maximum marginal regular Federal corporate income tax
applicable to ordinary income, whichever is greater, multiplied by
the Taxable Yield Rate. For purposes of the foregoing, Taxable
Yield Rate means the rate determined by (a) dividing the amount of
Taxable Income available for distribution per such share of AMPS by
the number of days in the Dividend Period in respect of which such
Taxable Income is contemplated to be distributed, (b) multiplying
the amount determined in (a) above by 365 (in the case of a Dividend
Period of 7 Rate Period Days) or 360 (in the case of any other
Dividend Period), and (c) dividing the amount determined in (b)
above by $25,000.
4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares.
Existing Holders shall continue to hold the AMPS that are subject to
Submitted Hold Orders, and, based on the determinations made pursuant to
paragraph (a) of Section 3 of this Part II, the Submitted Bids and
Submitted Sell Orders shall be accepted or rejected by the Auction Agent
and the Auction Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for shares of a series of
AMPS have been made, all Submitted Sell Orders with respect to
shares of such series shall be accepted and, subject to the
provisions of paragraphs (d) and (e) of this section 4, Submitted
Bids with respect to shares of such series shall be accepted or
rejected as follows in the following order of priority and all other
Submitted Bids with respect to shares of such series shall be
rejected:
(i) Existing Holders' Submitted Bids for shares of such
series specifying any rate that is higher than the Winning Bid
Rate for shares of such series shall be accepted, thus
requiring each such Existing Holder to sell the AMPS subject
to such Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of
such series specifying any rate that is lower than the Winning
Bid Rate for shares of such series shall be rejected, thus
entitling each such Existing Holder to continue to hold the
AMPS subject to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of
such series specifying any rate that is lower than the Winning
Bid Rate for shares of such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of
such series specifying a rate that is equal to the Winning Bid
Rate for shares of such series shall be rejected, thus
entitling such Existing Holder to continue to hold the AMPS
subject to such Submitted Bid, unless the number of
Outstanding AMPS subject to all such Submitted Bids shall be
greater than the number of AMPS ("remaining shares") in the
excess of the Available AMPS of such series over the number of
AMPS 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 AMPS
subject to such Submitted Bid, but only in an amount equal to
the number of AMPS of such series obtained by multiplying the
number of remaining shares by a fraction, the numerator of
which shall be the number of Outstanding AMPS held by such
Existing Holder subject to such Submitted Bid and the
denominator of which shall be the aggregate number of
Outstanding AMPS subject to such Submitted Bids made by all
such Existing Holders that specified a rate equal to the
Winning Bid Rate for shares of such series; and
(v) each Potential Holder's Submitted Bid for shares of
such series specifying a rate that is equal to the Winning Bid
Rate for shares of such series shall be accepted but only in
an amount equal to the number of shares of such series
obtained by multiplying the number of shares in the excess of
the Available AMPS of such series over the number of AMPS
subject to Submitted Bids described in clauses (ii) through
(iv) of this paragraph (a) by a fraction, the numerator of
which shall be the number of Outstanding AMPS subject to such
Submitted Bid and the denominator of which shall be the
aggregate number of Outstanding AMPS subject to such Submitted
Bids made by all such Potential Holders that specified a rate
equal to the Winning Bid Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of
AMPS have not been made (other than because all of the Outstanding
shares of such series are subject to Submitted Hold Orders), subject
to the provisions of paragraph (d) of this Section 4, Submitted
Orders for shares of such series shall be accepted or rejected as
follows in the following order of priority and all other Submitted
Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such
series specifying any rate that is equal to or lower than the
Maximum Rate for shares of such series shall be rejected, thus
entitling such Existing Holders to continue to hold the AMPS
subject to such Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of
such series specifying any rate that is equal to or lower than
the Maximum Rate for shares of such series shall be accepted;
and
(iii) Each Existing Holder's Submitted Bid for shares
of such series specifying any rate that is higher than the
Maximum Rate for shares of such series and the Submitted Sell
Orders for shares of such series of each Existing Holder shall
be accepted, thus entitling each Existing Holder that
submitted or on whose behalf was submitted any such Submitted
Bid or Submitted Sell Order to sell the shares of such series
subject to such Submitted Bid or Submitted Sell Order, but in
both cases only in an amount equal to the number of shares of
such series obtained by multiplying the number of shares of
such series subject to Submitted Bids described in clause (ii)
of this paragraph (b) by a fraction, the numerator of which
shall be the number of Outstanding shares of such series held
by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and the denominator of which shall be the
aggregate number of Outstanding shares of such series subject
to all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of AMPS are
subject to Submitted Hold Orders, all Submitted Bids for shares of
such series shall be rejected.
(d) If, as a result of the procedures described in clause
(iv) or (v) of paragraph (a) or clause (iii) of paragraph (b) of
this Section 4, any Existing Holder would be entitled or required to
sell, or any Potential Holder would be entitled or required to
purchase, a fraction of a share of a series of AMPS 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 AMPS of such
series to be purchased or sold by any Existing Holder or Potential
Holder on such Auction Date as a result of such procedures so that
the number of shares so purchased or sold by each Existing Holder or
Potential Holder on such Auction Date shall be whole AMPS.
(e) If, as a result of the procedures described in clause (v)
of paragraph (a) of this Section 4, any Potential Holder would be
entitled or required to purchase less than a whole share of a series
of AMPS on any Auction Date, the Auction Agent shall, in such manner
as it shall determine in its sole discretion, allocate AMPS of such
series for purchase among Potential Holders so that only whole
shares of AMPS of such series are purchased on such Auction Date as
a result of such procedures by any Potential Holder, even if such
allocation results in one or more Potential Holders not purchasing
AMPS of such series on such Auction Date.
(f) Based on the results of each Auction for shares of a
series of AMPS, the Auction Agent shall determine the aggregate
number of shares of such series to be purchased and the aggregate
number of shares of such series to be sold by Potential Holders and
Existing Holders and, with respect to each Potential Holder and
Existing Holder, to the extent that such aggregate number of shares
to be purchased and such aggregate number of shares to be sold
differ, determine to which other Potential Holder(s) or Existing
Holder(s) they shall deliver, or from which other Potential
Holder(s) or Existing Holder(s) they shall receive, as the case may
be, AMPS of such series. Notwithstanding any provision of the
Auction Procedures to the contrary, in the event an Existing Holder
or Beneficial Owner of a series of AMPS with respect to whom a
Broker-Dealer submitted a Bid to the Auction Agent for such shares
that was accepted in whole or in part, or submitted or is deemed to
have submitted a Sell Order for such shares that was accepted in
whole or in part, fails to instruct its Agent Member to deliver such
shares against payment therefor, partial deliveries of AMPS that
have been made in respect of Potential Holders' or Potential
Beneficial Owners' Submitted Bids for shares of such series that
have been accepted in whole or in part shall constitute good
delivery to such Potential Holders and Potential Beneficial Owners.
(g) Neither the Fund nor the Auction Agent nor any affiliate
of either shall have any responsibility or liability with respect to
the failure of an Existing Holder, a Potential Holder, a Beneficial
Owner, a Potential Beneficial Owner or its respective Agent Member
to deliver AMPS of any series or to pay for AMPS of any series sold
or purchased pursuant to the Auction Procedures or otherwise.
5. Notification of Allocations.
Whenever the Fund intends to include any net capital gains or other
income taxable for Federal income tax purposes in any dividend on AMPS,
the Fund may, but shall not be required to, notify the Auction Agent of
the amount to be so included not later than the Dividend Payment Date next
preceding the Auction Date on which the Applicable Rate for such dividend
is to be established. Whenever the Auction Agent receives such notice
from the Fund, it will be required in turn to notify each Broker-Dealer,
who, on or prior to such Auction Date, in accordance with its
Broker-Dealer Agreement, will be required to notify its Beneficial Owners
and Potential Beneficial Owners of AMPS believed by it to be interested in
submitting an Order in the Auction to be held on such Auction Date.
6. Auction Agent.
For so long as any AMPS are outstanding, the Auction Agent, duly
appointed by the Fund to so act, shall be in each case a commercial bank,
trust company or other financial institution independent of the Fund and
its affiliates (which however may engage or have engaged in business
transactions with the Fund or its affiliates) and at no time shall the
Fund or any of its affiliates act as the Auction Agent in connection with
the Auction Procedures. If the Auction Agent resigns or for any reason
its appointment is terminated during any period that any AMPS are
outstanding, the Board of Trustees shall use its best efforts promptly
thereafter to appoint another qualified commercial bank, trust company or
financial institution to act as the Auction Agent. The Auction Agent's
registry of Existing Holders of a series of AMPS shall be conclusive and
binding on the Broker-Dealers. A Broker-Dealer may inquire of the Auction
Agent between 3:00 p.m. on the Business Day preceding an Auction for a
series of AMPS and 9:30 a.m. on the Auction Date for such Auction to
ascertain the number of shares of such series in respect of which the
Auction Agent has determined such Broker- Dealer to be an Existing
Holder. If such Broker-Dealer believes it is the Existing Holder of fewer
shares of such series than specified by the Auction Agent in response to
such Broker-Dealer's inquiry, such Broker-Dealer may so inform the Auction
Agent of that belief. Such Broker-Dealer shall not, in its capacity as
Existing Holder of shares of such series, submit Orders in such Auction in
respect of shares of such series covering in the aggregate more than the
number of shares of such series specified by the Auction Agent in response
to such Broker-Dealer's inquiry.
7. Transfer of AMPS.
Unless otherwise permitted by the Fund, a Beneficial Owner or an
Existing Holder may sell, transfer or otherwise dispose of AMPS only in
whole shares and only pursuant to a Bid or Sell Order placed with the
Auction Agent in accordance with the procedures described in this Part II
or to a Broker-Dealer; provided, however, that (a) a sale, transfer or
other disposition of AMPS from a customer of a Broker-Dealer who is listed
on the records of that Broker-Dealer as the holder of such shares to that
Broker-Dealer or another customer of that Broker-Dealer shall not be
deemed to be a sale, transfer or other disposition for purposes of this
Section 7 if such Broker-Dealer remains the Existing Holder of the shares
so sold, transferred or disposed of immediately after such sale, transfer
or disposition and (b) in the case of all transfers other than pursuant to
Auctions, the Broker-Dealer (or other Person, if permitted by the Fund) to
whom such transfer is made shall advise the Auction Agent of such
transfer.
8. Global Certificate.
Prior to the commencement of a Voting Period, (i) all of the shares
of a series of AMPS outstanding from time to time shall be represented by
one global certificate registered in the name of the Securities Depository
or its nominee and (ii) no registration of transfer of shares of a series
of AMPS shall be made on the books of the Fund to any Person other than
the Securities Depository or its nominee.
IN WITNESS WHEREOF, FEDERATED PREMIER MUNICIPAL INCOME FUND, has
caused these presents to be signed in its name and attested on its behalf
by its duly authorized officers as of February 13, 2003. Said officers of
the Fund have executed this Statement as officers and not individually,
and the obligations and rights set forth in this Statement are not binding
upon any such officers, or the Trustees or shareholders of the Fund,
individually, but are binding only upon the assets and property of the
Fund.
FEDERATED PREMIER MUNICIPAL INCOME FUND
By: /s/ Mary Jo Ochson
Name: Mary Jo Ochson
Title: Vice President
ATTEST:
/s/ Nelson W. Winter
Name: Nelson W. Winter
Title: Assistant Secretary
EXHIBIT A
FEDERATED PREMIER MUNICIPAL INCOME FUND
SECTION 1
Designation as to Series.
SERIES A: A series of 2,147 AMPS, par value $.01 per share,
liquidation preference $25,000 per share, is hereby designated "Auction
Market Preferred Shares, Series A." Each of the 2,147 shares of Series A
AMPS issued on February 18, 2003 shall, for purposes hereof, be deemed to
have a Date of Original Issue of February 18, 2003; have an Applicable
Rate for its Initial Rate Period equal to 1.05% per annum; have an initial
Dividend Payment Date of February 28, 2003; and have such other
preferences, rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption, in
addition to those required by applicable law or set forth in the
Declaration, applicable to preferred shares of the Fund, as set forth in
Part I and Part II of this Statement. Any shares of Series A AMPS issued
thereafter shall be issued on the first day of a Rate Period of the then
outstanding shares of Series A AMPS, shall have, for such Rate Period, an
Applicable Rate equal to the Applicable Rate for shares of such series
established in the first Auction for shares of such series preceding the
date of such issuance; and shall have such other preferences, rights,
voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption, in addition to those required by
applicable law or set forth in the Declaration applicable to preferred
shares of the Fund, as set forth in Part I and Part II of this Statement.
The Series A AMPS shall constitute a separate series of AMPS of the Fund,
and each share of Series A AMPS shall be identical except as provided in
Section 11 of Part I of this Statement.
SECTION 2
Number of Authorized Shares Per Series.
The number of authorized shares constituting Series A AMPS is 2,147.
SECTION 3
Exceptions to Certain Definitions.
Notwithstanding the definitions contained under the heading
"Definitions" in this Statement, the following terms shall have the
following meanings for purposes of this Statement:
Not applicable.
SECTION 4
Certain Definitions.
For purposes of this Statement, the following terms shall have the
following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context
otherwise requires:
Not applicable.
SECTION 5
Initial Rate Periods.
The Initial Rate Period for shares of Series A AMPS shall be the
period from and including the Date of Original Issue thereof to but
excluding February 28, 2003.
SECTION 6
Date for Purposes of the Definition of "Quarterly Valuation Date"
Contained Under the Heading "Definitions" in this Statement.
May 30, 2003
SECTION 7
Dividend Payment Dates.
Except as otherwise provided in paragraph (d) of Section 2 of Part I
of this Statement, dividends shall be payable on shares of Series A AMPS,
for the Initial Rate Period on February 28, 2003, and on each Friday
thereafter.
SECTION 8
Adjustment of Length of Special Rate Period.
In the event the Fund wishes to designate a Subsequent Rate Period
for any Series A AMPS as a Special Rate Period, but the day following what
would otherwise be the last day of such Special Rate Period is not a
Friday that is a Business Day, then the Fund shall designate such
Subsequent Rate Period as a Special Rate Period consisting of the period
commencing on the first day following the end of the immediately preceding
Rate Period and ending on the first Thursday that is followed by a Friday
that is a Business Day preceding what would otherwise be such last day.
SECTION 9
Redemption Provisions Applicable to Initial Rate Periods.
Not applicable.
BB-4105105
APPENDIX B
Investment Ratings
Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB rating.
B--Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC--The rating CC typically is applied to debt subordinated to senior debt
that is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
Moody's Investors Service Long-Term Bond Rating Definitions
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa--Bonds which are rated Baa are considered as medium- grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba--Bonds which are Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest-rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Fitch Ratings Long-Term Debt Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are imminent default in payment of interest or principal.
Moody's Investors Service Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: Leading market positions in well-established industries;
High rates of return on funds employed; Conservative capitalization
structure with moderate reliance on debt and ample asset protection; Broad
margins in earning coverage of fixed financial charges and high internal
cash generation; and Well-established access to a range of financial
markets and assured sources of alternate liquidity.
Prime-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch Ratings Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
Addresses
federated PREMIER municipal INCOME FUND
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Underwriter
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, NY 10080
Investment Adviser
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and Trust Company
P. O. Box 8600
Boston, MA 02266-8600
Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
CUSIP 31423P207
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits.
Financial Statements:
Part A: Financial Highlights (unaudited) dated February 3, 2003
Part B: Audited Statement of Assets and Liabilities dated December 16, 2002
Financial Highlights (unaudited) dated February 3, 2003 Portfolio of
Investments (unaudited) dated February 3, 2003 Statement of Assets and
Liabilities (unaudited) dated February 3, 2003 Statement of Operations
(unaudited) dated February 3, 2003 Statement of Changes in Net Assets
(unaudited) dated February 3, 2003
Exhibits:
(a) (i) Copy of Amended and Restated Declaration of Trust
of the Registrant; (3)
(ii)Conformed copy of Amended and Restated Certificate
of Trust of the Registrant; (4)
(iii) Copy of Statement of Preferences of the
Registrant (incorporated by reference to Appendix A of
Registrant's Statement of Additional Information;
(b) Copy of Amended and Restated By-Laws of the Registrant;
(3)
(c) Not applicable;
(d) Form of Stock Certificate of the Registrant; (3)
(i) Form of Preferred Shares certificate of the
Registrant; (6)
(e) Copy of Registrant's dividend reinvestment plan; (3)
(f) Not applicable;
(g) Conformed copy of Investment Management Agreement of
the Registrant; (3)
____________________________________________________________
+ All exhibits are being filed electronically.
3. Response is incorporated to Registrant's Pre-Effective Amendment No. 3 to
its Registration Statement filed on Form N-2 on December 17, 2002 (File
Nos. 333-100605 and 811-21235).
4. Response is incorporated to Registrant's Pre-Effective Amendment No.
4 to its Registration Statement filed on Form N-2 on December 19, 2002
(File Nos. 333-100605 and 811-21235).
6. Response is incorporated to Registrant's Pre-Effective Amendment No. 3
to its Registration Statement (Preferred Shares) filed on Form N-2 on
February 12, 2003 (File Nos. 333-102033 and 811-21235).
(h) Conformed Copy of Master Agreement Among Underwriters; (3)
(i)Conformed copy of Purchase Agreement (Common Shares); (6)
(ii)Form of Standard Dealer Agreement of Merrill
Lynch and Co.; (3)
(iii)Conformed copy of Additional Compensation
Agreement; (6)
(iv)Form of Purchase Agreement (Preferred Shares); (6)
(i) Not applicable;
(j) Conformed copy of custodian agreement; (3)
(i)Copy of Global Custody Fee Schedule; (3)
(ii) Copy of Addendum to Global Custody Fee
Schedule; (3)
(iii) Copy of Portfolio Recordkeeping Fee Schedule; (3)
(iv) Copy of Domestic Custody Fee Schedule; (3)
(k) Conformed copy of Amended and Restated Agreement for Fund
Accounting Services, Administrative Services,
Transfer Agency Services and Custody Services
Procurement; (3)
(i)Conformed copy of Indemnification Agreement
(Common Shares) between the Registrant and the
Adviser; (6)
(ii)Conformed copy of Transfer Agency Agreement of
the Registrant; (6)
(iii)Form of Auction Agency Agreement; (6)
(iv)Form of Broker/Dealer
Agreement; (6)
(v)Form of Indemnification Agreement (Preferred
Shares) between the Registrant and the Adviser; (6)
(vi) Form of Depository Trust Company Letter of
Representations; (6)
(l) Conformed copy of Opinion and Consent of Counsel as
to legality of shares being registered; (5)
(m) Not applicable;
(n) Conformed copy of Consent of Independent Auditors;
(5)
(o) Not applicable;
(p) Form of Letter Agreement between the Registrant and the
Adviser to Purchase Shares; (4)
(q) Not applicable;
(r) The Registrant hereby incorporates the conformed copy of the Code of
Ethics for Access Persons from Item 23(p) of the
Federated Managed Allocation Portfolios Registration
Statement on Form N-1A filed with the Commission on
January 25, 2001. (File Nos. 33-51247 and 811-7129).
(s) Conformed copy of the Power of Attorney of the Registrant. (3)
Item 25. Marketing Arrangements
Reference is made to the Master Agreement Among Underwriters filed
as exhibit (h) to Pre-Effective Amendment No. 3 on December 17,
2002.
________________________________________________________
+ All exhibits are being filed electronically.
3. Response is incorporated to Registrant's Pre-Effective Amendment No. 3 to
its Registration Statement filed on Form N-2 on December 17, 2002 (File
Nos. 333-100605 and 811-21235).
4. Response is incorporated to Registrant's Pre-Effective Amendment No.
4 to its Registration Statement filed on Form N-2 on December 19, 2002
(File Nos. 333-100605 and 811-21235).
5. Response is incorporated to Registrant's Pre-Effective Amendment No.
2 to its Registration Statement (Preferred Shares) filed on Form N-2 on
February 10, 2003 (File Nos. 333-102033 and 811-21235).
6. Response is incorporated to Registrant's Pre-Effective Amendment No.
3 to its Registration Statement (Preferred Shares) filed on Form N-2 on
February 12, 2003 (File Nos. 333-102033 and 811-21235).
Item 26. Other Expenses of Issuance and Distribution*
Registration Fee: $4,938.10
Rating Fees: $65,000.00
Printing: $5,000.00
Legal fees and expenses: $110,000.00
*Estimated
Item 27. Persons Controlled by or Under Common Control with the Fund:
None
Item 28. Number of Holders of Securities
As of June 13, 2003, set forth below is information concerning
record holders of the Fund's securities:
Title of Class Number of Record Holders
Common Shares 32
AMPS 1
Item 29. Indemnification:
Indemnification is provided to Officers and Trustees of the
Registrant pursuant to Article V of Registrant's Declaration of
Trust. The Investment Management Agreement between the Registrant
and Federated Investment Management Company ("Adviser") provides
that, in the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties
under the Investment Management Agreement on the part of Adviser,
Adviser shall not be liable to the Registrant or to any shareholder
for any act or omission in the course of or connected in any way
with rendering services or for any losses that may be sustained in
the purchase, holding, or sale of any security. Registrant's
Trustees and Officers are covered by an Investment Trust Errors and
Omissions Policy. The Purchase Agreement between the Registrant,
the Adviser and the Underwriters named therein provides for
indemnification of the Underwriters by the Registrant and the
Adviser and of the Registrant and the Adviser and their officers
and trustees for certain liabilities and also provides for
contribution under certain circumstances. The Indemnification
Agreement between the Registrant and the Adviser provides for
indemnification of the Registrant and its officers and trustees for
certain liabilities.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, Officers, and
controlling persons of the Registrant by the Registrant pursuant to
the Declaration of Trust or otherwise, the Registrant is aware that
in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act
and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by Trustees), Officers,
or controlling persons of the Registrant in connection with the
successful defense of any act, suit, or proceeding) is asserted by
such Trustees, Officers, or controlling persons in connection with
the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issues.
Insofar as indemnification for liabilities may be permitted
pursuant to Section 17 of the Investment Company Act of 1940 for
Trustees, Officers, and controlling persons of the Registrant by
the Registrant pursuant to the Declaration of Trust or otherwise,
the Registrant is aware of the position of the Securities and
Exchange Commission as set forth in Investment Company Act Release
No. IC-11330. Therefore, the Registrant undertakes that in
addition to complying with the applicable provisions of the
Declaration of Trust or otherwise, in the absence of a final
decision on the merits by a court or other body before which the
proceeding was brought, that an indemnification payment will not be
made unless in the absence of such a decision, a reasonable
determination based upon factual review has been made (i) by a
majority vote of a quorum of non-party Trustees who are not
interested persons of the Registrant or (ii) by independent legal
counsel in a written opinion that the indemnitee was not liable for
an act of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duties. The Registrant further undertakes
that advancement of expenses incurred in the defense of a
proceeding (upon undertaking for repayment unless it is ultimately
determined that indemnification is appropriate) against an Officer,
Trustee or controlling person of the Registrant will not be made
absent the fulfillment of at least one of the following
conditions: (i) the indemnitee provides security for his
undertaking; (ii) the Registrant is insured against losses arising
by reason of any lawful advances; or (iii) a majority of a quorum
of disinterested non-party Trustees or independent legal counsel in
a written opinion makes a factual determination that there is
reason to believe the indemnitee will be entitled to
indemnification.
Item 30. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment
adviser, see the section entitled "Management of the Fund" in
Part A. The affiliations with the Registrant of four of the
Trustees and one of the Officers of the investment adviser are
included in Part B of this Registration Statement under
"Management of the Fund" The remaining Trustees of the
investment adviser and, in parentheses, their principal
occupations are: Thomas R. Donahue, (Chief Financial Officer,
Federated Investors, Inc.), 1001 Liberty Avenue, Pittsburgh,
PA, 15222-3779 and Mark D. Olson (a principal of the firm,
Mark D. Olson & Company, L.L.C. and Partner, Wilson, Halbrook
& Bayard, P.A.), 800 Delaware Avenue, P.O. Box 2305,
Wilmington, DE 19899-2305.
The remaining Officers of the investment adviser are:
Vice Chairman: J. Thomas Madden
President/ Chief Executive Officer
and Trustee: Keith M. Schappert
Executive Vice Presidents: Stephen F. Auth
William D. Dawson, III
Senior Vice Presidents: Joseph M. Balestrino
David A. Briggs
Jonathan C. Conley
Christopher F. Corapi
Deborah A. Cunningham
Linda A. Duessel
Mark E. Durbiano
James E. Grefenstette
Robert M. Kowit
Jeffrey A. Kozemchak
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Frank Semack
Richard Tito
Peter Vutz
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Randall S. Bauer
Nancy J.Belz
G. Andrew Bonnewell
David M. Bruns
Robert E. Cauley
Regina Chi
Ross M. Cohen
Fred B. Crutchfield
Lee R. Cunningham, II
Alexandre de Bethmann
B. Anthony Delserone, Jr.
Donald T. Ellenberger
Eamonn G. Folan
John T. Gentry
David P. Gilmore
Curtis R. Gross
Marc Halperin
John W. Harris
Patricia L. Heagy
Susan R. Hill
Nikola A. Ivanov
William R. Jamison
Constantine J. Kartsonas
Nathan H. Kehm
John C. Kerber
J. Andrew Kirschler
Steven Lehman
Marian R. Marinack
Natalie F. Metz
Thomas J. Mitchell
Joseph M. Natoli
John L. Nichol
Mary Kay Pavuk
Jeffrey A. Petro
John P. Quartarolo
Ihab L. Salib
Roberto Sanchez-Dahl, Sr.
Aash M. Shah
John Sidawi
Michael W. Sirianni, Jr.
Christopher Smith
Timothy G. Trebilcock
Leonardo A. Vila
Stephen J. Wagner
Paige M. Wilhelm
Richard M. Winkowski, Jr.
Lori A. Wolff
George B. Wright
Assistant Vice Presidents: Lori Andrews
Catherine A. Arendas
Nicholas P. Besh
Hanan Callas
David W. Cook
James R. Crea, Jr.
Karol M. Crummie
David Dao
Richard J. Gallo
Kathyrn P. Glass
Igor Golalic
James Grant
Anthony Han
Carol B. Kayworth
Angela A. Kohler
Robert P. Kozlowski
Ted T. Lietz, Sr.
Monica Lugani
Tracey L. Lusk
Ann Manley
Theresa K. Miller
Karl Mocharko
Bob Nolte
Rae Ann Rice
Jennifer G. Setzenfand
Diane R. Startari
Kyle D. Stewart
Mary Ellen Tesla
Nichlas S. Tripodes
Michael R. Tucker
Mark Weiss
Secretary: G. Andrew Bonnewell
Treasurer: Thomas R. Donahue
Assistant Secretaries: Jay S. Neuman
Leslie K. Ross
Assistant Treasurer: Denis McAuley, III
The business address of each of the Officers of the investment
adviser is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. These individuals are
also officers of a majority of the investment advisers to the
investment companies in the Federated Fund Complex described
in Part B of this Registration Statement.
Item 31. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of
the following locations:
Registrant Reed Smith LLP
Investment and Asset
Management Group (IAMG)
Federated Investors Tower
12th Floor
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the
Agent for Service at above
address)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
EquiServe Trust Co., N.A. P.O. Box 43011
("Transfer Agent and Dividend Providence, RI 02940-3011
Disbursing Agent")
Federated Services Federated Investors Tower
Company 1001 Liberty Avenue
("Administrator") Pittsburgh, PA 15222-3779
(((
Federated Investment Federated Investors Tower
Management Company 1001 Liberty Avenue
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and P.O. Box 8600
Trust Company Boston, MA 02266-8600
("Custodian")
Item 32. Management Services: Not applicable.
Item 33. Undertakings:
The Registrant undertakes to suspend the offering of shares
until the prospectus is amended if (1) subsequent to the
effective date of its registration statement, the net asset
value declines more than ten percent from its net asset value as
of the effective date of the registration statement.
The Registrant undertakes that:
(a) for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective.
(b) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
The Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery within two
business days of receipt of a written or oral request, the
Registrant's Statement of Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED PREMIER
MUNICIPAL INCOME FUND, has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the
City of Pittsburgh and Commonwealth of Pennsylvania, on the 28th day of
July, 2003.
FEDERATED PREMIER MUNICIPAL INCOME FUND
BY: /s/ Leslie K. Ross
Leslie K. Ross, Assistant Secretary
Attorney in Fact for John F. Donahue
July 28, 2003
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Leslie K. Ross Attorney In Fact July 28, 2003
Leslie K. Ross For the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
J. Christopher Donahue* President and Trustee
(Principal Executive Officer)
Richard J. Thomas* Treasurer
(Principal Financial Officer)
William D. Dawson, III* Chief Investment Officer
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
Nicholas P. Constantakis* Trustee
John F. Cunningham* Trustee
Lawrence D. Ellis, M.D.* Trustee
Peter E. Madden* Trustee
Charles F. Mansfield, Jr.* Trustee
John E. Murray, Jr.* Trustee
Marjorie P. Smuts* Trustee
John S. Walsh* Trustee
*by power of attorney