FORM 497
Filed pursuant to
Rule 497(b)
File No. 333-157991
IMPORTANT NOTICE
TO
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC. (NIO) AND
NUVEEN INSURED FLORIDA PREMIUM INCOME MUNICIPAL FUND (NFL)
SHAREHOLDERS
April 17,
2009
Although we recommend that you read the complete Proxy
Statement/Prospectus, for your convenience, we have provided a
brief overview of the issues to be voted on.
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Why am I receiving this Proxy Statement/Prospectus? |
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The Board of Directors of the Nuveen Insured Municipal
Opportunity Fund, Inc. (the National Fund) and Board
of Trustees of the Nuveen Insured Florida Premium Income
Municipal Fund (the Florida Fund) recently voted to
recommend a merger of the Funds to shareholders. As a Fund
shareholder, you are being asked to vote to approve this
proposed merger at a special shareholders meeting to be held on
May 15, 2009. |
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Why has the Board of Directors of National Fund and the Board
of Trustees of Florida Fund (each a Board)
recommended merging the Florida Fund into the National Fund? |
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This recommendation reflects various considerations, among them:
(i) the price level at which the Florida Funds common
shares have traded over time in relation to their underlying net
asset value on an absolute basis as well as relative to other
closed-end funds; (ii) prior efforts to enhance, over time,
the secondary market for the Florida Funds common shares,
including investment strategies aimed at increasing common net
earnings as well as common share repurchases; and (iii) the
repeal of Floridas intangible personal property tax which
eliminated the state tax benefit to a Florida resident of owning
a Florida-specific portfolio of municipal bonds. Each Board
believes the proposed merger is in the best interests of both
the National Fund and the Florida Fund. |
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What are the proposed mergers potential benefits to me
as a Fund shareholder? |
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Each Board believes the proposed merger offers the following
potential benefits to National Fund and Florida Fund
shareholders: |
National Fund:
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Lower fees and operating expenses per common share
(excluding costs of leverage) from greater economies of scale as
the combined funds size results in a lower management fee
rate and allows fixed operating expenses to be spread over a
larger asset base.
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Enhanced relative investment performance from increased
common net earnings as well as expanded opportunities for
enhanced total returns over time from the combined funds
larger asset base.
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Improved secondary market trading as higher common net
earnings and enhanced total returns over time may lead to higher
common share market prices relative to net asset value, and the
combined funds greater market liquidity may lead to
narrower bid-ask spreads and smaller trade-to-trade price
movements.
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Expanded auction rate preferred securities (ARPS)
refinancing opportunities because the combined funds
larger asset base may increase its ability to refinance ARPS
with tender option bonds. Through such refinancings the Fund
seeks to provide liquidity at par for ARPS
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shareholders and to lower the relative cost of leverage over
time for common shareholders.
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Florida Fund:
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Lower fees and operating expenses per common share
(excluding costs of leverage) from greater economies of scale as
the combined funds size results in a lower management fee
rate and allows fixed operating expenses to be spread over a
larger asset base.
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Enhanced relative investment performance from increased
common net earnings as well as expanded opportunities for
enhanced total returns over time from a nationally-diversified
portfolio and the combined funds larger asset base.
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Continuity of investment strategy by maintaining the
Funds use of leverage, which offers common shareholders
the potential for higher monthly tax-exempt distributions and
enhanced total returns on average over market cycles, at a time
when the municipal yield spreads are particularly wide or
attractive.
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Improved secondary market trading as a national fund
instead of a Florida-specific fund potential investor base is
expected to promote higher common share market prices relative
to net asset value, and the combined funds greater market
liquidity may lead to narrower bid-ask spreads and smaller
trade-to-trade price movements.
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Expanded ARPS refinancing opportunities because greater
portfolio diversification and the combined funds larger
asset base may increase its ability to refinance ARPS with
tender option bonds. Through such refinancings the Fund seeks to
provide liquidity at par for ARPS shareholders and to lower the
relative cost of leverage over time for common shareholders.
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Do the Funds have similar investment objectives and
policies? |
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Yes. The Funds have similar investment objectives and policies
except for the Florida Funds policy of concentrating its
investment portfolio in Florida state-specific municipal
securities in comparison to the National Funds policy of
investing in a nationally diversified portfolio of municipal
securities. |
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What specific proposals will I be asked to vote on in
connection with the proposed merger? |
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Depending on whether you are a National Fund or Florida Fund
shareholder, you will be asked to vote on one or both of the
following proposals: |
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(i)
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Approve Agreement and Plan of Reorganization (Both
Funds). To approve an Agreement and Plan of
Reorganization (the Agreement), pursuant to which
the Florida Fund would (i) transfer all of its assets to
the National Fund in exchange solely for National Fund shares of
common stock (common shares) and shares of Municipal
Auction Rate Cumulative Preferred stock
(MuniPreferred), Series W3 and Series TH3,
and the National Funds assumption of all the liabilities
of Florida Fund, (ii) distribute such shares of the
National Fund to the common shareholders and MuniPreferred,
Series W and Series TH, shareholders of the Florida Fund
and (iii) be liquidated, dissolved and terminated in
accordance with the Florida Funds Declaration of Trust
(collectively, the Reorganization).
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(ii)
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Approve Issuance of Common Shares (National
Fund). To approve the issuance of additional
National Fund common shares in connection with the
Reorganization.
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Your Funds Board, including your Boards independent
members, unanimously recommends that you vote FOR your
Funds applicable proposal(s). The Reorganization is
dependent upon shareholder approval of both proposals. If
shareholder approval of both proposals is not obtained, the
Reorganization will not occur.
Your vote is very important. We encourage you as a
shareholder to participate in your Funds governance by
returning your vote as soon as possible. If enough shareholders
dont cast their votes, your Fund may not be able to hold
its meeting or the vote on each issue, and will be required to
incur additional solicitation costs in order to obtain
sufficient shareholder participation.
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How does the Board recommend that I vote? |
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After careful consideration, each Board agreed unanimously that
the Reorganization is in the best interests of the Funds and
recommends that you vote FOR your Funds
proposal(s). |
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Will Florida Fund shareholders receive new shares in exchange
for their current shares? |
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Yes. Upon approval of the Reorganization, common shareholders of
the Florida Fund in exchange for their Fund shares will receive
common shares of the National Fund of equivalent total value.
Upon approval of the Reorganization, shareholders of the Florida
Funds MuniPreferred, Series W and Series TH,
will receive in exchange one share of the National Funds
MuniPreferred, Series W3 and Series TH3, for each
share of the Florida Funds MuniPreferred, Series W
and Series TH, respectively, held. |
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Is the Reorganization a taxable event for Florida Fund
shareholders? |
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No. The Reorganization is intended to qualify as a
reorganization for federal income tax purposes. It is expected
that you will recognize no gain or loss for federal income tax
purposes as a result of the Reorganization. |
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What will happen if shareholders do not approve each
proposal? |
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If both proposals are not approved, the Reorganization will not
occur. If the Reorganization does not occur, the Board will take
such actions as it deems to be in the best interests of the
Florida Fund based upon the Funds current circumstances
and market conditions. |
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Will I have to pay any direct fees or expenses in connection
with the Reorganization? |
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The Funds expenses associated with the Reorganization will
be allocated between the Funds and paid out of the Funds
net assets. Fund shareholders will indirectly bear the costs of
the Reorganization. |
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What is the timetable for the Reorganization? |
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If Fund shareholders approve each respective proposal at the
special shareholders meeting on May 15, 2009, the
Reorganization is expected to take effect on June 16, 2009
or as soon as practicable thereafter. |
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Who do I call if I have questions? |
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If you need any assistance, or have any questions regarding the
proposal or how to vote your shares, please call Georgeson Inc.,
your proxy solicitor, at (866) 963-6132, weekdays during its
business hours of 7:00 a.m. to 7:00 p.m. Central
time. Please have your proxy materials available when you call. |
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How do I vote my shares? |
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You may vote by mail, telephone or over the Internet: |
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To vote by mail, please mark, sign, date and mail the
enclosed proxy card. No postage is required if mailed in the
United States.
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To vote by telephone, please call the toll-free number
located on your proxy card and follow the recorded instructions,
using your proxy card as a guide.
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To vote over the Internet, go to the Internet address
provided on your proxy card and follow the instructions, using
your proxy card as a guide.
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Will Nuveen contact me? |
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You may receive a call to verify that you received your proxy
materials and to answer any questions you may have about the
Reorganization. |
April 17,
2009
NUVEEN INSURED
MUNICIPAL OPPORTUNITY FUND, INC. (NIO)
NUVEEN INSURED FLORIDA PREMIUM INCOME MUNICIPAL FUND
(NFL)
NOTICE OF SPECIAL
MEETING OF SHAREHOLDERS
TO BE HELD ON May 15, 2009
To the
Shareholders:
Notice is hereby given that the Special Meeting of Shareholders
of Nuveen Insured Municipal Opportunity Fund, Inc.
(National Fund or Acquiring Fund) and
Nuveen Insured Florida Premium Income Municipal Fund
(Florida Fund or Acquired Fund), will be
held in the
31st
floor conference room of Nuveen Investments, 333 West
Wacker Drive, Chicago, Illinois 60606, on Friday, May 15,
2009, at 2:00 p.m., Central time (the Special
Meeting), for the following purposes:
1. For shareholders of the Florida Fund and preferred
shareholders of the National Fund, to approve an Agreement and
Plan of Reorganization (the Agreement), pursuant to
which Florida Fund would (i) transfer all of its assets to
National Fund in exchange solely for shares of common stock
(common shares) and shares of Municipal Auction Rate
Cumulative Preferred stock (MuniPreferred),
Series W3 and Series TH3, of National Fund and the
National Funds assumption of all the liabilities of
Florida Fund, (ii) distribute such shares of the National
Fund to the common shareholders and MuniPreferred, Series W
and Series TH, shareholders of the Florida Fund and
(iii) be liquidated, dissolved and terminated in accordance
with the Florida Funds Declaration of Trust (collectively,
the Reorganization).
2. For common shareholders of the National Fund, to approve
the issuance of additional common shares of the National Fund in
connection with the Reorganization.
Only shareholders of record as of the close of business on
March 19, 2009 are entitled to notice of and to vote at the
Special Meeting or any adjournment thereof.
All shareholders are cordially invited to attend the Special
Meeting. In order to avoid delay and additional expense for the
Funds, and to assure that your shares are represented, please
vote as promptly as possible, whether or not you plan to attend
the Special Meeting. You may vote by mail, telephone or over the
Internet.
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To vote by mail, please mark, sign, date and mail the
enclosed proxy card. No postage is required if mailed in the
United States.
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To vote by telephone, please call the toll-free number
located on your proxy card and follow the recorded instructions,
using your proxy card as a guide.
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To vote over the Internet, go to the Internet address
provided on your proxy card and follow the instructions, using
your proxy card as a guide.
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Kevin J. McCarthy
Vice President and Secretary
333 WEST WACKER
DRIVE
CHICAGO, ILLINOIS 60606
(800) 257-8787
PROXY
STATEMENT/PROSPECTUS
NUVEEN INSURED
MUNICIPAL OPPORTUNITY FUND, INC. (NI0)
NUVEEN INSURED FLORIDA PREMIUM INCOME MUNICIPAL FUND
(NFL)
April 17,
2009
This Proxy Statement/Prospectus is being furnished to the
shareholders of Nuveen Insured Municipal Opportunity Fund, Inc.
(National Fund or Acquiring Fund), a
closed-end management investment company, and Nuveen Insured
Florida Premium Income Municipal Fund (Florida Fund
or Acquired Fund and, together with the Acquiring
Fund, the Funds), a closed-end management investment
company, in connection with the solicitation of proxies by the
Acquiring Funds Board of Directors and the Acquired
Funds Board of Trustees (each a Board and each
Director or Trustee a Board Member) for use at the
Special Meeting of Shareholders of each Fund to be held on
Friday, May 15, 2009, at 2:00 p.m., Central time, and at
any and all adjournments thereof (the Special
Meeting). The enclosed proxy and this Proxy
Statement/Prospectus are first being sent to shareholders of the
Funds on or about April 23, 2009. Shareholders of record of
the Funds as of the close of business on March 19, 2009 are
entitled to notice of, and to vote at, the Special Meeting and
any adjournment thereof.
The purposes of the Special Meeting are:
For shareholders of the Acquired Fund and preferred shareholders
of the Acquiring Fund:
1. To approve an Agreement and Plan of Reorganization (the
Agreement), pursuant to which the Acquired Fund
would (i) transfer all of its assets to the Acquiring Fund
in exchange solely for shares of common stock (common
shares) and shares of Municipal Auction Rate Cumulative
Preferred stock (MuniPreferred), Series W3 and
Series TH3, of the Acquiring Fund and the Acquiring
Funds assumption of all the liabilities of the Acquired
Fund, (ii) distribute such shares of the Acquiring Fund to
the common shareholders and MuniPreferred, Series W and
Series TH, shareholders of the Acquired Fund and
(iii) be liquidated, dissolved and terminated in accordance
with the Acquired Funds Declaration of Trust
(collectively, the Reorganization).
For common shareholders of the Acquiring Fund:
2. To approve the issuance of additional common shares of
the Acquiring Fund in connection with the Reorganization.
The Agreement provides for (i) the Acquiring Funds
acquisition of all the assets of the Acquired Fund in exchange
for newly issued common shares of the Acquiring Fund, par value
$0.01 per share (Acquiring Fund Common Shares),
and newly issued MuniPreferred, Series W3 and
Series TH3, of the Acquiring Fund, with a par value of
$0.01 per share and liquidation preference of $25,000 per share
(Acquiring Fund MuniPreferred Shares), and the
Acquiring Funds assumption of all the liabilities of the
Acquired Fund, (ii) the distribution of the Acquiring
Fund Common Shares and Acquiring Fund MuniPreferred
Shares held by the Acquired Fund to its common and MuniPreferred
shareholders, respectively, and (iii) the liquidation,
dissolution and termination of the Acquired Fund in accordance
with the Acquired Funds Declaration of Trust. The number
of Acquiring
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Fund Common Shares to be issued to the Acquired Fund would
be that number having an aggregate per share net asset value
equal to the aggregate value of the net assets of the Acquired
Fund transferred to the Acquiring Fund. The aggregate net asset
value of Acquiring Fund Common Shares received in the
Reorganization will equal the aggregate net asset value of
Acquired Fund common shares held immediately prior to the
Reorganization. Prior to the closing of each Reorganization, the
net asset value of the Acquired Fund and Acquiring Fund will be
reduced by the costs of the Reorganization borne by such Fund.
Shareholders of Acquired Fund MuniPreferred, Series W
and Series TH, will receive the same number of Acquiring
Fund MuniPreferred, Series W3 and Series TH3,
respectively. The aggregate liquidation preference of the
Acquiring Fund MuniPreferred Shares received in the
Reorganization will equal the aggregate liquidation preference
of the Acquired Fund MuniPreferred held immediately prior
to the Reorganization. The Acquiring Fund will continue to
operate after the Reorganization as a registered closed-end
investment company with the investment objectives and policies
described in this Proxy Statement/Prospectus.
In connection with the Reorganization, common shareholders of
the Acquiring Fund are being asked to approve the issuance of
additional Acquiring Fund Common Shares.
The Board of each Fund has determined that including all
proposals in one Proxy Statement/Prospectus will reduce costs
and is in the best interests of each Fund.
In the event that each Funds shareholders do not approve
the Reorganization or that the Acquiring Fund common
shareholders do not approve the issuance of Acquiring
Fund Common Shares, the Acquired Fund will continue to
exist and the Board of the Acquired Fund will consider what
additional action to take, if any.
This Proxy Statement/Prospectus concisely sets forth the
information shareholders of the Funds should know before voting
on the proposals and constitutes an offering of common shares
and MuniPreferred, Series W3 and Series TH3, of the
Acquiring Fund only. Please read it carefully and retain it for
future reference.
The following documents have been filed with the Securities and
Exchange Commission (SEC) and are incorporated into
this Proxy Statement/Prospectus by reference:
(i) the Statement of Additional Information relating to the
proposed Reorganization, dated April 17, 2009 (the
Reorganization SAI);
(ii) the audited financial statements and related
independent registered public accounting firms report for
the Acquiring Fund and the financial highlights for the
Acquiring Fund contained in the Funds Annual Report for
the fiscal year ended October 31, 2008;
(iii) the audited financial statements and related
independent registered public accounting firms report for
the Acquired Fund and the financial highlights for the Acquired
Fund contained in the Funds Annual Report for the fiscal
year ended April 30, 2008; and
(iv) the unaudited financial statements and the financial
highlights for the Acquired Fund contained in the Funds
Semi-Annual Report for the period ended October 31, 2008.
No other parts of the Funds Annual or Semi-Annual Reports
are incorporated by reference herein.
ii
Copies of the foregoing may be obtained without charge by
calling or writing the Funds at the telephone number or address
shown above. If you wish to request the Reorganization SAI,
please ask for the Reorganization SAI. In addition,
the Acquiring Fund will furnish, without charge, a copy of its
most recent annual report and subsequent semiannual report to a
shareholder upon request. Any such request should be directed to
the Acquiring Fund by calling
(800) 257-8787
or by writing the Acquiring Fund at 333 West Wacker Drive,
Chicago, Illinois 60606.
The Funds are both closed-end management investment companies,
with similar objectives and policies. Each Funds primary
investment objective is to provide current income exempt from
regular federal income tax. The Acquiring Funds secondary
investment objective is to enhance portfolio value relative to
the municipal bond market by investing in tax-exempt municipal
bonds that, in the opinion of the Funds investment
adviser, are underrated or undervalued. The Acquired Funds
secondary investment objective is the enhancement of portfolio
value relative to the Florida municipal bond market through
investments in tax-exempt Florida municipal obligations that, in
the opinion of the Funds investment adviser, are
underrated or undervalued or that represent municipal market
sectors that are undervalued. The Acquired Funds shares
also will be exempt from Florida intangible personal property
tax. Each Fund is a diversified management investment company.
The Funds are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the Investment
Company Act of 1940, as amended (the 1940 Act), and
in accordance therewith file reports and other information with
the SEC. Reports, proxy statements, registration statements and
other information filed by the Funds (including the Registration
Statement relating to the Acquiring Fund on
Form N-14
of which this Proxy Statement/Prospectus is a part may be
inspected without charge and copied (for a duplication fee at
prescribed rates) at the SECs public reference room at
100 F Street, N.E., Washington, D.C. 20549 or at
the SECs Northeast Regional Office (3 World Financial
Center, New York, New York 10281) or Midwest Regional
Office (175 W. Jackson Boulevard, Suite 900,
Chicago, Illinois 60604). You may call the SEC at
(202) 551-5850
for information about the operation of the public reference
room. You may obtain copies of this information, with payment of
a duplication fee, by electronic request at the following
e-mail
address: publicinfo@sec.gov, or by writing the SECs Public
Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission,
Washington, D.C. 20549. You may also access reports and
other information about the Funds on the EDGAR database on the
SECs Internet site at
http://www.sec.gov.
The shares of the Funds are listed on the New York Stock
Exchange (NYSE); reports, proxy statements and other
information concerning the Acquired Fund can be inspected at the
offices of the NYSE, 11 Wall Street, New York, New York 10005.
This Proxy Statement/Prospectus serves as a prospectus of the
Acquiring Fund in connection with the issuance of the Acquiring
Fund Common Shares and the Acquiring
Fund MuniPreferred Shares in the Reorganization. No person
has been authorized to give any information or make any
representation not contained in this Proxy Statement/Prospectus
and, if so given or made, such information or representation
must not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell or a
solicitation of an offer to
iii
buy any securities in any jurisdiction in which, or to any
person to whom, it is unlawful to make such offer or
solicitation.
The Securities and Exchange Commission has not approved or
disapproved these securities or determined whether the
information in this Proxy Statement/Prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
iv
PROXY
STATEMENT/PROSPECTUS
April 17,
2009
NUVEEN INSURED
MUNICIPAL OPPORTUNITY FUND, INC. (NIO)
NUVEEN INSURED FLORIDA PREMIUM INCOME MUNICIPAL FUND
(NFL)
TABLE OF
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vi
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement/Prospectus and is qualified in
its entirety by reference to the more complete information
contained in this Proxy Statement/Prospectus and in the
Reorganization SAI and the appendices thereto. Shareholders
should read the entire Proxy Statement/Prospectus carefully.
Certain capitalized terms used but not defined in this summary
are defined elsewhere in the text of this Proxy
Statement/Prospectus or in the Acquiring Funds Statement
Establishing and Fixing the Rights and Preferences of Municipal
Auction Rate Cumulative Preferred Shares (the Acquiring
Fund Statement) attached as Appendix A to the
Reorganization SAI.
Proposal 1:
The Reorganizations
If the shareholders of the Acquired Fund and MuniPreferred
shareholders of the Acquiring Fund approve the Reorganization,
and the common shareholders of the Acquiring Fund approve the
issuance of additional Acquiring Fund Common Shares (see
Proposal 2: Issuance of Additional Acquiring
Fund Common Shares): (i) the Acquiring Fund will
acquire all the assets of the Acquired Fund in exchange for
newly issued Acquiring Fund Common Shares and newly issued
Acquiring Fund MuniPreferred Shares, and the Acquiring
Funds assumption of all the liabilities of the Acquired
Fund, (ii) the distribution of the Acquiring
Fund Common Shares and Acquiring Fund MuniPreferred
Shares held by the Acquired Fund to its common and preferred
shareholders, respectively and (iii) the liquidation,
dissolution and termination of the Acquired Fund in accordance
with the Acquired Funds Declaration of Trust. The number
of Acquiring Fund Common Shares to be issued to the
Acquired Fund would be that number having an aggregate per share
net asset value equal to the aggregate value of the net assets
of the Acquired Fund transferred to the Acquiring Fund. The
aggregate net asset value of Acquiring Fund Common Shares
received in the Reorganization will equal the aggregate net
asset value of Acquired Fund common shares held immediately
prior to the Reorganization. Prior to the closing of each
Reorganization, the net asset value of the Acquired Fund and
Acquiring Fund will be reduced by the costs of the
Reorganization borne by such Fund. The number of Acquiring
Fund MuniPreferred Shares to be issued to the Acquired Fund
would be that number of shares of Acquiring
Fund MuniPreferred Shares, Series W3 and
Series TH3, as was held of Acquired Fund MuniPreferred
shares, Series W and Series TH, respectively. The
aggregate liquidation preference of the Acquiring
Fund MuniPreferred Shares received in the Reorganization
will equal the aggregate liquidation preference of the Acquired
Fund MuniPreferred shares held immediately prior to the
Reorganization.
The Board of each Fund, including the Board Members who are not
interested members, as defined in the 1940 Act, of
each Fund, has unanimously approved the Reorganization. The
Board of each Fund recommends that the shareholders vote
FOR the approval of the Reorganization. See
Proposal No. 1 The
Reorganization.
Background
and Reasons for the Reorganization
The Boards recommendation of the Reorganization reflects
various considerations, among them: (i) the price level at
which the Acquired Funds common shares have traded over
time in relation to their underlying net asset value on an
absolute basis as well as relative to other closed-end funds;
(ii) prior efforts to enhance, over time, the secondary
market for the Acquired Funds common shares, including
investment strategies aimed at increasing common net earnings as
well as common share repurchases; and (iii) the repeal of
Floridas intangible
1
personal property tax which eliminated the state tax benefit to
a Florida resident of owning a Florida-specific portfolio of
municipal bonds. The Board of the Acquiring Fund and the
Acquired Fund believes the proposed merger is in the best
interests of the Acquiring Fund and the Acquired Fund,
respectively.
As a result of the Reorganization, the net assets of the
Acquiring Fund and the Acquired Fund would be combined and the
shareholders of the Acquired Fund would become shareholders of
the Acquiring Fund. The investment objectives and policies of
the Funds are similar except that the Acquired Fund invests in
municipal bonds that that are exempt from the Florida intangible
personal property tax and concentrates its assets in municipal
bonds generally issued by the State of Florida, a municipality
in Florida, or a political subdivision or agency or
instrumentality of such State or municipality (Florida
municipal bonds). The Board Members and officers of the
larger combined entity would be identical to those of the Funds.
The general portfolio characteristics of the larger combined
entity would be similar to both Funds.
The Board of each Fund believes that the proposed Reorganization
would be in the best interests of the Funds. In approving the
Reorganization, the Boards considered information presented at
the Boards meeting or earlier meetings regarding the
Funds, the proposed Reorganization and a number of factors,
including, among other things:
|
|
|
the secondary market trading history of the Funds (i.e., the
price level at which the Funds shares have traded over
time in relation to their underlying net asset value on an
absolute basis and as compared to other closed-end funds) and
prior efforts to enhance the secondary market for the common
shares of the Acquired Fund;
|
|
|
the elimination of the Florida intangibles tax;
|
|
|
the compatibility of the investment objectives, policies and
strategies of the Funds;
|
|
|
the potential opportunities to refinance MuniPreferred;
|
|
|
|
the relative fees and operating expense ratios of the Funds;
|
|
|
|
the investment performance of the Funds;
|
|
|
the anticipated tax-free nature of the Reorganization;
|
|
|
the expected costs of the Reorganization and the extent to which
the Funds would bear any such costs;
|
|
|
the terms of the Reorganization and whether the Reorganization
would dilute the interests of shareholders of the Funds; and
|
|
|
any potential benefits of the Reorganization to the adviser as a
result of the Reorganization.
|
In approving the Reorganization, the Boards considered, in
particular, the following potential benefits:
|
|
|
Expected lower fees and operating
expenses. After the Reorganization, the combined
fund is expected to have lower fees and operating expenses per
common share, excluding costs of leverage, than the Acquiring
Fund and Acquired Fund from achieving greater economies of scale
as the larger asset size of the combined fund is expected to
result in a lower management fee rate and allow for the fixed
operating costs to be spread over a larger asset base.
|
2
|
|
|
Enhanced relative investment performance. The
combined fund is estimated to have an increase in common net
earnings after the Reorganization compared to that of the
Acquiring Fund and Acquired Fund and expected to have expanded
opportunities for enhanced total returns due to the larger asset
base (and in relation to the Acquired Fund, a
nationally-diversified portfolio).
|
|
|
Improved secondary market trading. The
estimated higher common net earnings, expected enhanced total
returns over time, and the larger asset base of the combined
fund after the Reorganization may lead to higher common share
market prices relative to net asset value and the combined
funds greater market liquidity may lead to narrower
bid-ask spreads and smaller trade-to-trade price movements. In
addition, with respect to the Acquired Fund, the Board of the
Acquired Fund also considered that a broader potential investor
base of a national fund may also promote a higher common share
price to net asset value.
|
|
|
Expanded MuniPreferred refinancing
opportunities. After the Reorganization, the
larger asset size of the combined fund may increase the ability
to refinance the MuniPreferred with tender option bonds
(TOBs). The greater portfolio diversification of the
Acquiring Fund compared to the Acquired Fund may also enhance
the combined funds ability to refinance the MuniPreferred
compared to that of the Acquired Fund. The Boards also
considered that such refinancings may provide liquidity at par
for MuniPreferred shareholders and lower the relative costs of
leverage over time for common shareholders.
|
|
|
Continuity of investment objectives and
strategies. The Boards considered the
compatibility of the Funds investment objectives, policies
and strategies except in relevant part, the Acquired Fund would
invest primarily in municipal securities that pay interest
exempt from an intangible personal property tax assessed by
Florida on the value of stocks, bonds, other evidences of
indebtedness and mutual fund shares. Florida repealed the
intangible personal property tax in 2007 reducing the
attractiveness of Florida bonds to investors formerly subject to
the tax. Accordingly, a primary reason for the policy of the
Acquired Fund to invest primarily in Florida municipal bonds was
eliminated and the continuation of such policy is no longer
necessary. With the Reorganization, the Acquired Fund common
shareholders would be invested in a more diversified portfolio
and their exposure to Florida obligations would decrease. In
addition, both Funds have issued MuniPreferred to create
leverage. Through the use of leverage, the Funds seek to enhance
potential common share earnings over time by borrowing at
short-term municipal rates and investing at long-term municipal
rates which generally are higher. Although there are no
assurances that the use of leverage will result in a higher
yield or return to common shareholders, the Boards believe that
the Acquiring Funds use of leverage would continue to
provide Acquired Fund common shareholders with the potential for
higher monthly tax-exempt distributions and enhanced total
returns on average over market cycles at a time when the
municipal yield spreads are particularly wide or attractive. In
addition, as discussed in more detail above, the larger asset
base of the combined fund may increase its ability to refinance
MuniPreferred with TOBs.
|
For a fuller discussion of the Boards considerations
regarding the approval of the Reorganization, see
Proposal No. 1 The
Reorganization Reasons for the Reorganization.
Certain
Federal Income Tax Consequences of the Reorganization
The Reorganization is intended to qualify as a reorganization
for federal income tax purposes. If the Reorganization so
qualifies, neither the Acquired Fund nor its shareholders will
recognize
3
any gain or loss for federal income tax purposes as a direct
result of the transfers contemplated by the Reorganization. See
Proposal No. 1 The
Reorganization Certain Federal Income Tax
Consequences of the Reorganization.
Comparison
of the Acquiring Fund and the Acquired Fund
General. The Acquiring Fund and the Acquired
Fund are both closed-end management investment companies. Each
Fund is a diversified management investment company. The
Acquiring Fund common shares are listed and trade on the NYSE
under the symbol NIO and the Acquired Fund common shares are
listed and trade on the NYSE under the symbol NFL. The Acquiring
Fund is organized as a corporation under the laws of the State
of Minnesota. The Acquired Fund is organized as a business trust
under the laws of the Commonwealth of Massachusetts. The common
shares of each Fund have equal voting rights and equal rights
with respect to the payment of dividends and distribution of
assets upon liquidation and have no preemptive, conversion or
exchange rights or rights to cumulative voting. All outstanding
shares of Acquiring Fund MuniPreferred and Acquired
Fund MuniPreferred are rated AAA by S&P
and Aaa by Moodys. The Acquiring
Fund MuniPreferred Shares issued to the Acquired Fund
pursuant to the Reorganization will have rights and preferences,
including liquidation preferences, that are substantially
similar to those of the outstanding shares of Acquired
Fund MuniPreferred. See
Proposal No. 1 The
Reorganization.
Investment Objectives and Policies. The
Acquiring Fund and Acquired Fund have similar investment
objectives. Each Funds primary investment objective is to
provide current income exempt from regular federal income tax.
The Acquiring Funds secondary investment objective is to
enhance portfolio value relative to the municipal bond market by
investing in tax-exempt municipal bonds that, in the opinion of
the Funds investment adviser, are underrated or
undervalued. The Acquired Funds secondary investment
objective is the enhancement of portfolio value relative to the
Florida municipal bond market through investments in tax-exempt
Florida municipal obligations that, in the opinion of the
Funds investment adviser, are underrated or undervalued or
that represent municipal market sectors that are undervalued.
The Acquired Funds shares also will be exempt from Florida
intangible personal property tax. For purposes of the
Funds objectives, policies and investment strategies,
municipal bonds and municipal obligations are treated as
municipal securities.
The Acquiring Fund and Acquired Fund also have similar
investment policies. Except to the extent that the Acquiring
Fund buys temporary investments, the Fund will invest
substantially all of its assets in tax-exempt municipal bonds
that are either covered by insurance guaranteeing the timely
payment of principal and interest on the bonds, or are backed by
an escrow or trust account containing sufficient
U.S. Government or U.S. Government agency securities
to ensure timely payment of principal and interest. Uninsured
municipal bonds backed by an escrow or trust account will not
constitute more than 20% of the Acquiring Funds assets.
Except to the extent the Acquired Fund invests in temporary
investments as described below, the Fund will invest
substantially all of its assets in tax-exempt Florida municipal
obligations which are either covered by insurance guaranteeing
the timely payment of principal and interest thereon or backed
by an escrow or trust account containing sufficient
U.S. Government or U.S. Government agency securities
to ensure timely payment of principal and interest. Municipal
obligations backed by an escrow or trust account will not
constitute more than 20% of the Acquired Funds assets. The
primary difference between the Funds stated policies is
that the Acquired Fund invests substantially all of its assets
in municipal bonds that are exempt from
4
the Florida intangible personal property tax and therefore
concentrates its assets in Florida municipal bonds. Effective
January 1, 2007, the State of Florida repealed the
states intangible personal property tax, which eliminated
the state tax benefit to a Florida resident of owning a
Florida-specific portfolio of municipal bonds. See Reasons
for the Reorganization Elimination of the Florida
Intangibles Tax.
Board Members and Officers. The Acquiring Fund
and the Acquired Fund have the same Board Members and officers.
The management of each Fund, including general supervision of
the duties performed by the Adviser (as defined below) under the
Investment Management Agreement for each Fund, is the
responsibility of its Board. There are currently nine
(9) Board Members of the Funds, one (1) of whom is an
interested person (as defined in the 1940 Act) and
eight (8) of whom are not interested persons (the
independent board members). The names and business
addresses of the Board Members and officers of the Funds and
their principal occupations and other affiliations during the
past five years are set forth under Management in
the Reorganization SAI incorporated herein by reference.
Investment Adviser. Nuveen Asset Management
(the Adviser or NAM) is responsible for
investing each Funds net assets. NAM oversees the
management of the Funds portfolios, manages the
Funds business affairs and provides certain clerical,
bookkeeping and other administrative services. NAM is located at
333 West Wacker Drive, Chicago, Illinois 60606.
NAM, a registered investment adviser, is a wholly owned
subsidiary of Nuveen Investments, Inc. (Nuveen
Investments). Founded in 1898, Nuveen Investments and its
affiliates had approximately $119 billion of assets under
management as of December 31, 2008. On November 13,
2007, Nuveen Investments was acquired by investors led by
Madison Dearborn Partners, LLC. Madison Dearborn Partners, LLC
is a private equity investment firm based in Chicago, Illinois.
See Management of the Funds-Investment Adviser.
The portfolio manager for the Acquiring Fund is Paul Brennan,
CFA, CPA. Mr. Brennan manages several national open- and
closed-end funds. Mr. Brennan began his career in the
investment business in 1991 when he was a municipal credit
analyst, then became a portfolio manager in 1994. He joined
Nuveen Investments in 1997 while at Flagship Financial which
Nuveen acquired. He earned his BS in Accountancy and Finance
from Wright State University. He is a CPA, has earned the
Chartered Financial Analyst designation, and currently sits on
the Nuveen Asset Management Investment Management Committee.
Prior to joining Flagship, Paul was employed at
Deloitte & Touche within the audit group which
participated in auditing mutual funds and investment advisers.
The portfolio manager for the Acquired Fund is Daniel Close,
CFA. Mr. Close joined Nuveen Investments in 2000 as a
member of Nuveens product management and development team,
where he was responsible for the oversight and development of
Nuveens mutual fund product line. He then served as a
research analyst for Nuveens municipal investing team,
covering corporate-backed, energy, transportation and utility
credits. He received his BS in Business from Miami University
and his MBA from Northwestern Universitys Kellogg School
of Management. Mr. Close has earned the Chartered Financial
Analyst designation.
5
Pursuant to an Investment Management Agreement between the
Adviser and each Fund, each Fund pays an annual management fee
for the services and facilities furnished by the Adviser on a
monthly basis at the following annual rates:
|
|
|
|
|
Management Fee Schedule
|
|
Average Daily Net Assets
|
|
|
|
(including net assets attributable to preferred shares)
|
|
Rate
|
|
|
|
|
Up to $125 million
|
|
|
0.4500
|
%
|
$125 to $250 million
|
|
|
0.4375
|
%
|
$250 to $500 million
|
|
|
0.4250
|
%
|
$500 million to $1 billion
|
|
|
0.4125
|
%
|
$1 billion to $2 billion
|
|
|
0.4000
|
%
|
$2 billion to $5 billion
|
|
|
0.3875
|
%
|
$5 billion and over
|
|
|
0.3750
|
%
|
|
|
In addition to the fund-level fee, each Fund pays a
complex-level fee. The complex-level fee is the same for each
Fund and begins at a maximum rate of 0.20% of each Funds
net assets, based upon complex-level assets of $55 billion,
with breakpoints for assets above that level. Therefore, the
maximum management fee rate for each Fund is the fund-level fee
plus 0.20%. As of December 31, 2008, the effective
complex-level fee for each Fund was 0.20% of net assets. See
Management of the Funds Investment
Adviser.
The Acquiring Fund paid aggregate management fees of $10,976,183
for the fiscal year ended October 31, 2008, for an
effective management fee rate of 0.94% based on net assets
applicable to common shares (0.60% based on managed assets). The
Acquired Fund paid aggregate management fees of $2,031,193 for
the fiscal year ended April 30, 2008, for an effective
management fee rate of 0.95% based on net assets applicable to
common shares (0.62% based on managed assets).
Dividends and Distributions. The Funds have
identical dividend policies with respect to the payment of
dividends on their common shares. Each Funds present
policy, which may be changed by its Board, is to make regular
monthly cash distributions to holders of its common shares at a
level rate (stated in terms of a fixed cents per common share
dividend rate) that reflects the past and projected performance
of the Fund. Distributions can only be made from net investment
income after paying any accrued dividends to MuniPreferred
shareholders. Each Funds ability to maintain a level
dividend rate will depend on a number of factors, including
dividends payable on the MuniPreferred shares. The net
investment income of each Fund generally consists of all
interest income accrued on portfolio assets less all expenses of
the Fund. Over time, all the net investment income of each Fund
will be distributed. At least annually, each Fund also intends
to distribute net capital gain and ordinary taxable income, if
any, after paying any accrued dividends or making any
liquidation payments to MuniPreferred shareholders. Holders of
common shares of each Fund may elect to have all distributions
automatically reinvested in common shares of the Fund pursuant
to that Funds Dividend Reinvestment Plan. See
Proposal No. 1 The
Reorganization Description of Common Shares Issued
by the Acquiring Fund Distributions and
Dividend Reinvestment Plan and
Additional Information About the Funds
Federal Income Tax Matters Associated with Investment in the
Funds.
6
The dividend rates on shares of each Funds MuniPreferred,
including the Acquiring Fund MuniPreferred Shares issued
pursuant to the Reorganization, are structured to be determined
on the basis of auctions, which are scheduled to be held weekly.
In February 2008, escalating liquidity pressures across
financial markets led to the systemic failure of the auction
rate preferred securities (ARPS) market and the
auction process used to set the ARPS dividend rate. This
failure is ongoing and affects the Funds MuniPreferred
Shares whose dividend rates are currently set by reference to a
predetermined, index-based formula (the Maximum
Rate). See Proposal No. 1 The
Reorganization Description of MuniPreferred Issued
by the Acquiring Fund and The
Auction and the Reorganization SAI.
Credit Quality. A comparison of the credit
quality of the respective portfolios of the Acquiring Fund and
the Acquired Fund, as of January 31, 2009, is set forth in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquiring
|
|
|
Acquired
|
|
|
Combined Fund
|
|
Credit Rating
|
|
Fund
|
|
|
Fund
|
|
|
Pro-Forma(1)
|
|
|
|
|
Aaa/AAA*
|
|
|
40.7
|
%
|
|
|
32.0
|
%
|
|
|
39.4
|
%
|
Aa/AA
|
|
|
43.4
|
|
|
|
52.0
|
|
|
|
44.7
|
|
A/A
|
|
|
13.8
|
|
|
|
9.7
|
|
|
|
13.2
|
|
Baa/BBB
|
|
|
1.0
|
|
|
|
1.1
|
|
|
|
1.0
|
|
Below investment grade
|
|
|
0.3
|
|
|
|
0.0
|
|
|
|
0.3
|
|
Unrated
|
|
|
0.8
|
|
|
|
5.2
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
*
|
|
Includes securities that are backed
by an escrow or trust containing sufficient U.S. Government or
U.S. Government agency securities which ensure the timely
payment of principal and interest. Such investments are normally
considered to be equivalent to AAA rated securities.
|
|
|
|
(1)
|
|
Reflects the effect of the
Reorganization.
|
Maturity and Duration. A comparison of the
maturity and duration of the respective portfolios of the
Acquiring Fund and the Acquired Fund, as of January 31,
2009, is set forth in the table below.
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Leverage
|
|
|
Weighted Average
|
|
Fund
|
|
Adjusted Duration
|
|
|
Maturity
|
|
|
|
|
Acquiring
|
|
|
12.38
|
|
|
|
19.32
|
|
Acquired
|
|
|
10.44
|
|
|
|
15.22
|
|
Combined Fund
Pro-Forma(1)
|
|
|
12.08
|
|
|
|
18.69
|
|
|
|
(1) Reflects the effect of the
Reorganization.
Capitalization
The following table sets forth the unaudited capitalization of
the Funds as of October 31, 2008, and the pro-forma
combined capitalization of the combined Fund as if the
Reorganization had occurred on that date. The table reflects a
pro-forma exchange ratio of approximately
7
1.050038 common shares of the Acquiring Fund issued for
each common share of the Acquired Fund. If the Reorganization is
consummated, the actual exchange ratio may vary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquiring
|
|
|
Acquired
|
|
|
Combined Fund
|
|
|
|
Fund
|
|
|
Fund
|
|
|
Pro
Forma(1)
|
|
|
|
|
Preferred shares, $25,000 stated value per share, at
liquidation value; 24,934 shares outstanding for Acquiring Fund;
4,440 shares outstanding for Acquired Fund; 29,374 shares
outstanding for Combined Fund Pro Forma
|
|
$
|
623,350,000
|
|
|
$
|
111,000,000
|
|
|
$
|
734,350,000
|
|
|
|
Common Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares, $.01 par value per share;
81,138,036 shares outstanding for Acquiring Fund;
14,218,896 shares outstanding for Acquired Fund;
96,068,419 shares outstanding for Combined Fund
Pro Forma
|
|
$
|
811,380
|
|
|
$
|
142,189
|
|
|
$
|
960,684
|
(2)
|
Paid-in surplus
|
|
|
1,128,874,275
|
|
|
|
201,990,758
|
|
|
|
1,330,197,918
|
(3)
|
Undistributed (Over-distribution of) net investment income
|
|
|
(2,109,393
|
)
|
|
|
(368,571
|
)
|
|
|
(2,477,964
|
)
|
Accumulated net realized gain (loss) from investments and
derivative transactions
|
|
|
(12,504,908
|
)
|
|
|
(1,353,582
|
)
|
|
|
(13,858,490
|
)
|
Net unrealized appreciation (depreciation) of investments and
derivative transactions
|
|
|
(109,853,385
|
)
|
|
|
(14,843,606
|
)
|
|
|
(124,696,991
|
)
|
|
|
Net assets applicable to common shares
|
|
$
|
1,005,217,969
|
|
|
$
|
185,567,188
|
|
|
$
|
1,190,125,157
|
|
|
|
Net asset value per common share outstanding (net assets
applicable to common shares, divided by common shares
outstanding)
|
|
$
|
12.39
|
|
|
$
|
13.05
|
|
|
$
|
12.39
|
|
|
|
Authorized shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
200,000,000
|
|
|
|
Unlimited
|
|
|
|
200,000,000
|
|
Preferred
|
|
|
1,000,000
|
|
|
|
Unlimited
|
|
|
|
1,000,000
|
|
|
|
|
|
|
(1)
|
|
The adjusted balances are presented
as if the Reorganization were effective as of October 31,
2008 for information purposes only. The actual closing date of
the Reorganization is expected to be June 16, 2009, at
which time the results would be reflective of the actual
composition of shareholders equity at that date.
|
|
|
|
(2)
|
|
Assumes the issuance of 14,930,383
Acquiring Fund Common Shares in exchange for the net assets
of the Acquired Fund, which number is based on the net asset
value of the Acquiring Fund Common Shares and the net asset
value of the Acquired Fund common shares, as of
October 31, 2008, after adjustment for the Reorganization
costs referred to in (3) below.
|
|
|
|
(3)
|
|
Includes the impact of estimated
Reorganization costs of $660,000 which will be borne by the
shareholders of the Acquiring Fund and the Acquired Fund
($55,000 and $605,000, respectively).
|
8
Comparative
Performance Information
Comparative total return investment performance for the Funds
for periods ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Total Return
|
|
|
Average Annual Total Return
|
|
|
|
on Net Asset Value
|
|
|
on Market Value
|
|
|
|
One
|
|
|
Three
|
|
|
Five
|
|
|
Ten
|
|
|
One
|
|
|
Three
|
|
|
Five
|
|
|
Ten
|
|
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
|
|
Acquiring Fund
|
|
|
−13.59
|
%
|
|
|
−2.61
|
%
|
|
|
0.24
|
%
|
|
|
3.42
|
%
|
|
|
−15.09
|
%
|
|
|
−4.46
|
%
|
|
|
−2.30
|
%
|
|
|
1.80
|
%
|
Acquired Fund
|
|
|
−7.68
|
%
|
|
|
−0.38
|
%
|
|
|
1.47
|
%
|
|
|
3.99
|
%
|
|
|
−18.49
|
%
|
|
|
−6.99
|
%
|
|
|
−4.23
|
%
|
|
|
1.56
|
%
|
|
|
Total Return on Market Value is the average annual return on an
investment in common shares of each Fund, taking into account
income and capital gains distributions, if any, as well as
changes in market price per share. Total Return on Net Asset
Value is the average annual return on the common share net asset
value of each Fund, taking into account income, capital gains
distributions, if any, as well as changes in net asset value per
share. Past performance information is not necessarily
indicative of future results.
Comparative
Fee
Table(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquiring
|
|
|
|
|
|
Combined Fund
|
|
|
|
Fund
|
|
|
Acquired Fund
|
|
|
Pro-Forma
|
|
|
|
10/31/08
|
|
|
4/30/08
|
|
|
10/31/08(2)
|
|
|
|
|
Annual Expenses (as a percentage of net assets applicable to
common shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund-Level Fees
|
|
|
0.65
|
%
|
|
|
0.67
|
%
|
|
|
0.65
|
%
|
Complex-Level Fees
|
|
|
0.29
|
%
|
|
|
0.28
|
%
|
|
|
0.29
|
%
|
Interest and Related Expenses from Inverse
Floaters(3)
|
|
|
0.24
|
%
|
|
|
0.19
|
%
|
|
|
0.21
|
%
|
Other Expenses
|
|
|
0.25
|
%
|
|
|
0.23
|
%
|
|
|
0.23
|
%
|
|
|
|
|
|
|
Total Annual Expenses
|
|
|
1.43
|
%
|
|
|
1.37
|
%
|
|
|
1.38
|
%
|
Income Dividends and Capital Gain Distributions on Preferred
Shares
|
|
|
2.13
|
%
|
|
|
1.95
|
%
|
|
|
2.12
|
%
|
|
|
|
|
|
|
Net Annual Expenses and Income Dividends and Capital Gain
Distributions on Preferred
Shares(4)
|
|
|
3.56
|
%
|
|
|
3.32
|
%
|
|
|
3.50
|
%
|
|
|
|
|
|
(1) |
|
The Comparative Fee Table is
presented as of each Funds fiscal year end
(October 31, 2008 for the Acquiring Fund and April 30,
2008 for the Acquired Fund). The pro forma combined figures
assume the consummation of the Reorganization on
October 31, 2008 and reflect average net asset levels for
both the Acquiring Fund and Acquired Fund for the
12-month
period ended October 31, 2008. It is important for you to
understand that a decline in the Funds average net assets
during the current fiscal year due to recent unprecedented
market volatility or other factors could cause the Funds
expense ratios for the Funds current fiscal year to be
higher than the expense information presented.
|
|
|
|
(2) |
|
Pro forma expenses do not include
the expenses to be borne by the Funds in connection with the
Reorganization. See Expenses Associated with the
Reorganization under Proposal
Number 1 The Reorganization for
additional information about these expenses.
|
|
|
|
(3) |
|
Interest expense arises because
accounting rules require the Fund to treat interest paid by
trusts issuing certain inverse floating rate investments held by
the Fund as having been paid (indirectly) by the Fund. Because
the Fund also recognizes a corresponding amount of interest
income (also indirectly), the Funds Common Share net asset
value, net investment income and total return are not affected
by this accounting treatment. The actual Interest and Related
Expenses from Inverse Floaters incurred in the future may be
higher or lower.
|
|
|
|
(4) |
|
The Funds have an arrangement with
the custodian bank whereby certain custodian fees and expenses
are reduced by credits earned on the Funds cash on deposit
with the bank. Such deposit arrangements are an alternative to
|
9
|
|
|
|
|
overnight investments. The
custodian fee credits for the time periods presented were 0.02%,
0.01%, and 0.02% for the Acquiring Fund, the Acquired Fund, and
the Combined Fund Pro-Forma, respectively.
|
Example: The following examples illustrate the
expenses that a shareholder would pay on a $1,000 investment
that is held for the time periods provided in the table. The
examples assume that all dividends and other distributions are
reinvested and that the Net Annual Expenses and Income Dividends
and Capital Gain Distributions on Preferred Shares, remain the
same. The examples also assume a 5% annual return.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
|
|
|
Acquiring Fund
|
|
$
|
36
|
|
|
$
|
109
|
|
|
$
|
185
|
|
|
$
|
383
|
|
Acquired Fund
|
|
$
|
33
|
|
|
$
|
102
|
|
|
$
|
173
|
|
|
$
|
361
|
|
Combined Fund Pro-Forma
|
|
$
|
35
|
|
|
$
|
107
|
|
|
$
|
182
|
|
|
$
|
377
|
|
|
|
The purpose of the comparative fee table is to assist you in
understanding the various costs and expenses of investing in
shares of the Funds. The information in the table is based upon
annualized expenses for the fiscal year ended October 31,
2008 for the Acquiring Fund, for the fiscal year ended
April 30, 2008 for the Acquired Fund and pro-forma expenses
for the 12 months ended October 31, 2008 for the Combined
Fund. The figures in the Example are not necessarily indicative
of past or future expenses, and actual expenses may be greater
or less than those shown. The Funds actual rate of return
may be greater or less than the hypothetical 5% annual return
shown in the Example.
Proposal 2:
Issuance of Additional Acquiring Fund Common
Shares
In connection with the proposed Reorganization described under
Proposal 1: Reorganization, the Acquiring Fund
will issue additional Acquiring Fund Common Shares and list
such shares on the NYSE. The Acquiring Fund will acquire all the
assets and assume all the liabilities of the Acquired Fund in
exchange for the newly-issued Acquiring Fund Common Shares
and newly-issued Acquiring Fund MuniPreferred Shares. The
Reorganization will result in no reduction of net asset value of
the Acquiring Fund Common Shares, other than the costs of
the Reorganization. No gain or loss will be recognized for
federal income tax purposes by the Acquiring Fund in connection
with the Reorganization. The Acquiring Fund Board, based
upon its evaluation of all relevant information, anticipates
that the Reorganization will benefit holders of Acquiring
Fund Common Shares. In particular, the Acquiring
Fund Board believes, based on data presented by the
Adviser, that the Acquiring Fund will experience a reduced
annual operating expense ratio as a result of the
Reorganization. See Proposal No. 1
Reasons for the Reorganization.
The Board of the Acquiring Fund recommends that common
shareholders of the Acquiring Fund vote FOR the
approval of the issuance of additional Acquiring
Fund Common Shares in connection with the Reorganization.
See Proposal No. 2 Issuance of
Additional Acquiring Fund Common Shares.
RISK
FACTORS
Investment in either Fund may not be appropriate for all
investors. The Funds are not intended to be a complete
investment program and due to the uncertainty inherent in all
investments, there can be no assurance that a Fund will achieve
its investment objectives. Investors should consider their
long-term investment goals and financial needs when making an
investment decision with respect to the Funds. An investment in
either Fund is intended to be a long-term investment and should
not be used as a trading vehicle. Your shares at any point in
time may be worth less than your original investment, even after
taking into account the reinvestment of fund dividends and
distributions, if applicable.
10
The following risks and special considerations should be
considered by shareholders of each Fund in their evaluation of
the Reorganization:
Differences
in Risks
The primary difference between the Funds is that the Acquired
Fund invests substantially all of its assets in municipal bonds
that are exempt from the Florida intangible personal property
tax and therefore concentrates its assets in Florida municipal
bonds.
The Acquired Fund invests in Florida municipal bonds which gives
rise to the following risks:
Special Considerations Relating to Florida Municipal
Bonds. Except to the extent the Acquired Fund
invests in temporary investments or in U.S. Territorial
bonds, the Acquired Fund will invest substantially all of its
net assets in Florida municipal bonds. The Acquired Fund is
therefore more susceptible to political, economic or regulatory
factors affecting issuers of Florida municipal bonds. The
information set forth below and the related information in the
Reorganization SAI is derived from sources that are generally
available to investors. The information is provided as general
information intended to give a recent historical description and
is not intended to indicate future or continuing trends in the
financial or other positions of Florida. It should be noted that
the creditworthiness of obligations issued by local Florida
issuers may be unrelated to the creditworthiness of obligations
issued by the State of Florida, and that there is no obligation
on the part of the State to make payment on such local
obligations in the event of default.
Beginning in September 2007, Floridas job growth began a
negative trend that has continued to the present. From December
2007 until December 2008 non-agricultural or nonfarm employment
decreased 3.1%. The unemployment rate in Florida as of December
2008 was 8.1%. The national unemployment rate in December 2008
was 7.2%. Much of the state of Floridas decrease in
employment stems from declines in construction jobs, declines in
manufacturing jobs, declines in jobs in information, and
declines in jobs in financial activities. However, according to
the State of Florida Agency for Workforce Innovation employment
is expected to grow at a 1.65% annual rate for the period 2008
until 2016.
Additionally, Floridas statewide economic activity has
recently been on a downward trend. Taxable sales have decreased
by 12.6% for the period November 2007 until November 2008 with
the largest percentage decrease in autos and accessories and the
largest absolute decrease in consumer nondurables. Sales tax
collections for fiscal year
2007-08 were
5.8% below the previous fiscal years collections.
Corporate income tax collections were 9.7% below the previous
fiscal years corporate income tax collections. Finally,
documentary stamp tax collections in fiscal year
2007-08
decreased 36% from the previous years collections.
In 2007, Floridas GDP increased by 2.51%, which
underperformed the nation as a whole the
nations GDP increased by 4.75%. Florida had consistently
outperformed the nation in GDP growth over the previous nine
years.
In 2008, per capita personal income increased by 2.5%, which is
down significantly from the personal income growth rates of
7.08% in 2005, 6.30% in 2006 and 3.74% rate in 2007. In the
upcoming fiscal year, personal income growth is expected to
increase at a rate of 2.0%, which is below the expected 3.1%
forecast nationally. In 2007, the United States annual per
capita income was $38,611. During the same year Florida annual
per capita income was $38,444.
11
Population growth has slowed from a rate that hovered between
2.0% and 2.6% since the mid-1990s. The State is expected
to add an average of about 209,000 residents a year between 2007
and 2010, compared with annual increases of 418,000 people
between 2002 and 2006.
A voter-approved amendment to Floridas Constitution that
became effective in 1996 limits the rate of growth of state
revenues to the growth rate of personal income. Revenues that
are pledged to bonds, including new issuance, are exempt from
the limitation. Another constitutional amendment requires the
State to maintain a budget stabilization fund. The fund provides
a counterbalance to the States reliance on
economically-sensitive sales tax revenues. As of
February 24, 2009, Floridas general obligation bonds
carry ratings of AAA by Standard & Poors Group
(Standard & Poors), Aa1 by Moodys
Investor Services, Inc. (Moodys), and AA+ by
Fitch Ratings, Inc. (Fitch). Ratings for Florida
municipal bonds may differ from the ratings granted to the
general obligation bonds.
On January 29, 2008, the voters of Florida approved a
constitutional amendment for property tax relief which:
(1) provides for an additional exemption for $25,000 for
homes valued over $50,000, except for school levies;
(2) provides for transfer of accumulated
Save-Our-Homes benefits, applicable to all tax
levies; (3) establishes an exemption from property taxes of
$25,000 of assessed value of tangible personal property,
applicable to all tax levies; and (4) limits the assessment
increases for specified non-homestead real property to 10% each
year, except for school levies. Such amendment should have
little to no financial impact on the State budget; however, such
amendment will reduce ad valorem taxes received by local
governments.
In addition to the constitutional amendment for property tax
relief, Florida sales activity for homes is down approximately
5% from the same period last year and the median sales price is
down 16% over the same period last year. Furthermore, there
still remains a large inventory of unsold homes, and access to
construction and mortgage financing is still tightening. These
factors in conjunction with slower income growth will suppress
growth in the housing sector for at least another 12 months.
The economic downturn has also negatively affected
Floridas tourism industry. Approximately 2.3% less
tourists visited Florida in 2008 than in 2007. The growth rate
for tourism is expected to weakly increase over the next few
years. Growth rates for fiscal years
2009-10,
2010-11, and
2011-12 are
0.6%, 1.0% and 1.8% respectively.
The Citizens Property Insurance Corporation is a
quasi-governmental company that was created as an insurer of
last resort in 2002. However, it has become Floridas top
underwriter of homeowners insurance, with more than
$433 billion of property exposure on its books.
Furthermore, Florida has taken on $28 billion worth or
reinsurance risk itself. The reinsurance pool would have to
issue bonds for anything over $7.8 billion in losses. A
major hurricane or series of hurricanes has the potential to
exceed Floridas reserves to cover the losses.
On February 17, 2009, President Obama signed into law a
federal stimulus package. Florida is expected to receive as much
as $12.2 billion from the stimulus package.
$3.2 billion is expected to be received in the
2008-09
fiscal year, $5.2 billion is expected to be received in the
2009-10
fiscal year, and the final $3.8 billion is expected to be
received in the
2010-11
fiscal year. The stimulus payments received are expected to be
used for health and human services, education, and
transportation and economic development.
Furthermore, the validity of a compact that Governor Charlie
Crist signed with the Seminole Indian Tribe in 2007 is under
debate. The compact could provide $288 million to the
2009-10
12
fiscal year state budget. The compact allowed casino gambling
on Seminole Indian territory located in Florida. However, the
Florida legislature has not ratified the compact and has set the
money aside until the issue is settled.
As of December 2008, Florida faced a budget deficit of at least
$2.3 billion. The Florida constitution requires that the
Legislature pass a balanced budget. Thus, the Legislature will
be required to decrease certain expenditures or cut certain
programs to balance the budget.
The foregoing information constitutes only a brief summary of
some of the general factors which may impact certain issuers of
municipal bonds and does not purport to be a complete or
exhaustive description of all adverse conditions to which the
issuers of municipal bonds held by the Fund are subject.
Additionally, many factors including national economic, social
and environmental policies and conditions, which are not within
the control of the issuers of the municipal bonds, could affect
or could have an adverse impact on the financial condition of
the issuers. The Fund is unable to predict whether or to what
extent such factors or other factors may affect the issuers of
the municipal bonds, the market value or marketability of the
municipal bonds or the ability of the respective issuers of the
municipal bonds acquired by the Fund to pay interest on or
principal of the municipal bonds. This information has not been
independently verified. It should also be noted that the
creditworthiness of obligations issued by local Florida issuers
may be unrelated to the creditworthiness of obligations issued
by the State of Florida, and that there is no obligation on the
part of the State to make payment on such local obligations in
the event of default.
Economic Sector Risk. The Acquired Fund may
invest 25% or more of its total assets in municipal bonds in the
same economic sector. Subject to the concentration limits of the
Acquired Funds investment policies and guidelines, the
Fund may invest a significant portion of its net assets in
certain sectors of the municipal bond market, such as hospitals
and other health care facilities, charter schools and other
private educational facilities, special taxing districts and
start-up
utility districts, and private activity bonds including
industrial development bonds on behalf of transportation
companies such as airline companies, whose credit quality and
performance may be more susceptible to economic, business,
political, regulatory and other developments than other sectors
of municipal issuers. If the Acquired Fund invests a significant
portion of its net assets in the sectors noted above, the
Funds performance may be subject to additional risk and
variability. To the extent that the Acquired Fund focuses its
net assets in the hospital and healthcare facilities sector, for
example, the Fund will be subject to risks associated with such
sector, including adverse government regulation and reduction in
reimbursement rates, as well as government approval of products
and services and intense competition. Securities issued with
respect to special taxing districts will be subject to various
risks, including real-estate development related risks and
taxpayer concentration risk. Further, the fees, special taxes or
tax allocations and other revenues established to secure the
obligations of securities issued with respect to special taxing
districts are generally limited as to the rate or amount that
may be levied or assessed and are not subject to increase
pursuant to rate covenants or municipal or corporate guarantees.
Charter schools and other private educational facilities are
subject to various risks, including the reversal of legislation
authorizing or funding charter schools, the failure to renew or
secure a charter, the failure of a funding entity to appropriate
necessary funds and competition from alternatives such as
voucher programs. Issuers of municipal utility securities can be
significantly affected by government regulation, financing
difficulties, supply and demand of services or fuel and natural
resource conservation. The transportation sector, including
airports, airlines, ports and other
13
transportation facilities, can be significantly affected by
changes in the economy, fuel prices, labor relations, insurance
costs and government regulation.
Similarity
of Risks
Despite the differences noted above, the Funds face more of the
same type of risks, including the following:
Investment and Market Risk. An investment in
the Funds shares is subject to investment risk, including
the possible loss of the entire principal amount that you
invest. Your investment in common shares represents an indirect
investment in the municipal securities owned by a Fund, which
generally trade in the over-the-counter markets. Your shares at
any point in time may be worth less than your original
investment, even after taking into account the reinvestment of
Fund dividends and distributions, if applicable. In addition, if
the current national economic downturn deteriorates into a
prolonged recession, the ability of municipalities to collect
revenue and service their obligations could be materially and
adversely affected.
Current Economic Conditions Credit Crisis
Liquidity and Volatility Risk. The markets for
credit instruments, including municipal securities, have
experienced periods of extreme illiquidity and volatility since
the latter half of 2007. General market uncertainty and
consequent repricing risk have led to market imbalances of
sellers and buyers, which in turn have resulted in significant
valuation uncertainties in a variety of debt securities,
including municipal securities. These conditions resulted, and
in many cases continue to result in, greater volatility, less
liquidity, widening credit spreads and a lack of price
transparency, with many debt securities remaining illiquid and
of uncertain value. These market conditions may make valuation
of some of the Funds municipal securities uncertain
and/or
result in sudden and significant valuation increases or declines
in its holdings. A significant decline in the value of your
Funds portfolio would likely result in a significant
decline in the value of your investment. In addition,
illiquidity and volatility in the credit markets may directly
and adversely affect the setting of dividend rates on the common
and MuniPreferred shares. This volatility may also impact the
liquidity of inverse floating rate securities in your
Funds portfolio. See Risks Inverse
Floating Rate Securities Risk.
In response to the current national economic condition,
governmental cost burdens may be reallocated among federal,
state and local governments. In addition, laws enacted in the
future by Congress or state legislatures or referenda could
extend the time for payment of principal
and/or
interest, or impose other constraints on enforcement of such
obligations, or on the ability of municipalities to levy taxes.
Issuers of municipal securities might seek protection under the
bankruptcy laws. See Risks Municipal
Securities Market Risk.
Market Discount from Net Asset Value. Shares
of closed-end investment companies like the Funds have during
some periods traded at prices higher than net asset value and
have during other periods traded at prices lower than net asset
value. The Funds cannot predict whether common shares will trade
at, above or below net asset value. This characteristic is a
risk separate and distinct from the risk that a Funds net
asset value could decrease as a result of investment activities.
Investors bear a risk of loss to the extent that the price at
which they sell their shares is lower in relation to the
Funds net asset value than at the time of purchase,
assuming a stable net asset value. The common shares are
designed primarily for long-term investors, and you should not
view the Funds as a vehicle for trading purposes.
14
Credit Risk. Credit risk is the risk that one
or more municipal securities in a Funds portfolio will
decline in price, or the issuer thereof will fail to pay
interest or principal when due, because the issuer experiences a
decline in its financial status. In general, lower-rated
municipal securities carry a greater degree of risk that the
issuer will lose its ability to make interest and principal
payments, which could have a negative impact on a Funds
net asset value or dividends. Ratings may not accurately reflect
the actual credit risk associated with a municipal security.
Each Fund will not be required to dispose of a security if a
downgrade occurs after the time of investment. If a downgrade
occurs, NAM will consider what action, including the sale of the
security, is in the best interests of a Fund. Also, to the
extent that the rating assigned to a municipal security in a
Funds portfolio is downgraded by any National Recognized
Statistical Rating Organization (NRSRO), the market
price and liquidity of such security may be adversely affected.
Interest Rate Risk. Generally, when market
interest rates rise, bond prices fall, and vice versa. Interest
rate risk is the risk that the municipal securities in a
Funds portfolio will decline in value because of increases
in market interest rates. In typical market interest rate
environments, the prices of longer-term municipal securities
generally fluctuate more than prices of shorter-term municipal
securities as interest rates change. Because the Funds invest
primarily in longer-term municipal securities, the common share
net asset value and market price per share will fluctuate more
in response to changes in market interest rates than if a Fund
invested primarily in shorter-term municipal securities. Because
the values of lower-rated and comparable unrated debt securities
are affected both by credit risk and interest rate risk, the
price movements of such lower grade securities are not typically
highly correlated to the fluctuations of the prices of
investment grade quality securities in response to changes in
interest rates. The Funds investments in inverse floating
rate securities, as described herein under Inverse
Floating Rate Securities Risk, will tend to increase
common share interest rate risk.
Municipal Securities Market Risk. Investing in
the municipal securities market involves certain risks. The
municipal market is one in which dealer firms make markets in
bonds on a principal basis using their proprietary capital, and
during the recent market turmoil these firms capital was
severely constrained. As a result, some firms were unwilling to
commit their capital to purchase and to serve as a dealer for
municipal bonds. The amount of public information available
about the municipal securities in each Funds portfolio is
generally less than that for corporate equities or bonds, and
each Funds investment performance may therefore be more
dependant on NAMs analytical abilities than if such Fund
were to invest in stocks or taxable bonds. The secondary market
for municipal securities also tends to be less well-developed or
liquid than many other securities markets, which may adversely
affect each Funds ability to sell its municipal securities
at attractive prices or at prices approximating those at which
such Fund currently values them.
The ability of municipal issuers to make timely payments of
interest and principal may be diminished during general economic
downturns and as governmental cost burdens are reallocated among
federal, state and local governments. In addition, laws enacted
in the future by Congress or state legislatures or referenda
could extend the time for payment of principal
and/or
interest, or impose other constraints on enforcement of such
obligations, or on the ability of municipalities to levy taxes.
Issues of municipal securities might seek protection under the
bankruptcy laws. In the event of bankruptcy of such an issuer, a
Fund could experience delays in collecting principal and
interest and the Fund may not, in all circumstances, be able to
collect all principal and interest to which it is entitled. To
enforce its rights in
15
the event of a default in the payment of interest or repayment
of principal, or both, a Fund may take possession of and manage
the assets securing the issuers obligations on such
securities, which may increase the Funds operating
expenses. Any income derived from a Funds ownership or
operation of such assets may not be tax-exempt.
Revenue bonds issued by state or local agencies to finance the
development of low-income, multi-family housing involve special
risks in addition to those associated with municipal securities
generally, including that the underlying properties may not
generate sufficient income to pay expenses and interest costs.
These bonds are generally non-recourse against the property
owner, may be junior to the rights of others with an interest in
the properties, may pay interest that changes based in part on
the financial performance of the property, may be prepayable
without penalty and may be used to finance the construction of
housing developments which, until completed and rented, do not
generate income to pay interest.
Reinvestment Risk. Reinvestment risk is the
risk that income from a Funds portfolio will decline if
and when the Fund invests the proceeds from matured, traded or
called bonds at market interest rates that are below the
portfolios current earnings rate. A decline in income
could affect the common shares market price or your
overall returns.
Inverse Floating Rate Securities Risk. Each
Fund may invest in inverse floating rate securities. Typically,
inverse floating rate securities represent beneficial interests
in a special purpose trust (sometimes called a tender
option bond trust) formed by a third party sponsor for the
purpose of holding municipal bonds. See Municipal
Securities Inverse Floating Rate Securities.
In general, income on inverse floating rate securities will
decrease when interest rates increase and increase when interest
rates decrease. Investments in inverse floating rate securities
may subject the Fund to the risks of reduced or eliminated
interest payments and losses of principal.
Inverse floating rate securities may increase or decrease in
value at a greater rate than the underlying interest rate, which
effectively leverages a Funds investment. As a result, the
market value of such securities generally will be more volatile
than that of fixed rate securities.
Any economic effect of leverage through a Funds purchase
of inverse floating rate securities will create an opportunity
for increased common share net income and returns, but will also
create the possibility that common share long-term returns will
be diminished if the cost of leverage exceeds the return on the
inverse floating rate securities purchased by the Fund.
There is no assurance that a Funds strategy of investing
in inverse floating rate securities will be successful.
Inverse floating rate securities have varying degrees of
liquidity based, among other things, upon the liquidity of the
underlying securities deposited in a tender option bond trust.
The market price of inverse floating rate securities is more
volatile than the underlying securities due to leverage. In
circumstances where a Fund has a need for cash and the
securities in a tender option bond trust are not actively
trading, the Fund may be required to sell its inverse floating
rate securities at less than favorable prices, or liquidate
other Fund portfolio holdings.
Insurance Risk. Each Fund may purchase
municipal securities that are secured by insurance, bank credit
agreements or escrow accounts. The credit quality of the
companies that provide such credit enhancements will affect the
value of those securities. Certain significant providers of
insurance for municipal securities have recently incurred
significant losses as a result of exposure to sub-prime
mortgages and other lower credit quality investments that have
16
experienced recent defaults or otherwise suffered extreme credit
deterioration. As a result, such losses have reduced the
insurers capital and called into question their continued
ability to perform their obligations under such insurance if
they are called upon to do so in the future. While an insured
municipal security will typically be deemed to have the rating
of its insurer, if the insurer of a municipal security suffers a
downgrade in its credit rating or the market discounts the value
of the insurance provided by the insurer, the rating of the
underlying municipal security will be more relevant and the
value of the municipal security would more closely, if not
entirely, reflect such rating. In such a case, the value of
insurance associated with a municipal security would decline and
may not add any value. The insurance feature of a municipal
security does not guarantee the full payment of principal and
interest through the life of an insured obligation, the market
value of the insured obligation or the net asset value of the
common shares represented by such insured obligation.
In addition, a Fund may be subject to certain restrictions on
investments imposed by guidelines of the insurance companies
issuing master municipal insurance policy purchased by the Fund
(Portfolio Insurance). Each Fund does not expect
these guidelines to prevent NAM from managing the Funds
portfolio in accordance with the Funds investment
objectives and policies.
Leverage Risk. Leverage risk is the risk
associated with the use of a Funds outstanding
MuniPreferred shares or the use of tender option bonds to
leverage the common shares. There can be no assurance that a
Funds leveraging strategy will be successful. Through the
use of financial leverage, the Funds seek to enhance potential
common share earnings over time by borrowing at short-term
municipal rates and investing at long-term municipal rates which
are typically, though not always, higher. Because the long-term
municipal securities in which the Funds invest generally pay
fixed rates of interest while the Funds costs of leverage
generally fluctuate with short-term yields, the incremental
earnings from leverage will vary over time. Accordingly, a Fund
cannot assure you that the use of leverage will result in a
higher yield or return to common shareholders. The benefit from
leverage will be reduced (increase) to the extent that the
difference narrows (widens) between the net earnings on a
Funds portfolio securities and its cost of leverage. If
short-term rates rise, a Funds cost of leverage could
exceed the rate of return on longer-term bonds held by the Fund
that were acquired during periods of lower interest rates,
reducing returns to common shareholders. A Funds cost of
leverage includes both the interest rate paid on its borrowings
as well as any on-going fees and expenses associated with those
borrowings.
In February 2008, escalating liquidity pressures across
financial markets led to the systemic failure of the ARPS market
and the auction process used to set the ARPS dividend
rate. This failure is on-going and affects the Funds
MuniPreferred shares whose dividend rates are currently set by
reference to the Maximum Rate. Because the Funds Maximum
Rates over time are expected to result in a higher relative cost
of leverage compared with historical levels, the potential
incremental earnings from the Funds use of MuniPreferred
shares would be expected to be reduced relative to historical
levels. Each Fund and NAM continue to explore various
alternatives for refinancing the Funds outstanding
MuniPreferred shares in order to reduce the Funds relative
cost of leverage over time and to provide liquidity at
par for MuniPreferred shareholders.
A Funds use of financial leverage also creates incremental
common share net asset value risk because the full impact of
price changes in the Funds investment portfolio, including
assets attributable to leverage, is borne by common
shareholders. This can lead to a greater increase in net asset
values in rising markets than if a Fund were not leveraged, but
also can result in a
17
greater decrease in net asset values in declining markets. A
Funds use of financial leverage similarly can magnify the
impact of changing market conditions on common share market
prices. Each Fund is required to maintain certain regulatory and
rating agency asset coverage requirements in connection with its
outstanding MuniPreferred shares, in order to be able to
maintain the ability to declare and pay common share
distributions and to maintain the MuniPreferred shares
AAA/Aaa rating. In order to maintain required asset coverage
levels, a Fund may be required to alter the composition of its
investment portfolio or take other actions, such as redeeming
MuniPreferred shares with the proceeds from portfolio
transactions, at what might be an inopportune time in the
market. Such actions could reduce the net earnings or returns to
common shareholders over time.
Each Fund may invest in the securities of other investment
companies, which may themselves be leveraged and therefore
present similar risks to those described above.
The amount of fees paid to NAM for investment advisory services
will be higher since each Fund uses financial leverage because
the fees will be calculated based on the Funds Managed
Assets.
Each Fund seeks to manage the risks associated with its use of
financial leverage as described below under Management of
Investment Portfolio and Capital Structure to Limit Leverage
Risk.
Tax Risk. To qualify for the favorable
U.S. federal income tax treatment generally accorded to
regulated investment companies, among other things, a Fund must
derive in each taxable year at least 90% of its gross income
from certain prescribed sources. If for any taxable year a Fund
does not qualify as a regulated investment company, all of its
taxable income (including its net capital gain) would be subject
to tax at regular corporate rates without any deduction for
distributions to shareholders, and all distributions from the
Fund (including distributions attributable to tax-exempt
interest income) would be taxable to shareholders as ordinary
dividends to the extent of the Funds current and
accumulated earnings and profits.
The value of a Funds investments and its net asset value
may be adversely affected by changes in tax rates and policies.
Because interest income from municipal securities is normally
not subject to regular federal income taxation, the
attractiveness of municipal securities in relation to other
investment alternatives is affected by changes in federal income
tax rates or changes in the tax-exempt status of interest income
from municipal securities. Any proposed or actual changes in
such rates or exempt status, therefore, can significantly affect
the demand for and supply, liquidity and marketability of
municipal securities. This could in turn affect a Funds
net asset value and ability to acquire and dispose of municipal
securities at desirable yield and price levels. Additionally,
the Funds are not suitable investments for individual retirement
accounts, for other tax-exempt or tax-deferred accounts or for
investors who are not sensitive to the federal income tax
consequences of their investments.
Taxability Risk. Each Fund will invest in
municipal securities in reliance at the time of purchase on an
opinion of bond counsel to the issuer that the interest paid on
those securities will be excludable from gross income for
federal income tax purposes, and NAM will not independently
verify that opinion. Subsequent to a Funds acquisition of
such a municipal security, however, the security may be
determined to pay, or to have paid, taxable income. As a
18
result, the treatment of dividends previously paid or to be paid
by the Fund as exempt-interest dividends could be
adversely affected, subjecting a Funds shareholders to
increased federal income tax liabilities.
Under highly unusual circumstances, the Internal Revenue Service
(the IRS) may determine that a municipal bond issued
as tax-exempt should in fact be taxable. If a Fund holds such a
bond, it might have to distribute taxable ordinary income
dividends or reclassify as taxable income previously distributed
as exempt-interest dividends.
Distributions of ordinary taxable income (including any net
short-term capital gain) will be taxable to shareholders as
ordinary income (and not eligible for favorable taxation as
qualified dividend income), and capital gain
dividends will be subject to capital gains taxes. See
Federal Income Tax Matters Associated with Investments in
the Funds.
Borrowing Risks. Each Fund may borrow for
temporary or emergency purposes, including to pay dividends,
repurchase its shares, or clear portfolio transactions.
Borrowing may exaggerate changes in the net asset value of a
Funds shares and may affect a Funds net income. When
a Fund borrows money, it must pay interest and other fees, which
will reduce the Funds returns if such costs exceed the
returns on the portfolio securities purchased or retained with
such borrowings. Any such borrowings are intended to be
temporary. However, under certain market conditions, including
periods of low demand or decreased liquidity in the municipal
bond market such borrowings might be outstanding for longer
periods of time.
Inflation Risk. Inflation risk is the risk
that the value of assets or income from investment will be worth
less in the future as inflation decreases the value of money. As
inflation increases, the real value of the dividends paid to
MuniPreferred shareholders can decline.
Special Risks Related to Certain Municipal
Obligations. Each Fund may invest in municipal
leases and certificates of participation in such leases.
Municipal leases and certificates of participation involve
special risks not normally associated with general obligations
or revenue bonds. Leases and installment purchase or conditional
sale contracts (which normally provide for title to the leased
asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property
and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt issuance
limitations are deemed to be inapplicable because of the
inclusion in many leases or contracts of
non-appropriation clauses that relieve the
governmental issuer of any obligation to make future payments
under the lease or contract unless money is appropriated for
such purpose by the appropriate legislative body on a yearly or
other periodic basis. In addition, such leases or contracts may
be subject to the temporary abatement of payments in the event
the governmental issuer is prevented from maintaining occupancy
of the leased premises or utilizing the leased equipment.
Although the obligations may be secured by the leased equipment
or facilities, the disposition of the property in the event of
non-appropriation or foreclosure might prove difficult, time
consuming and costly, and may result in a delay in recovering or
the failure to fully recover a Funds original investment.
In the event of non-appropriation, the issuer would be in
default and taking ownership of the assets may be a remedy
available to a Fund, although the Fund does not anticipate that
such a remedy would normally be pursued. To the extent that a
Fund invests in unrated municipal leases or participates in such
leases, the credit quality rating and risk of cancellation of
such unrated leases will be monitored on an ongoing basis.
Certificates of participation, which represent interests in
unmanaged pools of municipal leases or installment contracts,
involve the same risks as the underlying municipal leases. In
addition,
19
a Fund may be dependent upon the municipal authority issuing the
certificates of participation to exercise remedies with respect
to the underlying securities. Certificates of participation also
entail a risk of default or bankruptcy, both of the issuer of
the municipal lease and also the municipal agency issuing the
certificate of participation.
Derivatives Risk, Including the Risk of
Swaps. Each Funds use of derivatives
involves risks different from, and possibly greater than, the
risks associated with investing directly in the investments
underlying the derivatives. Whether a Funds use of
derivatives is successful will depend on, among other things, if
NAM correctly forecasts market values, interest rates and other
applicable factors. If NAM incorrectly forecasts these and other
factors, the investment performance of a Fund will be
unfavorably affected. In addition, the derivatives market is
largely unregulated. It is possible that developments in the
derivatives market could adversely affect the Funds
ability to successfully use derivative instruments.
Each Fund may enter into debt-related derivatives instruments
including credit default swap contracts and interest rate swaps.
Like most derivative instruments, the use of swaps is a highly
specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio
securities transactions. In addition, the use of swaps requires
an understanding by NAM of not only of the referenced asset,
rate or index, but also of the swap itself. Because they are
two-party contracts and because they may have terms of greater
than seven days, swap agreements may be considered to be
illiquid. Moreover, a Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of
the default or bankruptcy of a swap agreement counterparty. It
is possible that developments in the swaps market, including
potential government regulation, could adversely affect a
Funds ability to terminate existing swap agreements or to
realize amounts to be received under such agreements. See
Counterparty Risk,
Hedging Risk and the Reorganization SAI.
Counterparty Risk. Changes in the credit
quality of the companies that serve as a Funds
counterparties with respect to derivatives, insured municipal
securities or other transactions supported by another
partys credit will affect the value of those instruments.
Certain entities that have served as counterparties in the
markets for these transactions have recently incurred
significant financial hardships including bankruptcy and losses
as a result of exposure to sub-prime mortgages and other lower
quality credit investments that have experienced recent defaults
or otherwise suffered extreme credit deterioration. As a result,
such hardships have reduced these entities capital and
called into question their continued ability to perform their
obligations under such transactions. By using such derivatives
or other transactions, a Fund assumes the risk that its
counterparties could experience similar financial hardships.
Hedging Risk. Each Funds use of
derivatives or other transactions to reduce risk involves costs
and will be subject to NAMs ability to predict correctly
changes in the relationships of such hedge instruments to the
Funds portfolio holdings or other factors. No assurance
can be given that NAMs judgment in this respect will be
correct. In addition, no assurance can be given that a Fund will
enter into hedging or other transactions at times or under
circumstances in which it may be advisable to do so.
Deflation Risk. Deflation risk is the risk
that prices throughout the economy decline over time, which may
have an adverse effect on the market valuation of companies,
their assets and revenues. In addition, deflation may have an
adverse effect on the creditworthiness of issuers
20
and may make issuer default more likely, which may result in a
decline in the value of a Funds portfolio.
Illiquid Securities Risk. Each Fund may invest
in municipal securities and other instruments that, at the time
of investment, are illiquid. Illiquid securities are securities
that are not readily marketable and may include some restricted
securities, which are securities that may not be resold to the
public without an effective registration statement under the
Securities Act of 1933, as amended, if they are unregistered,
may be sold only in a privately negotiated transaction or
pursuant to an exemption from registration. Illiquid securities
involve the risk that the securities will not be able to be sold
at the time desired by a Fund or at prices approximating the
value at which the Fund is carrying the securities on its books.
Market Disruption Risk. Certain events have a
disruptive effect on the securities markets, such as terrorist
attacks (including the terrorist attacks in the U.S. on
September 11, 2001), war and other geopolitical events. A
Fund cannot predict the effects of similar events in the future
on the U.S. economy.
Call Risk. If interest rates fall, it is
possible that issuers of callable bonds with higher interest
coupons will call (or prepay) their bonds before
their maturity date. If a call were exercised by the issuer
during a period of declining interest rates, a Fund is likely to
replace such called security with a lower yielding security.
Certain Affiliations. Certain broker-dealers
may be considered to be affiliated persons of the Funds, NAM,
Nuveen Investments
and/or
Nuveen. Absent an exemption from the SEC or other regulatory
relief, each Fund is generally precluded from effecting certain
principal transactions with affiliated brokers, and its ability
to purchase securities being underwritten by an affiliated
broker or a syndicate including an affiliated broker, or to
utilize affiliated brokers for agency transactions, is subject
to restrictions. This could limit a Funds ability to
engage in securities transactions, purchase certain adjustable
rate senior loans, if applicable, and take advantage of market
opportunities.
Anti-Takeover Provisions. The Acquiring
Funds Articles, the Acquired Funds Declaration and
each Funds By-laws includes provisions that could limit
the ability of other entities or persons to acquire control of
the Fund or convert the Fund to open-end status. These
provisions could have the effect of depriving common
shareholders of opportunities to sell their common shares at a
premium over the then current market price of the Common Shares.
For further information on the Acquiring Fund, see Certain
Provisions in the Acquiring Fund Articles of
Incorporation.
MuniPreferred Interest Rate Risk. The Funds
issue MuniPreferred, which pay dividends based on short-term
interest rates, and use the proceeds to buy municipal bonds,
which pay interest based on long-term yields. Long-term
municipal bond yields are typically, although not always, higher
than short-term interest rates. Both long-term and short term
interest rates may fluctuate. If short-term interest rates rise,
MuniPreferred rates may rise so that the amount of dividends
paid to MuniPreferred shareholders exceeds the income from a
Funds portfolio securities. Because income from each
Funds entire investment portfolio (not just the portion of
the portfolio purchased with the proceeds of the MuniPreferred
offering) is available to pay MuniPreferred dividends, however,
MuniPreferred dividend rates would need to greatly exceed the
Funds net portfolio income before the Funds ability
to pay MuniPreferred dividends would be jeopardized. Due to the
systematic failure of the ARPS market and the auction process
used to set the ARPS dividend rate, the Funds
MuniPreferred dividend rates are currently set by reference to
the Maximum Rate. Because the Funds Maximum Rates over
time
21
are expected to result in a higher relative cost of leverage
compared with historical levels, the potential incremental
earnings from the Funds use of MuniPreferred would be
expected to be reduced relative to historical levels.
Auction Risk. Since mid-February 2008, the
functioning of the auction markets for certain types of auction
rate securities (including MuniPreferred) has been disrupted by
an imbalance between buy and sell orders. As a result of this
imbalance, auctions for MuniPreferred have not cleared and
MuniPreferred generally have become illiquid. There is no
current expectation that these circumstances will change
following the Reorganization and it is possible that the
MuniPreferred markets will never resume normal functioning. The
dividend rate on MuniPreferred when MuniPreferred auctions do
not clear is the Maximum Rate. In normally functioning auctions,
if you place hold orders (orders to retain MuniPreferred) at an
auction only at a specified rate, and that bid rate exceeds the
rate set at the auction, you will not retain your MuniPreferred.
Finally, if you buy shares or elect to retain shares without
specifying a rate below which you would not wish to continue to
hold those shares, and the auction sets a below-market rate, you
may receive a lower rate of return on your shares than the
market rate. For further information on MuniPreferred auctions
see Description of MuniPreferred Issued by the Acquiring
Fund and The Auction Auction
Procedures.
Secondary Market Risk. There is currently no
established secondary market for MuniPreferred and, if one
should develop, it may only be possible to sell them for a price
of less than $25,000 per share plus any accumulated dividends.
If either Fund has designated a Special Dividend
Period (a dividend period of more than 7 days),
changes in interest rates could affect the price of
MuniPreferred sold in the secondary market. Broker-dealers may
maintain a secondary trading market in the MuniPreferred;
however, they have no obligation to do so and there can be no
assurance that a secondary market for the MuniPreferred will
develop or, if it does develop, that it will provide holders
with a liquid trading market
(i.e., trading will depend on the presence of willing buyers and
sellers and the trading price is subject to variables to be
determined at the time of the trade by the broker-dealers).
MuniPreferred are not be registered on any stock exchange or on
any automated quotation system. An increase in the level of
interest rates, particularly during dividend periods between one
and five years, likely will have an adverse effect on the
secondary market price of the MuniPreferred, and a selling
shareholder may sell MuniPreferred between auctions at a price
per share of less than $25,000. Accrued MuniPreferred dividends,
however, should at least partially compensate for the increased
market interest rate.
Ratings and Asset Coverage Risk. While
Moodys and S&P assign ratings of Aaa and
AAA, respectively, to each Funds
MuniPreferred, the ratings do not eliminate or necessarily
mitigate the risks of investing in MuniPreferred. A rating
agency could downgrade a Funds MuniPreferred, which may
negatively affect your MuniPreferred. If a rating agency
downgrades a funds MuniPreferred, the Fund will alter its
portfolio or redeem MuniPreferred. A Fund may voluntarily redeem
MuniPreferred under certain circumstances.
Income Risk. A Funds income is based
primarily on the interest it earns from its investments, which
can vary widely over the short-term and long-term. If interest
rates drop, a Funds income available over time to make
dividend payments with respect to the MuniPreferred could drop
as well if the Fund purchases securities with lower interest
coupons.
22
THE
SPECIAL MEETING
General
This Proxy Statement/Prospectus is furnished in connection with
the solicitation by the Boards of the Funds of proxies to be
voted at the Special Meeting to be held in the 31st floor
conference room of Nuveen Investments, 333 West Wacker
Drive, Chicago, Illinois 60606, on Friday, May 15,
2009, at 2:00 p.m., Central time, and at any and all
adjournments of such Special Meeting. The cost of preparing,
printing and mailing the enclosed proxy, accompanying notice and
Proxy Statement/Prospectus, and all other costs in connection
with the solicitation of proxies will be allocated between the
Funds. Additional solicitation may be made by officers of the
Funds, by officers or employees of the Adviser or Nuveen
Investments, or by dealers and their representatives. The Funds
have engaged Georgeson Inc. to assist in the solicitation of
proxies at an estimated cost of $18,000 plus reasonable expenses.
The Board of each Fund has fixed the close of business on
March 19, 2009 as the record date (the Record
Date) for determining holders of such Funds common
shares and shares of MuniPreferred entitled to notice of and to
vote at the Special Meeting. Each shareholder will be entitled
to one vote for each common share or share of MuniPreferred
held. At the close of business on the Record Date, (a) the
Acquiring Fund had outstanding 81,138,037 common shares and
shares of MuniPreferred as follows:
Series M-3,530 shares;
Series T-3,530 shares;
Series W-3,531 shares;
Series W2-2,825 shares;
Series TH1-3,530 shares;
Series TH2-3,532 shares;
Series F-3,530 shares,
and (b) the Acquired Fund had outstanding 14,169,996 common
shares and shares of MuniPreferred as follows:
Series W-1,640 shares
and
Series TH-2,800 shares.
Voting;
Proxies
Common and MuniPreferred shareholders of the Funds entitled to
vote at the Special Meeting that are represented by properly
executed proxies will, unless such proxies have been revoked, be
voted in accordance with the shareholders instructions
indicated on such proxies.
A quorum of shareholders is required to take action at the
Special Meeting. A majority of the shares entitled to vote at
the Special Meeting, represented in person or by proxy, will
constitute a quorum of shareholders at the Special Meeting.
Votes cast by proxy or in person at the Special Meeting will be
tabulated by the inspectors of election appointed for Special
Meeting. The inspectors of election will determine whether or
not a quorum is present at the Special Meeting. The inspectors
of election will treat abstentions and broker
non-votes (i.e., shares held by brokers or nominees,
typically in street name, as to which
(i) instructions have not been received from the beneficial
owners or persons entitled to vote and (ii) the broker or
nominee does not have discretionary voting power on a particular
matter) as present for purposes of determining a quorum. For
purposes of determining the approval of Proposal 1 and
Proposal 2, abstentions and broker non-votes will have the
same effect as shares voted against the proposal.
MuniPreferred held in street name as to which voting
instructions have not been received from the beneficial owners
or persons entitled to vote as of one business day before the
Special Meeting, or, if adjourned, one business day before the
day to which the Special Meeting is adjourned, and that would
otherwise be treated as broker non-votes may,
pursuant to Rule 452 of the New York Stock Exchange, be
voted by the broker on the proposal in
23
the same proportion as the votes cast by all holders of
MuniPreferred as a class who have voted on the proposal or in
the same proportion as the votes cast by all holders of
MuniPreferred of the Fund who have voted on that item.
Rule 452 permits proportionate voting of MuniPreferred with
respect to a particular item if, among other things, (i) a
minimum of 30% of the MuniPreferred or shares of a series of
MuniPreferred outstanding has been voted by the holders of such
shares with respect to such item and (ii) less than 10% of
the MuniPreferred or shares of a series of MuniPreferred
outstanding has been voted by the holders of such shares against
such item. For the purpose of meeting the 30% test, abstentions
will be treated as shares voted and, for the purpose
of meeting the 10% test, abstentions will not be treated as
shares voted against the item.
The details of each proposal to be voted on by the shareholders
of each Fund and the vote required for approval of each proposal
are set forth under the description of each proposal below.
Shareholders of either Fund who execute proxies may revoke them
at any time before they are voted by filing with their Fund a
written notice of revocation, by delivering a duly executed
proxy bearing a later date or by attending the meeting and
voting in person.
PROPOSAL NO. 1
THE REORGANIZATION
(ACQUIRED FUND SHAREHOLDERS AND ACQUIRING FUND
MUNIPREFERRED SHAREHOLDERS ONLY)
The terms and conditions of the Reorganization are set forth in
the Agreement and Plan of Reorganization. Significant provisions
of the Agreement are summarized below; however, this summary is
qualified in its entirety by reference to the Agreement, a form
of which is attached as Appendix A to this Proxy
Statement/Prospectus.
General
The Agreement sets forth the terms of the Reorganization, under
which (i) the Acquiring Fund will acquire all the
assets of the Acquired Fund in exchange for newly issued
Acquiring Fund Common Shares and newly issued Acquiring
Fund MuniPreferred Shares, and the Acquiring Funds
assumption of all the liabilities of the Acquired Fund,
(ii) the distribution of the Acquiring Fund Common
Shares and Acquiring Fund MuniPreferred Shares held by the
Acquired Fund to its common and preferred shareholders,
respectively and (iii) the liquidation, dissolution and
termination of the Acquired Fund as a Trust in accordance with
the Acquired Funds Declaration of Trust. As a result
of the Reorganization, the assets of the Acquiring Fund and
the Acquired Fund would be combined and the shareholders of the
Acquired Fund would become shareholders of the Acquiring
Fund. The Board Members and officers of the Acquiring Fund are
identical to those of the Acquired Fund. The investment
objectives and policies of the Acquiring Fund are similar to the
Acquired Fund except that the Acquired Fund invests in municipal
bonds that are exempt from the Florida intangible personal
property tax and concentrates its assets in Florida municipal
bonds. If all proposals are approved, the closing date is
expected to be the close of business on June 16, 2009 or
such other date as the Funds may agree (the Closing
Date). Following the Reorganization, the Acquired Fund
would terminate its registration as an investment company under
the 1940 Act.
24
Terms of
the Reorganization
Valuation of Assets and Liabilities. If the
Reorganization is approved and the other conditions are
satisfied or waived, the value of the net assets of the Acquired
Fund shall be the value of its assets, less its liabilities,
computed as of the close of regular trading on the New York
Stock Exchange (NYSE) on the business day
immediately prior to the Closing Date (such time and date being
hereinafter called the Valuation Date). The value of
the Acquired Funds assets shall be determined by using the
valuation procedures set forth in the Acquired Funds
Declaration of Trust and the Funds Proxy
Statement/Prospectus to be used in connection with the
Reorganization or such other valuation procedures as shall be
mutually agreed upon by the parties. The value of the Acquired
Funds net assets shall be calculated net of the
liquidation preference (including accumulated and unpaid
dividends) of all outstanding Acquired Fund MuniPreferred shares.
Dividends will accumulate on shares of Acquired
Fund MuniPreferred, Series W and Series TH, up to
and including the day on which the Closing Date occurs and will
be paid, together with the dividends then payable in respect of
the shares of Acquiring Fund MuniPreferred Shares to the
holders thereof on the Dividend Payment Date in respect of the
Initial Rate Period of such shares. The Initial Rate Period of
the shares of Acquiring Fund MuniPreferred Shares will be a
period consisting of the number of days following the day on
which the Closing Date occurs that would have remained in the
rate period of the shares of Acquired Fund MuniPreferred,
Series W and Series TH, in effect immediately prior to
the Closing Date. The dividend rate for the Acquiring
Fund MuniPreferred Shares for such Initial Rate Period
thereof will be the dividend rate in effect immediately prior to
the Closing Date for the shares of Acquired
Fund MuniPreferred, Series W or Series TH. The
initial auction for the Acquiring Fund MuniPreferred
Shares issued pursuant to the Reorganization will be held on the
day on which the auction next succeeding the Closing Date would
have been held for the shares of Acquired
Fund MuniPreferred, Series W or Series TH, but
for the Reorganization.
Following the Reorganization, every common shareholder of the
Acquired Fund would own common shares of the Acquiring Fund that
will have an aggregate per share net asset value immediately
after the Closing Date equal to the aggregate per share net
asset value of that shareholders Acquired Fund common
shares immediately prior to the Closing Date. See
Description of Common Shares Issued by the Acquiring
Fund for a description of the rights of such shareholders.
Since the Acquiring Fund Common Shares issued to the common
shareholders of the Acquired Fund would be issued at net asset
value in exchange for net assets of the Acquired Fund having a
value equal to the aggregate per share net asset value of those
Acquiring Fund Common Shares so issued, the net asset value
of the Acquiring Fund common shares should remain virtually
unchanged by the Reorganization, excluding Reorganization
expenses. However, as a result of the Reorganization, common
shareholders of both Funds would hold reduced percentages of
ownership in the larger combined entity than they held in the
Acquiring Fund or the Acquired Fund, as the case may be.
Following the Reorganization, every preferred shareholder of the
Acquired Fund would own the same number of shares of Acquiring
Fund MuniPreferred Shares as was held of Acquired
Fund MuniPreferred, Series W and Series TH,
respectively, and the shares of Acquiring
Fund MuniPreferred Shares would have rights and preferences
substantially similar to those of the shares of Acquired
Fund MuniPreferred, Series W and Series TH. See
Description of MuniPreferred Issued by the
Acquiring Fund and Comparison of Rights
of Holders of MuniPreferred of the Acquiring Fund and the
Acquired Fund.
25
Amendments. Under the terms of the Agreement,
the Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the officers
of each Fund as specifically authorized by each Funds
Board; provided, however, that following the meeting of the
shareholders of the Funds called by each Fund, no such amendment
may have the effect of changing the provisions for determining
the number of Acquiring Fund Shares to be issued to the Acquired
Fund Shareholders under the Agreement to the detriment of such
shareholders without their further approval.
Conditions.
Under the terms of the Agreement, the Reorganization is
conditioned upon (a) approval by the shareholders of the
Acquiring Fund, as described under Votes Required
above, (b) the Funds receipt of written advice from
Moodys and S&P (i) confirming that consummation
of the Reorganization will not impair the AAA and
Aaa ratings assigned to the outstanding shares of
Acquiring Fund MuniPreferred, Series M, Series T,
Series W, Series W2, Series TH1, Series TH2
and Series F and (ii) assigning AAA or Aaa
ratings to the shares of Acquiring Fund MuniPreferred,
Series W3 and Series TH3, (c) the Funds
receipt of an opinion to the effect that the Reorganization will
qualify as a tax-free reorganization under the Internal Revenue
Code of 1986, as amended (the Code), (d) the
absence of legal proceedings challenging the Reorganization and
(e) the Funds receipt of certain routine certificates
and legal opinions. See Certain Federal Income
Tax Consequences of the Reorganization.
Termination. The Agreement may be terminated
by the mutual agreement of the parties and such termination may
be effected by each Funds President or the Vice President
without further action by the Board. In addition, either Fund
may at its option terminate the Agreement at or before the
Closing Date due to (a) a breach by any other party of any
representation, warranty, or agreement contained herein to be
performed at or before the Closing Date, if not cured within
30 days; (b) a condition precedent to the obligations of
the terminating party that has not been met and it reasonably
appears that it will not or cannot be met; or (c) a
determination by the Board that the consummation of the
transactions contemplated herein is not in the best interests of
the Fund.
Reasons
for the Reorganization
Based on the considerations below, the Board of each Fund,
including the Board Members who are not interested
persons (as defined in the 1940 Act) of the Funds (the
Independent Board Members), has determined that the
Reorganization would be in the best interests of each Fund and
that the interests of the existing shareholders of the Funds
would not be diluted as a result of the Reorganization. The
Boards approved the Reorganization and recommended that
shareholders of the respective Funds approve the Reorganization.
In preparation for a meeting of the Boards held on
January 13, 2009 (the Meeting) at which the
Reorganization was proposed, NAM provided the Boards with
information regarding the proposed Reorganization, including the
rationale therefor and alternatives considered to the
Reorganization. Prior to approving the Reorganization, the
Independent Board Members reviewed the foregoing information
with their independent legal counsel and with management,
reviewed with independent counsel applicable law and their
duties in considering such matters, and met with independent
legal counsel in a private session without management
26
present. The Boards considered a number of principal factors
presented at the time of the Meeting or prior meetings in
reaching their respective determination, including the following:
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the secondary market trading history of the Funds (i.e., the
price level at which the Funds shares have traded over
time in relation to their underlying net asset value on an
absolute basis and as compared to other closed-end funds) and
prior efforts to enhance the secondary market for the common
shares of the Acquired Fund;
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the elimination of the Florida intangibles tax;
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the compatibility of the investment objectives, policies and
strategies of the Funds;
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the potential opportunities to refinance MuniPreferred;
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the relative fees and operating expense ratios of the Funds;
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the investment performance of the Funds;
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the anticipated tax-free nature of the Reorganization;
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the expected costs of the Reorganization and the extent to which
the Funds would bear any such costs;
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the terms of the Reorganization and whether the Reorganization
would dilute the interests of shareholders of the Funds; and
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any potential benefits of the Reorganization to NAM as a result
of the Reorganization.
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Elimination of Florida Intangibles Tax. Prior
to January 1, 2007, the State of Florida imposed an
intangibles tax on the value of stocks, bonds, other
evidences of indebtedness and mutual fund shares. Florida
municipal obligations were exempt from this tax. The repeal of
the Florida state intangibles tax in 2007 reduced the
attractiveness of Florida bonds to investors formerly subject to
the intangibles tax. In light of the Acquired Funds
secondary market trading history over time as well as previous
efforts to enhance the secondary market for its common shares,
the Board of the Acquired Fund considered various responses to
the repeal of the intangibles tax, including merging the
Acquired Fund into an existing national municipal closed-end
fund, reorganizing it into a newly created shell fund, and
amending the Acquired Funds investment mandates (e.g.,
converting from a Florida-specific mandate to a national or
Florida-preference mandate). After considering the alternatives,
given the similarities between the Acquiring Fund and the
Acquired Fund and the expected benefits from combining the
Funds, the Boards believe the proposed Reorganization would be
in the best interests of the respective Funds.
Continuity of Objectives and Policies. The
Boards considered the compatibility of the Funds
investment objectives, policies and strategies except in
relevant part, the Acquired Fund also would invest primarily in
municipal securities that pay interest exempt from the Florida
intangible personal property tax and thus would concentrate its
assets in Florida municipal bonds. As noted above, Florida
repealed the intangible personal property tax eliminating a
primary reason for the policy of the Acquired Fund to invest in
Florida municipal bonds and making the continuation of this
policy is no longer necessary. With the Reorganization, the
Acquired Fund common shareholders would be invested in a more
diversified portfolio and their exposure to Florida obligations
would decrease. Each Fund has also issued MuniPreferred to
create leverage. Through the use of leverage, the Funds seek to
enhance potential common share earnings over time by borrowing
at short-term municipal rates and investing at long-term
municipal rates which generally are higher. Although there are
no assurances that the use of
27
leverage will result in a higher yield or return to common
shareholders, the Boards believe that the Acquiring Funds
use of leverage would continue to provide common shareholders of
the Acquired Fund the potential for higher monthly tax-exempt
distributions and enhanced total returns on average over market
cycles at a time when the municipal yield spreads are
particularly wide or attractive. In addition, as discussed in
more detail below, the larger asset base of the combined fund
may increase its ability to refinance the MuniPreferred with
TOBs.
Expanded MuniPreferred Refinancing
Opportunities. As noted, both Funds have issued
MuniPreferred to create leverage. The Boards recognize the
systematic failure of the MuniPreferred market and the auction
process used to set the MuniPreferreds dividend rate. This
failure continues and the Funds MuniPreferred shares are
currently set by reference to the Maximum Rate. The larger asset
base of the combined fund may increase its ability to refinance
MuniPreferred with TOBs. In addition, the greater portfolio
diversification of the Acquiring Fund compared to the Acquired
Fund may also enhance the combined funds ability to
refinance the MuniPreferred compared to that of the Acquired
Fund. The use of TOBs to replace MuniPreferred is expected to
benefit the Funds common shareholders because it is
expected to lower the relative cost of leverage over time for
common shareholders. Further, through such refinancings, the
Funds seek to provide liquidity at par for MuniPreferred
shareholders.
Expected Lower Fund Fees and Operating
Expenses. The combined fund offers economies of
scale that may lead to lower per share operating expenses for
common shareholders of the Funds, excluding costs of leverage.
The Boards considered the fees and expense ratios of their
respective Funds, including the estimated expenses of the
combined fund after the Reorganization. As a result of greater
economies of scale from the larger asset size of the combined
fund, it is expected that the management fees and net operating
expenses of the combined fund (after any expense reimbursements)
would be lower than that of both Funds. In this regard, the
Funds are subject to the same management fee rate schedule
pursuant to their respective investment management agreements
with NAM. Accordingly, after the Reorganization, the greater
asset size of the combined fund is expected to result in a lower
management fee rate. Further, the fixed operating expenses of
the combined fund may be spread over a larger asset base.
Improved Secondary Market Trading. While it is
not possible to predict trading levels at the time the
Reorganization closes, a reduction in a Funds trading
discount would be in the best interests of the Funds
common shareholders. The Board of the Acquired Fund considered
that over the past year, the Acquired Fund shares generally have
traded at a wider discount to net asset value (NAV)
than has been the case for national funds. The broader potential
investor base of a national fund instead of a Florida-specific
fund may promote higher common share prices relative to net
asset value and the combined funds greater market
liquidity may lead to narrower bid-ask spreads and smaller trade
to trade price movements. Similarly, with respect to the
Acquiring Fund, the Board of the Acquiring Fund considered that
the potential for higher common net earnings and enhanced total
returns over time may also lead to higher common share market
prices relative to net asset value and the combined funds
greater market liquidity may lead to narrower bid-ask spreads
and smaller trade to trade price movements. There can, however,
be no assurance that after the Reorganization, the common shares
of the combined fund will trade at a premium to NAV, or at a
smaller discount to NAV, than is currently the case for the
common shares of the Acquiring Fund and Acquired Fund.
Investment Performance. The Boards considered
the estimated increase in common net earnings of the combined
Fund after the Reorganization compared to that of the Acquiring
Fund
28
and Acquired Fund based on information provided by NAM and
expected expanded opportunities for enhanced total returns due
to the larger asset base (and in relation to the Acquired Fund,
a nationally-diversified portfolio). This information
supplemented the historic investment performance information of
the Funds the Boards receive at their meetings during the year.
No Dilution. The terms of the Reorganization
are intended to avoid dilution of the interests of the
shareholders of the Funds. In this regard, each shareholder of
common shares of the Acquired Fund will receive common shares of
the Acquiring Fund equal to the aggregate per share net asset
value of that shareholders Acquired Fund common shares
immediately prior to the closing of the Reorganization. With
respect to preferred shareholders, every preferred shareholder
of the Acquired Fund will receive the same number of shares of
Acquiring Fund MuniPreferred Shares as was held of the
Acquired Fund MuniPreferred shares, Series W or
Series TH, respectively, and the Acquiring
Fund MuniPreferred Shares would have rights and preferences
substantially similar to those of the Acquired
Fund MuniPreferred shares, Series W and
Series TH. The aggregate liquidation preference of
Acquiring Fund MuniPreferred Shares received in the
Reorganization will equal the aggregate liquidation preference
of the Acquired Funds preferred shares held immediately
prior to the Reorganization.
Tax-Free Reorganization. The Reorganization
will be structured with the intention that it qualify as a
tax-free reorganization for federal income tax purposes. The
Funds will obtain an opinion of counsel (based on certain
factual representations and certain customary assumptions)
substantially to the effect that the Reorganization will be
tax-free for federal income tax purposes.
Costs of the Reorganization. The Boards
considered the terms and conditions of the Agreement, including
the estimated costs associated with the Reorganization and the
allocation of such costs between the Acquiring Fund and the
Acquired Fund.
Potential Benefits to NAM. The Boards
recognized that the Reorganization may result in benefits and
economies for NAM. These may include, for example, a reduction
in the level of operational expenses incurred for
administrative, compliance and portfolio management services as
a result of the elimination of the Acquired Fund as a separate
Nuveen Fund.
Conclusion. The Boards, including the
Independent Board Members, approved the Reorganization,
concluding that the Reorganization is in the best interests of
both Funds and that the interests of existing shareholders of
the Funds will not be diluted as a result of the Reorganization.
Votes
Required
The Reorganization is required to be approved by the affirmative
vote of the holders of a majority of the outstanding shares of
the Acquired Funds common shares and the MuniPreferred,
voting together as a single class, and by the affirmative vote
of a majority of the Funds outstanding MuniPreferred,
voting as a separate class. In addition, the Reorganization is
required to be approved by the affirmative vote of the holders
of a majority of the outstanding shares of the Acquiring
Funds MuniPreferred shares voting together as a single
class.
MuniPreferred shareholders of each Fund are being asked to
approve the Agreement as a plan of reorganization
under the 1940 Act. Section 18(a)(2)(D) of the 1940 Act
provides that the terms of preferred shares issued by a
registered closed-end management investment company
29
must contain provisions requiring approval by the vote of a
majority of such shares, voting as a class, of any plan of
reorganization adversely affecting such shares. The 1940 Act
makes no distinction between a plan of reorganization that has
an adverse effect as opposed to a materially adverse effect.
While the respective Boards do not believe that the holders of
shares of MuniPreferred of either Fund would be materially
adversely affected by the Reorganization, it is possible that
there may be insignificant adverse effects (such as where the
asset coverage with respect to the shares of Acquiring
Fund MuniPreferred Shares issued pursuant to the
Reorganization is slightly more or less than the asset coverage
with respect to the shares of Acquired Fund MuniPreferred
for which they are exchanged). Each Fund is seeking approval of
the Agreement by the holders of shares of that Funds
MuniPreferred, each voting separately as a class. Such approval
requires the affirmative vote of the holders of at least a
majority of the outstanding shares of that Funds
MuniPreferred entitled to vote on the proposal, voting
separately as a class.
Description
of Common Shares Issued by the Acquiring Fund
General
The Articles of Incorporation of the Acquiring Fund (the
Acquiring Fund Articles) authorize 200,000,000
common shares, par value $.01 per share. As of October 31,
2008, there were issued and outstanding 81,138,036 common
shares of the Acquiring Fund. If the Reorganization is approved,
at the Closing Date the Acquiring Fund will issue additional
common shares. The number of such additional Acquiring
Fund Common Shares will be based on the relative aggregate
per share net asset values of the Acquiring Fund and the
Acquired Fund, in each case as of the Closing Date. Based on the
relative per share net asset values as of October 31, 2008,
the Acquiring Fund would have issued approximately 14,930,383
additional common shares if the Reorganization had occurred as
of that date.
The terms of the Acquiring Fund Common Shares to be issued
pursuant to the Reorganization will be identical to the terms of
the Acquiring Fund common shares that are then outstanding. All
of the Acquiring Fund common shares have equal rights with
respect to the payment of dividends and the distribution of
assets upon liquidation. The Acquiring Fund common shares are,
when issued, fully paid and non-assessable and have no
preemptive, conversion or exchange rights or right to cumulative
voting. The Acquiring Fund will not be permitted to declare, pay
or set apart for payment any cash dividend or distribution on
the Acquiring Fund Common Shares, unless
(a) cumulative dividends on all outstanding shares of
Acquiring Fund MuniPreferred have been paid in full and
(b) the Acquiring Fund meets the asset coverage test
described in the Reorganization SAI under Description of
MuniPreferred Issued by the Acquiring Fund
Dividends Restrictions on Dividends and Other
Payments. This latter limitation on the Acquiring
Funds ability to make distributions on common shares could
under certain circumstances impair the ability of the Acquiring
Fund to maintain its qualification for taxation as a regulated
investment company under the Code. See Federal Income Tax
Matters Associated with Investment in the Funds under
Additional Information About the Funds below and in
the Reorganization SAI.
Distributions
The Acquiring Funds intent is to pay regular monthly cash
distributions to common shareholders at a level rate (stated in
terms of a fixed cents per common share dividend rate) that
30
reflects the past and projected performance of the Acquiring
Fund. Distributions can only be made after paying any accrued
dividends to MuniPreferred shareholders.
The Acquiring Funds ability to maintain a level dividend
rate will depend on a number of factors, including the rate at
which dividends are payable on the shares of MuniPreferred. The
net income of the Acquiring Fund generally consists of all
interest income accrued on portfolio assets less all expenses of
the Fund. Expenses of the Acquiring Fund are accrued each day.
Over time, all the net investment income of the Acquiring Fund
will be distributed. At least annually, the Acquiring Fund also
intends to effectively distribute net capital gain and ordinary
taxable income, if any, after paying any accrued dividends or
making any liquidation payments to MuniPreferred shareholders.
Although it does not now intend to do so, the Board may change
the Acquiring Funds dividend policy and the amount or
timing of the distributions, based on a number of factors,
including the amount of the Funds undistributed net
investment income and historical and projected investment income
and the amount of the expenses and dividend rates on the
outstanding MuniPreferred.
As explained more fully below in Federal Income Tax
Matters Associated with Investment in the Funds, at least
annually, the Acquiring Fund may elect to retain rather than
distribute all or a portion of any net capital gain (which is
the excess of net long-term capital gain over net
short-term
capital loss) otherwise allocable to common shareholders and pay
federal income tax on the retained gain. As provided under
federal income tax law, common shareholders of record as of the
end of the Acquiring Funds taxable year will include their
share of the retained net capital gain in their income for the
year as a long-term capital gain (regardless of their holding
period in the common shares), and will be entitled to an income
tax credit or refund for the federal income tax deemed paid on
their behalf by the Acquiring Fund.
The Acquiring Fund reserves the right to change its distribution
policy and the basis for establishing the rate of its monthly
distributions at any time.
See Federal Income Tax Matters Associated with Investment
in the Funds under Additional Information About the
Funds below and in the Reorganization SAI.
Fund management does not expect the level of monthly
distributions to the common shareholders of the Acquiring Fund
and the Acquired Fund to be affected by the Reorganization.
There can be no assurance, however, that a stable level of
distributions may be maintained over the life of either Fund.
Dividend
Reinvestment Plan
Under the Acquiring Funds Dividend Reinvestment Plan (the
Plan), you may elect to have all dividends,
including any capital gain distributions, on your common shares
automatically reinvested by the State Street Bank and
Trust Company (the Plan Agent) in additional
common shares under the Plan. You may elect to participate in
the Plan by completing the Dividend Reinvestment Plan
Application Form. If you do not participate, you will receive
all distributions in cash paid by check mailed directly to you
by State Street Bank and Trust Company as dividend paying
agent.
If you decide to participate in the Plan of the Acquiring Fund,
the number of common shares you will receive will be determined
as follows:
(1) If common shares are trading at or above net asset
value at the time of valuation, the Acquiring Fund will issue
new shares at the then current market price; or
31
(2) If common shares are trading below net asset value at
the time of valuation, the Plan Agent will receive the dividend
or distribution in cash and will purchase common shares in the
open market, on the NYSE or elsewhere, for the
participants accounts. It is possible that the market
price for the common shares may increase before the Plan Agent
has completed its purchases. Therefore, the average purchase
price per share paid by the Plan Agent may exceed the market
price at the time of valuation, resulting in the purchase of
fewer shares than if the dividend or distribution had been paid
in common shares issued by the Acquiring Fund. The Plan Agent
will use all dividends and distributions received in cash to
purchase common shares in the open market within 30 days of
the valuation date. Interest will not be paid on any uninvested
cash payments.
If the Plan Agent begins purchasing Acquiring Fund shares on the
open market while shares are trading below net asset value, but
the Funds shares subsequently trade at or above their net
asset value before the Plan Agent is able to complete its
purchases, the Plan Agent may cease open-market purchases and
may invest the uninvested portion of the distribution in
newly-issued
Fund shares at a price equal to the greater of the shares
net asset value or 95% of the shares market value.
You may withdraw from the Plan at any time by giving written
notice to the Plan Agent. If you withdraw or the Plan is
terminated, you will receive a cash payment for any fraction of
a share in your account. If you wish, the Plan Agent will sell
your shares and send you the proceeds, minus brokerage
commissions and a $2.50 service fee.
The Plan Agent maintains all shareholders accounts in the
Plan and gives written confirmation of all transactions in the
accounts, including information you may need for tax records.
Common shares in your account will be held by the Plan Agent in
non-certificated form. Any proxy you receive will include all
common shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends
or distributions in common shares. However, all participants
will pay a pro rata share of brokerage commissions incurred by
the Plan Agent when it makes open market purchases.
Automatically reinvesting dividends and distributions does not
mean that you do not have to pay income taxes due upon receiving
dividends and distributions. The Acquiring Fund reserves the
right to amend or terminate the Plan if in the judgment of the
Board of the Acquiring Fund the change is warranted. There is no
direct service charge to participants in the Plan; however, the
Acquiring Fund reserves the right to amend the Plan to include a
service charge payable by the participants. Additional
information about the Plan may be obtained from State Street
Bank and Trust Company, Attn: Computershare Nuveen Investments,
P. O. Box 43071, Providence, Rhode Island 02940-3071, (800)
257-8787.
Comparison
of Rights of Holders of Common Shares of the Acquiring Fund and
the Acquired Fund
The common shares of each Fund have equal voting rights with
respect to that Fund and equal rights with respect to the
payment of dividends and distribution of assets upon liquidation
of that Fund and have no preemptive, conversion or exchange
rights or rights to cumulative voting. The provisions of the
Acquiring Fund Articles are substantially similar to the
provisions of the Acquired Funds Declaration of Trust, and
both contain, among other things, identical super-majority
voting provisions, as described under Certain
Provisions in the Acquiring Fund Articles below. The
full text of the Acquiring Funds Articles and the Acquired
Funds
32
Declaration of Trust is on file with the SEC and may be obtained
as described on page iii. The terms of the Acquiring
Funds Dividend Reinvestment Plan and distribution policy
are identical to the terms of the Acquired Funds Dividend
Reinvestment Plan and distribution policy.
Description
of MuniPreferred Issued by the Acquiring Fund
The following is a brief description of the terms of the shares
of the Acquiring Fund MuniPreferred, including the
Acquiring Fund MuniPreferred Shares to be issued pursuant
to the Agreement. This description assumes that the
Reorganization will be consummated and that the Acquiring Fund
will issue shares of its MuniPreferred pursuant to the
Agreement. This description does not purport to be complete and
is subject to and qualified in its entirety by reference to the
more detailed description of the shares of Acquiring
Fund MuniPreferred Shares in the Reorganization SAI and in
the Acquiring Fund Statement attached as Appendix A to the
Reorganization SAI. Capitalized terms used but not defined
herein have the meanings given them above or in the Acquiring
Fund Statement.
Since February 2008, existing markets for APS have become
generally illiquid and investors have not been able to sell
their securities through the regular auction process. There
currently is no established secondary market for MuniPreferred
and, in the event a secondary market develops, a MuniPreferred
holder may receive less than the price paid for MuniPreferred.
General
The Acquiring Fund Articles authorize the issuance of
1,000,000 shares of preferred stock (preferred
shares), par value $.01 per share, in one or more classes
or series, with rights as determined by the Board without the
approval of holders of common shares. The Acquiring Fund is
currently authorized to issue 4,000 shares of each of
MuniPreferred, Series M, Series T, Series W,
Series W2, Series TH1, Series TH2 and
Series F. On the Closing Date, the Acquiring Fund will
issue to the Acquired Fund up to 1,640 shares and up to
2,800 shares of MuniPreferred, Series W3 and
Series TH3, respectively, which the Acquired Fund would
then distribute to the holders of Acquired
Fund MuniPreferred, Series W and Series TH,
respectively. All shares of MuniPreferred have a liquidation
preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or
declared).
The shares of MuniPreferred of each series rank on parity with
shares of any other series of MuniPreferred and with shares of
any other series of preferred shares of the Acquiring Fund as to
the payment of dividends and the distribution of assets upon
liquidation. All shares of MuniPreferred carry one vote per
share on all matters on which such shares are entitled to be
voted. Shares of MuniPreferred are, when issued, fully paid and,
subject to matters discussed in Certain Provisions in the
Acquiring Fund Articles of Incorporation,
non-assessable and have no preemptive, conversion or cumulative
voting rights.
Dividends
and Dividend Periods
General. The dividend rate for shares of
Acquired Fund MuniPreferred Shares issued in connection
with the Reorganization for the Initial Rate Period will be
equal to the dividend rate for shares of the Acquired
Funds MuniPreferred, Series W and Series TH,
respectively. The Initial Rate Period of the shares of Acquiring
Fund MuniPreferred Shares issued pursuant to the Agreement
will be a period consisting of the number of days following the
day on which the Closing Date occurs that would have remained in
the rate period of the shares of the Acquired
33
Fund MuniPreferred, Series W and Series TH,
respectively, in effect immediately prior to the Closing Date.
Due to the systematic failure of the ARPS market, the Acquired
Fund MuniPreferred Shares dividend rate is set at the
Maximum Rate.
Dividends on shares of Acquiring Fund MuniPreferred Shares
issued pursuant to the Reorganization will be payable, when, as
and if declared by the Acquiring Funds Board out of funds
legally available therefor in accordance with the Acquiring
Fund Articles, including the Acquiring Fund Statement,
and applicable law. Providing that the Closing Date is
June 16, 2009, dividends with respect to Acquiring
Fund MuniPreferred shares, Series W3, will be payable
on Thursday, June 18, 2009, and thereafter on each
Thursday, and, with respect to the Acquiring
Fund MuniPreferred shares, Series TH3, will be payable
on Friday, June 19, 2009, or thereafter on each Friday.
However, (i) if the day on which dividends would otherwise
be payable as set forth above is not a Business Day, then such
dividends shall be payable on such shares on the first Business
Day that falls prior to such day; and (ii) the Acquiring
Fund may specify different Dividend Payment Dates in respect of
any Special Rate Period of more than 28 Rate Period Days.
The amount of dividends per share payable on the Acquiring Fund
MuniPreferred Shares 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.
Dividends will be paid through the Securities Depository on each
Dividend Payment Date in accordance with its normal procedures,
which currently provide for it to distribute dividends in
next-day
funds to Agent Members, who in turn are expected to distribute
such dividend payments to the persons for whom they are acting
as agents. Each of the current Broker-Dealers, however, has
indicated to the Fund that such Broker-Dealer or the Agent
Member designated by such Broker-Dealer will make such dividend
payments available in
same-day
funds on each Dividend Payment Date to customers that use such
Broker-Dealer or its designee as Agent Member.
Dividends on shares of the Acquiring Fund MuniPreferred
Shares will accumulate from the Date of Original Issue thereof.
The dividend rate for the Acquiring Fund MuniPreferred
Shares for the initial Rate Period for such shares shall be
equal to the dividend rate for shares of the Acquired
Funds MuniPreferred, Series W and Series TH,
respectively, which is currently expected to be Maximum Rate.
For each Subsequent Rate Period of the Acquiring
Fund MuniPreferred Shares, the dividend rate for such
shares will be the Applicable Rate for such shares that the
Auction Agent advises the Acquiring Fund results from an
Auction, except as provided below. The Applicable Rate that
results from an Auction for the Acquiring
Fund MuniPreferred Shares will not be greater than the
Maximum Rate for shares of such series, which is:
(a) 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, the product of (i) the Reference Rate
on such Auction Date for the next Rate Period of shares of such
series and (ii) 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
34
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 (x) the higher of (I) 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 (II) 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 (y) the Rate Multiple on such
Auction Date; or
(b) in the case of any Auction Date which is the Auction
Date immediately prior to the first day of any proposed Special
Rate Period, the product of (i) the highest 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, (y) 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
(z) the Reference Rate on such Auction Date for Minimum
Rate Periods and (ii) the Rate Multiple on such Auction
Date.
If an Auction for any Subsequent Rate Period of Acquiring
Fund MuniPreferred Shares 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 for such
Subsequent Rate Period.
If the Acquiring Fund fails to pay in a timely manner to the
Auction Agent the full amount of any dividend on, or the
redemption price of, any shares of any series of MuniPreferred
during any Rate Period thereof (other than any Special Rate
Period of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period of more than 364 Rate Period
Days during which such a failure 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 such failure
occurred, such failure shall have been cured and the Acquiring
Fund shall have paid a late charge, as described more fully in
the Acquiring Fund Statement, no Auction will be held in
respect of shares of such series for the Subsequent Rate Period
thereafter 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.
If the Acquiring Fund fails to pay in a timely manner to the
Auction Agent the full amount of any dividend on, or the
redemption price of, any shares of any series of MuniPreferred
during any Rate Period thereof (other than any Special Rate
Period of more than 364 Rate Period Days or any Rate Period
succeeding any Special Rate Period of more than 364 Rate Period
Days during
35
which such a failure 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 occurred,
such failure shall not have been cured or the Acquiring Fund
shall not have paid a late charge, as described more fully in
the Acquiring Fund Statement, 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 such
failure is so cured and such late charge so paid) (such late
charge to be paid only in the event Moodys is rating such
shares at the time the Acquiring Fund cures such failure), 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/BB2).
If the Acquiring Fund fails to pay in a timely manner to the
Auction Agent the full amount of any dividend on, or the
redemption price of, any shares of any series of MuniPreferred
during a Special Rate Period thereof of more than 364 Rate
Period Days, or during any Rate Period thereof succeeding any
Special Rate Period of more than 364 Rate Period Days during
which such a failure occurred that has not been cured, and such
failure shall not have been cured or the Acquiring Fund shall
not have paid a late charge, as described more fully in the
Acquiring Fund Statement, no Auction will be held in
respect of shares of such series for such Subsequent Rate Period
thereof (or for any Rate Period thereof thereafter to and
including the Rate Period during which such failure is so cured
and such late charge so paid) (such late charge to be paid only
in the event Moodys is rating such shares at the time the
Acquiring Fund cures such failure), 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 each 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/BB2).
A failure to pay dividends on, or the redemption price of,
Acquiring Fund MuniPreferred Shares shall have been cured
(if such failure to deposit is not solely due to the willful
failure of the Acquiring Fund to make the required payment to
the Auction Agent) with respect to any Rate Period thereof if,
within the respective time periods described in the Acquiring
Fund Statement, the Acquiring Fund shall have paid to the
Auction Agent (a) all accumulated and unpaid dividends on
the 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 Acquiring Fund;
provided, however, that the foregoing clause (b) shall not
apply to the Acquiring Funds failure to pay the redemption
price in respect of Acquiring Fund MuniPreferred Shares
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.
Gross-up
Payments. Holders of Acquiring
Fund MuniPreferred Shares are entitled to receive, when, as
and if declared by the Acquiring Funds Board, out of funds
legally available therefor in accordance with the Acquiring
Fund Articles, including the Acquiring Fund Statement
and applicable law, dividends in an amount equal to the
aggregate
Gross-up
Payments in accordance with the following:
If, in the case of any Minimum Rate Period or any Special Rate
Period of 28 Rate Period Days or fewer, the Acquiring Fund
allocates any net capital gains or other income taxable for
federal
36
income tax purposes to a dividend paid on Acquiring
Fund MuniPreferred Shares without having given advance
notice thereof to the Auction Agent as described under
The Auction Auction
Procedures (a Taxable Allocation) below solely
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 shares of Acquiring Fund MuniPreferred Shares
or the liquidation of the Acquiring Fund, the Acquiring Fund
will, prior to the end of the calendar year in which such
dividend was paid, provide notice thereof to the Auction Agent
and direct the Acquiring Funds dividend disbursing agent
to send such notice with a
Gross-up
Payment to each holder of shares (Cede & Co., as
nominee of the Securities Depository) that was entitled to such
dividend payment during such calendar year at such holders
address as the same appears or last appeared on the record books
of the Acquiring Fund.
If, in the case of any Special Rate Period of more than 28 Rate
Period Days without having given notice thereof to the Auction
Agent, the Acquiring Fund makes a Taxable Allocation to a
dividend paid on shares of Acquiring Fund MuniPreferred,
the Acquiring Fund shall, prior to the end of the calendar year
in which such dividend was paid, provide notice thereof to the
Auction Agent and direct the Acquiring Funds dividend
disbursing agent to send such notice with a
Gross-up
Payment to each holder of shares that was entitled to such
dividend payment during such calendar year at such holders
address as the same appears or last appeared on the record books
of the Acquiring Fund.
A
Gross-up
Payment means payment to a holder of Acquiring
Fund MuniPreferred Shares 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 holders dividends in
dollars (after federal income tax consequences) from the
aggregate of such Taxable Allocations and the related
Gross-up
Payment to be equal to the dollar amount of the dividends which
would have been received by such holder if the amount of the
aggregate Taxable Allocations had been excludable from the gross
income of such holder. Such
Gross-up
Payment shall be calculated: (a) without consideration
being given to the time value of money; (b) assuming that
no holder of Acquiring Fund MuniPreferred Shares is subject
to the Federal alternative minimum tax with respect to dividends
received from the Acquiring Fund; and (c) 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 Acquiring
Fund MuniPreferred Shares at the maximum marginal regular
federal income tax rate, if any, applicable to ordinary income
(taking into account the federal income tax deductibility of
state taxes paid or incurred) or net capital gains, as
applicable, or the maximum marginal regular federal corporate
income tax rate applicable to ordinary income or net capital
gains, as applicable, whichever is greater, in effect at the
time such
Gross-up
Payment is made.
Restrictions on Dividends and Other
Distributions. Except as otherwise described
herein, for so long as any Acquiring Fund MuniPreferred
Shares are outstanding, the Acquiring Fund may not declare, pay
or set apart for payment of 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, its
common shares or other shares, if any, ranking junior to the
Acquiring Fund MuniPreferred Shares as to the payment of
dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of its common shares or
any other shares of the Acquiring Fund ranking junior to, or on
parity with, Acquiring Fund MuniPreferred Shares as to the
payments of dividends or the distribution of assets upon
dissolution, liquidation or
37
winding up, or call for redemption, redeem, purchase or
otherwise acquire for consideration any common shares or any
other such junior shares or other such parity shares (except by
conversion into or exchange for shares of the Acquiring Fund
ranking junior to the Acquiring Fund MuniPreferred Shares
as to the payment of dividends and the distribution of assets
upon liquidation, dissolution or winding up of the affairs of
the Acquiring Fund), unless (a) full cumulative dividends
on Acquiring Fund MuniPreferred Shares 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 (b) the Acquiring Fund
shall have redeemed the full number of Acquiring
Fund MuniPreferred Shares required to be redeemed by any
provision for mandatory redemption pertaining thereto. Except as
otherwise described herein, for so long as any Acquiring
Fund MuniPreferred Shares are outstanding, the Acquiring
Fund may 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 Acquiring Fund MuniPreferred Shares
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 Acquiring Fund ranking
junior to Acquiring Fund MuniPreferred Shares 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 Acquiring Fund
ranking junior to Acquiring Fund MuniPreferred Shares 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 the Acquiring
Funds portfolio would at least equal the MuniPreferred
Basic Maintenance Amount in accordance with guidelines of the
rating agency or agencies then rating the Acquiring
Fund MuniPreferred Shares.
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 Acquiring Fund shares ranking, as to the
payment of dividends, on a parity with Acquiring
Fund MuniPreferred Shares for any period unless full
cumulative dividends have been or contemporaneously are declared
and paid on the shares of Acquiring Fund MuniPreferred
Shares through its most recent Dividend Payment Date. When
dividends are not paid in full upon the shares of Acquiring
Fund MuniPreferred Shares through its most recent Dividend
Payment Date or upon the shares of any other class or series of
shares ranking on a parity as to the payment of dividends with
Acquiring Fund MuniPreferred Shares through their most
recent respective dividend payment dates, all dividends declared
upon Acquiring Fund MuniPreferred Shares and any other such
class or series of shares ranking on a parity as to the payment
of dividends with Acquiring Fund MuniPreferred Shares shall
be declared pro rata so that the amount of dividends declared
per share on Acquiring Fund MuniPreferred Shares and such
other class or series of shares shall in all cases bear to each
other the same ratio that accumulated dividends per share on the
Acquiring Fund MuniPreferred Shares and such other class or
series of shares bear to each other.
Designation
of Special Rate Periods
The Acquiring Fund, at its option, may designate any succeeding
Subsequent Rate Period of Acquiring Fund MuniPreferred
Shares as a Special Rate Period consisting of a specified number
of Rate Period Days evenly divisible by seven and not more than
1,820 (approximately 5 years), subject to certain
adjustments. A designation of a Special Rate Period shall be
effective only if,
38
among other things, (a) the Acquiring Fund shall have given
certain notices to the Auction Agent, (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 for shares of such
series shall have existed in such Auction and (c) if the
Acquiring Fund shall have mailed a notice of redemption with
respect to any shares of such series, the redemption price with
respect to such shares shall have been deposited with the
Auction Agent. The Acquiring Fund will give MuniPreferred
shareholders notice of a special rate period as provided in the
Acquiring Fund Statement.
Voting
Rights
In addition to voting rights described under
Certain Provisions in the Acquiring
Fund Articles of Incorporation and in the
Reorganization SAI under Investment Objectives and
Policies Investment Restrictions, holders of
Acquiring Fund MuniPreferred Shares will have equal voting
rights with holders of common shares and any preferred shares
(one vote per share) and will vote together with holders of
common shares and any preferred shares as a single class.
In connection with the election of the Acquiring Funds
board members, holders of outstanding preferred shares,
including Acquiring Fund MuniPreferred Shares, voting as a
separate class, are entitled to elect two of the Acquiring
Funds board members, and the remaining board members are
elected by holders of common shares and preferred shares,
including Acquiring Fund MuniPreferred Shares, voting
together as a single class. In addition, if at any time
dividends (whether or not earned or declared) on any outstanding
preferred shares, including Acquiring Fund MuniPreferred
Shares, shall be due and unpaid in an amount equal to at least
two full years dividends thereon, and sufficient cash or
specified securities shall not have been deposited with the
Auction Agent for the payment of such dividends, then, as the
sole remedy of holders of outstanding preferred shares,
including Acquiring Fund MuniPreferred Shares, the number
of board members constituting the Board shall be automatically
increased by the smallest number that, when added to the two
board members elected exclusively by the holders of preferred
shares, including Acquiring Fund MuniPreferred Shares, as
described above, would constitute a majority of the Board as so
increased by such smallest number, and at a special meeting of
shareholders which will be called and held as soon as
practicable, and at all subsequent meetings at which board
members are to be elected, the holders of preferred shares,
including Acquiring Fund MuniPreferred Shares, voting as a
separate class, will be entitled to elect the smallest number of
additional board members that, together with the two board
members which such holders will be in any event entitled to
elect, constitutes a majority of the total number of board
members of the Acquiring Fund as so increased. The terms of
office of the persons who are board members at the time of that
election will continue. If the Acquiring Fund thereafter shall
pay, or declare and set apart for payment, in full, all
dividends payable on all outstanding preferred shares, including
Acquiring Fund MuniPreferred Shares, the voting rights
stated in the second preceding sentence shall cease, and the
terms of office of all of the additional board members elected
by the holders of preferred shares, including Acquiring
Fund MuniPreferred Shares (but not of the board members
with respect to whose election the holders of common shares were
entitled to vote or the two board members the holders of
preferred shares have the right to elect in any event), will
terminate automatically.
So long as any Acquiring Fund MuniPreferred Shares are
outstanding, the Acquiring Fund will not, without the
affirmative vote or consent of the holders of at least a
majority of the Acquiring Fund MuniPreferred Shares
outstanding at the time (voting as a separate class):
(a) authorize,
39
create or issue any class or series of shares ranking prior to
or on a parity with shares of MuniPreferred with respect to the
payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of the affairs of the
Acquiring Fund or authorize, create or issue additional shares
of any series of MuniPreferred (except that, notwithstanding the
foregoing, but subject to certain rating agency approvals, the
Board, without the vote or consent of the holders of
MuniPreferred, may from time to time authorize and create, and
the Acquiring Fund may from time to time issue additional shares
of, any series of MuniPreferred or classes or series of
preferred shares ranking on a parity with shares of
MuniPreferred with respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution or winding
up of the affairs of the Acquiring Fund; provided, however, that
if Moodys or S&P is not then rating the shares of
MuniPreferred, the aggregate liquidation preference of all
preferred shares of the Acquiring Fund outstanding after any
such issuance, exclusive of accumulated and unpaid dividends,
may not exceed $144,000,000) or (b) amend, alter or repeal
the provisions of the Acquiring Fund Articles, including
the Acquiring Fund Statement, whether by merger,
consolidation or otherwise, so as to affect any preference,
right or power of Acquiring Fund MuniPreferred Shares 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 of a share of Acquiring Fund MuniPreferred Shares
will be deemed to affect such preferences, rights or powers only
if the terms of such division adversely affect the holders of
Acquiring Fund MuniPreferred Shares and (iii) the
authorization, creation and issuance of classes or series of
shares ranking junior to Acquiring Fund MuniPreferred
Shares with respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution or winding
up of the affairs of the Acquiring Fund will be deemed to affect
such preferences, rights or powers only if Moodys or
S&P is then rating the Acquiring Fund MuniPreferred
Shares and such issuance would, at the time thereof, cause the
Acquiring Fund not to satisfy the 1940 Act MuniPreferred Asset
Coverage or the MuniPreferred Basic Maintenance Amount. So long
as any Acquiring Fund MuniPreferred Shares are outstanding,
the Acquiring Fund shall not, without the affirmative vote or
consent of the holders of at least
662/3%
of the MuniPreferred shares outstanding at the time, 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 Acquiring Fund is solvent and does not
foresee becoming insolvent. If any action set forth above would
adversely affect the rights of one or more series (the
Affected Series) of MuniPreferred shares in a manner
different from any other series of MuniPreferred shares, the
Acquiring Fund will not approve any such action without the
affirmative vote or consent of the holders of at least a
majority of the shares of each such Affected Series outstanding
at the time, in person or by proxy, either in writing or at a
meeting (each such Affected Series voting as a separate class).
The Board may, without shareholder approval, from time to time,
amend, alter or repeal any or all of the definitions and related
provisions which have been adopted by the Acquiring Fund
pursuant to the rating agency guidelines in the event the
Acquiring Fund receives written confirmation from Moodys
or S&P, or both, as appropriate, that any such amendment,
alteration or repeal would not impair the ratings then assigned
by Moodys and S&P to Acquiring
Fund MuniPreferred Shares. Unless a higher percentage is
provided for in the Acquiring Fund Articles (see
Certain Provisions in the Acquiring
Fund Articles), (A) the affirmative vote of the
holders of at least a majority of the preferred shares,
including Acquiring Fund MuniPreferred Shares, outstanding
at the time, voting as a separate class, shall be required to
approve any conversion of the Acquiring Fund from a closed-end
to an open-end investment company and (B) the affirmative
vote of the holders of a majority of the outstanding
40
preferred shares, including Acquiring Fund MuniPreferred
Shares, voting as a separate class, shall be required to approve
any plan of reorganization (as such term is used in the 1940
Act) adversely affecting such shares. The affirmative vote of
the holders of a majority of the outstanding preferred shares,
including Acquiring Fund MuniPreferred Shares, voting as a
separate class, shall be required to approve any action not
described in the preceding sentence requiring a vote of security
holders of the Acquiring Fund under Section 13(a) of the
1940 Act.
The foregoing voting provisions will not apply with respect to
Acquiring Fund MuniPreferred Shares if, at or prior to the
time when a vote is required, such shares shall have been
(i) redeemed or (ii) called for redemption and
sufficient funds shall have been deposited in trust to effect
such redemption.
Redemption
Mandatory Redemption. In the event the
Acquiring Fund does not timely cure a failure to maintain
(a) a Discounted Value of its eligible portfolio securities
equal to the MuniPreferred Basic Maintenance Amount or
(b) the 1940 Act MuniPreferred Asset Coverage, in
accordance with the requirements of the rating agency or
agencies then rating the Acquiring Fund MuniPreferred
Shares, Acquiring Fund MuniPreferred Shares will be subject
to mandatory redemption on a date fixed by the Acquiring
Funds Board, out of funds legally available therefor in
accordance with the Acquiring Fund Articles, including the
Acquiring Fund Statement and applicable law, at the
redemption price of $25,000 per share plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned
or declared) to (but not including) the date fixed for
redemption. Any such redemption will be limited to the lesser of
the (i) minimum number of Acquiring Fund MuniPreferred
Shares, together with all other preferred shares subject to
redemption or retirement, necessary to restore the required
Discounted Value or the 1940 Act MuniPreferred Asset Coverage,
as the case may be, and (ii) the maximum number of
Acquiring Fund MuniPreferred Shares, together with all
other preferred shares subject to redemption or retirement, that
can be redeemed with the funds legally available under the
Acquiring Fund Articles and applicable law.
Optional Redemption. Acquiring
Fund MuniPreferred Shares are redeemable, at the option of
the Acquiring Fund:
(a) as a whole or from time to time in part, on the second
Business Day preceding any Dividend Payment Date for Acquiring
Fund MuniPreferred Shares, out of funds legally available
therefor in accordance with the Acquiring Fund Articles,
including the Acquiring Fund Statement, and applicable law,
at the redemption price of $25,000 per share plus an amount
equal to accumulated but unpaid dividends thereon (whether or
not earned or declared) to (but not including) the date fixed
for redemption; provided, however, that (i) shares of such
series may not be redeemed in part if after such partial
redemption fewer than 250 shares of such series would
remain outstanding; (ii) Acquiring Fund MuniPreferred
Shares are redeemable by the Acquiring 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 (iii) the notice establishing a Special Rate
Period of Acquiring Fund MuniPreferred Shares, as delivered
to the Auction Agent and filed with the Secretary of the
Acquiring 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 clause (b) below) 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; and
41
(b) as a whole but not in part, out of funds legally
available therefor in accordance with the Acquiring
Fund Articles, including the Acquiring Fund Statement,
and applicable law, on the first day following any Dividend
Period thereof included in a Rate Period 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 of $25,000 per share 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.
Notwithstanding the foregoing, if any dividends on Acquiring
Fund MuniPreferred Shares (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 Acquiring 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.
Liquidation
Subject to the rights of holders of any series or class or
classes of shares ranking on a parity with Acquiring
Fund MuniPreferred Shares with respect to the distribution
of assets upon the dissolution, liquidation or winding up of the
Acquiring Fund, upon a liquidation of the Acquiring Fund,
whether voluntary or involuntary, the holders of Acquiring
Fund MuniPreferred Shares then outstanding will be entitled
to receive and to be paid out of the assets of the Acquiring
Fund available for distribution to its shareholders, before any
payment or distribution shall be made on the common shares or
any other class of shares of the Acquiring Fund ranking junior
to the Acquiring Fund MuniPreferred Shares, an amount equal
to the liquidation preference with respect to such shares
($25,000 per share), 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 applicable
Gross-up
Payments in connection with the liquidation of the Acquiring
Fund. After the payment to the holders of Acquiring
Fund MuniPreferred Shares of the full preferential amounts
provided for as described in this paragraph, the holders of
Acquiring Fund MuniPreferred Shares as such shall have no
right or claim to any of the remaining assets of the Acquiring
Fund.
Neither the sale of all or substantially all the property or
business of the Acquiring Fund, nor the merger or consolidation
of the Acquiring Fund into or with any Massachusetts business
trust or corporation nor the merger or consolidation of any
Massachusetts business trust or corporation into or with the
Acquiring Fund, shall be a dissolution, liquidation or winding
up, whether voluntary or involuntary, for the purposes of the
foregoing paragraph.
Rating
Agency Guidelines
The Acquired Fund is required under Moodys and S&P
guidelines to maintain assets having in the aggregate a
Discounted Value at least equal to the MuniPreferred Basic
Maintenance Amount. Moodys and S&P have each
established separate guidelines for determining Discounted
Value. To the extent any particular portfolio holding does not
satisfy the applicable rating agencys guidelines, all or a
portion of such holdings value will not be included in the
calculation of Discounted Value (as defined by such rating
agency). The Moodys and S&P guidelines do not impose
any limitations on the percentage of the Acquiring Funds
assets that
42
may be invested in holdings not eligible for inclusion in the
calculation of the Discounted Value of the Acquiring Funds
portfolio. The amount of such assets included in the portfolio
at any time may vary depending upon the rating, diversification
and other characteristics of the eligible assets included in the
portfolio, although it is not anticipated that in the normal
course of business the value of such assets would exceed 20% of
the Acquiring Funds total assets. The MuniPreferred Basis
Maintenance Amount includes the sum of (a) the aggregate
liquidation preference of shares of MuniPreferred then
outstanding and (b) certain accrued and projected payment
obligations of the Acquiring Fund.
The Acquiring Fund is also required under the 1940 Act and
rating agency guidelines to maintain, with respect to shares of
MuniPreferred, as of the last Business Day of each month in
which any such shares are outstanding, asset coverage of at
least 200% with respect to all outstanding senior securities
which are shares of beneficial interest, including MuniPreferred
(or such other asset coverage as may in the future be specified
in or under the 1940 Act as the minimum asset coverage for
senior securities which are shares of a closed-end management
investment company as a condition of declaring dividends on its
common shares) (1940 Act MuniPreferred Asset
Coverage). Based on the composition of the portfolio of
the Acquiring Fund and market conditions as of October 31,
2008, 1940 Act MuniPreferred Asset Coverage with respect to
shares of MuniPreferred, assuming the issuance of 14,930,383
Acquiring Fund Common Shares in connection with the
Reorganization and the issuance of 4,440 Acquiring
Fund MuniPreferred Shares in connection with the
Reorganization, would have been computed as follows:
|
|
|
|
|
|
|
|
|
|
|
Value of Fund assets less liabilities not constituting senior
securities
|
|
|
|
$
|
1,924,475,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
= 262
|
%
|
Senior securities representing indebtedness plus liquidation
value of the shares of MuniPreferred
|
|
|
|
$
|
734,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the event the Acquiring Fund does not timely cure a failure
to maintain (a) a Discounted Value of its portfolio equal
to the MuniPreferred Basic Maintenance Amount or (b) the
1940 Act MuniPreferred Asset Coverage, in each case in
accordance with the requirements of the rating agency or
agencies then rating the shares of MuniPreferred, the Acquiring
Fund will be required to redeem Acquiring
Fund MuniPreferred Shares as described under
Redemption Mandatory Redemption above.
The Acquiring Fund may, but is not required to, adopt any
modifications to the guidelines that may hereafter be
established by Moodys or S&P. Failure to adopt any
such modifications, however, may result in a change in the
ratings described above or a withdrawal of ratings altogether.
In addition, any rating agency providing a rating for the
Acquiring Fund MuniPreferred Shares may, at any time,
change or withdraw any such rating. The Board may, without
shareholder approval, amend, alter or repeal any or all of the
definitions and related provisions which have been adopted by
the Acquiring Fund pursuant to the rating agency guidelines in
the event the Acquiring Fund receives written confirmation from
Moodys or S&P, or both, as appropriate, that any such
amendment, alteration or repeal would not impair the ratings
then assigned by Moodys and S&P to Acquiring
Fund MuniPreferred Shares.
As described by Moodys and S&P, a preferred share
rating is an assessment of the capacity and willingness of an
issuer to pay preferred share obligations. The ratings on the
Acquiring
43
Fund MuniPreferred Shares are not recommendations to
purchase, hold or sell those shares, inasmuch as the ratings do
not comment as to market price or suitability for a particular
investor. The rating agency guidelines described above also do
not address the likelihood that an owner of Acquiring
Fund MuniPreferred Shares will be able to sell such shares
in an Auction or otherwise. The ratings are based on current
information furnished to Moodys and S&P by the
Acquiring Fund and the Adviser and information obtained from
other sources. The ratings may be changed, suspended or
withdrawn as a result of changes in, or the unavailability of,
such information. The common shares have not been rated by a
nationally recognized statistical rating organization.
A rating agencys guidelines will apply to Acquiring
Fund MuniPreferred Shares only so long as such rating
agency is rating such shares. The Acquiring Fund will pay
certain fees to Moodys or S&P, or both, for rating
the Acquiring Fund MuniPreferred Shares.
The
Auction
General
Since mid-February 2008, the functioning of the auction markets
for certain types of auction rate securities (including
MuniPreferred) has been disrupted by an imbalance between buy
and sell orders. As a result of this imbalance, auctions for
MuniPreferred have not cleared and MuniPreferred generally have
become illiquid. There is no current expectation that these
circumstances will change following the Reorganization and it is
possible that the MuniPreferred markets will never resume normal
functioning. The dividend rate on MuniPreferred when
MuniPreferred auctions do not clear is the Maximum Rate.
With respect to normally functioning markets, the Acquiring
Fund Statement provides that, except as otherwise described
therein, the Applicable Rate for the shares of each series of
MuniPreferred, including Acquiring Fund MuniPreferred
Shares, for each Rate Period of shares of such series after the
initial Rate Period thereof shall be equal to the rate per annum
that the Auction Agent advises has resulted on the Business Day
preceding the first day of such Subsequent Rate Period (an
Auction Date) from implementation of the auction
procedures (the Auction Procedures) set forth in the
Acquiring Fund Statement and summarized below, in which
persons determine to hold or offer to sell or, based on dividend
rates bid by them, offer to purchase or sell shares of such
series. Each periodic implementation of the Auction Procedures
is referred to herein as an Auction. See the
Acquiring Fund Statement for a more complete description of
the Auction process.
Auction
Procedures
Prior to the Submission Deadline on each Auction Date for
Acquiring Fund MuniPreferred Shares, each 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 (a Beneficial Owner) may submit orders
(Orders) with respect to shares of such series to
that Broker-Dealer as follows:
|
|
|
|
|
Hold Order indicating its desire to hold shares of
such series without regard to the Applicable Rate for shares of
such series for the next Rate Period thereof.
|
|
|
|
Bid indicating its desire to sell shares of such
series at $25,000 per share if the Applicable Rate for shares of
such series for the next Rate Period thereof is less than the
rate specified in such Bid (also known as a
hold-at-a-rate
order).
|
44
|
|
|
|
|
Sell Order indicating its desire to sell shares of
such series at $25,000 per share without regard to the
Applicable Rate for shares of such series for the next Rate
Period thereof.
|
A Beneficial Owner may submit different types of Orders to its
Broker-Dealer with respect to Acquiring Fund MuniPreferred
Shares then held by such Beneficial Owner. A Beneficial Owner of
shares of such series that submits a Bid with respect to shares
of such series to its Broker-Dealer having a rate higher than
the Maximum Rate for shares of such series on the Auction Date
therefor will be treated as having submitted a Sell Order with
respect to such shares to its Broker-Dealer. A Beneficial Owner
of shares of such series that fails to submit an Order with
respect to such shares to its Broker-Dealer will be deemed to
have submitted a Hold Order with respect to such shares of such
series to its Broker-Dealer; provided, however, that if a
Beneficial Owner of shares of such series fails to submit an
Order with respect to shares of such series to its Broker-Dealer
for an Auction relating to a Rate Period of more than Rate
Period Days, such Beneficial Owner will be deemed to have
submitted a Sell Order with respect to such shares to its
Broker-Dealer. A Sell Order shall constitute an irrevocable
offer to sell the Acquiring Fund MuniPreferred Shares
subject thereto. A Beneficial Owner that offers to become the
Beneficial Owner of additional Acquiring Fund MuniPreferred
Shares is, for purposes of such offer, a Potential Beneficial
Owner as discussed below.
A customer of a Broker-Dealer that is not a Beneficial Owner of
shares of a series of MuniPreferred 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 (in each case, a Potential Beneficial Owner),
may submit Bids to its Broker-Dealer in which it offers to
purchase shares of such series at $25,000 per share if the
Applicable Rate for shares of such series for the next Rate
Period thereof is not less than the rate specified in such Bid.
A Bid placed by a Potential Beneficial Owner of shares of such
series specifying a rate higher than the Maximum Rate for shares
of such series on the Auction Date therefor will not be accepted.
The Broker-Dealers in turn will submit the Orders of their
respective customers who are Beneficial Owners and Potential
Beneficial Owners to the Auction Agent, designating themselves
(unless otherwise permitted by the Acquiring Fund) as Existing
Holders in respect of shares subject to Orders submitted or
deemed submitted to them by Beneficial Owners and as Potential
Holders in respect of shares subject to Orders submitted to them
by Potential Beneficial Owners. However, neither the Acquiring
Fund nor the Auction Agent will be responsible for a
Broker-Dealers failure to comply with the foregoing. Any
Order placed with the Auction Agent by a Broker-Dealer as or on
behalf of an Existing Holder or a Potential Holder will be
treated in the same manner as an Order placed with a
Broker-Dealer by a Beneficial Owner or Potential Beneficial
Owner. Similarly, any failure by a Broker-Dealer to submit to
the Auction Agent an Order in respect of any Acquiring
Fund MuniPreferred Shares held by it or customers who are
Beneficial Owners will be treated in the same manner as a
Beneficial Owners failure to submit to its Broker-Dealer
an Order in respect of Acquiring Fund MuniPreferred Shares
held by it. A Broker-Dealer may also submit Orders to the
Auction Agent for its own account as an Existing Holder or
Potential Holder, provided it is not an affiliate of the
Acquiring Fund.
If Sufficient Clearing Bids for shares of a series of
MuniPreferred exist (that is, the number of shares of such
series subject to Bids submitted or deemed submitted to the
Auction Agent by Broker-Dealers as or on behalf of Potential
Holders with rates equal to or lower than the Maximum Rate for
shares of such series is at least equal to the number of shares
of such series
45
subject to Sell Orders submitted or deemed submitted to the
Auction Agent by Broker-Dealers as or on behalf of Existing
Holders), the Applicable Rate for shares of such series for the
next succeeding Rate Period thereof will be the lowest rate
specified in the Submitted Bids which, taking into account such
rate and all lower rates bid by Broker-Dealers as or on behalf
of Existing Holders and Potential Holders, would result in
Existing Holders and Potential Holders owning the shares of such
series available for purchase in the Auction. If Sufficient
Clearing Bids for shares of a series of MuniPreferred do not
exist, the Applicable Rate for shares of such series for the
next succeeding Rate Period thereof will be the Maximum Rate for
shares of such series on the Auction Date therefor. In such
event, Beneficial Owners of shares of such series that have
submitted or are deemed to have submitted Sell Orders may not be
able to sell in such Auction all shares of such series subject
to such Sell Orders. If Broker-Dealers submit or are deemed to
have submitted to the Auction Agent Hold Orders with respect to
all Existing Holders of shares of a series of MuniPreferred, the
Applicable Rate for shares of such series for the next
succeeding Rate Period thereof will be the All Hold Order Rate.
The Auction Procedures include a pro rata allocation of shares
for purchase and sale, which may result in an Existing Holder
continuing to hold or selling, or a Potential Holder purchasing,
a number of shares of a series of MuniPreferred that is fewer
than the number of shares of such series specified in its Order.
To the extent the allocation procedures have that result,
Broker-Dealers that have designated themselves as Existing
Holders or Potential Holders in respect of customer Orders will
be required to make appropriate pro rata allocations among their
respective customers.
Settlement of purchases and sales will be made on the next
Business Day (also a Dividend Payment Date) after the Auction
Date through the Securities Depository. Purchasers will make
payment through their Agent Members in
same-day
funds to the Securities Depository against delivery to their
respective Agent Members. The Securities Depository will make
payment to the sellers Agent Members in accordance with
the Securities Depositorys normal procedures, which now
provide for payment against delivery by their Agent Members in
same-day
funds.
The Auctions for shares of MuniPreferred, Series W2, will
normally be held every Wednesday and each Subsequent Rate Period
of shares of such series will normally begin on the following
Thursday.
Whenever the Acquiring Fund intends to include any net capital
gain or other income taxable for regular federal income tax
purposes in any dividend on Acquiring Fund MuniPreferred
Shares, the Acquiring Fund shall, in the case of Minimum Rate
Periods or Special Rate Periods of 28 Rate Period Days or fewer,
and may, in the case of any other Special Rate Period, 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 Acquiring 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 customers who are Beneficial Owners and Potential
Beneficial Owners believed by it to be interested in submitting
an Order in the Auction to be held on such Auction Date.
46
Secondary
Market Trading and Transfer of Acquiring
Fund MuniPreferred
There is currently no established secondary market for
MuniPreferred and, if one should develop, it may only be
possible to sell them for a price of less than $25,000 per share
plus any accumulated dividends. The Broker-Dealers are not
obligated to maintain a secondary trading market in Acquiring
Fund MuniPreferred Shares outside of Auctions, and may
discontinue such activity at any time. There can be no assurance
that any secondary trading market in Acquiring
Fund MuniPreferred Shares will provide owners with
liquidity of investment. The Acquiring Fund MuniPreferred
Shares are not registered on any stock exchange or on the Nasdaq
Stock Market. Investors who purchase shares in an Auction for a
Special Rate Period should note that because the dividend rate
on such shares will be fixed for the length of such Rate Period,
the value of the shares may fluctuate in response to changes in
interest rates, and may be more or less than their original cost
if sold on the open market in advance of the next Auction
therefor, depending upon market conditions.
A Beneficial Owner or an Existing Holder may sell, transfer or
otherwise dispose of Acquiring Fund MuniPreferred Shares
only in whole shares and only (1) pursuant to a Bid or Sell
Order placed with the Auction Agent in accordance with the
Auction Procedures, (2) to a Broker-Dealer or (3) to
such other persons as may be permitted by the Acquiring Fund;
provided, however, that (a) a sale, transfer or other
disposition of Acquiring Fund MuniPreferred Shares 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 the
foregoing 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 Acquiring Fund) to whom
such transfer is made shall advise the Auction Agent of such
transfer.
Comparison
of Rights of Holders of MuniPreferred of the Acquiring Fund and
the Acquired Fund
The terms of the shares of Acquiring Fund MuniPreferred
Shares issued pursuant to the Reorganization will be
substantially similar to the outstanding shares of Acquired
Fund MuniPreferred, Series W and Series TH,
respectively.
Comparison
of the Investment Objectives and Policies of the Acquiring Fund
and the Acquired Fund
General
The Acquiring Fund and the Acquired Fund have similar investment
objectives. Each Funds primary investment objective is to
provide current income exempt from regular federal income tax.
The Acquiring Funds secondary investment objective is to
enhance portfolio value relative to the municipal bond market by
investing in tax-exempt municipal bonds that, in the opinion of
the Funds investment adviser, are underrated or
undervalued. The Acquired Funds secondary investment
objective is the enhancement of portfolio value relative to the
Florida municipal bond market through investments in tax-exempt
Florida municipal obligations that, in the opinion of the
Funds investment adviser, are underrated or undervalued or
that represent municipal market sectors that are undervalued.
The Acquired Funds shares also will be exempt
47
from Florida intangible personal property tax. Each Funds
investment objectives are fundamental policies of the Fund, and
may not be changed, without the approval of the holders of a
majority of the outstanding common shares and MuniPreferred
shares (as hereinafter defined) voting together as a single
class, and of the holders of a majority of the outstanding
MuniPreferred shares voting as a separate class. For purposes of
the Funds objectives, policies and investment strategies,
municipal bonds and municipal obligations are treated as
municipal securities.
Underrated municipal bonds are those whose ratings do not, in
NAMs opinion, reflect their true creditworthiness.
Undervalued municipal bonds are bonds that, in NAMs
opinion, are worth more than the value assigned to them in the
marketplace. NAM may at times believe that bonds associated with
a particular municipal market sector (for example, electric
utilities), or issued by a particular municipal issuer, are
undervalued. NAM may purchase such a bond for a Funds
portfolio because it represents a market sector or issuer that
NAM considers undervalued, even if the value of the particular
bond appears to be consistent with the value of similar bonds.
Municipal bonds of particular types (e.g., hospital bonds,
industrial revenue bonds or bonds issued by a particular
municipal issuer) may be undervalued because there is a
temporary excess of supply in that market sector, or because of
a general decline in the market price of municipal bonds of the
market sector for reasons that do not apply to the particular
municipal bonds that are considered undervalued. Each
Funds investment in underrated or undervalued municipal
bonds will be based on NAMs belief that their yield is
higher than that available on bonds bearing equivalent levels of
interest rate risk, credit risk and other forms of risk, and
that their prices will ultimately rise (relative to the market)
to reflect their true value. Each Fund attempts to increase its
portfolio value relative to the municipal bond market by prudent
selection of municipal bonds regardless of the direction the
market may move. There can be no assurance that a Funds
attempt to increase its portfolio value relative to the
municipal bond market will succeed. To the extent that it does
succeed, however, such success would increase the amount of net
capital gains or reduce the amount of net capital losses that a
Fund would otherwise have realized. While this incremental
increase in net realized gains due to successful value
investing, if any, is expected to be modest over time, it would
tend to result in the distribution, over time, of a modestly
greater amount of taxable capital gains to common shareholders
and MuniPreferred shareholders. See Federal
Income Tax Matters Associated with Investment in the Funds
and The Auction Auction
Procedures.
Portfolio
Investments
The Acquiring Fund and the Acquired Fund have similar investment
policies. Except to the extent that the Acquiring Fund buys
temporary investments, the Fund will invest substantially all of
its assets in tax-exempt municipal bonds that are either covered
by insurance guaranteeing the timely payment of principal and
interest on the bonds, or are backed by an escrow or trust
account containing sufficient U.S. Government or
U.S. Government agency securities to ensure timely payment
of principal and interest. Uninsured municipal bonds backed by
an escrow or trust account will not constitute more than 20% of
the Acquiring Funds assets. Except to the extent the
Acquired Fund invests in temporary investments as described
below, the Fund will invest all of its assets in tax-exempt
Florida municipal obligations which are either covered by
insurance guaranteeing the timely payment of principal and
interest thereon or backed by an escrow or trust account
containing sufficient U.S. Government or
U.S. Government agency securities to ensure timely payment
of principal and interest. Municipal obligations
48
backed by an escrow or trust account will not constitute more
than 20% of the Acquired Funds assets.
For the purposes of the foregoing inverse floaters whose
underlying bonds are covered by insurance guaranteeing the
timely payment of principal and interest thereon are included
and insurers must have a claims-paying ability rated at least A
by an NRSRO with respect to the Acquiring Fund and AAA by an
NRSRO with respect to the Acquired Fund at the time of purchase
or at the time the bond is insured while in the portfolio.
Under normal circumstances, the Acquiring Fund will invest at
least 80% of its Managed Assets in municipal securities covered
by insurance from insurers with a claims-paying ability rated
Aa/AA or better by an NRSRO at the time of purchase or are
backed by an escrow or trust account containing sufficient
U.S. Government or U.S. Government agency securities
to ensure timely payment of principal and interest.
Each insured municipal obligation the Acquiring Fund holds, or
Florida municipal obligation the Acquired Fund holds, will
either be (1) covered by an insurance policy applicable to
a specific security, whether obtained by the issuer of the
security or a third party at the time of original issuance
(Original Issue Insurance), or by the Fund or a
third party after the original issuance (Secondary Market
Insurance), or (2) covered by portfolio insurance
through a master municipal insurance policy the Fund has
purchased (Portfolio Insurance). The Acquiring Fund
and Acquired Fund will only obtain portfolio insurance from
insurers whose claims-paying ability Moodys rates
A or Aaa, respectively, or
Standard & Poors rates A or
AAA, respectively.
The foregoing credit quality policy applies only at the time a
security is purchased, and a Fund is not required to dispose of
a security in the event that a rating agency downgrades its
assessment of the credit characteristics of a particular issue.
In determining whether to retain or sell such a security, NAM
may consider such factors as NAMs assessment of the credit
quality of the issuer of such security, the price at which such
security could be sold and the rating, if any, assigned to such
security by other rating agencies. See
Municipal Securities below for a general
description of the economic and credit characteristics of
municipal securities. Each Fund may also invest in securities of
other open- or closed-end investment companies that invest
primarily in municipal bonds of the types in which the Fund may
invest directly. See Other Investment
Companies.
The credit quality of companies that provide insurance on bonds
will affect the value of those bonds. Although the insurance
feature reduces certain financial risks, the premiums for
insurance and the higher market price paid for insured
obligations may reduce a Funds income. The insurance
feature does not guarantee the market value of the insured
obligations or the net asset value of the common shares or
MuniPreferred shares.
Each Fund may invest in uninsured municipal bonds that are
entitled to the benefit of an escrow or trust account that
contains securities issued or guaranteed by the
U.S. Government or U.S. Government agencies backed by
the full faith and credit of the United States, and sufficient
in amount to ensure the payment of interest and principal on the
original interest payment and maturity dates
(collateralized obligations). These collateralized
obligations generally will not be insured and will include, but
are not limited to, municipal bonds that have been
(1) advance refunded where the proceeds of the refunding
have been used to buy U.S. Government or
U.S. Government agency securities that are placed in escrow
and whose interest or maturing principal payments, or both, are
sufficient to cover the remaining
49
scheduled debt service on that municipal bond; or
(2) issued under state or local housing finance programs
that use the issuance proceeds to fund mortgages that are then
exchanged for U.S. Government or U.S. Government
agency securities and deposited with a trustee as security for
those municipal bonds. These collateralized obligations are
normally regarded as having the credit characteristics of the
underlying U.S. Government or U.S. Government agency
securities.
Each Fund will primarily invest in municipal securities with
long-term maturities in order to maintain a weighted average
maturity of
15-30 years,
but the weighted average maturity of obligations held by a Fund
may be shortened, depending on market conditions.
Upon NAMs recommendation, during temporary defensive
periods and in order to keep each Funds cash fully
invested, the Fund may deviate from its investment objectives
and policies and invest up to 100% of its net assets in
short-term investments including high quality, short-term
securities that may be either tax-exempt or taxable. Each Fund
intends to invest in taxable short-term investments only in the
event that suitable tax-exempt short-term investments are not
available at reasonable prices and yields. Investment in such
short-term investments would result in a portion of your
dividends being subject to regular federal income tax and the
federal alternative minimum applicable to individuals.
Municipal
Securities
General. Municipal securities are often issued
by state and local governmental entities to finance or refinance
public projects such as roads, schools, and water supply
systems. Municipal securities may also be issued on behalf of
private entities or for private activities, such as housing,
medical and educational facility construction, or for privately
owned transportation, electric utility and pollution control
projects. Municipal securities may be issued on a long term
basis to provide permanent financing. The repayment of such debt
may be secured generally by a pledge of the full faith and
credit taxing power of the issuer, a limited or special tax, or
any other revenue source, including project revenues, which may
include tolls, fees and other user charges, lease payments and
mortgage payments. Municipal securities may also be issued to
finance projects on a short-term interim basis, anticipating
repayment with the proceeds of the later issuance of long-term
debt. The Funds may purchase municipal securities in the form of
bonds, notes, leases or certificates of participation;
structured as callable or non-callable; with payment forms
including fixed coupon, variable rate, zero coupon, capital
appreciation bonds, tender option bonds, and residual interest
bonds or inverse floating rate securities; or acquired through
investments in pooled vehicles, partnerships or other investment
companies. Inverse floating rate securities are securities that
pay interest at rates that vary inversely with changes in
prevailing short-term tax-exempt interest rates and represent a
leveraged investment in an underlying municipal security, which
could have the economic effect of financial leverage.
Municipal securities are either general obligation or revenue
bonds and typically are issued to finance public projects (such
as roads or public buildings), to pay general operating
expenses, or to refinance outstanding debt.
Municipal securities may also be issued on behalf of private
entities or for private activities, such as housing, medical and
educational facility construction, or for privately owned
industrial development and pollution control projects. General
obligation bonds are backed by the full faith and credit, or
taxing authority, of the issuer and may be repaid from any
revenue source;
50
revenue bonds may be repaid only from the revenues of a specific
facility or source. The Funds may also purchase municipal
securities that represent lease obligations, municipal notes,
pre-refunded municipal securities, private activity bonds,
tender option bonds and other related securities and derivative
instruments that create exposure to municipal bonds, notes and
securities and that provide for the payment of interest income
that is exempt from regular federal income tax.
The municipal securities in which the Acquiring Fund will invest
are generally issued by states, cities and local authorities and
certain possessions and territories of the United States (such
as Puerto Rico and Guam), and pay interest that, in the opinion
of bond counsel to the issuer (or on the basis of other
authority believed by NAM to be reliable), is exempt from
regular federal income tax and the federal alternative minimum
tax.
The municipal securities in which the Acquired Fund will invest
are Florida municipal obligations and pay interest that, in the
opinion of bond counsel to the issuer (or on the basis of other
authority believed by NAM to be reliable), is exempt from
regular federal income tax, the federal alternative minimum tax,
and the Florida intangible personal property tax.
The yields on municipal securities depend on a variety of
factors, including prevailing interest rates and the condition
of the general money market and the municipal bond market, the
size of a particular offering, the maturity of the obligation
and the rating of the issue. The market value of municipal
securities will vary with changes in interest rate levels and as
a result of changing evaluations of the ability of their issuers
to meet interest and principal payments.
A municipal securitys market value generally will depend
upon its form, maturity, call features, and interest rate, as
well as the credit quality of the issuer, all such factors
examined in the context of the municipal securities market and
interest rate levels and trends.
Each Fund will primarily invest in municipal securities with
long-term maturities in order to maintain a weighted average
maturity of 15 to 30 years, but the weighted average
maturity of obligations held by the Fund may be shorter,
depending on market conditions. In comparison to maturity (which
is the date on which a debt instrument ceases and the issuer is
obligated to repay the principal amount), duration is a measure
of the price volatility of a debt instrument as a result of
changes in market rates of interest, based on the weighted
average timing of the instruments expected principal and
interest payments. Duration differs from maturity in that it
considers a securitys yield, coupon payments, principal
payments and call features in addition to the amount of time
until the security finally matures. As the value of a security
changes over time, so will its duration. Prices of securities
with longer durations tend to be more sensitive to interest rate
changes than securities with shorter durations. In general, a
portfolio of securities with a longer duration can be expected
to be more sensitive to interest rate changes than a portfolio
with a shorter duration.
Municipal
Bond Insurance
Each insured municipal bond a Fund acquires will be covered by
Original Issue Insurance, Secondary Market Insurance or
Portfolio Insurance. Each Fund expects to emphasize investments
in municipal bonds insured under bond-specific insurance
policies (i.e., Original Issue or Secondary Market Insurance).
The Acquiring Fund and Acquired Fund will only obtain portfolio
insurance from insurers whose claims-paying ability Moodys
rates A or Aaa, respectively, or
Standard & Poors rates A or
AAA, respectively. There is no limit on the
percentage of a Funds assets that may be invested in
municipal bonds insured by any one insurer.
51
A municipal bond covered by Original Issue Insurance or
Secondary Market Insurance is itself typically assigned the same
rating as that of the insurer. For example, if the insurer has a
rating of Aaa or AAA, a bond covered by
an Original Issue Insurance or Secondary Market Insurance policy
would also typically be assigned the same rating. Such a
municipal bond would generally be assigned a lower rating if the
ratings were based instead upon the credit characteristics of
the issuer without regard to the insurance feature. By way of
contrast, the rating, if any, assigned to a municipal bond
insured under Portfolio Insurance will be based primarily upon
the credit characteristics of the issuer, without regard to the
insurance feature, and therefore will generally carry a rating
that is below Aaa or AAA. While in the
portfolio of a Fund, however, a municipal bond backed by
Portfolio Insurance from a particular insurer will effectively
be of the same credit quality as a municipal bond issued by an
issuer of comparable credit characteristics that is backed by
Original Issue Insurance or Secondary Market Insurance from that
insurer.
The Acquiring Funds and Acquired Funds will only
obtain portfolio insurance from insurers whose claims-paying
ability Moodys rates A or Aaa,
respectively, or Standard & Poors rates
A or AAA, respectively.
The Acquiring Funds and Acquired Funds policy of
investing primarily in municipal bonds insured by insurers whose
claims-paying ability is rated A or Aaa,
respectively, by Moodys or A or
AAA, respectively by Standard &
Poors applies only at the time of purchase of a security,
and a Fund will not be required to dispose of the securities in
the event Moodys, S&P or Fitch, as the case may be,
downgrades its assessment of the claims-paying ability of a
particular insurer or the credit characteristics of a particular
issuer. In the event Moodys, S&P or Fitch (or all of
them) should downgrade its (or their) rating of a particular
insurer, it (or they) could also be expected to downgrade the
ratings assigned to municipal bonds insured under Original Issue
Insurance or Secondary Market Insurance policies by such
insurer, and municipal bonds insured under Portfolio Insurance
issued by such insurer also would be of reduced quality in the
portfolio of a Fund. Moodys, S&P and Fitch
continually assess the claims-paying ability of insurers and the
credit characteristics of issuers, and there can be no assurance
that they will not downgrade their assessments subsequent to the
time a Fund purchases securities.
The value of municipal bonds covered by Portfolio Insurance that
are in default or in significant risk of default will be
determined by separately establishing a value for the municipal
bond and a value for the Portfolio Insurance.
Original Issue Insurance. Original Issue
Insurance is purchased with respect to a particular issue of
municipal bonds by the issuer thereof or a third party in
conjunction with the original issuance of such municipal bonds.
Under this insurance, the insurer unconditionally guarantees to
the holder of the municipal bond the timely payment of principal
and interest on such obligations when and as these payments
become due but not paid by the issuer, except that in the event
of the acceleration of the due date of the principal by reason
of mandatory or optional redemption (other than acceleration by
reason of a mandatory sinking fund payment), default or
otherwise, the payments guaranteed may be made in the amounts
and at the times as payment of principal would have been due had
there not been any acceleration. The insurer is responsible for
these payments less any amounts received by the holder from any
trustee for the municipal bond issuer or from any other source.
Original Issue Insurance does not guarantee payment on an
accelerated basis, the payment of any redemption premium (except
with respect to certain premium payments in the case of certain
small issue industrial development and pollution control
municipal bonds), the value of a Funds shares, the market
52
value of municipal bonds, or payments of any tender purchase
price upon the tender of the municipal bonds. Original Issue
Insurance also does not insure against nonpayment of principal
or interest on municipal bonds resulting from the insolvency,
negligence or any other act or omission of the trustee or other
paying agent for these bonds.
Original Issue Insurance remains in effect as long as the
municipal bonds it covers remain outstanding and the insurer
remains in business, regardless of whether a Fund ultimately
disposes of these municipal bonds. Consequently, Original Issue
Insurance may be considered to represent an element of market
value with respect to the municipal bonds so insured, but the
exact effect, if any, of this insurance on the market value
cannot be estimated.
Secondary Market Insurance. Subsequent to the
time of original issuance of a municipal bond, a Fund or a third
party may, upon the payment of a single premium, purchase
insurance on that security. Secondary Market Insurance generally
provides the same type of coverage as Original Issue Insurance
and, as with Original Issue Insurance, Secondary Market
Insurance remains in effect as long as the municipal bonds it
covers remain outstanding and the insurer remains in business,
regardless of whether a Fund ultimately disposes of these
municipal bonds.
One of the purposes of acquiring Secondary Market Insurance with
respect to a particular municipal bond would be to enable a Fund
to enhance the value of the security. A Fund, for example, might
seek to purchase a particular municipal bond and obtain
Secondary Market Insurance, for it if, in NAMs opinion,
the market value of the security, as insured, less the cost of
the Secondary Market Insurance would exceed the current value of
the security without insurance. Similarly, if a Fund owns but
wishes to sell a municipal bond that is then covered by
Portfolio Insurance, the Fund might seek to obtain Secondary
Market Insurance for it if, in NAMs opinion, the net
proceeds of the Funds sale of the security, as insured,
less the cost of the Secondary Market Insurance would exceed the
current value of the security. In determining whether to insure
municipal bonds a Fund owns, an insurer will apply its own
standards, which correspond generally to the standards it has
established for determining the insurability of new issues of
municipal bonds. See Original Issue
Insurance above.
Portfolio Insurance. Portfolio Insurance
guarantees the payment of principal and interest on specified
eligible municipal bonds purchased by a Fund. Except as
described below, Portfolio Insurance generally provides the same
type of coverage as is provided by Original Issue Insurance or
Secondary Market Insurance. Municipal bonds insured under a
Portfolio Insurance policy would generally not be insured under
any other policy. A municipal bond is eligible for coverage
under a policy if it meets certain requirements of the insurer.
Portfolio Insurance is intended to reduce financial risk, but
the cost thereof and compliance with investment restrictions
imposed under the policy will reduce the yield to shareholders
of a Fund.
If a municipal bond is already covered by Original Issue
Insurance or Secondary Market Insurance, then the security is
not required to be additionally insured under any Portfolio
Insurance that a Fund may purchase. All premiums respecting
municipal bonds covered by Original Issue Insurance or Secondary
Market Insurance are paid in advance by the issuer or other
party obtaining the insurance.
Portfolio Insurance policies are effective only as to municipal
bonds owned by and held by a Fund, and do not cover municipal
bonds for which the contract for purchase fails. A
when-issued municipal obligation will be covered
under a Portfolio Insurance policy upon the settlement date of
the issue of such when-issued municipal bond.
53
In determining whether to insure municipal bonds held by a Fund,
an insurer will apply its own standards, which correspond
generally to the standards it has established for determining
the insurability of new issues of municipal bonds. See
Original Issue Insurance above.
Each Portfolio Insurance policy will be noncancellable and will
remain in effect so long as a Fund is in existence, the
municipal bonds covered by the policy continue to be held by the
Fund, and the Fund pays the premiums for the policy. Each
insurer will generally reserve the right at any time upon
90 days written notice to a Fund to refuse to insure
any additional bonds purchased by the Fund after the effective
date of such notice. A Fund generally will reserve the right to
terminate each policy upon seven days written notice to an
insurer if it determines that the cost of such policy is not
reasonable in relation to the value of the insurance to a Fund.
Each Portfolio Insurance policy will terminate as to any
municipal bond that has been redeemed from or sold by a Fund on
the date of redemption or the settlement date of sale, and an
insurer will not have any liability thereafter under a policy
for any municipal bond, except that if the redemption date or
settlement date occurs after a record date and before the
related payment date for any municipal bond, the policy will
terminate for that municipal bond on the business day
immediately following the payment date. Each policy will
terminate as to all municipal bonds covered thereby on the date
on which the last of the covered municipal bonds mature, are
redeemed or are sold by a Fund.
One or more Portfolio Insurance policies may provide a Fund,
pursuant to an irrevocable commitment of the insurer, with the
option to exercise the right to obtain permanent insurance
(Permanent Insurance) for a municipal bond that is
sold by a Fund. A Fund would exercise the right to obtain
Permanent Insurance upon payment of a single, predetermined
insurance premium payable from the sale proceeds of the
municipal bond. Each Fund expects to exercise the right to
obtain Permanent Insurance for a municipal bond only if, in
NAMs opinion, upon the exercise the net proceeds from the
sale of the municipal bond, as insured, would exceed the
proceeds from the sale of the security without insurance.
The Permanent Insurance premium for each municipal bond is
determined based upon the insurability of each security as of
the date of purchase and will not be increased or decreased for
any change in the securitys creditworthiness unless the
security is in default as to payment of principal or interest,
or both. If such event occurs, the Permanent Insurance premium
will be subject to an increase predetermined at the date of a
Funds purchase.
Each Fund generally intends to retain any insured bonds covered
by Portfolio Insurance that are in default or in significant
risk of default and to place a value on the insurance, which
ordinarily will be the difference between the market value of
the defaulted bond and the market value of similar bonds of
minimum investment grade (that is, rated Baa or
BBB) that are not in default. In certain
circumstances, however, NAM may determine that an alternative
value for the insurance, such as the difference between the
market value of the defaulted bond and either its par value or
the market value of similar bonds that are not in default or in
significant risk of default, is more appropriate. Except as
described above for bonds covered by Portfolio Insurance that
are in default or subject to significant risk of default, a Fund
will not place any value on the Portfolio Insurance in valuing
the municipal bonds it holds.
Because each Portfolio Insurance policy will terminate for
municipal bonds sold by a Fund on the date of sale, in which
event the insurer will be liable only for those payments of
principal and interest that are then due and owing (unless
Permanent Insurance is obtained by a Fund), the provision for
this insurance will not enhance the marketability of the
Funds bonds, whether
54
or not the bonds are in default or in significant risk of
default. On the other hand, because Original Issue Insurance and
Secondary Market Insurance generally will remain in effect as
long as the municipal bonds they cover are outstanding, these
insurance policies may enhance the marketability of these bonds
even when they are in default or in significant risk of default,
but the exact effect, if any, on marketability, cannot be
estimated. Accordingly, a Fund may determine to retain or,
alternatively, to sell municipal bonds covered by Original Issue
Insurance or Secondary Market Insurance that are in default or
in significant risk of default.
Premiums for a Portfolio Insurance policy are paid monthly, and
are adjusted for purchases and sales of municipal bonds covered
by the policy during the month. The yield on a Fund is reduced
to the extent of the insurance premiums it pays.
Municipal
Leases and Certificates of Participation
Each Fund also may purchase municipal securities that represent
lease obligations and certificates of participation in such
leases. These carry special risks because the issuer of the
securities may not be obligated to appropriate money annually to
make payments under the lease. A municipal lease is an
obligation in the form of a lease or installment purchase which
is issued by a state or local government to acquire equipment
and facilities. Income from such obligations is generally exempt
from state and local taxes in the state of issuance. Leases and
installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass
eventually to the governmental issuer) have evolved as a means
for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements
for the issuance of debt. The debt issuance limitations are
deemed to be inapplicable because of the inclusion in many
leases or contracts of non-appropriation clauses
that relieve the governmental issuer of any obligation to make
future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. In addition, such
leases or contracts may be subject to the temporary abatement of
payments in the event the issuer is prevented from maintaining
occupancy of the leased premises or utilizing the leased
equipment or facilities. Although the obligations may be secured
by the leased equipment or facilities, the disposition of the
property in the event of non-appropriation or foreclosure might
prove difficult, time consuming and costly, and result in a
delay in recovering, or the failure to recover fully, a
Funds original investment. To the extent that a Fund
invests in unrated municipal leases or participates in such
leases, the credit quality rating and risk of cancellation of
such unrated leases will be monitored on an ongoing basis. In
order to reduce this risk, a Fund will only purchase municipal
securities representing lease obligations where NAM believes the
issuer has a strong incentive to continue making appropriations
until maturity.
A certificate of participation represents an undivided interest
in an unmanaged pool of municipal leases, an installment
purchase agreement or other instruments. The certificates are
typically issued by a municipal agency, a trust or other entity
that has received an assignment of the payments to be made by
the state or political subdivision under such leases or
installment purchase agreements. Such certificates provide a
Fund with the right to a pro rata undivided interest in the
underlying municipal securities. In addition, such
participations generally provide a Fund with the right to demand
payment, on not more than seven days notice, of all or any
part of the Funds participation interest in the underlying
municipal securities, plus accrued interest.
55
Municipal
Notes
Municipal securities in the form of notes generally are used to
provide for short-term capital needs, in anticipation of an
issuers receipt of other revenues or financing, and
typically have maturities of up to three years. Such instruments
may include tax anticipation notes, revenue anticipation notes,
bond anticipation notes, tax and revenue anticipation notes and
construction loan notes. Tax anticipation notes are issued to
finance the working capital needs of governments. Generally,
they are issued in anticipation of various tax revenues, such as
income, sales, property, use and business taxes, and are payable
from these specific future taxes. Revenue anticipation notes are
issued in expectation of receipt of other kinds of revenue, such
as federal revenues available under federal revenue sharing
programs. Bond anticipation notes are issued to provide interim
financing until long- term bond financing can be arranged. In
most cases, the long-term bonds then provide the funds needed
for repayment of the bond anticipation notes. Tax and revenue
anticipation notes combine the funding sources of both tax
anticipation notes and revenue anticipation notes. Construction
loan notes are sold to provide construction financing. Mortgage
notes insured by the Federal Housing Authority secure these
notes; however, the proceeds from the insurance may be less than
the economic equivalent of the payment of principal and interest
on the mortgage note if there has been a default. The
anticipated revenues from taxes, grants or bond financing
generally secure the obligations of an issuer of municipal
notes. An investment in such instruments, however, presents a
risk that the anticipated revenues will not be received or that
such revenues will be insufficient to satisfy the issuers
payment obligations under the notes or that refinancing will be
otherwise unavailable.
Pre-Refunded
Municipal Securities
The principal of and interest on pre-refunded municipal
securities are no longer paid from the original revenue source
for the securities. Instead, the source of such payments is
typically an escrow fund consisting of U.S. government
securities. The assets in the escrow fund are derived from the
proceeds of refunding bonds issued by the same issuer as the
pre-refunded municipal securities. Issuers of municipal
securities use this advance refunding technique to obtain more
favorable terms with respect to securities that are not yet
subject to call or redemption by the issuer. For example,
advance refunding enables an issuer to refinance debt at lower
market interest rates, restructure debt to improve cash flow or
eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded municipal securities.
However, except for a change in the revenue source from which
principal and interest payments are made, the pre-refunded
municipal securities remain outstanding on their original terms
until they mature or are redeemed by the issuer.
Private
Activity Bonds
Private activity bonds, formerly referred to as industrial
development bonds, are issued by or on behalf of public
authorities to obtain funds to provide privately operated
housing facilities, airport, mass transit or port facilities,
sewage disposal, solid waste disposal or hazardous waste
treatment or disposal facilities and certain local facilities
for water supply, gas or electricity. Other types of private
activity bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately
operated industrial or commercial facilities, may constitute
municipal securities, although the current federal income tax
laws place substantial limitations on the size of such issues. A
Funds distributions of its interest
56
income from certain private activity bonds may subject certain
investors to the federal alternative minimum tax.
Inverse
Floating Rate Securities
A Fund may invest up to 15% of its Managed Assets in inverse
floating rate securities. Inverse floating rate securities
(sometimes referred to as inverse floaters or
residual interests of a tender option bond) are securities whose
interest rates bear an inverse relationship to the interest rate
on another security or the value of an index. Generally, inverse
floating rate securities represent beneficial interests in a
special purpose trust formed by a third party sponsor for the
purpose of holding municipal bonds. The special purpose trust
typically sells two classes of beneficial interests or
securities: short-term floating rate municipal securities
(sometimes referred to as short-term floaters or tender option
bonds), which are sold to third party investors, and inverse
floating rate municipal securities, which the Fund would
purchase. The short-term floating rate securities have first
priority on the cash flow from the municipal bonds held by the
special purpose trust. Typically, a third party, such as a bank,
broker-dealer or other financial institution, grants the
floating rate security holders the option, at periodic
intervals, to tender their securities to the institution and
receive the face value thereof. As consideration for providing
the option, the financial institution receives periodic fees.
The holder of the short-term floater effectively holds a demand
obligation that bears interest at the prevailing short-term,
tax-exempt rate. However, an institution will not be obligated
to accept tendered short-term floaters in the event of certain
defaults or a significant downgrade in the credit rating
assigned to the bond issuer. For its inverse floating rate
investment, a Fund receives the residual cash flow from the
special purpose trust. Because the holder of the short-term
floater is generally assured liquidity at the face value of the
security, a Fund as the holder of the inverse floater assumes
the interest rate cash flow risk and the market value risk
associated with the municipal security deposited into the
special purpose trust. The volatility of the interest cash flow
and the residual market value will vary with the degree to which
the trust is leveraged. This is expressed in the ratio of the
face value of the short-term floaters in relation to the
residual inverse floaters that are issued by the special purpose
trust. Each Fund expects to make limited investments in inverse
floaters, with leverage ratios that may vary between one and
three times. In addition, all voting rights and decisions to be
made with respect to any other rights relating to the municipal
bonds held in the special purpose trust are passed through to a
Fund, as the holder of the residual inverse floating rate
securities.
Because increases in either the interest rate on the securities
or the value of indexes (with which inverse floaters maintain
their inverse relationship) reduce the residual interest paid on
inverse floaters, an inverse floaters value is generally
more volatile than that of fixed rate bonds. Inverse floaters
have varying degrees of liquidity based upon the liquidity of
the underlying securities deposited in a tender option bond
trust. The market price of inverse floating rate securities is
more volatile than the underlying securities due to leverage.
These securities generally will underperform the market of fixed
rate bonds in a rising interest rate environment, but tend to
outperform the market of fixed rate bonds when interest rates
decline or remain relatively stable. Although volatile, inverse
floaters typically offer the potential for yields exceeding the
yields available on fixed rate bonds with comparable credit
quality, coupon, call provisions and maturity.
57
Tender
Option Bonds
A tender option bond is a municipal security (generally held
pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially
higher than prevailing short-term, tax-exempt rates. The bond is
typically issued with the agreement of a third party, such as a
bank, broker-dealer or other financial institution, which grants
the security holders the option, at periodic intervals, to
tender their securities to the institution and receive the face
value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the
difference between the bonds fixed coupon rate and the
rate, as determined by a remarketing or similar agent at or near
the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on
the date of such determination. Thus, after payment of this fee,
the security holder effectively holds a demand obligation that
bears interest at the prevailing short-term, tax-exempt rate.
However, an institution will not be obligated to accept tendered
bonds in the event of certain defaults or a significant
downgrade in the credit rating assigned to the issuer of the
bond. Each Fund intends to invest in tender option bonds the
interest on which will, in the opinion of bond counsel, counsel
for the issuer of interests therein or counsel selected by NAM,
be exempt from regular federal income tax and from the federal
alternative minimum tax applicable to individuals. However,
because there can be no assurance that the IRS will agree with
such counsels opinion in any particular case, there is a
risk that a Fund will not be considered the owner of such tender
option bonds and thus will not be entitled to treat such
interest as exempt from such tax. Additionally, the federal
income tax treatment of certain other aspects of these
investments, including the proper tax treatment of tender option
bonds and the associated fees in relation to various regulated
investment company tax provisions, is unclear. Each Fund intends
to manage its portfolio in a manner designed to eliminate or
minimize any adverse impact from the tax rules applicable to
these investments.
Special
Taxing Districts
Special taxing districts are organized to plan and finance
infrastructure developments to induce residential, commercial
and industrial growth and redevelopment. The bond financing
methods such as tax increment finance, tax assessment, special
services district and Mello-Roos bonds, are generally payable
solely from taxes or other revenues attributable to the specific
projects financed by the bonds without recourse to the credit or
taxing power of related or overlapping municipalities. They
often are exposed to real estate development-related risks and
can have more taxpayer concentration risk than general
tax-supported bonds, such as general obligation bonds. Further,
the fees, special taxes, or tax allocations and other revenues
that are established to secure such financings are generally
limited as to the rate or amount that may be levied or assessed
and are not subject to increase pursuant to rate covenants or
municipal or corporate guarantees. The bonds could default if
development failed to progress as anticipated or if larger
taxpayers failed to pay the assessments, fees and taxes as
provided in the financing plans of the districts.
When-Issued
and Delayed Delivery Transactions
Each Fund may buy and sell municipal securities on a when-issued
or delayed delivery basis, making payment or taking delivery at
a later date, normally within 15 to 45 days of the trade
date. This type of transaction may involve an element of risk
because no interest accrues on the bonds prior to settlement
and, because bonds are subject to market fluctuations, the value
of
58
the bonds at time of delivery may be less (or more) than cost. A
separate account of each Fund will be established with its
custodian consisting of cash, cash equivalents, or liquid
securities having a market value at all times at least equal to
the amount of the commitment.
Zero
Coupon Bonds
A zero coupon bond is a bond that does not pay interest either
for the entire life of the obligation or for an initial period
after the issuance of the obligation. When held to its maturity,
its return comes from the difference between the purchase price
and its maturity value. A zero coupon bond is normally issued
and traded at a deep discount from face value. Zero coupon bonds
allow an issuer to avoid or delay the need to generate cash to
meet current interest payments and, as a result, may involve
greater credit risk than bonds that pay interest currently or in
cash. A Fund would be required to distribute the income on any
of these instruments as it accrues, even though the Fund will
not receive all of the income on a current basis or in cash.
Thus, a Fund may have to sell other investments, including when
it may not be advisable to do so, to make income distributions
to its shareholders.
Structured
Notes
Each Fund may utilize structured notes and similar instruments
for investment purposes and also for hedging purposes.
Structured notes are privately negotiated debt obligations where
the principal
and/or
interest is determined by reference to the performance of a
benchmark asset, market or interest rate (an embedded
index), such as selected securities, an index of
securities or specified interest rates, or the differential
performance of two assets or markets. The terms of such
structured instruments normally provide that their principal
and/or
interest payments are to be adjusted upwards or downwards (but
not ordinarily below zero) to reflect changes in the embedded
index while the structured instruments are outstanding. As a
result, the interest
and/or
principal payments that may be made on a structured product may
vary widely, depending upon a variety of factors, including the
volatility of the embedded index and the effect of changes in
the embedded index on principal
and/or
interest payments. The rate of return on structured notes may be
determined by applying a multiplier to the performance or
differential performance of the referenced index or indices or
other assets. Application of a multiplier involves leverage that
will serve to magnify the potential for gain and the risk of
loss. These types of investments may generate taxable income.
Derivatives
Each Fund may invest in certain derivative instruments in
pursuit of its investment objectives. Such instruments include
financial futures contracts, swap contracts (including interest
rate and credit default swaps), options on financial futures,
options on swap contracts or other derivative instruments. In
particular, a Fund may use credit default swaps and interest
rate swaps. Credit default swaps may require initial premium
(discount) payments as well as periodic payments (receipts)
related to the interest leg of the swap or to the default of a
reference obligation. If a Fund is a seller of a contract, the
Fund would be required to pay the par (or other agreed upon)
value of a referenced debt obligation to the counterparty in the
event of a default or other credit event by the reference
issuer, such as a U.S. or foreign corporate issuer, with
respect to such debt obligations. In return, such Fund would
receive from the counterparty a periodic stream of payments over
the term of the contract provided that no event of default has
occurred. If no default occurs, such Fund would keep the stream
of payments and
59
would have no payment obligations. As the seller, a Fund would
be subject to investment exposure on the notional amount of the
swap. If a Fund is a buyer of a contract, the Fund would have
the right to deliver a referenced debt obligation and receive
the par (or other
agreed-upon)
value of such debt obligation from the counterparty in the event
of a default or other credit event (such as a credit downgrade)
by the reference issuer, such as a U.S. or foreign
corporation, with respect to its debt obligations. In return,
such Fund would pay the counterparty a periodic stream of
payments over the term of the contract provided that no event of
default has occurred. If no default occurs, the counterparty
would keep the stream of payments and would have no further
obligations to such Fund. Interest rate swaps involve the
exchange by a Fund with a counterparty of their respective
commitments to pay or receive interest, such as an exchange of
fixed-rate payments for floating rate payments. A Fund will
usually enter into interest rate swaps on a net basis; that is,
the two payment streams will be netted out in a cash settlement
on the payment date or dates specified in the instrument, with
the Fund receiving or paying, as the case may be, only the net
amount of the two payments.
NAM may use derivative instruments to seek to enhance return, to
hedge some of the risk of each Funds investments in
municipal securities or as a substitute for a position in the
underlying asset. These types of strategies may generate taxable
income.
There is no assurance that these derivative strategies will be
available at any time or that NAM will determine to use them for
a Fund or, if used, that the strategies will be successful.
Other
Investment Companies
Each Fund may invest up to 10% of its Managed Assets in
securities of other open- or closed-end investment companies
(including exchange-traded funds (ETFs)) that invest
primarily in municipal securities of the types in which the Fund
may invest directly. In addition, each Fund may invest a portion
of its Managed Assets in pooled investment vehicles (other than
investment companies) that invest primarily in municipal
securities of the types in which the Fund may invest directly.
Each Fund generally expects that it may invest in other
investment companies
and/or other
pooled investment vehicles either during periods when it has
large amounts of uninvested cash or during periods when there is
a shortage of attractive, high-yielding municipal securities
available in the market. Each Fund may invest in investment
companies that are advised by the NAM or its affiliates to the
extent permitted by applicable law
and/or
pursuant to exemptive relief from the SEC. As a shareholder in
an investment company, a Fund will bear its ratable share of
that investment companys expenses, and would remain
subject to payment of the Funds advisory and
administrative fees with respect to assets so invested. Common
shareholders would therefore be subject to duplicative expenses
to the extent a Fund invests in other investment companies.
NAM will take expenses into account when evaluating the
investment merits of an investment in an investment company
relative to available municipal security investments. In
addition, the securities of other investment companies may also
be leveraged and will therefore be subject to the same leverage
risks described herein. As described in the section entitled
Risk Factors, the net asset value and market value
of leveraged shares will be more volatile and the yield to
common shareholders will tend to fluctuate more than the yield
generated by unleveraged shares.
60
Miscellaneous
Investments
Each Fund may invest up to 5% of its net assets in tax-exempt or
taxable fixed-income or equity securities, for the purpose of
acquiring control of an issuer whose municipal bonds
(a) the Fund already owns and (b) have deteriorated or
are expected shortly to deteriorate significantly in credit
quality; provided NAM determines that such investment should
enable the Fund to better maximize its existing investment in
such issuer. Investment in such securities could result in a
portion of your dividends being subject to regular federal
income tax or the federal alternative minimum tax applicable to
individuals.
How the
Funds Manage Risk
Investment
Restrictions
Except to the extent that the Acquiring Fund buys temporary
investments, the Fund will, as a fundamental policy, invest
substantially all of its assets in tax-exempt municipal bonds
that either are covered by insurance guaranteeing the timely
payment of principal and interest on the bonds, or are backed by
an escrow or trust account containing sufficient
U.S. Government or U.S. Government agency securities
to ensure timely payment of principal and interest. Uninsured
municipal bonds backed by an escrow or trust account will not
constitute more than 20% of the Acquiring Funds assets.
Except to the extent that the Acquired Fund buys temporary
investments, the Fund will, as a fundamental policy, invest
substantially all of its assets in tax-exempt Florida municipal
obligations that are either covered by insurance guaranteeing
the timely payment of principal and interest thereon or backed
by an escrow or trust account containing sufficient
U.S. Government or U.S. Government agency securities
to ensure timely payment of principal and interest. Municipal
obligations backed by an escrow or trust account will not
constitute more than 20% of the Acquired Funds assets.
These policies and each Funds investment objectives are
fundamental policies, which cannot be changed without the
approval of such Funds holders of a majority of the
outstanding shares of common shares and MuniPreferred shares,
voting together, and of the holders of a majority of the
outstanding MuniPreferred shares, voting as a single class. For
this purpose, a majority of the outstanding shares
means the vote of (1) 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 (2) more than 50% of
the shares, whichever is less.
Except as described below, neither Fund, as a fundamental
policy, may, without the approval of the holders of a
majority of the outstanding common shares and
preferred shares of such Fund, including shares of its
MuniPreferred, voting together as a single class, and of the
holders of a majority of the outstanding preferred
shares of such Fund, including shares of its MuniPreferred,
voting as a separate class:
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(1)
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Issue senior securities, as defined in the 1940 Act, other than
preferred stock [shares], except to the extent such issuance
might be involved with respect to borrowings described under
subparagraph (3) below or with respect to transactions
involving futures contracts or the writing of options within the
limits described [in Portfolio Investments above];
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(2)
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Make short sales of securities or purchase any securities on
margin (except for such short-term credits as are necessary for
the clearance of transactions), or write or purchase put or call
options, except to the extent that the purchase of a standby
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61
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commitment may be considered the purchase of a put, and except
for transactions involving options within the limits described
[in Portfolio Investments above];
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(3)
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Borrow money, except from banks for temporary or emergency
purposes or for repurchase of [the Funds] shares, and
then only in an amount not exceeding one-third of the value of
its total assets including the amount borrowed; while any such
borrowings exceed 5% of its total assets, no additional
purchases of investment securities will be made;
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(4)
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Underwrite any issue of securities, except to the extent that
the purchase of [m]unicipal [o]bligations in accordance with its
investment objective[s], policies and limitations may be deemed
to be an underwriting;
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(5)
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Invest more than 25% of its total assets in securities of
issuers in any one industry; provided, however, that such
limitation shall not apply to [m]unicipal [o]bligations other
than those [m]unicipal [o]bligations backed only by the assets
and revenues of non-governmental users, nor shall it apply to
[m]unicipal [o]bligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities;
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(6)
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Purchase or sell real estate, but this shall not prevent the
Fund from investing in [m]unicipal [o]bligations secured by real
estate or interests therein [or foreclosing upon and selling
such security];
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(7)
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Purchase or sell commodities or commodities contracts, except
for transactions involving futures contracts within the limits
described [in Portfolio Investments];
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(8)
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Make loans, other than by entering into repurchase agreements
and through the purchase of [m]unicipal [o]bligations or
temporary investments in accordance with its investment
objective[s], policies and limitations;
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(9)
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Invest in securities other than [Florida] [m]unicipal
[o]bligations and temporary investments as described [in
Portfolio Investments]; and purchase financial futures and
options except within the limits described [in Portfolio
Investments];
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(10)
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Invest more than 5% of its total assets in securities of any one
issuer, except that this limitation shall not apply to
securities of the U.S. Government, its agencies and
instrumentalities or to the investment of 25% of its total
assets;
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(11)
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Pledge, mortgage or hypothecate its assets, except that, to
secure borrowings permitted by subparagraph (3) above, it
may pledge securities having a market value at the time of
pledge not exceeding 20% of the value of its total assets;
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(12)
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Invest more than 10% of its total assets in repurchase
agreements maturing in more than seven days; and
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(13)
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Purchase or retain the securities of any issuer other than [its
own securities] if, to [its] knowledge, those of its directors
[trustees], or those officers and directors of the [investment
adviser] who individually own beneficially more than
1/2
of 1% of the outstanding securities of such issuer, together own
beneficially more than 5% of such outstanding securities.
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For the purpose of applying the limitation set forth in
subparagraph (10) above, an issuer shall 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
62
the case of a non-governmental user, 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 user, then such non-governmental user 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
shall also be included in the computation of securities owned
that are issued by such governmental or other entity. Where a
security is guaranteed by a governmental entity or some other
facility, such as a bank guarantee or letter of credit, the
guarantee or letter of credit would be considered a separate
security and would be treated as an issue of that government or
other entity. When a municipal bond is insured by bond
insurance, it shall not be considered a security that is issued
or guaranteed by the issuer; instead, the issuer of the
municipal bond will be determined in accordance with the
principles set out above. The foregoing restrictions do not
limit the percentage of the Funds assets that may be
invested in municipal bonds insured by any given insurer.
For the purpose of applying the limitation set forth in
subparagraph (9) above with respect to each Fund, an issuer
shall 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 shall also be included in the computation of
securities owned that are issued by such governmental or other
entity. Where a security is guaranteed by a governmental entity
or some other facility, such as a bank guarantee or letter of
credit, such a guarantee or letter of credit would be considered
a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal bond is
insured by bond insurance, it shall not be considered a security
that is issued or guaranteed by the insurer; instead, the issuer
of such municipal bond will be determined in accordance with the
principles set forth above. The foregoing restrictions do not
limit the percentage of a Funds assets that may be
invested in municipal bonds insured by any given insurer.
Under the 1940 Act, a Fund may invest only up to 10% of its
Managed Assets in the aggregate in shares of other investment
companies and only up to 5% of its Managed Assets in any one
investment company, provided the investment does not represent
more than 3% of the voting stock of the acquired investment
company at the time such shares are purchased. As a shareholder
in any investment company, a Fund will bear its ratable share of
that investment companys expenses, and will remain subject
to payment of the Funds management, advisory and
administrative fees with respect to assets so invested. Holders
of common shares would therefore be subject to duplicative
expenses to the extent a Fund invests in other investment
companies. In addition, the securities of other investment
companies may also be leveraged and will therefore be subject to
the same leverage risks described herein. As described herein,
the net asset value and market value of leveraged shares will be
more volatile and the yield to shareholders will tend to
fluctuate more than the yield generated by unleveraged shares.
63
In addition to the foregoing fundamental investment policies,
each Fund is also subject to the following non-fundamental
restrictions and policies, which may be changed by the
Funds Board. Each Fund may not:
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(1)
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Sell securities short, unless the Fund owns or has the right to
obtain securities equivalent in kind and amount to the
securities sold at no added cost, and provided that transactions
in options, futures contracts, options on futures contracts, or
other derivative instruments are not deemed to constitute
selling securities short;
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(2)
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Purchase securities of open-end or closed-end investment
companies except in compliance with the Investment Company Act
of 1940 or any exemptive relief obtained thereunder;
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(3)
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Enter into futures contracts or related options or forward
contracts, if more than 30% of the Funds net assets would
be represented by futures contracts or more than 5% of the
Funds net assets would be committed to initial margin
deposits and premiums on futures contracts and related options;
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(4)
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Purchase securities when borrowings exceed 5% of its total
assets if and so long as MuniPreferred shares are
outstanding; and
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(5)
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Purchase securities of companies for the purpose of exercising
control, except that the Fund may invest up to 5% of its net
assets in tax-exempt or taxable fixed-income or equity
securities, for the purpose of acquiring control of an issuer
whose municipal bonds (a) the Fund already owns and
(b) have deteriorated or are expected shortly to
deteriorate significantly in credit quality, provided NAM
determines that such investment should enable the Fund to better
maximize the value of its existing investment in such issuer.
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The restrictions and other limitations set forth above will
apply only at the time of purchase of securities and will not be
considered violated unless an excess or deficiency occurs or
exists immediately after and as a result of an acquisition of
securities.
Limited
Issuance of MuniPreferred Shares
Under the 1940 Act, each Fund could issue MuniPreferred shares
having a total liquidation value (original purchase price of the
shares being liquidated plus any accrued and unpaid dividends)
of up to one-half of the value of the asset coverage of the
Fund. If the total liquidation value of the MuniPreferred shares
was ever more than one-half of the value of a Funds asset
coverage, the Fund would not be able to declare dividends on the
common shares until the liquidation value, as a percentage of
the Funds assets, was reduced. As of December 31,
2008, the MuniPreferred shares represented approximately 260%
and 270% of the Acquiring Funds and Acquired Funds
assets less liabilities not constituting senior securities,
respectively. This higher than required margin of net asset
value provides a cushion against later fluctuations in the value
of a Funds portfolio and will subject common shareholders
to less income and net asset value volatility than if the Fund
were more leveraged. Each Fund intends to purchase or redeem
MuniPreferred shares, if necessary, to keep the liquidation
value of the MuniPreferred shares below one-half of the value of
the Funds asset coverage.
64
Investment
Portfolio and Capital Structure Strategies to Manage Leverage
Risk
Common shareholders of each Fund are subject to the risks of
leverage primarily in the form of additional common share
earnings and net asset value risk, associated with a Funds
use of financial leverage in the form of MuniPreferred shares or
tender option bonds. See Risk Factors Leverage
Risk.
In an effort to mitigate these risks, each Fund and NAM seek to
maintain the Funds financial leverage within an
established range, and to rebalance leverage levels if the
Funds leverage ratio moves outside this range to a
meaningful degree for a persistent period of time. A Fund may
rebalance leverage levels in one or more ways, including by
increasing/reducing the amount of leverage outstanding and
issuing/repurchasing common shares. Reducing leverage may
require a Fund to raise cash through the sale of portfolio
securities at times
and/or at
prices that would otherwise be unattractive for the Fund. Each
Fund may also seek to diversify its capital structure and the
risks associated with leverage by employing multiple forms of
leverage. Each Fund and NAM will weigh the relative potential
benefits and risks as well as the costs associated with a
particular action, and will take such action only if it
determines that on balance the likely potential benefits
outweigh the associated risks and costs.
Because the long-term municipal securities in which a Fund
invests generally pay fixed rates of interest while the
Funds costs of leverage generally fluctuate with
short-term yields, common shareholders bear incremental earnings
risk from leverage. Each Fund believes this risk increased as a
result of the systemic failure of the ARPS market in February
2008 which caused dividend rates on the Funds
MuniPreferred shares to be set at the Maximum Rate according to
a pre-determined, index-based formula rather than through a
weekly auction process. In seeking to manage the earnings risk
from leverage, each Fund may from time to time refinance
MuniPreferred shares with alternative forms of leverage that
offer the potential for a lower relative cost of leverage over
time and/or
that extend the rate reset period on its leverage.
Common shareholders also bear incremental net asset value risk
from leverage because they bear the full impact of price changes
in their Funds investment portfolio, including assets
attributable to leverage. In seeking to manage the net asset
value risk from leverage, a Fund may alter the composition of
its investment portfolio in one or more ways, including
increasing portfolio credit quality, reducing portfolio duration
and increasing the level of short-term cash equivalents.
Depending on subsequent market conditions, any such action may
increase or reduce common share net earnings
and/or
returns compared to if such Fund had taken no action.
Hedging
Strategies
Each Fund may use various investment strategies designed to
limit the risk of bond price fluctuations and to preserve
capital. These hedging strategies include using credit default
swaps, interest-rate swaps on taxable tax-exempt indices,
forward starting rate swaps and options on interest rate swaps,
financial futures contracts, options on financial futures or
options based on either an index of long-term municipal
securities or on taxable debt securities whose prices, in the
opinion of NAM, correlate with the prices of a Funds
investments. These hedging strategies may generate taxable
income.
65
Certain
Provisions in the Acquiring Funds Articles of
Incorporation
The Acquiring Fund Articles includes provisions that could
limit the ability of other entities or persons to acquire
control of the Fund or to convert the Fund to open-end status.
Specifically, the Acquiring Fund Articles requires a vote
by holders of at least two-thirds of the common shares and
shares of MuniPreferred, voting together as a single class,
except as described below, to authorize (1) a conversion of
the Fund from a closed-end to an open-end investment company,
(2) a merger or consolidation of the Fund, or a series or
class of the Fund, with any corporation, association, trust or
other organization or a reorganization or recapitalization of
the Fund, or a series or class of the Fund, (3) a sale,
lease or transfer of all or substantially all of the Funds
assets (other than in the regular course of the Funds
investment activities), (4) a liquidation or termination of
the Fund, or a series or class of the Fund, or (5) a
removal of directors by shareholders, and then only for cause,
unless, with respect to (1) through (4), such transaction
has already been authorized by the affirmative vote of
two-thirds of the total number of directors fixed in accordance
with the Acquiring Fund Articles or the Acquiring
Funds By-laws, in which case the affirmative vote of the
holders of at least a majority of the Funds common shares
and shares of MuniPreferred outstanding at the time, voting
together as a single class, is required, provided, however, that
where only a particular class or series is affected (or, in the
case of removing a board member, when the board member has been
elected by only one class), only the required vote by the
applicable class or series will be required. Approval of
shareholders is not required pursuant to the Acquiring
Fund Articles, however, for any transaction, whether deemed
a merger, consolidation, reorganization or otherwise whereby the
Acquiring Fund issues shares in connection with the acquisition
of assets (including those subject to liabilities) from any
other investment company or similar entity. In the case of the
conversion of the Acquiring Fund to an open-end investment
company, or in the case of any of the foregoing transactions
constituting a plan of reorganization which adversely affects
the holders of shares of MuniPreferred, the action in question
will also require the affirmative vote of the holders of at
least two-thirds of the Acquiring Funds shares of
MuniPreferred outstanding at the time, voting as a separate
class, or, if such action has been authorized by the affirmative
vote of two-thirds of the total number of directors fixed in
accordance with the Acquiring Fund Articles or the
Acquiring Funds By-Laws, the affirmative vote of the
holders of at least a majority of the Acquiring Funds
shares of MuniPreferred outstanding at the time, voting as a
separate class. None of the foregoing provisions may be amended
except by the vote of at least two-thirds of the common shares
and shares of MuniPreferred, voting together as a single class.
The votes required to approve the conversion of the Acquiring
Fund from a closed-end to an open-end investment company or to
approve transactions constituting a plan of reorganization which
adversely affects the holders of shares of MuniPreferred are
higher than those required by the 1940 Act. The Acquiring
Funds Board believes that the provisions of the Acquiring
Fund Articles relating to such higher votes are in the best
interest of the Acquiring Fund. See the Reorganization SAI under
Certain Provisions in the Articles of Incorporation.
Reference should be made to the Acquiring Fund Articles on
file with the SEC for the full text of these provisions.
66
Expenses
Associated with the Reorganization
In evaluating the Reorganization, management of the Funds
estimated the amount of expenses the Funds would incur to be
approximately $660,000, which includes additional stock exchange
listing fees, SEC registration fees, legal and accounting fees,
proxy solicitation and distribution costs. These estimated
expenses will be borne by the Acquiring Fund and Acquired Fund
in the amounts of $55,000 and $605,000, respectively.
Additional solicitation may be made by letter or telephone by
officers or employees of Nuveen Investments or the Adviser, or
by dealers and their representatives. The Funds have engaged
Georgeson Inc. to assist in the solicitation of proxies at an
estimated cost of $18,000 per Fund plus reasonable expenses,
which is included in the estimate above.
Reorganization expenses have been or will be expensed prior to
the Closing Date. Management of the Funds expects that increased
common net earnings resulting from one or more of the following:
(i) reduced operating expenses resulting from economies of
scale, (ii) changes in the embedded yield, and (iii) lower
leverage costs from the use of tender option bond financing,
should allow the recovery of the projected costs of the
Reorganization within approximately nine months after the
Closing Date with respect to each Fund.
Dissenting
Shareholders Rights of Appraisal
Under Massachusetts law and the Acquired Funds charter
documents, shareholders of the Acquired Fund do not have
dissenters rights of appraisal with respect to the
Reorganization. Under Minnesota law and the Acquiring
Funds charter documents, shareholders of the Acquired Fund
do not have dissenters rights of appraisal with respect to
the Reorganization.
Certain
Federal Income Tax Consequences of the Reorganization
As a condition to each Funds obligation to consummate the
Reorganization, each Fund will receive a tax opinion from Vedder
Price P.C. (which opinion will be based on certain factual
representations and certain customary assumptions) substantially
to the effect that, on the basis of the existing provisions of
the Internal Revenue Code of 1986, as amended (the
Code), current administrative rules and court
decisions, for federal income tax purposes:
1. The transfer of all the assets of the Acquired Fund to
the Acquiring Fund in exchange solely for Acquiring Fund shares
and the assumption by the Acquiring Fund of all the liabilities
of the Acquired Fund, followed by the pro rata distribution to
the Acquired Fund shareholders of all the Acquiring Fund shares
received by the Acquired Fund in complete liquidation of the
Acquired Fund will constitute a reorganization
within the meaning of Section 368(a) of the Code and the
Acquiring Fund and the Acquired Fund will each be a party
to a reorganization, within the meaning of Section 368(b)
of the Code, with respect to the Reorganization.
2. No gain or loss will be recognized by the Acquiring Fund
upon the receipt of all the assets of the Acquired Fund solely
in exchange for Acquiring Fund shares and the assumption by the
Acquiring Fund of all the liabilities of the Acquired Fund.
3. No gain or loss will be recognized by the Acquired Fund
upon the transfer of all the Acquired Funds assets to the
Acquiring Fund solely in exchange for Acquiring Fund shares and
the assumption by the Acquiring Fund of all the liabilities of
the Acquired Fund or
67
upon the distribution (whether actual or constructive) of all
such Acquiring Fund shares to the Acquired Fund shareholders
solely in exchange for such shareholders shares of the
Acquired Fund in complete liquidation of the Acquired Fund.
4. No gain or loss will be recognized by the Acquired Fund
shareholders upon the exchange of their Acquired Fund shares
solely for Acquiring Fund shares in the Reorganization.
5. The aggregate basis of the Acquiring Fund shares
received by each Acquired Fund shareholder pursuant to the
Reorganization will be the same as the aggregate basis of the
Acquired Fund shares exchanged therefor by such shareholder. The
holding period of the Acquiring Fund shares received by each
Acquired Fund shareholder will include the period during which
the Acquired Fund shares exchanged therefor were held by such
shareholder, provided such Acquired Fund shares are held as
capital assets at the time of the Reorganization.
6. The basis of the Acquired Funds assets acquired by
the Acquiring Fund will be the same as the basis of such assets
to the Acquired Fund immediately before the Reorganization. The
holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will include the period during which those
assets were held by the Acquired Fund.
No opinion will be expressed as to (1) the effect of the
Reorganization on (A) the Acquired Fund or the Acquiring
Fund with respect to any asset as to which any unrealized gain
or loss is required to be recognized for federal income tax
purposes at the end of a taxable year (or on the termination or
transfer thereof) under a mark-to-market system of accounting
and (B) any Acquired Fund shareholder or Acquiring Fund
shareholder that is required to recognize unrealized gains and
losses for U.S. federal income tax purposes under a
mark-to-market system of accounting, or (C) the Acquired
Fund or the Acquiring Fund with respect to any stock held in a
passive foreign investment company as defined in
Section 1297(a) of the Code or (2) any other federal
tax issues (except those set forth above) and all state, local
or foreign tax issues of any kind.
Prior to the date of the Reorganization, the Acquired Fund will
declare a distribution to its shareholders, which together with
all previous distributions, will have the effect of distributing
to shareholders all its net investment income and realized net
capital gains (after reduction by any capital loss
carryforwards), if any, through the date of the Reorganization.
To the extent the distribution is attributable to ordinary
taxable income or capital gains, the distribution will be
taxable to shareholders for federal income tax purposes.
Additional distributions may be made if necessary. All dividends
and distributions will be paid in cash unless a shareholder has
made an election to reinvest dividends and distributions in
additional shares under the Acquired Funds dividend
reinvestment plan. Dividends and distributions are treated the
same for federal income tax purposes whether received in cash or
additional shares.
After the Reorganization, the combined funds ability to
use the Acquired Funds or the Acquiring Funds
pre-Reorganization capital losses may be limited under certain
federal income tax rules applicable to reorganizations of this
type. Therefore, in certain circumstances, former shareholders
of the Acquired Fund may pay federal income taxes sooner, or pay
more federal income taxes, than they would have had had the
Reorganization not occurred. The effect of these potential
limitations, however, will depend on a number of factors
including the amount of the losses, the amount of gains to be
offset, the exact timing of the Reorganization and the
68
amount of unrealized capital gains in the Funds at the time of
the Reorganization. As of April 30, 2009, the Acquired Fund
did not have any capital loss carryforwards.
In addition, the shareholders of the Acquired Fund will receive
a proportionate share of any taxable income and gains realized
by the Acquiring Fund and not distributed to its shareholders
prior to the Reorganization when such income and gains are
eventually distributed by the Acquiring Fund. As a result,
shareholders of the Acquired Fund may receive a greater amount
of taxable distributions than they would have had the
Reorganization not occurred.
This description of the federal income tax consequences of the
Reorganization is made without regard to the particular facts
and circumstances of any shareholder. Shareholders are urged to
consult their own tax advisors as to the specific consequences
to them of the Reorganization, including the applicability and
effect of state, local,
non-U.S. and
other tax laws.
The foregoing is intended to be only a summary of the
principal federal income tax consequences of the Reorganization
and should not be considered to be tax advice. There can be no
assurance that the IRS will concur on all or any of the issues
discussed above. Acquired Fund shareholders are urged to consult
their own tax advisers regarding the federal, state and local
tax consequences with respect to the foregoing matters and any
other considerations which may be applicable to them.
The Board of each Fund recommends that the shareholders vote
FOR the approval of the Reorganization.
PROPOSAL
NO. 2. ISSUANCE OF ADDITIONAL
ACQUIRING FUND COMMON SHARES
(ACQUIRING FUND COMMON SHAREHOLDERS ONLY)
In connection with the proposed Reorganization, the Acquiring
Fund will issue additional Acquiring Fund Common Shares and
list such shares on the NYSE. The Acquiring Fund will acquire
all the assets and assume all the liabilities of the Acquired
Fund in exchange for newly-issued Acquiring Fund Common
Shares and newly-issued Acquiring Fund MuniPreferred
Shares. The Acquired Fund will distribute Acquiring
Fund Common Shares to its common shareholders and Acquiring
Fund MuniPreferred Shares to its preferred shareholders and
will then terminate its registration under the 1940 Act and
dissolve under applicable state law. The Acquiring Funds
Board, based upon its evaluation of all relevant information,
anticipates that the Reorganization will benefit holders of
Acquiring Fund common shares.
The aggregate net asset value of Acquiring Fund Common
Shares received in the Reorganization will equal the aggregate
net asset value of the Acquired Funds common shares held
immediately prior to the Reorganization. Prior to the closing of
each Reorganization, the net asset value of the Acquired Fund
and Acquiring Fund will be reduced by the costs of the
Reorganization borne by such Fund. The aggregate liquidation
preference of Acquiring Fund MuniPreferred Shares received
in the Reorganization will equal the aggregate liquidation
preference of the Acquired Funds preferred shares held
immediately prior to the Reorganization. The Reorganization will
result in no dilution of net asset value of the Acquiring
Funds current common shares, other than to reflect the
costs of the Reorganization. No gain or loss will be recognized
by the Acquiring Fund in connection with the Reorganization. The
Acquiring Fund will continue to operate as a registered
closed-end management investment company with the investment
objectives and policies described in this Proxy
Statement/Prospectus.
69
While applicable state and federal law does not require the
common shareholders of the Acquiring Fund to approve the
Reorganization, applicable NYSE rules require the common
shareholders of the Acquiring Fund to approve the issuance of
additional Acquiring Fund Common Shares to be issued in
connection with the Reorganization.
Shareholder approval of the issuance of additional Acquiring
Fund Common Shares requires the affirmative vote of a
majority of the votes cast on the proposal, provided that the
total votes cast on the proposal represent over 50% in interest
of all securities entitled to vote on the matter. Subject to the
requisite approval of each proposal described herein, it is
expected that the closing date of the Acquired Fund will be on
the relevant dividend payment date immediately following the
Special Meeting.
The Board of the Acquiring Fund recommends that common
shareholders of the Acquiring Fund vote FOR the
approval of the issuance of additional Acquiring
Fund Common Shares in connection with the
Reorganization.
MANAGEMENT
OF THE FUNDS
Board
Members and Officers
The same individuals constitute the Boards of both Funds, and
the Funds have the same officers.
The management of each Fund, including general supervision of
the duties performed by the Adviser under the Investment
Management Agreement for each Fund, is the responsibility of its
Board. There are currently nine (9) Board Members of each
Funds Board, one (1) of whom is an interested
person (as defined in the 1940 Act) and eight (8) of
whom are not interested persons (the independent board
members). The names and business addresses of the Board
Members and officers of the Funds and their principal
occupations and other affiliations during the past five years
are set forth under Management in the Reorganization
SAI incorporated herein by reference.
Investment
Adviser
Nuveen Asset Management acts as the investment adviser for each
Fund. NAM offers advisory and investment management services to
a broad range of mutual fund and closed-end fund clients. NAM is
responsible for the selection and on-going monitoring of the
securities in the Funds investment portfolios, managing
the Funds business affairs and providing certain clerical,
bookkeeping and other administrative services. NAM is located at
333 West Wacker Drive, Chicago, Illinois 60606. NAM is a
wholly-owned subsidiary of Nuveen Investments.
On November 13, 2007, Nuveen Investments was acquired by
Investors led by Madison Dearborn Partners, LLC (the MDP
Acquisition). The investor group led by Madison Dearborn
Partners, LLC, a private equity firm based in Chicago, Illinois,
includes affiliates of Merrill Lynch, Pierce, Fenner &
Smith Incorporated (Merrill Lynch). Merrill Lynch
has since been acquired by Bank of America Corporation. NAM has
adopted policies and procedures that address arrangements
involving NAM and Bank of America Corporation (including Merrill
Lynch) that may give rise to certain conflicts of interest.
Each Fund is dependent upon services and resources provided by
its investment adviser, NAM, and therefore the investment
advisers parent, Nuveen Investments. Nuveen Investments
70
significantly increased its level of debt in connection with the
MDP Acquisition. While Nuveen Investments believes that monies
generated from operations and cash on hand will be adequate to
fund debt service requirements, capital expenditures and working
capital requirements for the foreseeable future, there can be no
assurance that Nuveen Investments business will generate
sufficient cash flow from operations or that future borrowings
will be available in an amount sufficient to enable Nuveen
Investments to pay its indebtedness (with scheduled maturities
beginning in 2014) or to fund its other liquidity needs.
Nuveen Investments believes that potential adverse changes to
its overall financial position and business operations would not
adversely affect NAMs portfolio management operations and
would not otherwise adversely affect NAMs ability to
fulfill its obligations to the Funds under their investment
management agreements.
Pursuant to an Investment Management Agreement between the
Adviser and each Fund, each Funds management fee is
separated into two components a complex-level
component, based on the aggregate amount of all fund assets
managed by NAM, and a fund-level component, based only on the
amount of assets within such Fund. The pricing structure enables
the Funds shareholders to benefit from growth in assets within
each individual fund as well as from growth of complex-wide
assets managed by NAM.
The annual fund-level fee for each Fund is based upon the
average daily net assets (including assets attributable to
MuniPreferred shares) of each Fund as follows:
|
|
|
|
|
Management Fee Schedule
|
|
Average Daily Net Assets
|
|
|
|
(including net assets attributable to preferred shares)
|
|
Rate
|
|
|
|
|
Up to $125 million
|
|
|
0.4500
|
%
|
$125 to $250 million
|
|
|
0.4375
|
%
|
$250 to $500 million
|
|
|
0.4250
|
%
|
$500 million to $1 billion
|
|
|
0.4125
|
%
|
$1 billion to $2 billion
|
|
|
0.4000
|
%
|
$2 billion to $5 billion
|
|
|
0.3875
|
%
|
$5 billion and over
|
|
|
0.3750
|
%
|
|
|
The management fee compensates NAM for overall investment
advisory and administrative services and general office
facilities. Each Fund pays all of its other costs and expenses
of its operations, including compensation of its board members
(other than those affiliated with NAM), custodian, transfer
agency and dividend disbursing expenses, legal fees, expenses of
independent auditors, expenses of repurchasing shares, expenses
of issuing any MuniPreferred shares, expenses of preparing,
printing and distributing shareholder reports, notices, proxy
statements and reports to governmental agencies, and taxes, if
any.
Each Fund also pays a complex-level fee to NAM, which is payable
monthly and is in addition to the fund-level fee. The
complex-level fee is based on the aggregate daily amount of
total Managed Assets for all Nuveen sponsored funds in the U.S.,
as stated in the table below. As of December 31, 2008, the
complex-level fee rate was 0.20%.
71
The complex-level fee rate is as follows:
|
|
|
|
|
Complex-Level Fee Rates
|
|
Complex-Level Asset
|
|
Effective Rate at
|
|
Breakpoint
Level(1)
|
|
Breakpoint Level
|
|
|
|
|
$55 billion
|
|
|
0.2000
|
%
|
$56 billion
|
|
|
0.1996
|
%
|
$57 billion
|
|
|
0.1989
|
%
|
$60 billion
|
|
|
0.1961
|
%
|
$63 billion
|
|
|
0.1931
|
%
|
$66 billion
|
|
|
0.1900
|
%
|
$71 billion
|
|
|
0.1851
|
%
|
$76 billion
|
|
|
0.1806
|
%
|
$80 billion
|
|
|
0.1773
|
%
|
$91 billion
|
|
|
0.1691
|
%
|
$125 billion
|
|
|
0.1599
|
%
|
$200 billion
|
|
|
0.1505
|
%
|
$250 billion
|
|
|
0.1469
|
%
|
$300 billion
|
|
|
0.1445
|
%
|
|
|
|
|
|
(1)
|
|
The
complex-level
fee is based on the aggregate daily managed net assets (as
defined in the Nuveen Funds investment management
agreements with NAM, which generally include assets attributable
to any preferred shares that may be outstanding and any
borrowings (including the issuance of commercial paper or
notes)) of the Nuveen funds. The
complex-level
fee was based on approximately $53.6 billion as of
December 31, 2008.
|
The Acquiring Fund paid aggregate management fees of $10,976,183
for the fiscal year ended October 31, 2008, for an
effective management fee rate of 0.94% based on net assets
applicable to common shares (0.60% based on managed assets). The
Acquired Fund paid aggregate management fees of $2,031,193 for
the fiscal year ended April 30, 2008, for an effective
management fee rate of 0.95% based on net assets applicable to
common shares (0.62% based on managed assets). A discussion of
each Boards basis for approving the Investment Advisory
Agreement with respect to a Fund, is available in the
Funds annual report to shareholders each year.
Portfolio
Management
NAM is responsible for execution of specific investment
strategies and day-to-day investment operations. NAM manages the
Funds using a team of analysts and portfolio managers that focus
on a specific group of funds. Paul Brennan is the portfolio
manager of the Acquiring Fund and Daniel Close is the portfolio
manager of the Acquired Fund. Each provide daily oversight for,
and execution of, the respective Funds investment
activities.
Paul Brennan, CFA, CPA manages several national open- and
closed-end funds. Mr. Brennan began his career in the
investment business in 1991 when he was a municipal credit
analyst, then became a portfolio manager in 1994. He joined
Nuveen Investments in 1997 while at Flagship Financial which
Nuveen acquired. He earned his BS in Accountancy and Finance
from Wright State University. He is a CPA, has earned the
Chartered Financial Analyst designation, and currently sits on
the Nuveen Asset Management Investment Committee. Prior to
joining
72
Flagship, Paul was employed at Deloitte & Touche
within the audit group which participated in auditing mutual
funds and investment advisors.
Daniel J. Close, CFA joined Nuveen Investments in 2000 as a
member of Nuveens product management and development team,
where he was responsible for the oversight and development of
Nuveens mutual fund product line. He then served as a
research analyst for Nuveens municipal investing team,
covering corporate-backed, energy, transportation and utility
credits. He received his BS in Business from Miami University
and his MBA from Northwestern Universitys Kellogg School
of Management.
ADDITIONAL
INFORMATION ABOUT THE FUNDS
General
History
The following table sets forth the number of outstanding common
shares and shares of MuniPreferred and certain other share
information, of each Fund as of March 19, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
|
|
|
(3)
|
|
|
Shares Outstanding
|
|
(1)
|
|
(2)
|
|
|
Shares Held by Fund
|
|
|
Exclusive of Shares
|
|
Title of Class
|
|
Shares Authorized
|
|
|
for its Own Account
|
|
|
Shown Under (3)
|
|
|
|
|
Acquiring Fund:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
200,000,000
|
|
|
|
|
|
|
|
81,138,037
|
|
Preferred shares
|
|
|
1,000,000
|
|
|
|
|
|
|
|
24,008
|
|
Acquired Fund:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
Unlimited
|
|
|
|
|
|
|
|
14,169,996
|
|
Preferred shares
|
|
|
Unlimited
|
|
|
|
|
|
|
|
4,440
|
|
|
|
The Acquiring Fund common shares are listed and trade on the
NYSE under the symbol NIO. The Acquired Fund common shares are
listed and trade on the NYSE under the symbol NFL.
The following table sets forth the high and low sales prices for
each Funds common shares as reported on the consolidated
transaction reporting system for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquiring Fund
|
|
|
|
|
|
|
|
|
|
Premium/
|
|
|
|
Market Price
|
|
|
Net Asset Value
|
|
|
Discount
|
|
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
January 2009
|
|
|
12.01
|
|
|
|
8.90
|
|
|
|
13.37
|
|
|
|
11.29
|
|
|
|
9
|
%
|
|
|
25
|
%
|
October 2008
|
|
|
12.86
|
|
|
|
8.30
|
|
|
|
14.37
|
|
|
|
11.33
|
|
|
|
7
|
%
|
|
|
33
|
%
|
July 2008
|
|
|
13.85
|
|
|
|
12.51
|
|
|
|
14.76
|
|
|
|
13.95
|
|
|
|
5
|
%
|
|
|
13
|
%
|
April 2008
|
|
|
14.60
|
|
|
|
12.64
|
|
|
|
15.11
|
|
|
|
13.66
|
|
|
|
3
|
%
|
|
|
11
|
%
|
January 2008
|
|
|
14.42
|
|
|
|
13.08
|
|
|
|
15.41
|
|
|
|
14.78
|
|
|
|
5
|
%
|
|
|
12
|
%
|
October 2007
|
|
|
14.46
|
|
|
|
13.41
|
|
|
|
15.21
|
|
|
|
14.45
|
|
|
|
3
|
%
|
|
|
11
|
%
|
July 2007
|
|
|
15.02
|
|
|
|
14.03
|
|
|
|
15.40
|
|
|
|
14.71
|
|
|
|
2
|
%
|
|
|
6
|
%
|
April 2007
|
|
|
14.96
|
|
|
|
14.66
|
|
|
|
15.61
|
|
|
|
15.24
|
|
|
|
3
|
%
|
|
|
5
|
%
|
January 2007
|
|
|
14.94
|
|
|
|
14.43
|
|
|
|
15.71
|
|
|
|
15.29
|
|
|
|
3
|
%
|
|
|
7
|
%
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired Fund
|
|
|
|
|
|
|
|
|
|
Premium/
|
|
|
|
Market Price
|
|
|
Net Asset Value
|
|
|
Discount
|
|
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
January 2009
|
|
|
11.88
|
|
|
|
9.12
|
|
|
|
14.33
|
|
|
|
12.20
|
|
|
|
15
|
%
|
|
|
29
|
%
|
October 2008
|
|
|
12.73
|
|
|
|
7.85
|
|
|
|
14.73
|
|
|
|
11.91
|
|
|
|
13
|
%
|
|
|
40
|
%
|
July 2008
|
|
|
13.32
|
|
|
|
12.45
|
|
|
|
14.89
|
|
|
|
14.34
|
|
|
|
10
|
%
|
|
|
15
|
%
|
April 2008
|
|
|
13.83
|
|
|
|
12.75
|
|
|
|
15.26
|
|
|
|
14.04
|
|
|
|
8
|
%
|
|
|
12
|
%
|
January 2008
|
|
|
13.91
|
|
|
|
12.77
|
|
|
|
15.46
|
|
|
|
14.94
|
|
|
|
9
|
%
|
|
|
15
|
%
|
October 2007
|
|
|
14.20
|
|
|
|
13.13
|
|
|
|
15.25
|
|
|
|
14.67
|
|
|
|
7
|
%
|
|
|
12
|
%
|
July 2007
|
|
|
14.73
|
|
|
|
13.54
|
|
|
|
15.37
|
|
|
|
14.79
|
|
|
|
4
|
%
|
|
|
10
|
%
|
April 2007
|
|
|
15.03
|
|
|
|
14.58
|
|
|
|
15.53
|
|
|
|
15.24
|
|
|
|
2
|
%
|
|
|
5
|
%
|
January 2007
|
|
|
15.06
|
|
|
|
14.48
|
|
|
|
15.64
|
|
|
|
15.31
|
|
|
|
3
|
%
|
|
|
6
|
%
|
|
|
On April 9, 2009, the closing sale prices of the Acquiring
Fund and Acquired Fund common shares were $11.69 and $11.82,
respectively. These prices represent a discount to net asset
value of the Acquiring Fund of 11.1% and a discount to net
asset value of the Acquired Fund of 15.5%.
Common shares of each Fund have generally traded at prices close
to net asset value, with varying premiums or discounts to net
asset value being reflected in the market value of the common
shares from time to time. Prices for Acquiring Fund common
shares have fluctuated between a maximum premium of 6.3% and a
maximum discount of 33.4% and for the Acquired Fund have
fluctuated between a maximum premium of 11.6% and a maximum
discount of 36.1%. It is not possible to state whether
Acquiring Fund common shares will trade at a premium or discount
to net asset value following the Reorganization, or what the
extent of any such premium or discount might be.
Shareholders
of the Acquiring Fund and the Acquired Fund
As of April 1, 2009, the board members and officers of each
Fund as a group owned less than 1% of the total outstanding
shares common shares and less than 1% of the total outstanding
shares of MuniPreferred of that Fund.
The following chart lists each shareholder or group of
shareholders who beneficially owned more than 5% of any class of
shares for each Fund as of April 1, 2009*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
Percentage
|
|
Fund and Class
|
|
Shareholder Name and Address
|
|
Shares Owned
|
|
|
Owned
|
|
|
Insured Municipal Opportunity Fund (NIO) Auction
Rate Preferred Shares
|
|
Citigroup Global Markets Inc.**
388 Greenwich Street
New York, NY 10013
|
|
|
1,417
|
|
|
|
5.7
|
%
|
|
|
Citigroup Financial Products Inc.**
88 Greenwich Street
New York, NY 10013
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
Percentage
|
|
Fund and Class
|
|
Shareholder Name and Address
|
|
Shares Owned
|
|
|
Owned
|
|
|
|
|
Citigroup Global Markets Holdings Inc.**
88 Greenwich Street
New York, NY 10013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citigroup Inc.**
399 Park Avenue
New York, NY 10043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of America Corporation
100 North Tryon Street, Floor 25
Bank of America Corporate Center
Charlotte, NC 28255
|
|
|
3,265
|
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrill Lynch, Pierce, Fenner & Smith, Inc.
4 World Financial Center
250 Vesey Street
New York, NY 10080
|
|
|
1,895
|
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of America, N.A.
100 North Tryon Street, Floor 25
Bank of America Corporate Center
Charlotte, NC 28255
|
|
|
1,370
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UBS AG
Bahnhoftstrasse 45
PO Box CH-8021
Zurich, Switzerland
|
|
|
2,136
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Insured Florida Premium Income Municipal Fund (NFL)
Auction Rate Preferred Shares
|
|
Citigroup Global Markets Inc.**
388 Greenwich Street
New York, NY 10013
|
|
|
428
|
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citigroup Financial Products Inc.**
88 Greenwich Street
New York, NY 10013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citigroup Global Markets Holdings Inc.**
88 Greenwich Street
New York, NY 10013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citigroup Inc.**
399 Park Avenue
New York, NY 10043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of America Corporation
100 North Tryon Street, Floor 25
Bank of America Corporate Center
Charlotte, NC 28255
|
|
|
1,017
|
|
|
|
22.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrill Lynch, Pierce, Fenner & Smith, Inc.
4 World Financial Center
250 Vesey Street
New York, NY 10080
|
|
|
835
|
|
|
|
18.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UBS AG
Bahnhoftstrasse 45
PO Box CH-8021
Zurich, Switzerland
|
|
|
494
|
|
|
|
11.13
|
%
|
|
|
|
*
|
|
The information contained in this
table is based on Schedule 13G filings made on or before
April 1, 2009.
|
75
|
|
|
**
|
|
Citigroup Global Markets Inc.,
Citigroup Financial Products Inc., Citigroup Global Markets
Holdings Inc. and Citigroup Inc. filed their Schedule 13G
jointly and did not differentiate holdings as to each entity.
|
Repurchase
of Common Shares; Conversion to Open-End Fund
Each Fund is a closed-end management investment company and as
such its shareholders will not have the right to cause the Fund
to redeem their shares. Instead, the common shares of each Fund
trade in the open market at a price that is a function of
several factors, including dividend levels (which are in turn
affected by expenses), net asset value, call protection,
dividend stability, portfolio credit quality, relative demand
for and supply of such shares in the market, general market and
economic conditions and other factors. Because shares of
closed-end management investment companies may frequently trade
at prices lower than net asset value, each Funds Board has
currently determined that, at least annually, it will consider
action that might be taken to reduce or eliminate any material
discount from net asset value in respect of common shares, which
may include the repurchase of such shares in the open market or
in private transactions, the making of a tender offer for such
shares at net asset value, or the conversion of the Fund to an
open-end investment company. Neither Fund can assure you that
its Board will decide to take any of these actions, or that
share repurchases or tender offers will actually reduce market
discount.
If a Fund converted to an open-end investment company, it would
be required to redeem all MuniPreferred shares then outstanding
(requiring in turn that it liquidate a portion of its investment
portfolio), and the common shares would no longer be listed on
the NYSE. In contrast to a closed-end management investment
company, shareholders of an open-end management investment
company may require the company to redeem their shares at any
time (except in certain circumstances as authorized by or under
the 1940 Act) at their net asset value, less any redemption
charge that is in effect at the time of redemption. See the
Reorganization SAI under Certain Provisions in the
Articles of Incorporation for a discussion of the voting
requirements applicable to the conversion of a Fund to an
open-end management investment company.
Before deciding whether to take any action if the common shares
trade below net asset value, the Board would consider all
relevant factors, including the extent and duration of the
discount, the liquidity of a Funds portfolio, the impact
of any action that might be taken on the Fund or its
shareholders, and market considerations. Based on these
considerations, even if a Funds shares should trade at a
discount, the Board may determine that, in the interest of the
Fund, no action should be taken. See the Reorganization SAI
under Repurchase of Common Shares; Conversion to Open-End
Fund for a further discussion of possible action to reduce
or eliminate such discount to net asset value.
Custodian,
Transfer Agent, Dividend Disbursing Agent and
Redemption Agent
The custodian of the assets of and transfer, shareholder
services and dividend paying agent for the Funds is State Street
Bank and Trust Company, One Lincoln Street, Boston,
Massachusetts 02110. The custodian performs custodial, fund
accounting and portfolio accounting services. Deutsche Bank
Trust Company Americas, 100 Plaza One, 6th Floor,
Jersey City, NJ 07311, a banking corporation organized under the
laws of New York, is the Auction Agent with respect to
76
shares of MuniPreferred and acts as transfer agent, registrar,
dividend disbursing agent and redemption agent with respect to
such shares.
Federal
Income Tax Matters Associated with Investment in the
Funds
The following information is meant as a general summary for
U.S. shareholders. Please see the Reorganization SAI for
additional information. Investors should rely on their own tax
adviser for advice about the particular federal, state and local
tax consequences to them of investing in the Funds. Each Fund
has elected to be treated and intends to qualify each year
(including the taxable year in which the Reorganization occurs)
as a regulated investment company (RIC) under
Subchapter M of the Internal Revenue Code of 1986, as amended
(the Code). In order to qualify as a RIC, each Fund
must satisfy certain requirements regarding the sources of its
income, the diversification of its assets and the distribution
of its income. As a RIC, each Fund is not expected to be subject
to federal income tax on the income and gains it distributes to
shareholders. The Acquiring Fund primarily invests in municipal
securities issued by states, cities and local authorities and
certain possessions and territories of the United States (such
as Puerto Rico or Guam) or municipal securities whose income is
otherwise exempt from regular federal income taxes. The Acquired
Fund primarily invests in municipal securities issued by
Florida, its cities and local authorities. Thus, substantially
all of a Funds dividends paid to you should qualify as
exempt-interest dividends. A shareholder treats an
exempt-interest dividend as interest on state and local bonds
exempt from regular federal income tax. Federal income tax law
imposes an alternative minimum tax with respect to corporations,
individuals, trusts and estates. Interest on certain municipal
obligations, such as certain private activity bonds, is included
as an item of tax preference in determining the amount of a
taxpayers alternative minimum taxable income. To the
extent that a Fund receives income from such municipal
obligations, a portion of the dividends paid by the Fund,
although exempt from regular federal income tax, will be taxable
to shareholders to the extent that their tax liability is
determined under the federal alternative minimum tax. Each Fund
will annually provide a report indicating the percentage of the
Funds income attributable to municipal obligations subject
to the federal alternative minimum tax. Corporations are subject
to special rules in calculating their federal alternative
minimum taxable income with respect to interest from such
municipal obligations.
In addition to exempt-interest dividends, a Fund may also
distribute to its shareholders amounts that are treated as
long-term capital gain or ordinary income (which may include
short-term capital gains). These distributions may be subject to
federal, state and local taxation, depending on a
shareholders situation. If so, they are taxable whether or
not such distributions are reinvested. Net capital gain
distributions (the excess of net long-term capital gain over net
short-term capital loss) are generally taxable at rates
applicable to long-term capital gains regardless of how long a
shareholder has held its shares. Long-term capital gains are
currently taxable at a maximum federal income tax rate of 15%.
Absent further legislation, the maximum 15% rate on long-term
capital gains will cease to apply to taxable years beginning
after December 31, 2010. Each Fund does not expect that any
part of its distributions to shareholders from its investments
will qualify for the dividends-received deduction available to
corporate shareholders or as qualified dividend
income available to noncorporate shareholders.
As a RIC, each Fund will not be subject to federal income tax in
any taxable year provided that it meets certain distribution
requirements. Each Fund may retain for investment some (or all)
of its
77
net capital gain. If a Fund retains any net capital gain or
investment company taxable income, it will be subject to tax at
regular corporate rates on the amount retained. If a 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, (i) will be required to include in income
for federal income tax purposes, as long-term capital gain,
their share of such undistributed amount; (ii) will be
entitled to credit their proportionate shares of the federal
income tax paid by the Fund on such undistributed amount against
their federal income tax liabilities, if any; and (iii) to
claim refunds to the extent the credit exceeds such liabilities.
For federal income tax purposes, the basis of shares owned by a
shareholder of the Fund will be increased by an amount equal to
the difference between the amount of undistributed capital gains
included in the shareholders gross income and the tax
deemed paid by the shareholder under clause (ii) of the
preceding sentence.
The IRS currently requires that a regulated investment company
that has two or more classes of stock allocate to each such
class proportionate amounts of each type of its income (such as
exempt interest, ordinary income and capital gains).
Accordingly, each Fund designates dividends made with respect to
the common shares and the MuniPreferred shares as consisting of
particular types of income (e.g., exempt interest, net capital
gain and ordinary income) in accordance with each class
proportionate share of the total dividends paid by the Fund
during the year.
Dividends declared by a Fund to shareholders of record in
October, November or December and paid during the following
January may be treated as having been received by shareholders
in the year the distributions were declared.
Each shareholder will receive an annual statement summarizing
the shareholders dividend and capital gains distributions.
The redemption, sale or exchange of common shares normally will
result in capital gain or loss to holders of common shares who
hold their shares as capital assets. Generally, a
shareholders gain or loss will be long-term capital gain
or loss if the shares have been held for more than one year even
though the increase in value in such common shares is
attributable to tax-exempt interest income. The gain or loss on
shares held for one year or less will generally be treated as
short-term capital gain or loss. Present law taxes both
long-term and short-term capital gains of corporations at the
same rates applicable to ordinary income. For non-corporate
taxpayers, however, long-term capital gains are currently taxed
at a maximum federal income tax rate of 15%, while short-term
capital gains and other ordinary income are currently taxed at
ordinary income rates. As noted above, absent further
legislation, the maximum rates applicable to long-term capital
gains will cease to apply to taxable years beginning after
December 31, 2010. Any loss on the sale of shares that have
been held for six months or less will be disallowed to the
extent of any distribution of exempt-interest dividends received
with respect to such shares. If a shareholder sells or otherwise
disposes of shares before holding them for more than six months,
any loss on the sale or disposition will be treated as a
long-term capital loss to the extent of any net capital gain
distributions received by the shareholder. Any loss realized on
a sale or exchange of shares of a Fund will be disallowed to the
extent those shares of the Fund are replaced by other
substantially identical shares of the Fund or other
substantially identical stock or securities (including through
reinvestment of dividends) within a period of 61 days
beginning 30 days before and ending 30 days after the
date of disposition of the original shares. In that event, the
basis of the replacement shares of the Fund will be adjusted to
reflect the disallowed loss.
78
Any interest on indebtedness incurred or continued to purchase
or carry a Funds shares to which exempt-interest dividends
are allocated is not deductible. Under certain applicable rules,
the purchase or ownership of shares may be considered to have
been made with borrowed funds even though such funds are not
directly used for the purchase or ownership of the shares. In
addition, if you receive social security or certain railroad
retirement benefits, you may be subject to U.S. federal
income tax on a portion of such benefits as a result of
receiving investment income, including exempt-interest dividends
and other distributions paid by a Fund.
The Funds may hold or acquire municipal obligations and other
debt securities that are market discount bonds. A market
discount bond is a security acquired in the secondary market at
a price below its redemption value (or its adjusted issue price
if it is also an original issue discount bond). If a Fund
invests in a market discount bond, it will be required to treat
any gain recognized on the disposition of such market discount
bond as ordinary taxable income to the extent of the accrued
market discount.
As with all investment companies, each Fund may be required to
withhold U.S. federal income tax at the current rate of 28%
of all distributions payable (including exempt-interest
dividends) and redemption proceeds payable to a shareholder if
the shareholder fails to provide the Fund with his or her
correct taxpayer identification number or to make required
certifications, or if the shareholder has been notified by the
IRS that he or she is subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in
which the IRS ensures it will collect taxes otherwise due. Any
amounts withheld may be credited against a shareholders
U.S. federal income tax liability.
NET ASSET
VALUE
Each Funds net asset value per share is determined as of
the close of regular session trading (normally 4:00 p.m.
eastern time) on each day the New York Stock Exchange is open
for business. Net asset value is calculated by taking the market
value of a Funds total assets, including interest or
dividends accrued but not yet collected, less all liabilities,
and dividing by the total number of shares outstanding. The
result, rounded to the nearest cent, is the net asset value per
share. All valuations are subject to review by such Funds
Board or its delegate.
In determining net asset value, expenses are accrued and applied
daily and securities and other assets for which market
quotations are available are valued at market value. The prices
of municipal bonds are provided by a pricing service approved by
such Funds Board. When market price quotes are not readily
available (which is usually the case for municipal securities),
the pricing service, or, in the absence of a pricing service for
a particular security, the Board of such Fund, or its designee,
may establish fair market value using a wide variety of market
data including yields or prices of municipal bonds of comparable
quality, type of issue, coupon, maturity and rating, market
quotes or indications of value from securities dealers,
evaluations of anticipated cash flows or collateral, general
market conditions and other information and analysis, including
the obligors credit characteristics considered relevant by
the pricing service or the Boards designee.
Exchange-listed securities are generally valued at the last
sales price on the securities exchange on which such securities
are primarily traded. Securities traded on a securities exchange
for which there are no transactions on a given day or securities
not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq
are valued at the Nasdaq Official Closing Price. Temporary
investments in securities that have variable rate and demand
features qualifying them as short-term
79
investments are valued at amortized cost, which approximates
market value. See Net Asset Value in the SAI for
more information.
LEGAL
OPINIONS
Certain legal matters in connection with the common shares and
shares of MuniPreferred of the Acquiring Fund to be issued
pursuant to the Reorganization will be passed upon by Vedder
Price P.C., Chicago, Illinois. Vedder Price P.C. will rely as to
certain matters of Minnesota law on the opinion of Dorsey &
Whitney LLP, Minneapolis, Minnesota and as to certain matters of
Massachusetts law on the opinion of Bingham McCutchen LLP,
Boston, Massachusetts.
EXPERTS
The financial statements of the Acquiring Fund and the Acquired
Fund as of October 31, 2008 and as of April 30, 2008,
respectively, have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in
their reports thereon appearing elsewhere herein, and are
included in reliance on such reports given upon the authority of
such firm as experts in accounting and auditing.
SHAREHOLDER
PROPOSALS
To be considered for presentation at the annual meeting of
shareholders of the Acquiring Fund to be held in 2009,
shareholder proposals submitted pursuant to
Rule 14a-8
under the 1934 Act must have been received at the offices
of the Fund, 333 West Wacker Drive, Chicago, Illinois
60606, not later than January 19, 2009. A shareholder
wishing to provide notice in the manner prescribed by
Rule 14a-4(c)(1)
of a proposal submitted outside of the process of
Rule 14a-8
for the annual meeting must, pursuant to the Acquiring
Funds By-Laws, submit such written notice to the Acquiring
Fund not later than April 4, 2009 or prior to
March 20, 2009. Timely submission of a proposal does not
mean that such proposal will be included in a proxy statement.
If all proposals are approved and the Reorganization is
consummated, the Acquired Fund will cease to exist and will not
hold its 2009 Annual Meeting. If the Reorganization is not
approved or is not consummated, the Acquired Fund will hold its
2009 annual meeting of shareholders, expected to be held in
November 2009. Based upon last years proxy statement for
the Acquired Fund, a shareholder proposal submitted pursuant to
Rule 14a-8
under the 1934 Act must be received at the offices of the
Fund, 333 West Wacker Drive, Chicago, Illinois 60606, not
later than June 8, 2009. A shareholder wishing to provide
notice in the manner prescribed by
Rule 14a-4(c)(1)
of a proposal submitted outside of the process of
Rule 14a-8
must, pursuant to the Acquired Funds By-Laws, submit such
written notice to the Acquired Fund not later than
August 21, 2009 or prior to August 6, 2009. Timely
submission of a proposal does not mean that such proposal will
be included in a proxy statement.
The anticipated date of the next special shareholders
meeting, if any, of either Fund cannot be provided. Shareholders
wishing to submit proposals for inclusion in a proxy statement
for a subsequent shareholders meeting of a Fund should
send their written proposal to the Fund at 333 West Wacker
Drive, Chicago, Illinois 60606. Proposals must be received a
reasonable time before a Fund begins to print and mail its proxy
materials for the meeting.
80
GENERAL
Management of the Funds does not intend to present and does not
have reason to believe that others will present any items of
business at the Special Meeting, except as described in this
Proxy Statement/Prospectus. However, if other matters are
properly presented at the meetings for a vote, the proxies will
be voted upon such matters in accordance with the judgment of
the persons acting under the proxies.
A list of shareholders of each Fund entitled to be present and
to vote at the Special Meeting will be available at the offices
of the Funds, 333 West Wacker Drive, Chicago, Illinois, for
inspection by any shareholder of the Funds during regular
business hours for ten days prior to the date of the Special
Meeting.
Failure of a quorum of either Fund to be present at the Special
Meeting will necessitate adjournment and will subject the Funds
to additional expense. The persons named in the enclosed proxy
may also move for an adjournment of the meeting to permit
further solicitation of proxies with respect to any of the
proposals if they determine that adjournment and further
solicitation is reasonable and in the best interests of the
shareholders. Under each Funds By-Laws, an adjournment of
a meeting requires the affirmative vote of a majority of the
shares present in person or represented by proxy at such meeting.
IF YOU CANNOT BE PRESENT AT THE MEETING, YOU ARE REQUESTED TO
FILL IN, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES.
Kevin J. McCarthy
Vice President and Secretary
81
APPENDIX A
AGREEMENT
AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the
Agreement) is made as of
this
th day
of ,
2009 by Nuveen Insured Municipal Opportunity Fund, Inc., a
Minnesota corporation (the Acquiring Fund), and
Nuveen Insured Florida Premium Income Municipal Fund, a
Massachusetts business trust (the Acquired Fund and,
together with the Acquiring Fund, the Funds).
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368 of the
United States Internal Revenue Code of 1986, as amended (the
Code), and the Treasury Regulations promulgated
thereunder. The reorganization will consist of: (i) the
transfer of all the assets of the Acquired Fund to the Acquiring
Fund in exchange solely for shares of common stock (common
shares), par value $0.01 per share, of the Acquiring Fund
(Acquiring Fund Common Shares), Municipal
Auction Rate Cumulative Preferred stock
(MuniPreferred), Series W3 and Series TH3,
par value $0.01 per share, of the Acquiring Fund
(Acquiring Fund MuniPreferred Shares and,
collectively with the Acquiring Fund Common Shares,
Acquiring Fund Shares) and the assumption by
the Acquiring Fund of all the liabilities of the Acquired Fund;
and (ii) the pro rata distribution of all the Acquiring
Fund Common Shares and Acquiring Fund MuniPreferred
Shares, respectively, to the common and MuniPreferred
shareholders of the Acquired Fund, respectively, as part of the
termination, dissolution and complete liquidation of the
Acquired Fund as provided herein, all upon the terms and
conditions set forth in this Agreement (the
Reorganization).
WHEREAS, each Fund is a closed-end, management investment
company registered under the Investment Company Act of 1940, as
amended (the 1940 Act), and the Acquired Fund owns
securities that generally are assets of the character in which
the Acquiring Fund is permitted to invest;
WHEREAS, the Acquiring Fund is authorized to issue its shares of
beneficial interests; and
WHEREAS, the Board of Directors of the Acquiring Fund (the
Acquiring Board) has determined that the
Reorganization is in the best interests of the Acquiring Fund
and that the interests of the existing shareholders of the
Acquiring Fund will not be diluted as a result of the
Reorganization, and the Board of Trustees of the Acquired Fund
(the Acquired Board) has determined that the
Reorganization is in the best interests of the Acquired Fund and
that the interests of the existing shareholders of the Acquired
Fund will not be diluted as a result of the Reorganization.
A-1
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties
hereto covenant and agree as follows:
ARTICLE I
TRANSFER
OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING
FUND SHARES AND THE ASSUMPTION
OF THE ACQUIRED FUND LIABILITIES AND TERMINATION
AND LIQUIDATION OF THE ACQUIRED FUND
1.1 THE EXCHANGE. Subject to the terms and
conditions contained herein and on the basis of the
representations and warranties contained herein, the Acquired
Fund agrees to transfer all of its assets, as set forth in
Section 1.2, to the Acquiring Fund. In exchange, the
Acquiring Fund agrees: (i) to issue and deliver to the
Acquired Fund the number of Acquiring Fund Common Shares,
computed in the manner set forth in Section 2.3 and up to
1,640 Series W3 and 2,800 Series TH3 Acquiring
Fund MuniPreferred Shares; and (ii) to assume all the
liabilities of the Acquired Fund, as set forth in
Section 1.3. The preferences, voting powers, restrictions,
limitations as to dividends, qualifications and terms and
conditions of redemption of the Acquiring
Fund MuniPreferred Shares shall be identical in all
material respects to those of the Acquiring Funds existing
series of MuniPreferred shares. Dividends on shares of Acquired
Fund MuniPreferred shares, Series W and
Series TH, shall accumulate to and including the day before
the Closing Date, as such term is defined in Section 3.1,
and then cease to accumulate, and dividends on shares of
Acquiring Fund MuniPreferred Shares, issued pursuant to the
Reorganization shall accumulate in respect of their
Initial Rate Period from and including the Closing
Date at the same rate borne on the day before the Closing Date
by the Acquired Fund MuniPreferred shares, Series W
and Series TH. The Subsequent Rate Periods,
Dividend Payment Dates in respect of such
Subsequent Rate Periods and initial and subsequent
Auctions for the shares of Acquiring
Fund MuniPreferred Shares, issued pursuant to this
paragraph 1.1 shall be fixed to be identical to the
dividend and auction provisions applicable to the outstanding
Acquired Fund MuniPreferred shares, Series W and
Series TH, as of immediately prior to the Closing Date. The
Initial Rate Period and Dividend Payment
Rate in respect of such Initial Rate Period, for shares of
Acquiring Fund MuniPreferred Shares, issued pursuant to the
Reorganization, shall be as set forth in the Proxy
Statement/Prospectus, as hereinafter defined. Such transactions
shall take place at the closing provided for in Section 3.1
(the Closing).
1.2 ASSETS TO BE TRANSFERRED. The Acquired Fund
shall transfer all of its assets to the Acquiring Fund,
including, without limitation, all cash, securities,
commodities, interests in futures and dividends or interest
receivables owned by the Acquired Fund and any deferred or
prepaid expenses shown as an asset on the books of the Acquired
Fund on the Closing Date.
The Acquired Fund will, within a reasonable period of time
before the Closing Date, furnish the Acquiring Fund with a list
of the Acquired Funds portfolio securities and other
investments. The Acquiring Fund will, within a reasonable period
of time before the Closing Date, furnish the Acquired Fund with
a list of the securities, if any, on the Acquired Funds
list referred to above that do not conform to the Acquiring
Funds investment objectives, policies, and restrictions.
The Acquired Fund, if requested by the Acquiring Fund, will
dispose of securities on the Acquiring Funds list before
the Closing Date. In addition, if it is determined that the
portfolios of the Acquired Fund and the Acquiring Fund, when
aggregated, would contain investments
A-2
exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Acquired
Fund, if requested by the Acquiring Fund, will dispose of a
sufficient amount of such investments as may be necessary to
avoid violating such limitations as of the Closing Date.
Notwithstanding the foregoing, nothing herein will require the
Acquired Fund to dispose of any investments or securities if, in
the reasonable judgment of the Acquired Fund Board or
Nuveen Asset Management (the Adviser), such
disposition would adversely affect the tax-free nature of the
Reorganization for federal income tax purposes or would
otherwise not be in the best interests of the Acquired Fund.
1.3 LIABILITIES TO BE ASSUMED. The Acquired Fund
will endeavor to discharge all of its known liabilities and
obligations to the extent possible before the Closing Date.
Notwithstanding the foregoing, any liabilities not so discharged
shall be assumed by the Acquiring Fund, which assumed
liabilities shall include all of the Acquired Funds
liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise,
whether or not arising in the ordinary course of business,
whether or not determinable at the Closing Date, and whether or
not specifically referred to in this Agreement.
1.4 DECLARATION OF PREFERRED DIVIDENDS. At or
prior to the Closing Date, the Acquired Fund will declare
all accumulated but unpaid dividends on the Acquired
Fund MuniPreferred shares, Series W and
Series TH, respectively, up to and including the day before
which the Closing Date occurs, such dividends to be paid to the
holders thereof on the Dividend Payment Date in respect of the
Initial Rate Period of Acquiring Fund MuniPreferred Shares,
for which such Acquired Fund MuniPreferred shares,
Series W and Series TH, respectively, were exchanged.
1.5 LIQUIDATION AND DISTRIBUTION. On or as soon
after the Closing Date as is conveniently practicable but in no
event later than 12 months after the Closing Date (the
Liquidation Date): (a) the Acquired Fund will
distribute in complete liquidation of the Acquired Fund, pro
rata to its common shareholders of record, determined as of the
close of business on the Valuation Date, as such term is defined
in Section 2.1 (the Acquired Fund Common
Shareholders), all of the Acquiring Fund Common
Shares received by the Acquired Fund pursuant to
Section 1.1 (together with any dividends declared with
respect thereto to holders of record as of a time after the
Valuation Date and prior to the Liquidation Date (Interim
Dividends)) and to its preferred shareholders of record,
determined as of the Valuation Date (Acquired
Fund Preferred Shareholders and, collectively, with
the Acquired Fund Common Shareholders, the Acquired
Fund Shareholders), one share of Acquiring
Fund MuniPreferred Shares (together with any Interim
Dividends), in exchange for each Acquired
Fund MuniPreferred share, Series W and Series TH,
respectively, held by the Acquired Fund Preferred
Shareholders; and (b) the Acquired Fund will thereupon
proceed to dissolve and terminate as set forth in
Section 1.9 below. Such distribution will be accomplished
by the transfer of Acquiring Fund Shares credited to the
account of the Acquired Fund on the books of the Acquiring Fund
to open accounts on the share records of the Acquiring Fund in
the name of the Acquired Fund Shareholders and
representing, in the case of an Acquired Fund Common
Shareholder, such shareholders pro rata share of the
Acquiring Fund Common Shares received by the Acquired Fund
and in the case of an Acquired Fund Preferred Shareholder,
a number of Acquiring Fund MuniPreferred Shares received by
the Acquired Fund equal to the number of Acquired
Fund MuniPreferred shares, Series W and
Series TH, respectively, held by such shareholder, and by
paying to the shareholders of the Acquired Fund any Interim
Dividends on such transferred shares. All issued and outstanding
common and MuniPreferred shares of the
A-3
Acquired Fund will simultaneously be canceled on the books of
the Acquired Fund. The Acquiring Fund shall not issue
certificates representing Acquiring Fund Shares in
connection with such transfer.
1.6 OWNERSHIP OF SHARES. Ownership of Acquiring
Fund Shares will be shown on the books of the Acquiring
Funds transfer agent. Acquiring Fund Shares will be
issued simultaneously to the Acquired Fund, in an amount
computed in the manner set forth in Section 2.3, to be
distributed to Acquired Fund Shareholders.
1.7 TRANSFER TAXES. Any transfer taxes payable
upon the issuance of Acquiring Fund Shares in a name other
than the registered holder of the Acquired Fund common or
MuniPreferred shares on the books of the Acquired Fund as of
that time shall, as a condition of such issuance and transfer,
be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.8 REPORTING. Any reporting responsibility of
the Acquired Fund with the Securities and Exchange Commission
(the SEC), the New York Stock Exchange (the
NYSE), or any state securities commission is and
shall remain the responsibility of the Acquired Fund up to and
including the Liquidation Date.
1.9 TERMINATION. The Acquired Fund shall
completely liquidate and be dissolved, terminated and have its
affairs wound up in accordance with Massachusetts state law,
promptly following the Closing Date and the making of all
distributions pursuant to Section 1.5.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the net
assets of the Acquired Fund shall be the value of its assets,
less its liabilities, computed as of the close of regular
trading on the NYSE on the business day immediately prior to the
Closing Date (such time and date being hereinafter called the
Valuation Date). The value of the Acquired
Funds assets shall be determined by using the valuation
procedures set forth in the Acquired Funds Declaration of
Trust and the Funds Proxy Statement/Prospectus to be used
in connection with the Reorganization or such other valuation
procedures as shall be mutually agreed upon by the parties. The
value of the Acquired Funds net assets shall be calculated
net of the liquidation preference (including accumulated and
unpaid dividends) of all outstanding Acquired
Fund MuniPreferred shares.
2.2 VALUATION OF SHARES. The net asset value per
Acquiring Fund common share shall be the net asset value per
share computed on the Valuation Date, using the valuation
procedures set forth in the Acquiring Funds Articles of
Incorporation (Articles) and the Funds Proxy
Statement/Prospectus to be used in connection with the
Reorganization or such other valuation procedures as shall be
mutually agreed upon by the parties. The value of the Acquiring
Funds net assets shall be calculated net of the
liquidation preference (including accumulated and unpaid
dividends) of all outstanding Acquiring Fund MuniPreferred
shares.
2.3 SHARES TO BE ISSUED. The number of Acquiring
Fund Common Shares to be issued (including fractional
shares, if any) in exchange for the Acquired Funds net
assets, shall be determined by dividing the value of the
Acquired Funds net assets determined in accordance with
Section 2.1 by the net asset value per Acquiring
Fund Common Share determined in accordance with
Section 2.2.
A-4
2.4 EFFECT OF SUSPENSION IN TRADING. In the
event that on the Valuation Date, either: (a) the NYSE or
another primary exchange on which the portfolio securities of
the Acquiring Fund or the Acquired Fund are purchased or sold
shall be closed to trading or trading on such exchange shall be
restricted; or (b) trading or the reporting of trading on
the NYSE or elsewhere shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund
or the Acquired Fund is impracticable, the Valuation Date shall
be postponed until the first business day after the day when
trading is fully resumed and reporting is restored.
2.5 COMPUTATIONS OF NET ASSETS. All computations
of net asset value shall be made by or under the direction of
State Street Bank and Trust Company (State Street)
in accordance with its regular practice as custodian of the
Funds.
ARTICLE III
CLOSING
AND CLOSING DATE
3.1 CLOSING DATE. The Closing shall occur on
June 16, 2009 or such other date as the parties may agree
(the Closing Date). All acts taking place at the
Closing shall be deemed to take place as of immediately after
the close of regular trading on the NYSE on the Valuation Date.
The Closing shall be held as of 8:00 a.m. Central time (the
Effective Time) at the offices of Vedder Price P.C.
in Chicago, Illinois or at such other time
and/or place
as the parties may agree.
3.2 CUSTODIANS CERTIFICATE. The Acquired
Fund shall cause State Street, as custodian for the Acquired
Fund (the Custodian), to deliver to the Acquiring
Fund at the Closing a certificate of an authorized officer
stating that: (a) the Acquired Funds portfolio
securities, cash, and any other assets shall have been delivered
in proper form to the Acquiring Fund on the Closing Date; and
(b) all necessary taxes, including all applicable federal
and state stock transfer stamps, if any, shall have been paid,
or provision for payment shall have been made, in conjunction
with the delivery of portfolio securities by the Acquired Fund.
3.3 TRANSFER AGENTS CERTIFICATE. The
Acquired Fund shall cause State Street, as transfer agent for
the Acquired Fund, to deliver to the Acquiring Fund at the
Closing a certificate of an authorized officer stating that its
records contain the names and addresses of all the Acquired
Fund Shareholders, and the number and percentage ownership
of outstanding common and MuniPreferred shares owned by each
such shareholder immediately prior to the Closing. The Acquiring
Fund shall issue and deliver or cause State Street, its transfer
agent, to issue and deliver to the Acquired Fund a confirmation
evidencing the Acquiring Fund Shares to be credited on the
Closing Date to the Secretary of the Fund or provide evidence
satisfactory to the Acquired Fund that such Acquiring
Fund Shares have been credited to the Acquired Funds
account on the books of the Acquiring Fund.
3.4 DELIVERY OF ADDITIONAL ITEMS. At the
Closing, each party shall deliver to the other such bills of
sale, checks, assignments, share certificates, receipts and
other documents, if any, as such other party or its counsel may
reasonably request to effect the transactions contemplated by
this Agreement.
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ARTICLE IV
REPRESENTATIONS
AND WARRANTIES
4.1 REPRESENTATIONS OF THE ACQUIRED FUND. The
Acquired Fund represents and warrants as follows:
(a) The Acquired Fund is a business trust duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Massachusetts.
(b) The Acquired Fund is registered as a closed-end
non-diversified management investment company under the 1940
Act, and such registration is in full force and effect.
(c) The Acquired Fund is not, and the execution, delivery,
and performance of this Agreement (subject to shareholder
approval) will not result, in the violation of any provision of
the Acquired Funds Declaration of Trust or By-Laws or of
any material agreement, indenture, instrument, contract, lease,
or other undertaking to which the Acquired Fund is a party or by
which it is bound.
(d) Except as otherwise disclosed in writing to and
accepted by the Acquiring Fund, the Acquired Fund has no
material contracts or other commitments (other than this
Agreement and the obligations to pay the dividends
and/or
distributions contemplated by Section 1.4) that will be
terminated with liability to it before the Closing Date.
(e) No litigation, administrative proceeding, or
investigation of or before any court or governmental body is
presently pending or to its knowledge threatened against the
Acquired Fund or any of its properties or assets, which, if
adversely determined, would materially and adversely affect its
financial condition, the conduct of its business, or the ability
of the Acquired Fund to carry out the transactions contemplated
by this Agreement. The Acquired Fund knows of no facts that
might form the basis for the institution of such proceedings and
is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially and adversely affects its business or its ability to
consummate the transactions contemplated herein.
(f) The audited financial statements of the Acquired Fund
as of April 30, 2008, and for the year then ended have been
prepared in accordance with generally accepted accounting
principles, and such statements (copies of which have been
furnished to the Acquiring Fund) fairly reflect the financial
condition of the Acquired Fund as of April 30, 2008, and
there are no known contingent liabilities of the Acquired Fund
as of such date that are not disclosed in such statements. The
unaudited financial statements of the Acquired Fund as of
October 31, 2008, and for the semi-annual period then
ended, have been prepared in accordance with generally accepted
accounting principles, and such statements (copies of which will
be furnished to the Acquiring Fund) fairly reflect the financial
condition of the Acquired Fund as of October 31, 2008, and
there are no known contingent liabilities of the Acquired Fund
as of such date that are not disclosed in such statements.
(g) Since the date of the financial statements referred to
in subsection (f) above, there have been no material
adverse changes in the Acquired Funds financial condition,
assets, liabilities or business (other than changes occurring in
the ordinary course of business) and there are no known
contingent liabilities of the Acquired Fund arising after such
date. For the purposes of this subsection (g), a decline in the
net asset value of the Acquired Fund shall not constitute a
material adverse change.
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(h) All federal, state, local and other tax returns and
reports of the Acquired Fund required by law to be filed by it
(taking into account permitted extensions for filing) have been
timely filed and are complete and correct in all material
respects. All federal, state, local and other taxes of the
Acquired Fund required to be paid (whether or not shown on any
such return or report) have been paid, or provision shall have
been made for the payment thereof and any such unpaid taxes are
properly reflected on the financial statements referred to in
subsection (f) above. To the best of the Acquired
Funds knowledge, no tax authority is currently auditing or
preparing to audit the Acquired Fund, and no assessment for
taxes, interest, additions to tax, or penalties has been
asserted against the Acquired Fund.
(i) The authorized capital of the Acquired Fund consists of
an unlimited number of common and preferred shares, par value
$.01 per share. All issued and outstanding shares of the
Acquired Fund are duly and validly issued and outstanding, fully
paid and non-assessable by the Acquired Fund. All of the issued
and outstanding shares of the Acquired Fund will, at the time of
the Closing Date, be held by the persons and in the amounts set
forth in the records of the Acquired Funds transfer agent
as provided in Section 3.3. The Acquired Fund has no
outstanding options, warrants, or other rights to subscribe for
or purchase any shares of the Acquired Fund, and has no
outstanding securities convertible into shares of the Acquired
Fund.
(j) At the Closing Date, the Acquired Fund will have good
and marketable title to the Acquired Funds assets to be
transferred to the Acquiring Fund pursuant to Section 1.2,
and full right, power, and authority to sell, assign, transfer,
and deliver such assets, and the Acquiring Fund will acquire
good and marketable title thereto.
(k) The execution, delivery and performance of this
Agreement have been duly authorized by all necessary action on
the part of the Acquired Fund. Subject to approval by
shareholders, this Agreement constitutes a valid and binding
obligation of the Acquired Fund, enforceable in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or
affecting creditors rights and to general equity
principles.
(l) The information to be furnished by the Acquired Fund
for use in no-action letters, applications for orders,
registration statements, proxy materials, and other documents
that may be necessary in connection with the transactions
contemplated herein shall be accurate and complete in all
material respects and shall comply in all material respects with
federal securities and other laws and regulations.
(m) From the effective date of the Registration Statement
(as defined in Section 5.7), through the time of the
meeting of the shareholders and on the Closing Date, any written
information furnished by the Acquired Fund with respect to the
Acquired Fund for use in the Proxy Materials (as defined in
Section 5.7), or any other materials provided in connection
with the Reorganization, does not and will not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated or necessary to make the statements,
in light of the circumstances under which such statements were
made, not misleading.
(n) For each taxable year of its operations, including the
short taxable year ending with the Closing Date, the Acquired
Fund (i) has elected to qualify, and has qualified or will
qualify (in the case of the short taxable year ending with the
Closing Date), as a
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regulated investment company under the Code (a
RIC), (ii) has been eligible to and has
computed its federal income tax under Section 852 of the
Code, and will do so for the short taxable year ending with the
Closing Date and (iii) has been, and will be (in the case
of the short taxable year ending with the Closing Date), treated
as a separate corporation for federal income tax purposes.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The
Acquiring Fund represents and warrants as follows:
(a) The Acquiring Fund is a corporation, duly organized,
validly existing and in good standing under the laws of the
State of Minnesota.
(b) The Acquiring Fund is registered as a closed-end
diversified management investment company under the 1940 Act,
and such registration is in full force and effect.
(c) The Acquiring Fund is not, and the execution, delivery
and performance of this Agreement will not result, in a
violation of the Acquiring Funds Articles or By-Laws or of
any material agreement, indenture, instrument, contract, lease,
or other undertaking to which the Acquiring Fund is a party or
by which it is bound.
(d) No litigation, administrative proceeding or
investigation of or before any court or governmental body is
presently pending or to its knowledge threatened against the
Acquiring Fund or any of its properties or assets, which, if
adversely determined, would materially and adversely affect its
financial condition, the conduct of its business or the ability
of the Acquiring Fund to carry out the transactions contemplated
by this Agreement. The Acquiring Fund knows of no facts that
might form the basis for the institution of such proceedings and
it is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that
materially and adversely affects its business or its ability to
consummate the transaction contemplated herein.
(e) The audited financial statements of the Acquiring Fund
as of October 31, 2008 and for the fiscal year then ended
have been prepared in accordance with generally accepted
accounting principles and have been audited by independent
auditors, and such statements (copies of which have been
furnished to the Acquired Fund) fairly reflect the financial
condition of the Acquiring Fund as of October 31, 2008, and
there are no known contingent liabilities of the Acquiring Fund
as of such date that are not disclosed in such statements.
(f) Since the date of the financial statements referred to
in subsection (e) above, there have been no material
adverse changes in the Acquiring Funds financial
condition, assets, liabilities or business (other than changes
occurring in the ordinary course of business) and there are no
known contingent liabilities of the Acquiring Fund arising after
such date. For the purposes of this subsection (f), a decline in
the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(g) All federal, state, local and other tax returns and
reports of the Acquiring Fund required by law to be filed by it
(taking into account permitted extensions for filing) have been
timely filed and are complete and correct in all material
respects. All federal, state, local and other taxes of the
Acquiring Fund required to be paid (whether or not shown on any
such return or report) have been paid or provision shall have
been made for their payment and any such unpaid taxes are
properly reflected on the financial statements referred to in
subsection (e) above. To the best of the Acquiring
Funds knowledge, no tax
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authority is currently auditing or preparing to audit the
Acquiring Fund, and no assessment for taxes, interest, additions
to tax or penalties has been asserted against the Acquiring Fund.
(h) The authorized capital of the Acquiring Fund consists
of 200,000,000 common shares and 1,000,000 preferred shares, par
value $0.01 per share. All issued and outstanding Acquiring
Fund Shares are duly and validly issued and outstanding,
fully paid and non-assessable by the Acquiring Fund. The
Acquiring Fund has no outstanding options, warrants, or other
rights to subscribe for or purchase shares of the Acquiring
Fund, and there are no outstanding securities convertible into
shares of the Acquiring Fund.
(i) The execution, delivery and performance of this
Agreement have been duly authorized by all necessary action on
the part of the Acquiring Fund. Subject to approval by
shareholders of the Acquiring Fund, this Agreement constitutes a
valid and binding obligation of the Acquiring Fund, enforceable
in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other
laws relating to or affecting creditors rights and to
general equity principles.
(j) The Acquiring Fund Shares to be issued and
delivered to the Acquired Fund for the account of the Acquired
Fund Shareholders pursuant to the terms of this Agreement
will, at the Closing Date, have been duly authorized. When so
issued and delivered, such shares will be duly and validly
issued shares of the Acquiring Fund, and will be fully paid and
non-assessable.
(k) The information to be furnished by the Acquiring Fund
for use in no-action letters, applications for orders,
registration statements, proxy materials, and other documents
that may be necessary in connection with the transactions
contemplated herein shall be accurate and complete in all
material respects and shall comply in all material respects with
federal securities and other laws and regulations.
(l) From the effective date of the Registration Statement
(as defined in Section 5.7), through the time of the
meeting of the shareholders and on the Closing Date, any written
information furnished by the Acquiring Fund with respect to the
Acquiring Fund for use in the Proxy Materials (as defined in
Section 5.7), or any other materials provided in connection
with the Reorganization, does not and will not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated or necessary to make the statements,
in light of the circumstances under which such statements were
made, not misleading.
(m) For each taxable year of its operations, including the
taxable year that includes the Closing Date, the Acquiring Fund
(i) has elected to qualify, has qualified or will qualify
(in the case of the year that includes the Closing Date) and
intends to continue to qualify as a RIC under the Code,
(ii) has been eligible to and has computed its federal
income tax under Section 852 of the Code, and will do so
for the taxable year that includes the Closing Date and
(iii) has been, and will be (in the case of the taxable
year that includes the Closing Date), treated as a separate
corporation for federal income tax purposes.
(n) The Acquiring Fund agrees to use all reasonable efforts
to obtain the approvals and authorizations required by the
Securities Act of 1933, as amended (the
1933 Act), the 1940 Act, and any state
securities laws as it may deem appropriate in order to continue
its operations after the Closing Date.
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ARTICLE V
COVENANTS
OF THE FUNDS
5.1 OPERATION IN ORDINARY COURSE. Subject to
Sections 1.2, 1.4 and 8.5, the Acquiring Fund and the
Acquired Fund will operate its respective business in the
ordinary course between the date of this Agreement and the
Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions, any
other distribution necessary or desirable to avoid federal
income or excise taxes.
5.2 APPROVAL OF SHAREHOLDERS. The Acquiring Fund
and Acquired Fund will call a special meeting of their
respective shareholders to consider and act upon this Agreement
(or transactions contemplated thereby) and to take all other
appropriate action necessary to obtain approval of the
transactions contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Acquired Fund
covenants that the Acquiring Fund Shares to be issued
pursuant to this Agreement are not being acquired for the
purpose of making any distribution, other than in connection
with the Reorganization and in accordance with the terms of this
Agreement.
5.4 ADDITIONAL INFORMATION. The Acquired Fund
will assist the Acquiring Fund in obtaining such information as
the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Funds shares.
5.5 FURTHER ACTION. Subject to the provisions of
this Agreement, each Fund will take or cause to be taken, all
action, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement, including any
actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As
promptly as practicable, but in any case within 60 days
after the Closing Date, the Acquired Fund shall furnish the
Acquiring Fund, in such form as is reasonably satisfactory to
the Acquiring Fund and which shall be certified by the Acquired
Funds Controller, a statement of the earnings and profits
of the Acquired Fund for federal income tax purposes, as well as
any net operating loss carryovers and capital loss carryovers,
that will be carried over to the Acquiring Fund as a result of
Section 381 of the Code.
5.7 PREPARATION OF REGISTRATION STATEMENT AND PROXY
MATERIALS. The Funds will prepare and file with the
Securities and Exchange Commission (the Commission)
a registration statement on
Form N-14
relating to the Acquiring Fund Shares to be issued to the
Acquired Fund Shareholders (the Registration
Statement). The Registration Statement shall include a
proxy statement of the Funds and a prospectus of the Acquiring
Fund relating to the transaction contemplated by this Agreement.
The Registration Statement shall be in compliance with the
1933 Act, the Securities Exchange Act of 1934, as amended
(the 1934 Act), and the 1940 Act, as
applicable. Each party will provide the other party with the
materials and information necessary to prepare the proxy
statement and related materials (the Proxy
Materials), for inclusion therein, in connection with the
meetings of the Funds shareholders to consider the
approval of this Agreement and the transactions contemplated
herein.
5.8 TAX STATUS OF REORGANIZATION. It is the intention of
the parties that the transaction will qualify as a
reorganization within the meaning of Section 368(a) of the
Code. Neither the Acquired Fund nor the Acquiring Fund shall
take any action or cause any action to be taken (including,
without limitation the filing of any tax return) that is
inconsistent with such
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treatment or that results in the failure of the transaction to
qualify as a reorganization within the meaning of
Section 368(a) of the Code. At or prior to the Closing
Date, the parties to this Agreement will take such reasonable
action, or cause such action to be taken, as is reasonably
necessary to enable Vedder Price P.C. to render the tax opinion
contemplated in this Agreement.
ARTICLE VI
CONDITION
PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the
transactions provided for herein shall be subject to the
following condition:
6.1 All representations, covenants, and warranties of the
Acquiring Fund contained in this Agreement shall be true and
correct in all material respects as of the date hereof and as of
the Closing Date, with the same force and effect as if made on
and as of the Closing Date. The Acquiring Fund shall have
delivered to the Acquired Fund a certificate executed in the
Acquiring Funds name by the Acquiring Funds
President or Vice President and its Controller, in form and
substance satisfactory to the Acquired Fund and dated as of the
Closing Date, to such effect and as to such other matters as the
Acquired Fund shall reasonably request.
ARTICLE VII
CONDITIONS
PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the
transactions provided for herein shall be subject to the
following conditions:
7.1 All representations, covenants, and warranties of the
Acquired Fund contained in this Agreement shall be true and
correct in all material respects as of the date hereof and as of
the Closing Date, with the same force and effect as if made on
and as of the Closing Date. The Acquired Fund shall have
delivered to the Acquiring Fund on the Closing Date a
certificate executed in the Acquired Funds name by the
Acquired Funds President or Vice President and the
Controller, in form and substance satisfactory to the Acquiring
Fund and dated as of the Closing Date, to such effect and as to
such other matters as the Acquiring Fund shall reasonably
request.
7.2 The Acquired Fund shall have delivered to the Acquiring
Fund a statement of the Acquired Funds assets and
liabilities, together with a list of the Acquired Funds
portfolio securities showing the tax basis of such securities by
lot and the holding periods of such securities, as of the
Closing Date, certified by the Controller of the Fund.
7.3 On or immediately prior to the Closing Date, the
Acquired Fund shall have declared the dividends
and/or
distributions contemplated by Section 1.4.
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ARTICLE VIII
FURTHER
CONDITIONS PRECEDENT
The obligations of the Acquired Fund or the Acquiring Fund
hereunder shall also be subject to the following:
8.1 This Agreement and the transactions contemplated
herein, with respect to the Acquired Fund, shall have been
approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with applicable law
and the provisions of the Acquired Funds Declaration of
Trust and By-Laws. In addition, this Agreement, the issuance of
common shares and the transactions contemplated herein, with
respect to the Acquiring Fund, shall have been approved by the
requisite vote of the holders of the outstanding shares of the
Acquiring Fund in accordance with applicable law, the
requirements of the NYSE and the provisions of the Acquiring
Funds Articles and By-Laws. Notwithstanding anything
herein to the contrary, neither the Acquiring Fund nor the
Acquired Fund may waive the conditions set forth in this
Section 8.1.
8.2 On the Closing Date, the Commission shall not have
issued an unfavorable report under Section 25(b) of the
1940 Act, or instituted any proceeding seeking to enjoin the
consummation of the transactions contemplated by this Agreement
under Section 25(c) of the 1940 Act. Furthermore, no
action, suit or other proceeding shall be threatened or pending
before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in
connection with this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other
consents, orders, and permits of federal, state and local
regulatory authorities (including those of the Commission and of
state securities authorities, including any necessary
no-action positions and exemptive orders from such
federal and state authorities) to permit consummation of the
transactions contemplated herein shall have been obtained.
8.4 The Registration Statement shall have become effective
under the 1933 Act, and no stop orders suspending the
effectiveness thereof shall have been issued. To the best
knowledge of the parties to this Agreement, no investigation or
proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act.
8.5 The Acquired Fund shall have declared and paid a
dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its
shareholders all of the Acquired Funds investment company
taxable income for all taxable periods ending on or before the
Closing Date (computed without regard to any deduction for
dividends paid), if any, plus the excess of its interest income
excludible from gross income under Section 103(a) of the
Code, if any, over its deductions disallowed under
Sections 265 and 171(a)(2) of the Code for all taxable
periods ending on or before the Closing Date and all of its net
capital gains realized in all taxable periods ending on or
before the Closing Date (after reduction for any capital loss
carry forward).
8.6 The Funds shall have received on the Closing Date an
opinion from Vedder Price P.C., dated as of the Closing Date,
substantially to the effect that:
(a) The Acquired Fund is a business trust, duly organized
and validly existing under the laws of the Commonwealth of
Massachusetts, which, to such counsels knowledge, has the
power to own all of its properties and assets and to carry on
its business as presently conducted.
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(b) The Acquiring Fund is a corporation, duly organized and
validly existing under the laws of the State of Minnesota,
which, to such counsels knowledge, has the power to own
all of its properties and assets and to carry on its business as
presently conducted.
(c) Each Fund is registered as a closed-end management
investment company under the 1940 Act, and, to such
counsels knowledge, such registration under the 1940 Act
is in full force and effect.
(d) Assuming that consideration of not less than the net
asset value of the Acquired Fund common shares has been paid,
and assuming that such shares were issued in accordance with the
terms of the Acquired Funds registration statement, or any
amendment thereto, in effect at the time of such issuance, all
issued and outstanding shares of the Acquired Fund are legally
issued and fully paid and non-assessable, and no shareholder of
the Acquired Fund has any preemptive rights with respect to the
Acquired Funds shares.
(e) Assuming that the Acquiring Fund Shares have been
issued in accordance with the terms of this Agreement, the
Acquiring Fund Shares to be issued and delivered to the
Acquired Fund on behalf of the Acquired Fund Shareholders
as provided by this Agreement are duly authorized and upon such
delivery will be legally issued and outstanding and fully paid
and non-assessable, and no shareholder of the Acquiring Fund has
any preemptive rights with respect to Acquiring Fund Shares.
(f) The Registration Statement is effective and, to such
counsels knowledge, no stop order under the 1933 Act
pertaining thereto has been issued, and to the knowledge of such
counsel, no consent, approval, authorization or order of any
court or governmental authority of the United States or the
State of Minnesota is required for consummation by the Funds of
the transactions contemplated herein, except as have been
obtained.
(g) The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated herein
will not, result in a violation of the Acquired Funds
Declaration of Trust (assuming approval of shareholders of the
Funds has been obtained) or By-Laws or the Acquiring Funds
Articles (assuming approval of shareholders of the Funds has
been obtained) or By-Laws.
Insofar as the opinion expressed above relates to or is
dependent upon matters governed by the State of Minnesota,
Vedder Price P.C. may rely on the opinion of Dorsey &
Whitney LLP. Insofar as the opinion expressed above relates to
or is dependent upon matters governed by the Commonwealth of
Massachusetts, Vedder Price P.C. may rely on the opinion
of Bingham McCutchen LLP.
8.7 The Funds shall have received an opinion of Vedder
Price P.C. addressed to the Acquiring Fund and the Acquired Fund
substantially to the effect that for federal income tax purposes:
(a) The transfer of all the Acquired Funds assets to
the Acquiring Fund in exchange solely for Acquiring
Fund Shares and the assumption by the Acquiring Fund of all
the liabilities of the Acquired Fund followed by the pro rata
distribution to the Acquired Fund shareholders of all the
Acquiring Fund Shares received by the Acquired Fund in
complete liquidation of the Acquired Fund will constitute a
reorganization within the meaning of
Section 368(a) of the Code and the Acquiring Fund and the
Acquired Fund will each be a party to a
reorganization, within the meaning of Section 368(b)
of the Code, with respect to the Reorganization.
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(b) No gain or loss will be recognized by the Acquiring
Fund upon the receipt of all the assets of the Acquired Fund
solely in exchange for Acquiring Fund Shares and the
assumption by the Acquiring Fund of all the liabilities of the
Acquired Fund.
(c) No gain or loss will be recognized by the Acquired Fund
upon the transfer of all the Acquired Funds assets to the
Acquiring Fund solely in exchange for Acquiring Fund Shares
and the assumption by the Acquiring Fund of all the liabilities
of the Acquired Fund or upon the distribution (whether actual or
constructive) of the Acquiring Fund Shares, respectively,
to the Acquired Fund Shareholders solely in exchange for
such shareholders common and MuniPreferred shares,
respectively, of the Acquired Fund in complete liquidation of
the Acquired Fund.
(d) No gain or loss will be recognized by the Acquired
Fund Shareholders upon the exchange of their Acquired Fund
shares solely for Acquiring Fund Shares, respectively, in
the Reorganization.
(e) The aggregate basis of the Acquiring Fund Shares
received by each Acquired Fund Shareholder, respectively,
pursuant to the Reorganization will be the same as the aggregate
basis of the Acquired Fund shares exchanged therefor by such
shareholder. The holding period of the Acquiring
Fund Shares received by each Acquired Fund Shareholder
will include the period during which the Acquired Fund shares
exchanged therefor were held by such shareholder, provided such
Acquired Fund shares are held as capital assets at the time of
the Reorganization.
(f) The basis of the Acquired Funds assets
transferred to the Acquiring Fund will be the same as the basis
of such assets to the Acquired Fund immediately before the
Reorganization. The holding period of the assets of the Acquired
Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Acquired Fund.
No opinion will be expressed as to (i) the effect of the
Reorganization on (A) the Acquired Fund or the Acquiring
Fund with respect to gain or loss on any asset that is required
to be recognized for U.S. federal income tax purposes at
the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting and
(B) any Acquired Fund shareholder or Acquiring Fund
shareholder that is required to recognize unrealized gains and
losses for U.S. federal income tax purposes under a
mark-to-market system of accounting, or (C) the Acquired
Fund or the Acquiring Fund with respect to any stock held in a
passive foreign investment company as defined in
Section 1297(a) of the Code or (ii) any other federal
tax issues (except those set forth above) and all state, local
or foreign tax issues of any kind.
Such opinion shall be based on customary assumptions and such
representations as Vedder Price P.C. may reasonably request of
the Funds, and the Acquired Fund and the Acquiring Fund will
cooperate to make and certify the accuracy of such
representations. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Acquired Fund may
waive the conditions set forth in this Section 8.7.
8.8 The Acquiring Fund shall have obtained written
confirmation from both Moodys Investors Service, Inc. and
Standard & Poors Corporation that
(a) consummation of the transactions contemplated by this
Agreement will not impair the Aaa and AAA ratings,
respectively, assigned by such rating agencies to the existing
shares of Acquiring Fund MuniPreferred shares,
Series M, Series T, Series W, Series W2,
Series TH1, Series TH2 and Series F, and
A-14
(b) the shares of Acquiring Fund MuniPreferred Shares
to be issued pursuant to Section 1.1 will be rated
Aaa or AAA, respectively, by such rating agencies.
ARTICLE IX
EXPENSES
9.1 The expenses incurred in connection with the
Reorganization will be allocated between the Funds based on the
relative benefit the Adviser expects each Fund to receive in
connection with the Reorganization as of the Closing Date.
Reorganization expenses include, without limitation:
(a) expenses associated with the preparation and filing of
the Registration Statement and other Proxy Materials;
(b) postage; (c) printing; (d) accounting fees;
(e) legal fees incurred by each Fund; (f) solicitation
costs; and (g) other related administrative or operational
costs.
9.2 Each party represents and warrants to the other that
there is no person or entity entitled to receive any
brokers fees or similar fees or commission payments in
connection with the transactions provided for herein.
9.3 Notwithstanding the foregoing, expenses will in any
event be paid by the party directly incurring such expenses if
and to the extent that the payment by the other party of such
expenses would result in the disqualification of the Acquiring
Fund or the Acquiring Fund, as the case may be, as a RIC.
Acquired Fund shareholders will pay their respective expenses,
if any, incurred in connection with the Reorganization.
ARTICLE X
ENTIRE
AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The parties agree that no party has made to the other
parties any representation, warranty
and/or
covenant not set forth herein, and that this Agreement
constitutes the entire agreement between and among the parties.
10.2 The representations, warranties, and covenants
contained in this Agreement or in any document delivered
pursuant to or in connection with this Agreement shall not
survive the consummation of the transactions contemplated
hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual
agreement of the parties and such termination may be effected by
each Funds President or the Vice President without further
action by the Board. In addition, either Fund may at its option
terminate this Agreement at or before the Closing Date due to:
(a) a breach by any other party of any representation,
warranty, or agreement contained herein to be performed at or
before the Closing Date, if not cured within 30 days;
(b) a condition precedent to the obligations of the
terminating party that has not been met and it reasonably
appears that it will not or cannot be met; or
A-15
(c) a determination by the Board that the consummation of
the transactions contemplated herein is not in the best
interests of the Fund.
11.2 In the event of any such termination, in the absence
of willful default, there shall be no liability for damages on
the part of the Acquired Board, the Acquiring Board, the
Acquiring Fund, the Acquired Fund, the Adviser, or the
Funds or Advisers officers.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or
supplemented in such manner as may be mutually agreed upon in
writing by the officers of each Fund as specifically authorized
by each of the Funds Board; provided, however, that
following the meeting of the shareholders of the Funds called by
each Fund pursuant to Section 5.2 of this Agreement, no
such amendment may have the effect of changing the provisions
for determining the number of Acquiring Fund Shares to be
issued to the Acquired Fund Shareholders under this
Agreement to the detriment of such shareholders without their
further approval.
ARTICLE XIII
HEADINGS;
COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
13.1 The article and section headings contained in this
Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
13.2 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.
13.4 This Agreement shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns,
but, except as provided in this section, no assignment or
transfer hereof or of any rights or obligations hereunder shall
be made by any party without the written consent of the other
parties. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give any person, firm, or
corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by
reason of this Agreement.
13.5 It is expressly agreed that the obligations of each
Fund hereunder shall not be binding upon any of the Trustees of
the Acquired Fund, the Directors of the Acquiring Fund,
shareholders, nominees, officers, agents, or employees of either
Fund personally, but shall bind only the fund property of the
respective Fund, as provided in the Acquired Funds
Declaration of Trust and the Acquiring Funds Articles. The
execution and delivery of this Agreement have been authorized by
the Acquiring Board and the Acquired Board and signed by
authorized officers of each Fund, acting as such. Neither the
authorization by such Board members nor the execution and
delivery by such officers shall be deemed to have been made by
any of them individually or to impose any liability on any of
them personally, but shall bind only the fund property of the
A-16
respective Fund as provided in the Acquired Funds
Declaration of Trust or the Acquiring Funds Articles, as
applicable.
A-17
IN WITNESS WHEREOF, the parties have duly executed this
Agreement, all as of the date first written above.
NUVEEN INSURED MUNICIPAL
OPPORTUNITY FUND, INC.
Name: Gifford R. Zimmerman
Title: Chief Administrative Officer
ACKNOWLEDGED:
Name: Mark L. Winget
Title: Vice President and Assistant Secretary
NUVEEN INSURED FLORIDA PREMIUM
MUNICIPAL INCOME FUND
Name: Gifford R. Zimmerman
Title: Chief Administrative Officer
ACKNOWLEDGED:
Name: Mark L. Winget
Title: Vice President and Assistant Secretary
A-18
APPENDIX B
FINANCIAL
HIGHLIGHTS
Information contained in the tables below under the headings
Per Share Operating Performance and
Ratios/Supplemental Data shows the operating
performance of the Fund for the last ten fiscal years.
Acquiring
Fund
The following financial highlights table is intended to help you
understand the Funds financial performance. Certain
information reflects financial results from a single Fund common
share outstanding throughout each period. The information in the
financial highlights is derived from the Funds financial
statements. The Funds annual financial statements as of
October 31, 2008, including the financial highlights for
each of the five years in the period than ended, have been
audited by Ernst & Young LLP, independent registered
public accounting firm. The Annual and Semi-Annual Reports may
be obtained without charge by calling
(800) 257-8787.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
Per Share Operating Performance
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Common Share Net Asset Value
|
|
$
|
15.04
|
|
|
$
|
15.57
|
|
|
$
|
15.46
|
|
|
$
|
16.06
|
|
|
$
|
15.89
|
|
|
$
|
15.83
|
|
|
$
|
15.72
|
|
|
$
|
14.64
|
|
|
$
|
14.25
|
|
|
$
|
16.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
0.97
|
|
|
|
0.98
|
|
|
|
0.98
|
|
|
|
1.01
|
|
|
|
1.05
|
|
|
|
1.06
|
|
|
|
1.15
|
|
|
|
1.17
|
|
|
|
1.21
|
|
|
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized/Unrealized Gain (Loss)
|
|
|
(2.62
|
)
|
|
|
(0.45
|
)
|
|
|
0.34
|
|
|
|
(0.50
|
)
|
|
|
0.20
|
|
|
|
0.17
|
|
|
|
0.03
|
|
|
|
1.04
|
|
|
|
0.39
|
|
|
|
(1.73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from Net Investment Income to Preferred
Shareholders
|
|
|
(0.30
|
)
|
|
|
(0.30
|
)
|
|
|
(0.24
|
)
|
|
|
(0.16
|
)
|
|
|
(0.08
|
)
|
|
|
(0.07
|
)
|
|
|
(0.11
|
)
|
|
|
(0.26
|
)
|
|
|
(0.33
|
)
|
|
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from Capital Gains to Preferred Shareholders
|
|
|
|
*
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1.95
|
)
|
|
|
0.22
|
|
|
|
1.05
|
|
|
|
0.35
|
|
|
|
1.17
|
|
|
|
1.15
|
|
|
|
1.06
|
|
|
|
1.95
|
|
|
|
1.27
|
|
|
|
(0.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Distributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income to Common Shareholders
|
|
|
(0.70
|
)
|
|
|
(0.73
|
)
|
|
|
(0.80
|
)
|
|
|
(0.92
|
)
|
|
|
(0.97
|
)
|
|
|
(0.97
|
)
|
|
|
(0.93
|
)
|
|
|
(0.87
|
)
|
|
|
(0.88
|
)
|
|
|
(0.94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Gains to Common Shareholders
|
|
|
|
*
|
|
|
(0.02
|
)
|
|
|
(0.14
|
)
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
(0.12
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(0.70
|
)
|
|
|
(0.75
|
)
|
|
|
(0.94
|
)
|
|
|
(0.95
|
)
|
|
|
(1.00
|
)
|
|
|
(1.09
|
)
|
|
|
(0.95
|
)
|
|
|
(0.87
|
)
|
|
|
(0.88
|
)
|
|
|
(0.98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering Costs and Preferred Share Underwriting Discounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Common Share Net Asset Value
|
|
$
|
12.39
|
|
|
$
|
15.04
|
|
|
$
|
15.57
|
|
|
$
|
15.46
|
|
|
$
|
16.06
|
|
|
$
|
15.89
|
|
|
$
|
15.83
|
|
|
$
|
15.72
|
|
|
$
|
14.64
|
|
|
$
|
14.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Market Value
|
|
$
|
11.15
|
|
|
$
|
13.56
|
|
|
$
|
14.75
|
|
|
$
|
14.52
|
|
|
$
|
16.05
|
|
|
$
|
15.64
|
|
|
$
|
15.21
|
|
|
$
|
14.74
|
|
|
$
|
13.06
|
|
|
$
|
13.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Returns:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on Market Value**
|
|
|
(13.17
|
)%
|
|
|
(3.18
|
)%
|
|
|
8.26
|
%
|
|
|
(3.72
|
)%
|
|
|
9.47
|
%
|
|
|
10.22
|
%
|
|
|
9.80
|
%
|
|
|
19.84
|
%
|
|
|
5.06
|
%
|
|
|
(14.71
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on Common Share Net Asset Value**
|
|
|
(13.45
|
)%
|
|
|
1.49
|
%
|
|
|
7.05
|
%****
|
|
|
2.21
|
%
|
|
|
7.64
|
%
|
|
|
7.51
|
%
|
|
|
7.01
|
%
|
|
|
13.61
|
%
|
|
|
9.25
|
%
|
|
|
(5.33
|
)%
|
B-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
Per Share Operating Performance
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
1999
|
|
|
|
|
Ratios/Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Net Assets Applicable to Common Shares (000)
|
|
$
|
1,005,218
|
|
|
$
|
1,220,297
|
|
|
$
|
1,263,172
|
|
|
$
|
1,254,638
|
|
|
$
|
1,302,985
|
|
|
$
|
1,288,087
|
|
|
$
|
1,283,353
|
|
|
$
|
1,274,659
|
|
|
$
|
1,186,701
|
|
|
$
|
1,155,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets Applicable to Common Shares
Before Credit/Reimbursement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses Including Interest(a)
|
|
|
1.43
|
%
|
|
|
1.41
|
%
|
|
|
1.17
|
%
|
|
|
1.16
|
%
|
|
|
1.16
|
%
|
|
|
1.17
|
%
|
|
|
1.20
|
%
|
|
|
1.21
|
%
|
|
|
1.20
|
%
|
|
|
1.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses Excluding Interest(a)
|
|
|
1.19
|
%
|
|
|
1.16
|
%
|
|
|
1.17
|
%
|
|
|
1.16
|
%
|
|
|
1.16
|
%
|
|
|
1.17
|
%
|
|
|
1.20
|
%
|
|
|
1.21
|
%
|
|
|
1.20
|
%
|
|
|
1.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
6.76
|
%
|
|
|
6.39
|
%
|
|
|
6.38
|
%
|
|
|
6.35
|
%
|
|
|
6.59
|
%
|
|
|
6.67
|
%
|
|
|
7.42
|
%
|
|
|
7.69
|
%
|
|
|
8.47
|
%
|
|
|
7.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets Applicable to Common Shares After
Credit/Reimbursement***:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses Including Interest(a)
|
|
|
1.41
|
%
|
|
|
1.40
|
%
|
|
|
1.17
|
%
|
|
|
1.16
|
%
|
|
|
1.16
|
%
|
|
|
1.16
|
%
|
|
|
1.19
|
%
|
|
|
1.20
|
%
|
|
|
1.20
|
%
|
|
|
1.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses Excluding Interest(a)
|
|
|
1.17
|
%
|
|
|
1.14
|
%
|
|
|
1.17
|
%
|
|
|
1.16
|
%
|
|
|
1.16
|
%
|
|
|
1.16
|
%
|
|
|
1.19
|
%
|
|
|
1.20
|
%
|
|
|
1.20
|
%
|
|
|
1.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
6.78
|
%
|
|
|
6.41
|
%
|
|
|
6.38
|
%
|
|
|
6.35
|
%
|
|
|
6.59
|
%
|
|
|
6.68
|
%
|
|
|
7.42
|
%
|
|
|
7.70
|
%
|
|
|
8.48
|
%
|
|
|
7.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Turnover Rate
|
|
|
9
|
%
|
|
|
5
|
%
|
|
|
13
|
%
|
|
|
25
|
%
|
|
|
8
|
%
|
|
|
21
|
%
|
|
|
37
|
%
|
|
|
39
|
%
|
|
|
16
|
%
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares at End of Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amount Outstanding (000)
|
|
$
|
623,350
|
|
|
$
|
680,000
|
|
|
$
|
680,000
|
|
|
$
|
680,000
|
|
|
$
|
680,000
|
|
|
$
|
680,000
|
|
|
$
|
680,000
|
|
|
$
|
680,000
|
|
|
$
|
680,000
|
|
|
$
|
680,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation and Market Value Per Share
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Coverage Per Share
|
|
$
|
65,315
|
|
|
$
|
69,864
|
|
|
$
|
71,440
|
|
|
$
|
71,126
|
|
|
$
|
72,904
|
|
|
$
|
72,356
|
|
|
$
|
72,182
|
|
|
$
|
71,862
|
|
|
$
|
68,629
|
|
|
$
|
67,482
|
|
|
|
|
|
|
*
|
|
Rounds to less than $.01 per share.
|
|
**
|
|
Total Return Based on Market Value
is the combination of changes in the market price per share and
the effect of reinvested dividend income and reinvested capital
gains distributions, if any, at the average price paid per share
at the time of reinvestment. The last dividend declared in the
period, which is typically paid on the first business day of the
following month, is assumed to be reinvested at the ending
market price. The actual reinvestment for the last dividend
declared in the period may take place over several days, and in
some instances may not be based on the market price, so the
actual reinvestment price may be different from the price used
in the calculation. Total returns are not annualized.
|
|
|
|
Total Return Based on Common Share
Net Asset Value is the combination of changes in common share
net asset value, reinvested dividend income at net asset value
and reinvested capital gains distributions at net asset value,
if any. The last dividend declared in the period, which is
typically paid on the first business day of the following month,
is assumed to be reinvested at the ending net asset value. The
actual reinvest price for the last dividend declared in the
period may often be based on the Funds market price (and
not its net asset value), and therefore may be different from
the price used in the calculation. Total returns are not
annualized.
|
|
***
|
|
After custodian fee credit and
expense reimbursement, where applicable.
|
|
|
|
****
|
|
During the fiscal year ended
October 31, 2006, the Fund received a payment from the
Adviser of $42,338 to offset losses realized on the disposal of
investments purchased in violation of the Funds investment
restrictions. This reimbursement did not have an impact on the
Funds Total Return on Common Share Net Asset Value.
|
|
|
|
|
|
The amounts shown are based on
common share equivalents.
|
|
|
|
Ratios do not reflect the effect of
dividend payments to preferred shareholders; income ratios
reflect income earned on assets attributable to preferred shares.
|
|
(a)
|
|
Interest expense arises from the
application of SFAS No. 140 to certain inverse
floating rate transactions entered into by the Fund as more
fully described in Footnote 1 Inverse Floating Rate
Securities, in the Funds annual report.
|
B-2
Acquired
Fund
The following financial highlights table is intended to help you
understand the Funds financial performance. Certain
information reflects financial results from a single Fund common
share outstanding throughout each period. Except where noted,
the information in the financial highlights is derived from the
Funds financial statements. The Funds annual
financial statements as of April 30, 2008, including the
financial highlights for each of the five years in the period
then ended, have been audited by Ernst & Young LLP,
independent registered public accounting firm. The information
as of October 31, 2008 appears in the Funds unaudited
interim financial statements as filed with the SEC in the
Funds
Semi-Annual
Report to shareholders. The Annual and Semi-Annual Reports may
be obtained without charge by calling (800) 257-8787.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
Year Ended June 30,
|
|
Per Share Operating Performance
|
|
2009(a)
|
|
|
2008
|
|
|
2007(b)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
1999
|
|
|
1998
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Common Share Net Asset Value
|
|
$
|
14.74
|
|
|
$
|
15.43
|
|
|
$
|
15.14
|
|
|
$
|
16.26
|
|
|
$
|
15.59
|
|
|
$
|
16.57
|
|
|
$
|
15.66
|
|
|
$
|
15.30
|
|
|
$
|
14.25
|
|
|
$
|
14.86
|
|
|
$
|
15.49
|
|
|
$
|
14.70
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
0.47
|
|
|
|
0.95
|
|
|
|
0.79
|
|
|
|
0.96
|
|
|
|
0.99
|
|
|
|
1.02
|
|
|
|
1.04
|
|
|
|
1.07
|
|
|
|
1.09
|
|
|
|
1.06
|
|
|
|
1.03
|
|
|
|
1.02
|
|
Net Realized/Unrealized Gain (Loss)
|
|
|
(1.67
|
)
|
|
|
(0.60
|
)
|
|
|
0.38
|
|
|
|
(0.91
|
)
|
|
|
0.86
|
|
|
|
(0.88
|
)
|
|
|
0.89
|
|
|
|
0.27
|
|
|
|
1.02
|
|
|
|
(0.59
|
)
|
|
|
(0.67
|
)
|
|
|
0.81
|
|
Distributions from Net Investment Income to Preferred
Shareholders
|
|
|
(0.15
|
)
|
|
|
(0.27
|
)
|
|
|
(0.22
|
)
|
|
|
(0.19
|
)
|
|
|
(0.11
|
)
|
|
|
(0.05
|
)
|
|
|
(0.08
|
)
|
|
|
(0.12
|
)
|
|
|
(0.28
|
)
|
|
|
(0.28
|
)
|
|
|
(0.23
|
)
|
|
|
(0.26
|
)
|
Distributions from Capital Gains to Preferred Shareholders
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1.35
|
)
|
|
|
0.06
|
|
|
|
0.94
|
|
|
|
(0.16
|
)
|
|
|
1.73
|
|
|
|
0.08
|
|
|
|
1.85
|
|
|
|
1.22
|
|
|
|
1.83
|
|
|
|
0.19
|
|
|
|
0.13
|
|
|
|
1.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Distributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income to Common Shareholders
|
|
|
(0.34
|
)
|
|
|
(0.69
|
)
|
|
|
(0.63
|
)
|
|
|
(0.82
|
)
|
|
|
(0.95
|
)
|
|
|
(0.96
|
)
|
|
|
(0.93
|
)
|
|
|
(0.86
|
)
|
|
|
(0.78
|
)
|
|
|
(0.80
|
)
|
|
|
(0.76
|
)
|
|
|
(0.78
|
)
|
Capital Gains to Common Shareholders
|
|
|
|
|
|
|
(0.06
|
)
|
|
|
(0.02
|
)
|
|
|
(0.14
|
)
|
|
|
(0.11
|
)
|
|
|
(0.10
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(0.34
|
)
|
|
|
(0.75
|
)
|
|
|
(0.65
|
)
|
|
|
(0.96
|
)
|
|
|
(1.06
|
)
|
|
|
(1.06
|
)
|
|
|
(0.94
|
)
|
|
|
(0.86
|
)
|
|
|
(0.78
|
)
|
|
|
(0.80
|
)
|
|
|
(0.76
|
)
|
|
|
(0.78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering Costs and Preferred Share Underwriting Discounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Common Share Net Asset Value
|
|
$
|
13.05
|
|
|
$
|
14.74
|
|
|
$
|
15.43
|
|
|
$
|
15.14
|
|
|
$
|
16.26
|
|
|
$
|
15.59
|
|
|
$
|
16.57
|
|
|
$
|
15.66
|
|
|
$
|
15.30
|
|
|
$
|
14.25
|
|
|
$
|
14.86
|
|
|
$
|
15.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Market Value
|
|
$
|
10.47
|
|
|
$
|
13.26
|
|
|
$
|
14.74
|
|
|
$
|
13.74
|
|
|
$
|
16.74
|
|
|
$
|
14.24
|
|
|
$
|
17.22
|
|
|
$
|
15.71
|
|
|
$
|
14.54
|
|
|
$
|
13.00
|
|
|
$
|
14.56
|
|
|
$
|
14.19
|
|
Total Returns:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on Market Value*
|
|
|
(18.76
|
)%
|
|
|
(4.90
|
)%
|
|
|
12.05
|
%
|
|
|
(12.56
|
)%
|
|
|
25.54
|
%
|
|
|
(11.70
|
)%
|
|
|
16.05
|
%
|
|
|
14.29
|
%
|
|
|
18.32
|
%
|
|
|
(5.17
|
)%
|
|
|
7.98
|
%
|
|
|
7.38
|
%
|
Based on Common Share Net Asset Value*
|
|
|
(9.29
|
)%
|
|
|
0.47
|
%
|
|
|
6.24
|
%
|
|
|
(0.95
|
)%
|
|
|
11.33
|
%
|
|
|
0.46
|
%
|
|
|
12.10
|
%
|
|
|
8.13
|
%
|
|
|
13.09
|
%
|
|
|
1.47
|
%
|
|
|
0.73
|
%
|
|
|
10.87
|
%
|
B-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
Year Ended June 30,
|
|
Per Share Operating Performance
|
|
2009(a)
|
|
|
2008
|
|
|
2007(b)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
1999
|
|
|
1998
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Net Assets Applicable to Common Shares (000)
|
|
$
|
185,567
|
|
|
$
|
209,621
|
|
|
$
|
222,058
|
|
|
$
|
217,904
|
|
|
$
|
233,779
|
|
|
$
|
223,965
|
|
|
$
|
237,490
|
|
|
$
|
223,961
|
|
|
$
|
218,642
|
|
|
$
|
203,591
|
|
|
$
|
212,428
|
|
|
$
|
221,383
|
|
Ratios to Average Net Assets Applicable to Common Shares
Before Credit/Reimbursement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses Including Interest(c)
|
|
|
1.22
|
%***
|
|
|
1.37
|
%
|
|
|
1.25
|
%***
|
|
|
1.18
|
%
|
|
|
1.16
|
%
|
|
|
1.16
|
%
|
|
|
1.18
|
%
|
|
|
1.21
|
%
|
|
|
1.27
|
%
|
|
|
1.30
|
%
|
|
|
1.20
|
%
|
|
|
1.21
|
%
|
Expenses Excluding Interest(c)
|
|
|
1.22
|
%***
|
|
|
1.19
|
%
|
|
|
1.18
|
%***
|
|
|
1.18
|
%
|
|
|
1.16
|
%
|
|
|
1.16
|
%
|
|
|
1.18
|
%
|
|
|
1.21
|
%
|
|
|
1.27
|
%
|
|
|
1.30
|
%
|
|
|
1.20
|
%
|
|
|
1.21
|
%
|
Net Investment Income
|
|
|
6.45
|
%***
|
|
|
6.32
|
%
|
|
|
6.13
|
%***
|
|
|
6.13
|
%
|
|
|
6.14
|
%
|
|
|
6.36
|
%
|
|
|
6.41
|
%
|
|
|
6.89
|
%
|
|
|
7.22
|
%
|
|
|
7.53
|
%
|
|
|
6.58
|
%
|
|
|
6.69
|
%
|
Ratios to Average Net Assets Applicable to Common Shares After
Credit/Reimbursement**:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses Including Interest(c)
|
|
|
1.19
|
%***
|
|
|
1.36
|
%
|
|
|
1.24
|
%***
|
|
|
1.17
|
%
|
|
|
1.16
|
%
|
|
|
1.15
|
%
|
|
|
1.16
|
%
|
|
|
1.21
|
%
|
|
|
1.26
|
%
|
|
|
1.29
|
%
|
|
|
1.20
|
%
|
|
|
1.21
|
%
|
Expenses Excluding Interest(c)
|
|
|
1.19
|
%***
|
|
|
1.17
|
%
|
|
|
1.17
|
%***
|
|
|
1.17
|
%
|
|
|
1.16
|
%
|
|
|
1.15
|
%
|
|
|
1.16
|
%
|
|
|
1.21
|
%
|
|
|
1.26
|
%
|
|
|
1.29
|
%
|
|
|
1.20
|
%
|
|
|
1.21
|
%
|
Net Investment Income
|
|
|
6.48
|
%***
|
|
|
6.33
|
%
|
|
|
6.14
|
%***
|
|
|
6.14
|
%
|
|
|
6.15
|
%
|
|
|
6.36
|
%
|
|
|
6.42
|
%
|
|
|
6.89
|
%
|
|
|
7.23
|
%
|
|
|
7.54
|
%
|
|
|
6.58
|
%
|
|
|
6.69
|
%
|
Portfolio Turnover Rate
|
|
|
4
|
%
|
|
|
28
|
%
|
|
|
6
|
%
|
|
|
9
|
%
|
|
|
12
|
%
|
|
|
38
|
%
|
|
|
14
|
%
|
|
|
8
|
%
|
|
|
20
|
%
|
|
|
22
|
%
|
|
|
11
|
%
|
|
|
11
|
%
|
Preferred Shares at End of Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amount Outstanding (000)
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
Liquidation and Market Value Per Share
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Asset Coverage Per Share
|
|
$
|
66,794
|
|
|
$
|
72,212
|
|
|
$
|
75,013
|
|
|
$
|
74,077
|
|
|
$
|
77,653
|
|
|
$
|
75,443
|
|
|
$
|
78,489
|
|
|
$
|
75,442
|
|
|
$
|
74,244
|
|
|
$
|
70,854
|
|
|
$
|
72,844
|
|
|
$
|
74,861
|
|
|
|
|
|
|
*
|
|
Total Return Based on Market Value
is the combination of changes in the market price per share and
the effect of reinvested dividend income and reinvested capital
gains distributions, if any, at the average price paid per share
at the time of reinvestment. The last dividend declared in the
period, which is typically paid on the first business day of the
following month, is assumed to be reinvested at the ending
market price. The actual reinvestment for the last dividend
declared in the period may take place over several days, and in
some instances may not be based on the market price, so the
actual reinvestment price may be different from the price used
in the calculation. Total returns are not annualized.
|
|
|
|
Total Return Based on Common Share
Net Asset Value is the combination of changes in common share
net asset value, reinvested dividend income at net asset value
and reinvested capital gains distributions at net asset value,
if any. The last dividend declared in the period, which is
typically paid on the first business day of the following month,
is assumed to be reinvested at the ending net asset value. The
actual reinvest price for the last dividend declared in the
period may often be based on the Funds market price (and
not its net asset value), and therefore may be different from
the price used in the calculation. Total returns are not
annualized.
|
|
**
|
|
After custodian fee credit and
expense reimbursement, where applicable.
|
|
***
|
|
Annualized.
|
|
|
|
The amounts shown are based on
common share equivalents.
|
|
|
|
Ratios do not reflect the effect of
dividend payments to preferred shareholders; income ratios
reflect income earned on assets attributable to preferred shares.
|
|
(a)
|
|
For the six months ended
October 31, 2008.
|
|
(b)
|
|
For the ten months ended
April 30, 2007.
|
|
(c)
|
|
Interest expense arises from the
application of SFAS No. 140 to certain inverse
floating rate transactions entered into by the Fund as more
fully described in Footnote 1 Inverse Floating Rate
Securities, in the Funds annual report.
|
B-4
Nuveen
Investments
333
West Wacker Drive
Chicago,
IL 60606-1286
(800) 257-8787
|
|
www.nuveen.com
|
NIO-S
0509
|
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION OF THE ASSETS AND LIABILITIES OF
NUVEEN INSURED FLORIDA PREMIUM INCOME MUNICIPAL FUND
(the Florida Fund or the Acquired Fund)
BY AND IN EXCHANGE FOR SHARES OF
NUVEEN INSURED MUNICIPAL OPPORTUNITY FUND, INC.
(the National Fund or the Acquiring Fund and, together with the Florida Fund, the Funds
and each a Fund)
This Statement of Additional Information is available to shareholders of the Nuveen Insured
Florida Premium Income Municipal Fund in connection with the proposed reorganization whereby (i) the
National Fund would acquire all of the assets and assume all of the liabilities of the Florida
Fund in exchange solely for common shares and Municipal Auction Rate Cumulative Preferred Shares
(MuniPreferred), Series W3 and Series TH3, of the National Fund, (ii) such shares of
the National Fund would be distributed to the common shareholders and MuniPreferred, Series W and Series TH,
shareholders of the Florida Fund and (iii) the Florida Fund would be liquidated, dissolved and terminated in
accordance with the Florida Funds Declaration of Trust (collectively, the Reorganization).
This
Statement of Additional Information is not a prospectus and should be read in conjunction with the
Proxy Statement/Prospectus dated April 17, 2009 relating to the proposed Reorganization of the
Florida Fund into the National Fund (the Proxy Statement/Prospectus). A copy of the Proxy
Statement/Prospectus and other information may be obtained without charge by calling (800)
257-8787, by writing to the Funds or from the Funds website (http://www.nuveen.com). The
information contained in, or that can be accessed through, the Funds website is not part of the
Proxy Statement/Prospectus or this Statement of Additional Information. You may also obtain a copy
of the Proxy Statement/Prospectus on the Securities and Exchange Commissions website
(http://www.sec.gov). Capitalized terms used but not defined in this Statement of Additional
Information have the meanings ascribed to them in the Proxy Statement/Prospectus.
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page |
|
|
|
1 |
|
|
|
|
4 |
|
|
|
|
4 |
|
|
|
|
7 |
|
|
|
|
21 |
|
|
|
|
36 |
|
|
|
|
36 |
|
|
|
|
39 |
|
|
|
|
40 |
|
|
|
|
42 |
|
|
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i
INVESTMENT OBJECTIVES AND POLICIES
The Funds have similar investment objectives. Each Funds primary investment objective is to
provide current income exempt from regular federal income tax. The Acquiring Funds secondary
investment objective is to enhance portfolio value relative to the municipal bond market by
investing in tax-exempt municipal bonds that, in the opinion of the Funds investment adviser, are
underrated or undervalued. The Acquired Funds secondary investment objective is the enhancement
of portfolio value relative to the Florida municipal bond market through investments in tax-exempt
Florida municipal obligations that, in the opinion of the Funds investment adviser, are underrated
or undervalued or that represent municipal market sectors that are undervalued. The Acquired
Funds shares also will be exempt from Florida intangible personal property tax. Each Funds
investment objectives are fundamental policies of the Fund, and may not be changed, without the
approval of the holders of a majority of the outstanding common shares and preferred shares,
including MuniPreferred shares, voting together as a single class, and of the holders of a majority
of the outstanding preferred shares, including MuniPreferred shares, voting as a separate class.
Additionally, both Funds are closed-end, diversified management investment companies. For purposes
of the Funds objectives, policies and investment strategies, municipal bonds and municipal
obligations are treated as municipal securities.
Each Fund seeks to achieve its investment objectives by investing in a portfolio of municipal
securities (defined below), a significant portion of which NAM believes are underrated and
undervalued, based upon its bottom-up, research-driven investment strategy. Underrated municipal
securities are those whose ratings do not, in NAMs opinion, reflect their true creditworthiness.
Undervalued municipal securities are securities that, in NAMs opinion, are worth more than the
value assigned to them in the marketplace. NAM believes its value oriented strategy offers the
opportunity to construct a well diversified portfolio of municipal securities that has the
potential to outperform major municipal market benchmarks over the longer term. A municipal
securitys market value generally will depend upon its form, maturity, call features, and interest
rate, as well as the issuers credit quality or credit rating, all such factors examined in the
context of the municipal securities market and interest rate levels and trends. NAM may at times
believe that securities associated with a particular municipal market sector (for example, electric
utilities), or issued by a particular municipal issuer, are undervalued. NAM may purchase such a
security for each Funds portfolio because it represents a market sector or issuer that NAM
considers undervalued, even if the value of the particular security appears to be consistent with
the value of similar securities. Municipal securities of particular types (e.g., hospital bonds,
industrial revenue bonds or securities issued by a particular municipal issuer) may be undervalued
because there is a temporary excess of supply in that market sector, or because of a general
decline in the market price of municipal securities of the market sector for reasons that do not
apply to the particular municipal securities that are considered undervalued. Each Funds
investment in underrated or undervalued municipal securities will be based on NAMs belief that
their yield is higher than that available on securities bearing equivalent levels of interest rate
risk, credit risk and other forms of risk, and that their prices will ultimately rise (relative to
the market) to reflect their true value. Each Fund attempts to increase its portfolio value
relative to the municipal bond market by prudent selection of municipal securities regardless of
the direction the market may move. Any capital appreciation realized by the Funds will generally
result in the distribution of taxable capital gains to shareholders.
Each Fund may invest in various municipal securities, including municipal bonds and notes,
other securities issued to finance and refinance public projects, and other related securities and
derivative instruments creating exposure to municipal securities that provide for the payment of
interest income that is exempt from regular federal income tax (collectively, municipal
securities). Municipal securities are often issued by state and local governmental entities to
finance or refinance public projects, such as roads, schools, and water supply systems. Municipal
securities also may be issued on behalf of private entities or for private activities, such as
housing, medical and educational facility construction, or for privately
owned transportation, electric utility and pollution control projects. Municipal securities
may be issued on a long-term basis to provide long-term financing. The repayment of such debt may
be secured generally by a pledge of the full faith and credit taxing power of the issuer, a limited
or special tax, or any other revenue source, including project revenues, which may include tolls,
fees and other user charges, lease payments, and mortgage payments. Municipal securities also may
be issued to finance projects on a short-term interim basis, anticipating repayment with the
proceeds of the later issuance of long-term debt. Each Fund may purchase municipal securities in
the form of bonds, notes, leases or certificates of participation; structured as callable or
non-callable; with payment forms that include fixed coupon, variable rate, zero coupon, capital
appreciation bonds, tender-option bonds, and residual interest bonds or inverse floating rate
securities. Such municipal securities may also be acquired through investments in pooled vehicles,
partnerships, or other investment companies.
The Funds also may invest in certain derivative instruments in pursuit of their investment
objectives. Such instruments include financial futures contracts, swap contracts (including
interest rate and credit default swaps), options on financial futures, options on swap contracts,
or other derivative instruments. NAM may use derivative instruments to seek to enhance return, to
hedge some of the risk of the Funds investments in municipal securities or as a substitute for a
position in the underlying asset. These types of strategies may generate taxable income for federal income tax purposes.
The Acquiring Fund and the Acquired Fund have similar investment policies. Except to the
extent that the Acquiring Fund buys temporary investments, the Fund will invest substantially all
of its assets in tax-exempt municipal bonds that are either covered by insurance guaranteeing the
timely payment of principal and interest on the bonds, or are backed by an escrow or trust account
containing sufficient U.S. Government or U.S. Government agency securities to ensure timely payment
of principal and interest. Uninsured municipal bonds backed by an escrow or trust account will not
constitute more than 20% of the Acquiring Funds assets. Except to the extent the Acquired Fund
invests in temporary investments as described below, the Fund will invest all of its assets in
tax-exempt Florida municipal obligations which are either covered by insurance guaranteeing the
timely payment of principal and interest thereon or backed by an escrow or trust account containing
sufficient U.S. Government or U.S. Government agency securities to ensure timely payment of
principal and interest. Municipal obligations backed by an escrow or trust account will not
constitute more than 20% of the Acquired Funds assets.
For the purposes of the foregoing inverse floaters whose underlying bonds are covered by
insurance guaranteeing the timely payment of principal and interest thereon are included and
insurers must have a claims-paying ability rated at least A by an NRSRO with respect to the
Acquiring Fund and AAA by an National Recognized Statistical Rating Organization (NRSRO) with respect to the Acquired Fund at the time of purchase or at
the time the bond is insured while in the portfolio.
Under normal circumstances, the Acquiring Fund will invest at least 80% of its Managed Assets
in municipal securities covered by insurance from insurers with a claims-paying ability rated Aa/AA
or better by an NRSRO at the time of purchase or are backed by an escrow or trust account
containing sufficient U.S. Government or U.S. Government agency securities to ensure timely payment
of principal and interest.
Each insured municipal obligation the Acquiring Fund holds, or Florida municipal obligation
the Acquired Fund holds, will either be (1) covered by an insurance policy applicable to a specific
security, whether obtained by the issuer of the security or a third party at the time of original
issuance (Original Issue Insurance), or by the Fund or a third party after the original issuance
(Secondary Market Insurance), or (2) covered by portfolio insurance through a master municipal
insurance policy the Fund has purchased (Portfolio Insurance). The Acquiring Fund and Acquired
Fund will only obtain portfolio
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insurance from insurers whose claims-paying ability Moodys rates A or Aaa, respectively,
or Standard & Poors rates A or AAA, respectively.
The foregoing credit quality policy applies only at the time a security is purchased, and a
Fund is not required to dispose of a security in the event that a rating agency downgrades its
assessment of the credit characteristics of a particular issue. In determining whether to retain
or sell such a security, NAM may consider such factors as NAMs assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and the rating, if any,
assigned to such security by other rating agencies. See Municipal Securities below for a
general description of the economic and credit characteristics of municipal securities. Each Fund
may also invest in securities of other open- or closed-end investment companies that invest
primarily in municipal bonds of the types in which the Fund may invest directly.
The credit quality of companies that provide insurance on bonds will affect the value of those
bonds. Although the insurance feature reduces certain financial risks, the premiums for insurance
and the higher market price paid for insured obligations may reduce a Funds income. The insurance
feature does not guarantee the market value of the insured obligations or the net asset value of
the common shares or MuniPreferred shares.
Each Fund may invest in uninsured municipal bonds that are entitled to the benefit of an
escrow or trust account that contains securities issued or guaranteed by the U.S. Government or
U.S. Government agencies backed by the full faith and credit of the United States, and sufficient
in amount to ensure the payment of interest and principal on the original interest payment and
maturity dates (collateralized obligations). These collateralized obligations generally will not
be insured and will include, but are not limited to, municipal bonds that have been (1) advance
refunded where the proceeds of the refunding have been used to buy U.S. Government or U.S.
Government agency securities that are placed in escrow and whose interest or maturing principal
payments, or both, are sufficient to cover the remaining scheduled debt service on that municipal
bond; or (2) issued under state or local housing finance programs that use the issuance proceeds to
fund mortgages that are then exchanged for U.S. Government or U.S. Government agency securities and
deposited with a trustee as security for those municipal bonds. These collateralized obligations
are normally regarded as having the credit characteristics of the underlying U.S. Government or
U.S. Government agency securities.
Each Fund will primarily invest in municipal securities with long-term maturities in order to
maintain a weighted average maturity of 15-30 years, but the weighted average maturity of
obligations held by a Fund may be shortened, depending on market conditions.
Upon NAMs recommendation, during temporary defensive periods and in order to keep each Funds
cash fully invested, the Fund may deviate from its investment objectives and policies and invest up
to 100% of its net assets in short-term investments including high quality, short-term securities
that may be either tax-exempt or taxable. Each Fund intends to invest in taxable short-term
investments only in the event that suitable tax-exempt short-term investments are not available at
reasonable prices and yields. Investment in such short-term investments would result in a portion
of your dividends being subject to regular federal income tax and the federal alternative minimum
applicable to individuals.
The credit quality policies noted above apply only at the time a security is purchased, and
the Funds are not required to dispose of a security in the event that a rating agency downgrades
its assessment of the credit characteristics of a particular issue. In determining whether to
retain or sell such a security, NAM may consider such factors as NAMs assessment of the credit
quality of the issuer of such security, the price at which such security could be sold and the
rating, if any, assigned to such security by other rating agencies. A general description of the
ratings of S&P, Moodys and Fitch of municipal securities is set forth in Appendix B to this
Statement of Additional Information.
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A more complete description of each Funds investment objectives and policies is set forth in
the Proxy Statement/Prospectus.
ADDITIONAL INFORMATION ON MUNICIPAL BOND INSURANCE
Original Issue Insurance. If interest or principal on a municipal bond is due, but the issuer
fails to pay it, the insurer will make payments in the amount due to the fiscal agent no later than
one business day after the insurer has been notified of the issuers nonpayment. The fiscal agent
will pay the amount due to a Fund after the fiscal agent receives evidence of the Funds right to
receive payment of the principal and/or interest, and evidence that all of the rights of payment
due shall thereupon vest in the insurer. When the insurer pays a Fund the payment due from the
issuer, the insurer will succeed to the Funds rights to that payment.
Secondary Market Insurance. After a municipal bond is issued, the Fund or a third party may
purchase insurance on that security. Secondary market insurance generally provides the same type
of coverage as original issue insurance and, as with original issue insurance, secondary market
insurance remains in effect as long as the municipal bonds it covers remain outstanding and the
insurer remains in business, regardless of whether the Fund ultimately disposes of these municipal
bonds.
Portfolio Insurance. Each portfolio insurance policy will be noncancellable and will remain
in effect so long as a Fund is in existence, the Fund continues to own the municipal bonds covered
by the policy, and the Fund pays the premiums for the policy. Each insurer generally will reserve
the right at any time upon 90 days written notice to a Fund to refuse to insure any additional
bonds the Fund buys after the effective date of the notice. The Acquiring Funds Board of
Directors and the Acquired Funds Board of Trustees (each a Board and each Director or Trustee a
Board Member) will generally reserve the right to terminate each policy upon seven days written
notice to an insurer if it determines that the cost of the policy is not reasonable in relation to
the value of the insurance to the Fund.
INVESTMENT RESTRICTIONS
Except as described below, neither Fund, as a fundamental policy, may, without the approval of
the holders of a majority of the outstanding common shares and preferred shares of such Fund,
including shares of its MuniPreferred, voting together as a single class, and of the holders of a
majority of the outstanding preferred shares of such Fund, including shares of its MuniPreferred,
voting as a separate class:
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(1) |
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Issue senior securities, as defined in the 1940 Act, other than preferred stock
[shares], except to the extent such issuance might be involved with respect to
borrowings described under subparagraph (3) below or with respect to transactions
involving futures contracts or the writing of options within the limits described in
the [Funds] Proxy Statement/Prospectus; |
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(2) |
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Make short sales of securities or purchase any securities on margin (except for
such short-term credits as are necessary for the clearance of transactions), or write
or purchase put or call options, except to the extent that the purchase of a standby
commitment may be considered the purchase of a put, and except for transactions
involving options within the limits described in the [Funds] Proxy
Statement/Prospectus; |
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(3) |
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Borrow money, except from banks for temporary or emergency purposes or for
repurchase of [the Funds] shares, and then only in an amount not exceeding one-third
of |
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