Other Information
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 Annual Meetings, except as described in this Joint Proxy Statement. 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 Annual Meetings 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 Annual Meetings.
In the absence of a quorum for a particular matter, business may proceed on any other matter or matters which may properly come before
the Annual Meeting if there shall be present, in person or by proxy, a quorum of shareholders in respect of such other matters. The chairman of the meeting may, whether or not a quorum is present, propose one or more adjournments of the Annual
Meeting on behalf of a Fund without further notice to permit further solicitation of proxies. Any such adjournment will require the affirmative vote of the holders of a majority of the shares of the Fund present in person or by proxy and entitled to
vote at the session of the Annual Meeting to be adjourned.
Broker-dealer firms holding shares in street name for
the benefit of their customers and clients will request the instruction of such customers and clients on how to vote their shares on the proposals. A broker-dealer firm that has not received instructions from a customer prior to the date specified
in its request for voting instructions may not vote such customers shares on the proposals. A signed proxy card or other authorization by a beneficial owner of shares of a Fund that does not specify how the beneficial owners shares are
to be voted on a proposal may be deemed to be an instruction to vote such shares in favor of the proposal.
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
The Nuveen Funds
[ ], 2013
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APPENDIX A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as of this day of
, 2013 by and among Nuveen Pennsylvania Investment Quality Municipal Fund (the Acquiring Fund) and each of Nuveen
Pennsylvania Premium Income Municipal Fund 2 (Premium Income or a Target Fund), Nuveen Pennsylvania Dividend Advantage Municipal Fund (Dividend Advantage or a Target Fund) and Nuveen Pennsylvania
Dividend Advantage Municipal Fund 2 (Dividend Advantage 2 or a Target Fund and, collectively with Premium Income and Dividend Advantage, the Target Funds), each, a Massachusetts business trust. The Acquiring Fund
and each Target Fund may be referred to herein each as a Fund and collectively as the Funds.
For each
Reorganization (as defined below), this Agreement is intended to be, and is adopted as, a plan of reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the Code), and the Treasury
Regulations promulgated thereunder. The reorganization of each Target Fund into the Acquiring Fund will consist of: (i) the transfer of substantially all of the assets of the Target Fund to the Acquiring Fund in exchange solely for newly issued
common shares of beneficial interest, par value $0.01 per share, of the Acquiring Fund (Acquiring Fund Common Shares) and, with respect to Premium Income, newly issued Variable Rate Demand Preferred Shares (VRDP Shares) of
the Acquiring Fund, with a par value of $0.01 per share and liquidation preference of $100,000 per share, as set forth in this Agreement (Acquiring Fund VRDP Shares) and, with respect to Dividend Advantage and Dividend Advantage 2, newly
issued MuniFund Term Preferred Shares (MTP Shares) of the Acquiring Fund, with a par value of $0.01 per share and liquidation preference of $10 per share, as set forth in this Agreement (Acquiring Fund MTP Shares and,
together with the Acquiring Fund VRDP Shares, the Acquiring Fund Preferred Shares and, collectively with the Acquiring Fund Common Shares and Acquiring Fund VRDP Shares, the Acquiring Fund Shares) and the assumption by the
Acquiring Fund of substantially all of the liabilities of the Target Fund; and (ii) the distribution of all the Acquiring Fund Common Shares and Acquiring Fund VRDP Shares or Acquiring Fund MTP Shares received by the Target Fund to the holders
of common shares and VRDP Shares or MTP Shares of the Target Fund, respectively, as part of the complete liquidation, dissolution and termination of the Target Fund as provided herein, all upon the terms and conditions set forth in this Agreement
(each, a Reorganization and, together, the Reorganizations).
WHEREAS, each Fund is a closed-end,
management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act), and each Target 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 the Acquiring Fund Shares; and
WHEREAS, the Board of Trustees of the Acquiring Fund (the Acquiring Fund Board) has determined that the Reorganizations are
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 Reorganizations, and the Board of Trustees of each Target Fund (each, a Target Fund
Board) has determined that the applicable Reorganization is in the best interests of the respective Target Fund and that the interests of the existing shareholders of such Target Fund will not be diluted as a result of its Reorganization.
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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 EACH TARGET FUND IN EXCHANGE FOR
ACQUIRING FUND SHARES AND THE ASSUMPTION OF THE LIABILITIES OF
EACH
TARGET FUND AND TERMINATION AND LIQUIDATION OF
EACH TARGET FUND
1.1 THE EXCHANGE. Subject to the terms and conditions contained
herein and on the basis of the representations and warranties contained herein, each Target Fund agrees to transfer substantially all of its assets, as set forth in Section 1.2, to the Acquiring Fund. In consideration therefor, the Acquiring
Fund agrees: (i) to issue and deliver to such Target Fund the number of Acquiring Fund Common Shares computed in the manner set forth in Section 2.3, and the same number of Acquiring Fund VRDP Shares or Acquiring Fund MTP Shares as the
number of VRDP Shares or MTP Shares of such Target Fund, respectively, outstanding immediately prior to the Closing Date (as defined in Section 3.1) and having substantially identical terms as the VRDP Shares or MTP Shares, respectively, of
such Target Fund, as of the Closing Date, and (ii) to assume substantially all of the liabilities of such Target Fund, if any, as set forth in Section 1.3. The Acquiring Fund Preferred Shares to be issued to each Target Fund shall consist
of a separate series, as set forth in Exhibit A hereto, and such series shall: (i) have equal priority with each other and with any other outstanding preferred shares of the Acquiring Fund as to the payment of dividends and as to the
distribution of assets upon liquidation of the Acquiring Fund; and (ii) have, along with any other outstanding preferred shares of the Acquiring Fund, preference with respect to the payment of dividends and as to the distribution of assets upon
liquidation of the affairs of the Acquiring Fund over the common shares of the Acquiring Fund. Such transactions shall take place at the closing provided for in Section 3.1 (each, a Closing and, together, the Closings).
1.2 ASSETS TO BE TRANSFERRED. Each Target Fund shall
transfer substantially all of its assets to the Acquiring Fund, including, without limitation, cash, securities, commodities, interests in futures, dividends or interest receivables owned by the Target Fund and any deferred or prepaid expenses shown
as an asset on the books of the Target Fund as of the Closing, except that the Target Fund shall retain assets sufficient to pay the preferred share dividends as set forth in Section 1.4 and the dividend or dividends set forth in
Section 8.5.
Each Target Fund will, within a reasonable period of time before the Closing Date, furnish the Acquiring
Fund with a list of the Target Funds portfolio securities and other investments. The Acquiring Fund will, within a reasonable period of time before the Closing Date, furnish each Target Fund with a list of the securities, if any, on the Target
Funds list referred to in the foregoing sentence that do not conform to the Acquiring Funds investment objectives, policies, and/or restrictions. Each Target Fund, if requested by the Acquiring Fund, will dispose of such securities on
the Acquiring Funds list before the Closing Date. In addition, if it is determined that the portfolios of the Target Funds and the Acquiring Fund, when aggregated, would contain investments exceeding certain percentage limitations applicable
to the Acquiring Fund with respect to such investments, the Target Fund(s) holding such securities, 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;
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provided that if more than one Target Fund holds such securities, the Acquiring Fund shall apportion all such sales among the Target Funds in a reasonable manner. Notwithstanding the foregoing,
nothing herein will require any Target Fund to dispose of any investments or securities if, in the reasonable judgment of the respective Target Fund Board or Nuveen Fund Advisors, LLC, the investment adviser to the Funds (the Adviser),
such disposition would adversely affect the status of its Reorganization as a reorganization as such term is used in Section 368(a) of the Code or would otherwise not be in the best interests of such Target Fund.
1.3 LIABILITIES TO BE ASSUMED. Each Target Fund will endeavor to
discharge all of its known liabilities and obligations to the extent possible before the Closing Date, except for the dividends set forth in Section 1.4 and the dividends set forth in Section 8.5. Notwithstanding the foregoing, the
liabilities not so discharged shall be assumed by the Acquiring Fund, which assumed liabilities shall include all of each Target 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, provided that the Acquiring Fund shall not assume
any liabilities with respect to the preferred share dividends set forth in Section 1.4 or the dividend(s) set forth in Section 8.5.
1.4 DECLARATION OF PREFERRED SHARE DIVIDENDS. Dividends shall accumulate on the existing VRDP Shares or MTP Shares of a Target Fund,
as applicable, up to and including the day immediately preceding the Closing Date and then cease to accumulate, and dividends on the Acquiring Fund Preferred Shares shall accumulate from and including the Closing Date. Prior to the Valuation Time
(as defined in Section 2.1), each Target Fund shall declare all accumulated but unpaid dividends on its VRDP Shares or MTP Shares, as applicable, up to and including the day immediately preceding the Closing Date. With respect to Premium
Incomes existing VRDP Shares, such dividends shall be paid on the Closing Date to holders thereof as of the day immediately preceding the Closing Date. With respect to the existing MTP Shares of Dividend Advantage and Dividend Advantage 2,
such dividends shall be paid on the dividend payment date in respect of the first dividend period of the Acquiring Fund MTP Shares for which such Target Funds MTP Shares were exchanged to the holders thereof as of the day immediately preceding
the Closing Date. Each Target Fund shall retain assets in an amount sufficient to pay the dividends declared by it pursuant to this Section 1.4, and such assets shall not be transferred to the Acquiring Fund on the Closing Date.
1.5 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing
Date as is practicable but in no event later than 12 months after the Closing Date (the Liquidation Date): (a) each Target Fund will distribute in complete liquidation of the Target Fund, pro-rata to its common shareholders of
record (the Target Fund Common Shareholders), as of the time of such distribution, all of the Acquiring Fund Common Shares received by such Target 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 Time and payable prior to the Liquidation Date (Interim Dividends)) and to its preferred shareholders of record (Target Fund Preferred Shareholders and,
together with Target Fund Common Shareholders, the Target Fund Shareholders), as of the time of such distribution, one of the Acquiring Fund VRDP Shares or Acquiring Fund MTP Shares received by such Target Fund (together with any Interim
Dividends) in exchange for each VRDP Share or MTP Share of the Target Fund, respectively, held by such Target Fund Preferred Shareholder immediately prior to the Closing; and (b) each Target Fund will thereupon proceed to dissolve and terminate
as set forth in Section 1.8 below. Such distributions will be accomplished by the transfer of the Acquiring Fund Shares then
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credited to the account of each Target Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of Target Fund Shareholders and
representing, in the case of a Target Fund Common Shareholder, such shareholders pro-rata share of the Acquiring Fund Common Shares received by such Target Fund and, in the case of a Target Fund Preferred Shareholder, the same number of
Acquiring Fund VRDP Shares or Acquiring Fund MTP Shares received by such Target Fund as the number of VRDP Shares or MTP Shares of the Target Fund, as applicable, held by such Target Fund Preferred Shareholder immediately prior to the Closing Date,
and by paying to Target Fund Shareholders any Interim Dividends on such transferred shares. All issued and outstanding common and preferred shares of each Target Fund simultaneously will be canceled on the books of the Target Fund. The Acquiring
Fund shall not issue certificates representing Acquiring Fund Shares in connection with such transfers.
1.6 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Funds transfer agent.
1.7 TRANSFER
TAXES. Any transfer taxes payable upon the issuance of Acquiring Fund Shares in a name other than the registered holder of a Target Funds common shares or preferred shares on the books of such Target 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 TERMINATION. Each Target 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.
1.9 REPORTING. Any reporting responsibility of a Target Fund, including, without limitation, the responsibility for filing of
regulatory reports, tax returns or other documents with the Securities and Exchange Commission (the Commission), the exchange on which such Target Funds shares are listed or any state securities commission and any federal, state or
local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of such Target Fund.
1.10 BOOKS AND RECORDS. All books and records of each Target Fund,
including all books and records required to be maintained under the 1940 Act, and the rules and regulations thereunder, shall be available to the Acquiring Fund from and after the Closing Date and shall be turned over to the Acquiring Fund as soon
as practicable following the Closing Date.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the net assets of each Target
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 on the business day immediately prior to the Closing Date (such time and date being hereinafter called the
Valuation Time), using the valuation procedures of the Nuveen closed-end funds adopted by the respective Target Fund Board or such other valuation procedures as shall be mutually agreed upon by the parties. The value of each Target
Funds net assets shall be calculated net of the liquidation preference (including accumulated and unpaid dividends) of all outstanding preferred shares of the Target Fund.
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2.2 VALUATION OF
SHARES. The net asset value per Acquiring Fund Common Share shall be computed as of the Valuation Time, using the valuation procedures of the Nuveen closed-end funds adopted by the Acquiring Fund Board 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 preferred shares
of the Acquiring Fund.
2.3 COMMON SHARES TO BE
ISSUED. The number of Acquiring Fund Common Shares to be issued in exchange for a Target Funds assets transferred to the Acquiring Fund shall be determined by dividing the value of such assets transferred to the
Acquiring Fund (net of the liabilities of such Target Fund that are assumed by the Acquiring Fund), determined in accordance with Section 2.1, by the net asset value of an Acquiring Fund Common Share, determined in accordance with
Section 2.2. No fractional Acquiring Fund Common Shares will be distributed to Target Fund Common Shareholders and, in lieu of such fractional shares, Target Fund Common Shareholders will receive cash. The aggregate net asset value of Acquiring
Fund Common Shares received by each Target Fund in a Reorganization will equal, as of the Valuation Time, the aggregate net asset value of the Target Funds common shares held by Target Fund Common Shareholders as of such time. In the event
there are fractional Acquiring Fund Common Shares due Target Fund Common Shareholders on the Closing Date after a Target Funds assets have been exchanged for Acquiring Fund Common Shares, the Acquiring Funds transfer agent will aggregate
such fractional common shares and sell the resulting whole on the exchange on which such shares are listed for the account of all such Target Fund Common Shareholders, and each such Target Fund Common Shareholder will be entitled to a pro rata share
of the proceeds from such sale. With respect to the aggregation and sale of fractional common shares, the Acquiring Funds transfer agent will act directly on behalf of the shareholders entitled to receive fractional shares and will accumulate
such fractional shares, sell the shares and distribute the cash proceeds net of brokerage commissions, if any, directly to shareholders entitled to receive the fractional shares (without interest and subject to withholding taxes).
2.4 EFFECT OF SUSPENSION IN TRADING. In the event that at the
Valuation Time an accurate appraisal of the value of the net assets of the Acquiring Fund or a Target Fund is impracticable due to either: (a) the closure of, or the imposition of a trading restriction on, the exchange on which shares of a Fund
are listed or another exchange on which the portfolio securities of the Acquiring Fund or a Target Fund are purchased or sold; or (b) a disruption in trading or the reporting of trading on the exchange on which shares of a Fund are listed or
elsewhere, the Valuation Time shall be postponed until at least the first business day after the day when trading is fully resumed and/or reporting is restored or such later time as the parties may agree pursuant to Section 3.1.
2.5 COMPUTATIONS OF NET ASSETS. All computations of net asset value
in this Article II 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. Each Closing shall occur on January 13, 2014
or such other date as the parties may agree (the Closing Date). Unless otherwise provided, all acts taking place at the
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Closing shall be deemed to take place as of 8:00 a.m. Central time. Each Closing shall be held as of 8:00 a.m. Central 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. Each Target Fund shall cause State Street, as custodian for such Target Fund, to deliver to the Acquiring Fund at the Closing a certificate of an authorized officer stating that the Target Funds portfolio
securities, cash, and any other assets shall have been delivered in proper form to the Acquiring Fund on the Closing Date.
3.3 CERTIFICATES OF TRANSFER AGENT AND TENDER AND PAYING AGENT.
(a) With respect to its common shares and, as applicable, MTP Shares, each Target Fund
shall issue and deliver or cause State Street, in its capacity as transfer agent with respect to common shares and MTP Shares, to issue and 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 holders of common shares and, as applicable, MTP Shares of such Target Fund, and the number and percentage ownership of outstanding common shares and, as applicable, MTP Shares owned by each such Target Fund
Shareholder immediately prior to the Closing. With respect to its VRDP Shares, Premium Income shall issue and deliver or cause The Bank of New York Mellon, in its capacity as tender and paying agent with respect to VRDP Shares, to issue and 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 holders of VRDP Shares of Premium Income, and the number and percentage ownership of outstanding VRDP Shares
owned by each such Target Fund Shareholder immediately prior to the Closing.
(b) The Acquiring Fund shall issue and deliver or cause State Street, in its capacity as
transfer agent with respect to common shares and MTP Shares, and The Bank of New York Mellon, in its capacity as tender and paying agent with respect to VRDP Shares, to issue and deliver to each Target Fund a confirmation evidencing the Acquiring
Fund Shares to be credited on the Closing Date to the Secretary of each Target Fund or provide evidence satisfactory to each Target Fund that such Acquiring Fund Shares have been credited to each Target 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 parties such bills of sale, checks, assignments, share certificates, receipts and other documents, if any, as such other parties or their counsel may reasonably request to effect the transactions
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF EACH TARGET FUND. Each Target Fund represents and warrants solely on its own behalf with respect to its
Reorganization as follows:
(a) The Target Fund is a business trust duly
organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts.
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(b) The Target Fund is registered as a
closed-end management investment company under the 1940 Act, and such registration is in full force and effect.
(c) The Target Fund is not, and the execution, delivery, and performance of this
Agreement (subject to shareholder approval) will not result, in violation of any provision of the Target Funds Declaration of Trust, By-Laws, Statement Establishing and Fixing the Rights and Preferences of Variable Rate Demand Preferred
Shares (Target Fund VRDP Statement) or Statement Establishing and Fixing the Rights and Preferences of MuniFund Term Preferred Shares (Target Fund MTP Statement), as applicable, or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Target 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
Target Fund has no material contracts or other commitments that will be terminated with liability to it on or before the Closing Date.
(e) No litigation, administrative proceeding, or investigation of or before any court or governmental body presently is pending or to its knowledge
threatened against the Target 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 Target Fund to carry out the
transactions contemplated by this Agreement. The Target 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 financial statements of the Target Fund as of April 30, 2013 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 Acquiring Fund) fairly reflect the financial condition of the Target Fund as of April 30, 2013,
and there are no known contingent liabilities of the Target 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 Target 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
Target Fund arising after such date. For the purposes of this subsection (g), a decline in the net asset value of the Target Fund shall not constitute a material adverse change.
(h) All federal, state, local and other tax returns and reports of the Target 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 Target 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, as of the date of the financial statements referred to in subsection (f) above,
are properly reflected thereon. To the best of the Target Funds knowledge, no tax authority is currently auditing or preparing to audit the Target Fund, and no assessment for taxes, interest, additions to tax or penalties has been asserted
against the Target Fund.
(i) The authorized capital of the Target Fund
consists of an unlimited number of common and preferred shares of beneficial interest, par value $0.01 per share. All issued and outstanding
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shares of the Target Fund are duly and validly issued, fully paid and non-assessable by the Target Fund (recognizing that under Massachusetts law, Target Fund shareholders, under certain
circumstances, could be held personally liable for the obligations of the Target Fund under Massachusetts law). All of the issued and outstanding shares of the Target Fund will, at the time of the Closing, be held by the persons and in the amounts
set forth in the records of the Target Funds transfer agent or tender and paying agent, as applicable, as provided in Section 3.3. The Target Fund has no outstanding options, warrants or other rights to subscribe for or purchase any
shares of the Target Fund, and has no outstanding securities convertible into shares of the Target Fund.
(j) At the Closing, the Target Fund will have good and marketable title to the Target
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,
subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the Securities Act of 1933, as amended (the 1933 Act), except those restrictions as to which the Acquiring Fund has received notice
and necessary documentation at or prior to the Closing.
(k) The execution,
delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Target Fund, including the determinations of the Target Fund Board required by Rule 17a-8(a) under the 1940 Act. Subject to approval by
shareholders, this Agreement constitutes a valid and binding obligation of the Target 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 Target 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 laws 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 shareholders and on the
Closing Date, any written information furnished by the Target Fund with respect to the Target 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 taxable year ending on the
Closing Date), the Target 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 regulated investment company under the Code (a
RIC); (ii) has been eligible to compute and has computed its federal income tax under Section 852 of the Code, and on or prior to the Closing Date will have declared a distribution with respect to all its investment company
taxable income (determined without regard to the deduction for dividends paid), the excess of its interest income excludible from gross income under Section 103(a) of the Code over its deductions disallowed under Sections 265 and
171(a)(2) of the Code and its net capital gain (as such terms are defined in the Code) that has accrued or will accrue on or prior to 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.
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4.2 REPRESENTATIONS OF THE ACQUIRING
FUND. The Acquiring Fund represents and warrants as follows:
(a) The Acquiring Fund is a business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts.
(b) The
Acquiring Fund is registered as a closed-end 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 (subject to shareholder approval) will not result, in violation
of the Acquiring Funds Declaration of Trust, By-Laws, Statement Establishing and Fixing the Rights and Preferences of Variable Rate Demand Preferred Shares (Acquiring Fund VRDP Statement), 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 presently is 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 transactions contemplated herein.
(e) The financial statements of the Acquiring Fund as of April 30, 2013 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 each Target Fund) fairly reflect
the financial condition of the Acquiring Fund as of April 30, 2013, 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, as of the date of the financial statements referred to in subsection (e) above, are
properly reflected thereon. To the best of the Acquiring Funds knowledge, no tax 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.
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(h) The authorized capital of the Acquiring
Fund consists of an unlimited number of common and preferred shares of beneficial interest, par value $0.01 per share. All issued and outstanding shares of the Acquiring Fund are duly and validly issued, fully paid and non-assessable by the
Acquiring Fund (recognizing that under Massachusetts law, Acquiring Fund shareholders, under certain circumstances, could be held personally liable for the obligations of the Acquiring Fund). The Acquiring Fund has no outstanding options, warrants,
or other rights to subscribe for or purchase any shares of the Acquiring Fund, and has 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, including
the determinations of the Acquiring Fund Board required pursuant to Rule 17a-8(a) under the 1940 Act. Subject to approval by shareholders, 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 each Target Fund for the
account of Target Fund Shareholders pursuant to the terms of this Agreement will, at the Closing Date, have been duly authorized. When so issued and delivered, such Acquiring Fund Shares will be duly and validly issued shares of the Acquiring Fund,
and will be fully paid and non-assessable by the Acquiring Fund (recognizing that under Massachusetts law, Acquiring Fund shareholders, under certain circumstances, could be held personally liable for the obligations of the Acquiring Fund).
(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 laws 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 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 Reorganizations, 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 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 each Target Fund will operate
their respective business in the ordinary course from the date of this Agreement through the Closing, it being understood that such ordinary course of business will include customary dividends and distributions, and any other distribution necessary
or desirable to avoid federal income or excise taxes.
5.2 APPROVAL OF
SHAREHOLDERS. The Acquiring Fund and each Target Fund will call meetings of their respective shareholders to consider and act upon this Agreement and to take all other appropriate action necessary to obtain approval of the
transactions contemplated herein.
5.3 INVESTMENT
REPRESENTATION. Each Target 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 such Target
Funds Reorganization and in accordance with the terms of this Agreement.
5.4 ADDITIONAL INFORMATION. Each Target Fund will assist the
Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Target 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, each Target Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund and which shall be certified by such Target Funds Controller, a
statement of the earnings and profits of the Target 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 pursuant to Section 381 of the
Code.
5.7 PREPARATION OF REGISTRATION STATEMENT AND PROXY
MATERIALS. The Funds will prepare and file with the Commission a registration statement on
Form N-14
relating to the Acquiring Fund Common Shares and Acquiring Fund MTP Shares to be
issued to Target 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 transactions contemplated by this Agreement.
The Registration Statement shall be in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended, 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 REORGANIZATIONS. The intention of the
parties is that each Reorganization will qualify as a reorganization within the meaning of Section 368(a) of the Code.
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None of the Target Funds or 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
treatment or that results in the failure of the transactions to qualify as reorganizations within the meaning of Section 368(a) of the Code. At or prior to the Closing, the parties to this Agreement will take such action, or
cause such action to be taken, as is reasonably necessary to enable counsel to render the tax opinion contemplated in Section 8.8.
ARTICLE VI
CONDITION PRECEDENT TO OBLIGATIONS OF EACH TARGET FUND
The obligations of each Target Fund to consummate the transactions provided for herein shall be subject to the
fulfillment or waiver of 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, with the same force and effect as if made on and as of the Closing. The
Acquiring Fund shall have delivered to each Target Fund a certificate executed in the Acquiring Funds name by the Acquiring Funds (i) Chief Administrative Officer or Vice President and (ii) Controller, in form and substance
satisfactory to each Target Fund and dated as of the Closing Date, to such effect and as to such other matters as each Target 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
fulfillment or waiver of the following conditions:
7.1 All representations,
covenants, and warranties of each Target Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and as of the Closing, with the same force and effect as if made on and as of the Closing. Each Target
Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in the Target Funds name by the Target Funds (i) Chief Administrative Officer or Vice President and (ii) 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 Each Target Fund shall have delivered to the Acquiring Fund a statement of the Target Funds assets and liabilities, together with a list of the
Target Funds portfolio securities showing the tax basis of such securities by lot and the holding periods of such securities, as of the Closing, certified by the Controller of the Target Fund.
7.3 Prior to the Valuation Time, each Target Fund shall have declared the dividends and/or
distributions contemplated by Section 1.4 and Section 8.5.
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ARTICLE VIII
FURTHER CONDITIONS PRECEDENT
The obligations of each Target Fund and the Acquiring Fund hereunder shall also be subject to the fulfillment or waiver of the following conditions:
8.1 This Agreement and the transactions contemplated herein shall have been approved by
the requisite vote of the holders of the outstanding shares of each Target Fund in accordance with applicable law and the provisions of each Target Funds Declaration of Trust, By-Laws and Target Fund VRDP Statement or Target Fund MTP
Statement, as applicable. In addition, this Agreement, the issuance of Acquiring Fund Shares and the transactions contemplated herein shall have been approved by the requisite votes of the holders of the outstanding shares of the Acquiring Fund in
accordance with applicable law, the requirements of the applicable exchange(s) and the provisions of the Acquiring Funds Declaration of Trust, By-Laws and Acquiring Fund VRDP Statement.
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 Each Target Fund shall have declared prior to the Valuation
Time a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to its shareholders at least all of the Target 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
available capital loss carryforward).
8.6 The Target 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 Acquiring Fund has been formed as a voluntary association with transferable
shares of beneficial interest commonly referred to as a Massachusetts business trust, and
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is existing under the laws of the Commonwealth of Massachusetts and, to such counsels knowledge, has the power as a business trust to own all of its properties and assets and to carry on
its business as presently conducted, in each case as described in the definitive joint proxy statement/prospectus as filed with the Commission (the Joint Proxy Statement/Prospectus).
(b) The Acquiring 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.
(c) Assuming that the Acquiring Fund Shares will be issued in accordance with the terms
of this Agreement, the Acquiring Fund Shares to be issued and delivered to each Target Fund on behalf of its Target Fund Shareholders as provided by this Agreement are duly authorized and, upon such delivery, will be validly issued and fully paid
and non-assessable by the Acquiring Fund, except that, as described in the Joint Proxy Statement/Prospectus, shareholders of the Acquiring Fund may, under certain circumstances, be held personally liable for its obligations, and no shareholder of
the Acquiring Fund has, as such holder, any preemptive rights to acquire, purchase or subscribe for any securities of the Acquiring Fund under the Acquiring Funds Declaration of Trust, By-Laws or Massachusetts law.
(d) The Registration Statement is effective and, to such counsels knowledge, no
stop order under the 1933 Act pertaining thereto has been issued.
(e) To the
knowledge of such counsel, no consent, approval, authorization or order of any court or governmental authority of the United States or the Commonwealth of Massachusetts is required for consummation by the Acquiring Fund of the transactions
contemplated herein, except as have been obtained.
(f) The execution and
delivery of this Agreement by the Acquiring Fund did not, and the consummation by the Acquiring Fund of the transactions contemplated herein will not, violate the Acquiring Funds Declaration of Trust, By-Laws or Acquiring Fund VRDP Statement
(assuming the requisite approval of the Funds shareholders has been obtained in accordance with its Declaration of Trust, By-Laws and Acquiring Fund VRDP Statement).
Insofar as the opinions expressed above relate to or are dependent upon matters that are governed by the laws of the Commonwealth of Massachusetts, Vedder Price P.C. may rely on the opinions of Bingham
McCutchen LLP.
8.7 The Acquiring Fund 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) Each Target Fund has been formed as a voluntary association with transferable shares
of beneficial interest commonly referred to as a Massachusetts business trust, and is existing under the laws of the Commonwealth of Massachusetts and, to such counsels knowledge, has the power as a business trust to own all of its
properties and assets and to carry on its business as presently conducted, in each case as described in the Joint Proxy Statement/Prospectus.
(b) Each Target 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.
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(c) To the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority of the United States or the Commonwealth of Massachusetts is required for consummation by the Target Funds of the transactions contemplated herein, except as have been
obtained.
(d) With respect to each Target Fund, the execution and delivery of
this Agreement by the Target Fund, did not, and the consummation by the Target Fund of the transactions contemplated herein will not, violate the Target Funds Declaration of Trust, By-Laws or Target Fund VRDP Statement or Target Fund MTP
Statement, as applicable (assuming the requisite approval of the Funds shareholders has been obtained in accordance with its Declaration of Trust, By-Laws and Target Fund VRDP Statement or Target Fund MTP Statement, as applicable).
Insofar as the opinions expressed above relate to or are dependent upon matters that are governed by the laws of the Commonwealth of
Massachusetts, Vedder Price P.C. may rely on the opinions of Bingham McCutchen LLP.
8.8 With respect to each Reorganization, the Funds participating in such Reorganization
shall have received on the Closing Date an opinion of Vedder Price P.C. addressed to the Acquiring Fund and the Target Fund substantially to the effect that for federal income tax purposes:
(a) The transfer of substantially all of the Target Funds assets to the Acquiring
Fund in exchange solely for Acquiring Fund Shares and the assumption by the Acquiring Fund of substantially all of the liabilities of the Target Fund followed by the distribution to Target Fund Shareholders of all the Acquiring Fund Shares received
by the Target Fund in complete liquidation of the Target Fund will constitute a reorganization within the meaning of Section 368(a) of the Code and the Acquiring Fund and the Target Fund will each be a party to a
reorganization, within the meaning of Section 368(b) of the Code, with respect to the Reorganization.
(b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of
substantially all of the assets of the Target Fund solely in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of substantially all of the liabilities of the Target Fund.
(c) No gain or loss will be recognized by the Target Fund upon the transfer of
substantially all of its assets to the Acquiring Fund solely in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of substantially all of the liabilities of the Target Fund or upon the distribution (whether actual or
constructive) of such Acquiring Fund Shares to Target Fund Shareholders solely in exchange for such shareholders common and preferred shares of the Target Fund in complete liquidation of the Target Fund.
(d) No gain or loss will be recognized by the Target Fund Shareholders upon the exchange
of their Target Fund shares solely for Acquiring Fund Shares in the Reorganization, except with respect to any cash received in lieu of a fractional Acquiring Fund Common Share.
(e) The aggregate basis of the Acquiring Fund Shares received by each Target Fund
Shareholder pursuant to the Reorganization (including any fractional Acquiring Fund Common Share to which a Target Fund Common Shareholder would be entitled) will be the same as the aggregate basis of the Target Fund shares exchanged therefor
by such shareholder. The holding period of the Acquiring Fund Shares received by each Target Fund Shareholder (including any fractional Acquiring
A-15
Fund Common Share to which a Target Fund Common Shareholder would be entitled) will include the period during which the Target Fund shares exchanged therefor were held by such shareholder,
provided such Target Fund shares are held as capital assets at the time of the Reorganization.
(f) The basis of the Target Funds assets transferred to the Acquiring Fund will be
the same as the basis of such assets to the Target Fund immediately before the Reorganization. The holding period of the assets of the Target Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the
Target Fund.
No opinion will be expressed as to (1) the effect of the Reorganizations on a Target Fund, the
Acquiring Fund or any Target Fund Shareholder with respect to any asset (including, without limitation, any stock held in a passive foreign investment company as defined in Section 1297(a) of the Code) as to which any unrealized gain or loss is
required to be recognized under federal income tax principles (i) at the end of a taxable year (or on the termination thereof) or (ii) upon the transfer of such asset regardless of whether such transfer would otherwise be a non-taxable
transaction under 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.
Such opinion shall be based on customary assumptions and such representations as Vedder Price P.C. may reasonably request of the Funds, and each Target 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 any Target Fund may waive the conditions set forth in this Section 8.8. Insofar as the opinions expressed above
relate to or are dependent upon the classification of the Acquiring Fund Preferred Shares as equity securities for U.S. federal income tax purposes, Vedder Price P.C. may rely on the opinions delivered to the Acquiring Fund by Sidley Austin LLP with
respect to such issue for the VRDP Shares and K&L Gates LLP with respect to such issue for the MTP Shares.
8.9 The Acquiring Fund shall have obtained written confirmation from the rating agencies
then rating the preferred shares of the Funds that: (a) consummation of the transactions contemplated by this Agreement will not impair the then current rating assigned by such rating agencies to the existing Acquiring Fund VRDP Shares; and
(b) the Acquiring Fund Preferred Shares to be issued pursuant to Section 1.1 will be rated by such rating agencies no less than the then current rating assigned by such rating agencies to the respective series of VRDP Shares or MTP Shares
of the Target Fund exchanged therefor.
ARTICLE IX
EXPENSES
9.1 The expenses incurred in connection with the Reorganizations (whether or not the
Reorganizations are consummated) will be allocated among the Funds pro-rata based on the projected relative benefits to each Fund during the first year following the Reorganizations, and each Fund shall have accrued such expenses as liabilities at
or before the Valuation Time. 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 of the transactions; and (g) other related administrative or operational costs.
A-16
9.2 Each party represents and warrants to the
other parties that there is no person or entity entitled to receive any brokers fees or similar fees or commission payments in connection with structuring 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 another party of such expenses would result in the disqualification of a Target Fund or the Acquiring Fund, as the case may be, as a RIC under the Code.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The parties agree that no party has made to any other party 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 Chief Administrative Officer or any Vice President without further action by a Target Fund Board or the Acquiring Fund Board.
In addition, this Agreement may be terminated at or before the Closing due to:
(a) a breach by the non-terminating party of any representation or warranty, or agreement
to be performed at or before the Closing, if not cured within 30 days of the breach and prior to the Closing;
(b) a condition precedent to the obligations of the terminating party that has not been
met or waived and it reasonably appears that it will not or cannot be met; or
(c) a determination by a Target Fund Board or the Acquiring Fund Board that the
consummation of the transactions contemplated herein is not in the best interests of its respective Fund involved in the Reorganization(s).
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 Acquiring Fund
Board, a Target Fund Board, the Acquiring Fund, a Target Fund, the Adviser, or any Funds or Advisers officers.
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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 Funds Board of Trustees; 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, modification or
supplement may have the effect of changing the provisions for determining the number of Acquiring Fund Shares to be issued to the Target 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 Commonwealth of Massachusetts.
13.4 This
Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, and 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 Board members, shareholders, nominees, officers, agents, or employees of a Fund personally, but shall bind only the property of a Fund, as provided in each Funds
Declaration of Trust, which is on file with the Secretary of the Commonwealth of Massachusetts. The execution and delivery of this Agreement have been authorized by each Funds Board of Trustees, and this Agreement has been 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 property of a Fund as provided in its Declaration of Trust.
13.6 It is understood and agreed that the use of a single agreement is for administrative
convenience only and shall constitute a separate agreement between each Target Fund and the Acquiring Fund, as if each party had executed a separate document. No Fund shall have any liability for the obligations of any other Fund, and the
liabilities of each Fund shall be several and not joint.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the date first
written above.
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NUVEEN PENNSYLVANIA INVESTMENT
QUALITY MUNICIPAL FUND
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By:
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Name:
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Kevin J. McCarthy
|
Title:
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Vice President and Secretary
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ACKNOWLEDGED:
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By:
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|
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Name:
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Virginia ONeal
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NUVEEN PENNSYLVANIA PREMIUM
INCOME MUNICIPAL FUND 2
|
|
|
By:
|
|
|
Name:
|
|
Kevin J. McCarthy
|
Title:
|
|
Vice President and Secretary
|
ACKNOWLEDGED:
|
|
|
By:
|
|
|
Name:
|
|
Virginia ONeal
|
|
|
|
NUVEEN PENNSYLVANIA DIVIDEND
ADVANTAGE MUNICIPAL FUND
|
|
|
By:
|
|
|
Name:
|
|
Kevin J. McCarthy
|
Title:
|
|
Vice President and Secretary
|
ACKNOWLEDGED:
|
|
|
By:
|
|
|
Name:
|
|
Virginia ONeal
|
|
|
|
NUVEEN PENNSYLVANIA DIVIDEND
ADVANTAGE MUNICIPAL FUND 2
|
|
|
By:
|
|
|
Name:
|
|
Kevin J. McCarthy
|
Title:
|
|
Vice President and Secretary
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ACKNOWLEDGED:
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|
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By:
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Name:
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Virginia ONeal
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EXHIBIT A
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Target Fund
|
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Target Fund Preferred
Shares
Outstanding
|
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Acquiring Fund Preferred Shares
to be Issued in the
Reorganizations
|
Premium Income
|
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VRDP Shares, Series 2 $100,000 liquidation value per share Final Mandatory Redemption Date: December 1, 2042
|
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VRDP Shares, Series 3 $100,000 liquidation value per share Final Mandatory Redemption Date: December 1, 2042
|
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Dividend Advantage
|
|
MTP Shares, 2.10% Series 2015 Fixed Dividend Rate: 2.10% Term Redemption Date: November 1, 2015
|
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MTP Shares, 2.10% Series 2015 Fixed Dividend Rate: 2.10% Term Redemption Date: November 1, 2015
|
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|
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Dividend Advantage 2
|
|
MTP Shares, 2.15% Series 2015 Fixed Dividend Rate: 2.15% Term Redemption Date: November 1, 2015
|
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MTP Shares, 2.15% Series 2015 Fixed Dividend Rate: 2.15% Term Redemption Date: November 1, 2015
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APPENDIX B
BENEFICIAL OWNERSHIP
Beneficial Ownership
The following table sets forth for each Board Member and Board Member Nominee the dollar range of equity securities beneficially owned in
each fund and in all Nuveen funds overseen by such Board Member or Board Member Nominee as of June 30, 2013.
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|
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Dollar Range of Equity Securities
|
|
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|
|
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Board Member/Nominee
(2)
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Acquiring
Fund
|
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Premium
Income
|
|
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Dividend
Advantage
|
|
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Dividend
Advantage 2
|
|
|
Family of
Investment
Companies
(1)
|
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Board Members/Nominees who are not interested persons of the funds
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Robert P. Bremner
|
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0
|
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|
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0
|
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|
|
0
|
|
|
|
0
|
|
|
over $
|
100,000
|
|
Jack B. Evans
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
over $
|
100,000
|
|
William C. Hunter
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
over $
|
100,000
|
|
David J. Kundert
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
over $
|
100,000
|
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John K. Nelson
(3)
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|
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N/A
|
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|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
William J. Schneider
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
over $
|
100,000
|
|
Judith M. Stockdale
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
over $
|
100,000
|
|
Carole E. Stone
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
over $
|
100,000
|
|
Virginia L. Stringer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
over $
|
100,000
|
|
Terence J. Toth
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
over $
|
100,000
|
|
|
|
|
|
|
|
Board Members who are interested persons of the funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Adams IV
(3)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Thomas S. Schreier, Jr.
(3)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
(1)
|
The amounts reflect the aggregate dollar range of equity securities beneficially owned by the Board Member or Board Member Nominee in the funds and in all Nuveen funds
overseen by such Board Member or Board Member Nominee.
|
(2)
|
Board Members Hunter, Schneider, Stockdale, Stone and Stringer are Board Member Nominees for re-election at the Annual Meeting, as described in the Joint Proxy
Statement.
|
(3)
|
Board Members Adams, Nelson and Schreier were appointed as Board Members of each fund effective September 1, 2013 and were not Board Members as of June 30, 2013.
|
B-1
The following table sets forth for each Board Member and Board Member Nominee individually
and for the Board Members, Board Member Nominees and officers as a group the amount of shares beneficially owned in each fund as of June 30, 2013. The information as to beneficial ownership is based on statements furnished by each Board Member,
Board Member Nominee and officer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund Shares Owned By Board Members And Officers
(1)
|
|
|
|
|
|
|
Board Member/Nominee
|
|
Acquiring
Fund
|
|
|
Premium
Income
|
|
|
Dividend
Advantage
|
|
|
Dividend
Advantage 2
|
|
Board Members/Nominees who are not interested persons of the funds
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Robert P. Bremner
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Jack B. Evans
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
William C. Hunter
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
David J. Kundert
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
John K. Nelson
(2)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
William J. Schneider
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Judith M. Stockdale
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Carole E. Stone
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Virginia L. Stringer
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Terence J. Toth
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
Board Members who are interested persons of the funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Adams IV
(2)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Thomas S. Schreier, Jr.
(2)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
All Board Members and Officers as a Group
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
(1)
|
The numbers include share equivalents of certain Nuveen funds in which the Board Member is deemed to be invested pursuant to the Deferred Compensation Plan.
|
(2)
|
Board Members Adams, Nelson and Schreier were appointed as Board Members of each fund effective September 1, 2013 and were not Board Members as of June 30, 2013.
|
B-2
APPENDIX C
NUMBER OF BOARD AND COMMITTEE MEETINGS HELD DURING
EACH FUNDS LAST FISCAL YEAR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Regular
Board
Meeting
|
|
Special
Board
Meeting
|
|
Executive
Committee
Meeting
|
|
Dividend
Committee
Meeting
|
|
Compliance,
Risk
Management
and
Regulatory
Oversight
Committee
Meeting
|
|
Audit
Committee
Meeting
|
|
Nominating
and
Governance
Committee
Meeting
|
|
Closed-End
Fund
Committee
Meeting
|
Acquiring Fund
|
|
5
|
|
4
|
|
0
|
|
4
|
|
5
|
|
4
|
|
6
|
|
4
|
Premium Income
|
|
5
|
|
4
|
|
0
|
|
4
|
|
5
|
|
4
|
|
6
|
|
4
|
Dividend Advantage
|
|
5
|
|
4
|
|
0
|
|
4
|
|
5
|
|
4
|
|
6
|
|
4
|
Dividend Advantage 2
|
|
5
|
|
4
|
|
0
|
|
4
|
|
5
|
|
4
|
|
6
|
|
4
|
C-1
APPENDIX D
NUVEEN FUND BOARD
AUDIT COMMITTEE CHARTER
I. Organization and Membership
There shall be a committee of each Board of Directors/Trustees (the Board) of the Nuveen Management Investment Companies (the
Funds or, individually, a Fund) to be known as the Audit Committee. The Audit Committee shall be comprised of at least three Directors/Trustees. Audit Committee members shall be independent of the Funds and free of any
relationship that, in the opinion of the Directors/Trustees, would interfere with their exercise of independent judgment as an Audit Committee member. In particular, each member must meet the independence and experience requirements applicable to
the Funds of the exchanges on which shares of the Funds are listed, Section 10A of the Securities Exchange Act of 1934 (the Exchange Act), and the rules and regulations of the Securities and Exchange Commission (the
Commission). Each such member of the Audit Committee shall have a basic understanding of finance and accounting, be able to read and understand fundamental financial statements, and be financially literate, and at least one such member
shall have accounting or related financial management expertise, in each case as determined by the Directors/Trustees, exercising their business judgment (this person may also serve as the Audit Committees financial expert as
defined by the Commission). The Board shall appoint the members and the Chairman of the Audit Committee, on the recommendation of the Nominating and Governance Committee. The Audit Committee shall meet periodically but in any event no less
frequently than on a semi-annual basis. Except for the Funds, Audit Committee members shall not serve simultaneously on the audit committees of more than two other public companies.
II. Statement of Policy, Purpose and Processes
The Audit Committee shall
assist the Board in oversight and monitoring of (1) the accounting and reporting policies, processes and practices, and the audits of the financial statements, of the Funds; (2) the quality and integrity of the financial statements of the
Funds; (3) the Funds compliance with legal and regulatory requirements, (4) the independent auditors qualifications, performance and independence; and (5) oversight of the Pricing Procedures of the Funds and the Valuation
Group. In exercising this oversight, the Audit Committee can request other committees of the Board to assume responsibility for some of the monitoring as long as the other committees are composed exclusively of independent directors.
In doing so, the Audit Committee shall seek to maintain free and open means of communication among the Directors/Trustees, the
independent auditors, the internal auditors and the management of the Funds. The Audit Committee shall meet periodically with Fund management, the Funds internal auditor, and the Funds independent auditors, in separate executive
sessions. The Audit Committee shall prepare reports of the Audit Committee as required by the Commission to be included in the Funds annual proxy statements or otherwise.
The Audit Committee shall have the authority and resources in its discretion to retain special legal, accounting or other consultants to
advise the Audit Committee and to otherwise discharge its responsibilities, including appropriate funding as determined by the Audit Committee for compensation to independent auditors engaged for the purpose of preparing or issuing an audit report
D-1
or performing other audit, review or attest services for a Fund, compensation to advisers employed by the Audit Committee, and ordinary administrative expenses of the Audit Committee that are
necessary or appropriate in carrying out its duties, as determined in its discretion. The Audit Committee may request any officer or employee of Nuveen Investments, Inc. (or its affiliates) (collectively, Nuveen) or the Funds
independent auditors or outside counsel to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee. The Funds independent auditors and internal auditors shall have unrestricted
accessibility at any time to Committee members.
Responsibilities
Fund management has the primary responsibility to establish and maintain systems for accounting, reporting, disclosure and internal
control.
The independent auditors have the primary responsibility to plan and implement an audit, with proper consideration
given to the accounting, reporting and internal controls. Each independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Funds shall report directly to the Audit
Committee. The independent auditors are ultimately accountable to the Board and the Audit Committee. It is the ultimate responsibility of the Audit Committee to select, appoint, retain, evaluate, oversee and replace any independent auditors and to
determine their compensation, subject to ratification of the Board, if required. These Audit Committee responsibilities may not be delegated to any other Committee or the Board.
The Audit Committee is responsible for the following:
With respect to Fund financial statements:
|
1.
|
Reviewing and discussing the annual audited financial statements and semi-annual financial statements with Fund management and the independent auditors including major
issues regarding accounting and auditing principles and practices, and the Funds disclosures in its periodic reports under Managements Discussion and Analysis.
|
|
2.
|
Requiring the independent auditors to deliver to the Chairman of the Audit Committee a timely report on any issues relating to the significant accounting policies,
management judgments and accounting estimates or other matters that would need to be communicated under Statement on Auditing Standards (SAS) No. 90, Audit Committee Communications (which amended SAS No. 61, Communication with Audit
Committees), that arise during the auditors review of the Funds financial statements, which information the Chairman shall further communicate to the other members of the Audit Committee, as deemed necessary or appropriate in the
Chairmans judgment.
|
|
3.
|
Discussing with management the Funds press releases regarding financial results and dividends, as well as financial information and earnings guidance provided to
analysts and rating agencies. This discussion may be done generally, consisting of discussing the types of information to be disclosed and the types of presentations to be made. The Chairman of the Audit Committee shall be authorized to have these
discussions with management on behalf of the Audit Committee.
|
|
4.
|
Discussing with management and the independent auditors (a) significant financial reporting issues and judgments made in connection with the
preparation and
|
D-2
|
presentation of the Funds financial statements, including any significant changes in the Funds selection or application of accounting principles and any major issues as to the
adequacy of the Funds internal controls and any special audit steps adopted in light of material control deficiencies; and (b) analyses prepared by Fund management and/or the independent auditor setting forth significant financial
reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements.
|
|
5.
|
Discussing with management and the independent auditors the effect of regulatory and accounting initiatives on the Funds financial statements.
|
|
6.
|
Reviewing and discussing reports, both written and oral, from the independent auditors and/or Fund management regarding (a) all critical accounting policies and
practices to be used; (b) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative treatments and disclosures, and
the treatment preferred by the independent auditors; and (c) other material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences.
|
|
7.
|
Discussing with Fund management the Funds major financial risk exposures and the steps management has taken to monitor and control these exposures, including the
Funds risk assessment and risk management policies and guidelines. In fulfilling its obligations under this paragraph, the Audit Committee may review in a general manner the processes other Board committees have in place with respect to risk
assessment and risk management.
|
|
8.
|
Reviewing disclosures made to the Audit Committee by the Funds principal executive officer and principal financial officer during their certification process for
the Funds periodic reports about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Funds
internal controls. In fulfilling its obligations under this paragraph, the Audit Committee may review in a general manner the processes other Board committees have in place with respect to deficiencies in internal controls, material weaknesses, or
any fraud associated with internal controls.
|
With respect to the independent auditors:
|
1.
|
Selecting, appointing, retaining or replacing the independent auditors, subject, if applicable, only to Board and shareholder ratification; and compensating, evaluating
and overseeing the work of the independent auditor (including the resolution of disagreements between Fund management and the independent auditor regarding financial reporting).
|
|
2.
|
Meeting with the independent auditors and Fund management to review the scope, fees, audit plans and staffing for the audit, for the current year. At
the conclusion of the audit, reviewing such audit results, including the independent auditors evaluation of the Funds financial and internal controls, any comments or recommendations of the independent auditors, any audit problems or
difficulties and managements response,
|
D-3
|
including any restrictions on the scope of the independent auditors activities or on access to requested information, any significant disagreements with management, any accounting
adjustments noted or proposed by the auditor but not made by the Fund, any communications between the audit team and the audit firms national office regarding auditing or accounting issues presented by the engagement, any significant changes
required from the originally planned audit programs and any adjustments to the financial statements recommended by the auditors.
|
|
3.
|
Pre-approving all audit services and permitted non-audit services, and the terms thereof, to be performed for the Funds by their independent auditors, subject to the de
minimis exceptions for non-audit services described in Section 10A of the Exchange Act that the Audit Committee approves prior to the completion of the audit, in accordance with any policies or procedures relating thereto as adopted by the
Board or the Audit Committee. The Chairman of the Audit Committee shall be authorized to give pre-approvals of such non-audit services on behalf of the Audit Committee.
|
|
4.
|
Obtaining and reviewing a report or reports from the independent auditors at least annually (including a formal written statement delineating all relationships between
the auditors and the Funds consistent with Independent Standards Board Standard 1, as may be amended, restated, modified or replaced) regarding (a) the independent auditors internal quality-control procedures; (b) any material issues
raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years, respecting one or more independent audits carried
out by the firm; (c) any steps taken to deal with any such issues; and (d) all relationships between the independent auditor and the Funds and their affiliates, in order to assist the Audit committee in assessing the auditors
independence. After reviewing the foregoing report[s] and the independent auditors work throughout the year, the Audit Committee shall be responsible for evaluating the qualifications, performance and independence of the independent auditor
and their compliance with all applicable requirements for independence and peer review, and a review and evaluation of the lead partner, taking into account the opinions of Fund management and the internal auditors, and discussing such reports with
the independent auditors. The Audit Committee shall present its conclusions with respect to the independent auditor to the Board.
|
|
5.
|
Reviewing any reports from the independent auditors mandated by Section 10A(b) of the Exchange Act regarding any illegal act detected by the independent auditor
(whether or not perceived to have a material effect on the Funds financial statements) and obtaining from the independent auditors any information about illegal acts in accordance with Section 10A(b).
|
|
6.
|
Ensuring the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit
as required by law, and further considering the rotation of the independent auditor firm itself.
|
|
7.
|
Establishing and recommending to the Board for ratification policies for the Funds, Fund managements or the Fund advisers hiring of employees or
former employees of the independent auditor who participated in the audits of the Funds.
|
D-4
|
8.
|
Taking, or recommending that the Board take, appropriate action to oversee the independence of the outside auditor.
|
With respect to any internal auditor:
|
1.
|
Reviewing the proposed programs of the internal auditor for the coming year. It is not the obligation or responsibility of the Audit Committee to confirm the
independence of any Nuveen internal auditors performing services relating to the Funds or to approve any termination or replacement of the Nuveen Manager of Internal Audit.
|
|
2.
|
Receiving a summary of findings from any completed internal audits pertaining to the Funds and a progress report on the proposed internal audit plan for the Funds, with
explanations for significant deviations from the original plan.
|
With respect to pricing and valuation oversight:
|
1.
|
The Board has responsibilities regarding the pricing of a Funds securities under the 1940 Act. The Board has delegated this responsibility to the Committee to
address valuation issues that arise between Board meetings, subject to the Boards general supervision of such actions. The Committee is primarily responsible for the oversight of the Pricing Procedures and actions taken by the internal
Valuation Group (Valuation Matters). The Valuation Group will report on Valuation Matters to the Committee and/or the Board of Directors/Trustees, as appropriate.
|
|
2.
|
Performing all duties assigned to it under the Funds Pricing Procedures, as such may be amended from time to time.
|
|
3.
|
Periodically reviewing and making recommendations regarding modifications to the Pricing Procedures as well as consider recommendations by the Valuation Group regarding
the Pricing Procedures.
|
|
4.
|
Reviewing any issues relating to the valuation of a Funds securities brought to the Committees attention, including suspensions in pricing, pricing
irregularities, price overrides, self-pricing, NAV errors and corrections thereto, and other pricing matters. In this regard, the Committee should consider the risks to the Funds in assessing the possible resolutions of these Valuation Matters.
|
|
5.
|
Evaluating, as it deems necessary or appropriate, the performance of any pricing agent and recommending changes thereto to the full Board.
|
|
6.
|
Reviewing any reports or comments from examinations by regulatory authorities relating to Valuation Matters of the Funds and considering managements responses to
any such comments and, to the extent the Committee deems necessary or appropriate, proposing to management and/or the full Board the modification of the Funds policies and procedures relating to such matters. The Committee, if deemed necessary
or desirable, may also meet with regulators.
|
|
7.
|
Meeting with members of management of the Funds, outside counsel, or others in fulfilling its duties hereunder, including assessing the continued
appropriateness and
|
D-5
|
adequacy of the Pricing Procedures, eliciting any recommendations for improvements of such procedures or other Valuation Matters, and assessing the possible resolutions of issues regarding
Valuation Matters brought to its attention.
|
|
8.
|
Performing any special review, investigations or oversight responsibilities relating to Valuation as requested by the Board of Directors/Trustees.
|
|
9.
|
Investigating or initiating an investigation of reports of improprieties or suspected improprieties in connection with the Funds policies and procedures relating
to Valuation Matters not otherwise assigned to another Board committee.
|
Other responsibilities:
|
1.
|
Reviewing with counsel to the Funds, counsel to Nuveen, the Fund advisers counsel and independent counsel to the Board legal matters that may have a material
impact on the Funds financial statements or compliance policies.
|
|
2.
|
Receiving and reviewing periodic or special reports issued on exposure/controls, irregularities and control failures related to the Funds.
|
|
3.
|
Reviewing with the independent auditors, with any internal auditor and with Fund management, the adequacy and effectiveness of the accounting and financial controls of
the Funds, and eliciting any recommendations for the improvement of internal control procedures or particular areas where new or more detailed controls or procedures are desirable. Particular emphasis should be given to the adequacy of such internal
controls to expose payments, transactions or procedures that might be deemed illegal or otherwise improper.
|
|
4.
|
Reviewing the reports of examinations by regulatory authorities as they relate to financial statement matters.
|
|
5.
|
Discussing with management and the independent auditor any correspondence with regulators or governmental agencies that raises material issues regarding the Funds
financial statements or accounting policies.
|
|
6.
|
Obtaining reports from management with respect to the Funds policies and procedures regarding compliance with applicable laws and regulations.
|
|
7.
|
Reporting regularly to the Board on the results of the activities of the Audit Committee, including any issues that arise with respect to the quality or integrity of
the Funds financial statements, the Funds compliance with legal or regulatory requirements, the performance and independence of the Funds independent auditors, or the performance of the internal audit function.
|
|
8.
|
Performing any special reviews, investigations or oversight responsibilities requested by the Board.
|
|
9.
|
Reviewing and reassessing annually the adequacy of this charter and recommending to the Board approval of any proposed changes deemed necessary or advisable by the
Audit Committee.
|
D-6
|
10.
|
Undertaking an annual review of the performance of the Audit Committee.
|
|
11.
|
Establishing procedures for the receipt, retention and treatment of complaints received by the Funds regarding accounting, internal accounting controls or auditing
matters, and the confidential, anonymous submission of concerns regarding questionable accounting or auditing matters by employees of Fund management, the investment adviser, administrator, principal underwriter, or any other provider of
accounting-related services for the Funds, as well as employees of the Funds.
|
Although the Audit Committee
shall have the authority and responsibilities set forth in this Charter, it is not the responsibility of the Audit Committee to plan or conduct audits or to determine that the Funds financial statements are complete and accurate and are in
accordance with generally accepted accounting principles. That is the responsibility of management and the independent auditors. Nor is it the duty of the Audit Committee to conduct investigations, to resolve disagreements, if any, between
management and the independent auditors or to ensure compliance with laws and regulations.
D-7
APPENDIX E
Copy No.
CONFIDENTIAL INFORMATION MEMORANDUM
STRICTLY CONFIDENTIAL
IMPORTANT INFORMATION
This Information Memorandum sets forth the terms of the VRDP Shares (as defined below) to be issued in connection with the reorganization
of Nuveen Pennsylvania Premium Income Municipal Fund 2 into Nuveen Pennsylvania Investment Quality Municipal Fund.
NUVEEN
PENNSYLVANIA INVESTMENT QUALITY MUNICIPAL FUND VARIABLE RATE DEMAND PREFERRED SHARES (VRDP SHARES)
SERIES 3
VRDP SHARES (THE NEW VRDP SHARES)
LIQUIDATION PREFERENCE $100,000 PER SHARE
The Offering
. Nuveen Pennsylvania Investment Quality Municipal Fund (the Fund) is a
diversified, closed-end management investment company. This Information Memorandum is provided for information purposes in connection with the offering of the New VRDP Shares of the Fund pursuant to the reorganization of Nuveen Pennsylvania Premium
Income Municipal Fund 2 (Premium Income) into the Fund (the Premium Income Reorganization). Each New VRDP Share has a liquidation preference of $100,000 per share (the Liquidation Preference).
This Information Memorandum is provided exclusively to holders of VRDP Shares of Premium Income who were holders of Premium Income VRDP
Shares as of August 26, 2013. Upon the closing of the Premium Income Reorganization, Premium Income will transfer substantially all of its assets to the Fund in exchange for common and preferred shares of the Fund, and the assumption by the
Fund of substantially all of the liabilities of Premium Income. Premium Income will then be liquidated, dissolved and terminated in accordance with applicable law. Holders of VRDP Shares of Premium Income will receive on a one-for-one basis New VRDP
Shares of the Fund in exchange for VRDP Shares of Premium Income held immediately prior to the Premium Income Reorganization.
Below is a chart summarizing certain information with respect to the outstanding series of VRDP Shares of Premium Income and the New VRDP
Shares to be issued in connection with the Premium Income Reorganization. The chart and other relevant statements herein regarding the exchange of New VRDP Shares for VRDP Shares of Premium Income assume all approvals and consents necessary to
effectuate the Premium Income Reorganization are obtained prior to the closing, including the consents of the Liquidity Provider (as defined herein) and rating agencies with respect to the VRDP Shares.
|
|
|
|
|
Fund
|
|
Premium Income VRDP
Series
Outstanding
|
|
VRDP Series of the Fund to be Issued
in the Premium
Income
Reorganization
|
|
|
|
Premium Income
|
|
VRDP Shares, Series 2
|
|
VRDP Shares, Series 3
|
|
|
|
|
|
Final Mandatory Redemption Date: December 1, 2042
|
|
Final Mandatory Redemption Date: December 1, 2042
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Number of VRDP Shares: 1,050
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Number of VRDP Shares: 1,050
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Adjustable Dividend Rate: Resets weekly
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Adjustable Dividend Rate: Resets weekly
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Optional Tender With Seven-Day Notice for Remarketing
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Optional Tender With Seven-Day Notice for Remarketing
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Unconditional Demand Feature: Purchase Agreement with Liquidity Provider
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Unconditional Demand Feature: Purchase Agreement with Liquidity Provider
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Following the Premium Income Reorganization, based on VRDP Shares outstanding as of August 26, 2013, the
Fund will have 2,175 VRDP Shares outstanding in two different series (each, a VRDP Series). Assuming the closing of the reorganization of other target funds, the Fund will also have 4,774,000 MuniFund Term Preferred Shares (MTP
Shares) outstanding. The New VRDP Shares will rank on parity with the Funds outstanding VRDP Shares (the Outstanding VRDP Shares) with respect to the payment of dividends by the Fund and the distribution of assets in the
event of the Funds liquidation, will have the same Liquidation Preference ($100,000 per share) and will be entitled to one vote per share. The New VRDP Shares will also rank on parity with the MTP Shares with respect to the payment of
dividends by the Fund and the distribution of assets in the event of the Funds liquidation.
Information regarding the
Funds and Premium Incomes current short-term and long-term ratings assigned by, as applicable, Fitch Ratings, Inc., Moodys Investors Service, Inc. and Standard & Poors Ratings Services, a Standard &
Poors Financial Services LLC business, is available at
www.fitchratings.com
,
www.moodys.com
and
www.standardandpoors.com
, respectively. No assurances can be given that the current ratings will be maintained.
Terms of the New VRDP Shares
. The terms of the New VRDP Shares to be issued pursuant to the Premium Income
Reorganization will be substantially identical, as of the time of the closing of the reorganization, to the terms of the outstanding VRDP Shares of Premium Income for which they are exchanged. Attached as exhibits to this Information Memorandum are
forms of the Statement Establishing and Fixing the Rights and Preferences of the New VRDP Shares (the New VRDP Statement) and the VRDP Purchase Agreement with respect to the New VRDP Shares (the New VRDP Purchase Agreement).
You are urged to review the New VRDP Statement and the New VRDP Purchase Agreement. This Information Memorandum only summarizes some of the terms of the New VRDP Shares, and it is qualified in its entirety by the terms set forth in the New VRDP
Statement and the New VRDP Purchase Agreement. Certain of the capitalized terms used herein and not defined have the meanings ascribed to them in the New VRDP Statement. See Description of the New VRDP Shares.
ii
The New VRDP Shares have the following features, which will be substantially identical to
those of the Premium Income VRDP Shares as of the closing of the Premium Income Reorganization:
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the same short-term and long-term credit ratings from one or more rating agencies;
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the same Liquidation Preference ($100,000 per share) and Final Mandatory Redemption Date (as detailed above);
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the same terms with respect to the payment of an adjustable dividend rate set weekly by a Remarketing Agent;
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the same right to give notice on any business day to tender the securities for remarketing in seven days;
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the same terms with respect to the Mandatory Tender for remarketing upon the occurrence of certain events; and
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continuing to have the benefit of an unconditional demand feature pursuant to the New VRDP Purchase Agreement provided by the same bank acting as
Liquidity Provider with respect to the Premium Income VRDP Shares as of the closing date of the Premium Income Reorganization.
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Upon issuance of the New VRDP Shares, the Fund will have two VRDP Series outstanding
. It is currently expected that the outstanding VRDP Shares and the New VRDP Shares,
although separate Series, will have the same bank acting as Liquidity Provider, as well as the same Remarketing Agent and Tender and Paying Agent, each acting pursuant to a separate agreement with respect to each Series of VRDP Shares. Dividend
rates may vary between the two series, because, for example, the applicable Remarketing Agent may reset the rate for one VRDP Series at a different level from that set by the Remarketing Agent for the other VRDP Series, or the rate for one VRDP
Series, but not both VRDP Series, may reset to the Maximum Rate (or a different level of Maximum Rate) in accordance with the terms of the applicable Statement Establishing and Fixing the Rights and Preferences of VRDP Shares (each, a
Statement and together, the Statements). Redemptions prior to the Final Mandatory Redemption Dates for each VRDP Series may occur at different times and in different amounts. In the event that the Fund were to make a partial
redemption of New VRDP Shares, the redemption may not necessarily be effected pro rata among all series of preferred shares then outstanding.
Each of the New VRDP Purchase Agreement and the VRDP Purchase Agreement for the Outstanding VRDP Shares has an expiration date (each expiration date being referred to as a Scheduled Termination
Date), subject to periodic extension or replacement. There is no assurance that a liquidity provider will renew, or continue to renew, the respective VRDP Purchase Agreement or that a replacement liquidity provider will be appointed. Each VRDP
Series requires that the liquidity providers Purchase Obligation be renewed upon each Scheduled Termination Date for a term of at least 180 days (or replaced with a purchase obligation with such minimum term). If a liquidity provider does
not renew its respective VRDP Purchase Agreement and the liquidity provider is not replaced, all VRDP Shares of the relevant VRDP Series will be subject to Mandatory Purchase by the liquidity provider prior to the expiration of the Purchase
Obligation.
Remarketing
. The terms of the remarketing for the New VRDP Shares will be the same
as for the Premium Income VRDP Shares. Shareholders of the New VRDP Shares will have the option to
iii
tender New VRDP Shares for remarketing at the Purchase Price (defined below) on any Business Day not less than seven days after delivery of a Notice of Tender to a tender and paying agent
appointed by the Fund (the Tender and Paying Agent) with the consent of the Liquidity Provider. In addition, the New VRDP Shares will be subject to mandatory tender for remarketing by the Remarketing Agent at the Purchase Price in the
circumstances set forth in the New VRDP Statement. The Remarketing Agent will use its best efforts in each case to remarket any New VRDP Shares so tendered. If no remarketing occurs on or before the relevant Purchase Date, or New VRDP Shares remain
unsold pursuant to an attempted remarketing, the Tender and Paying Agent will deliver all such unsold New VRDP Shares that have been delivered to the Tender and Paying Agent to the Liquidity Provider for purchase on such Purchase Date. In addition,
the New VRDP Shares will be subject to mandatory purchase by the Liquidity Provider at the Purchase Price for the New VRDP Shares in the event of termination of the New VRDP Purchase Agreement if the Fund has not obtained an Alternate VRDP Purchase
Agreement prior to such termination. The Purchase Price with respect to the New VRDP Shares is equal to the Liquidation Preference of New VRDP Shares to be purchased on a Purchase Date
plus
any accumulated but unpaid dividends
(whether or not earned or declared), if any, to, but excluding, the relevant Purchase Date. The date designated for (i) purchase of New VRDP Shares pursuant to an optional or mandatory tender for remarketing or (ii) mandatory purchase by
the Liquidity Provider is referred to herein as a Purchase Date.
The Remarketing Agent for the New VRDP Shares is
expected to be the same remarketing agent as the remarketing agent for the Premium Income VRDP Shares.
Unconditional
Demand Feature
. The New VRDP Shares will have the benefit of an unconditional demand feature pursuant to a purchase obligation, to be provided by the same bank that provides such demand feature to the Premium Income VRDP
Shares as of the closing date of the Premium Income Reorganization (the Liquidity Provider), pursuant to the New VRDP Purchase Agreement. The purchase obligation of the Liquidity Provider is transferable only in connection with a
transfer of New VRDP Shares; it is not separately transferable.
Dividends and Rate Periods
. It
is anticipated that the Premium Income Reorganization will close on or about January 13, 2014 or such other date as the parties may agree. The applicable dividend rate of the New VRDP Shares commencing on, and including, the date of issuance,
to, and including, the next succeeding Rate Determination Date, will be equal to the dividend rate in effect for the Premium Income VRDP Shares immediately prior to the closing. Generally, the dividend rate will be reset weekly by the Remarketing
Agent. Dividends on New VRDP Shares are expected to be exempt from regular federal and Pennsylvania income taxes, with exceptions for certain portions that may represent capital gains or ordinary income, if any, generally from portfolio transactions
and market discount.
Dividends on the New VRDP Shares will be declared daily to the Holders thereof at the close of business
on each such day and paid on each Dividend Payment Date to the Holders thereof at the close of business on the day immediately preceding such Dividend Payment Date. In connection with any transfer of New VRDP Shares, the transferor as Beneficial
Owner of New VRDP Shares will be deemed to have agreed pursuant to the terms of the New VRDP Shares to transfer to the transferee the right to receive from the Fund any dividends declared and unpaid for each day prior to the transferee becoming the
Beneficial Owner of the New VRDP Shares in exchange for payment of the purchase price for such New VRDP Shares by the transferee.
iv
Maximum Rate
. The Maximum Rate for the New VRDP Shares on any
Rate Determination Date or in respect of the occurrence of a failed remarketing for the VRDP Shares will be the Applicable Percentage of the Applicable Base Rate plus the Applicable Spread. The terms of the Maximum Rate, including the Applicable
Percentage of the Applicable Base Rate and Applicable Spread, are described in the New VRDP Statement. The Maximum Rate for VRDP Shares will depend on the long-term rating assigned to the VRDP Shares, the length of the Rate Period and whether or not
the Fund has given notification to the Remarketing Agent and the Tender and Paying Agent that any ordinary income or capital gains will be included in the dividend on VRDP Shares for that Rate Period.
The New VRDP Shares will be subject to mandatory redemption by the Fund on the date set forth in the chart above, unless earlier
redeemed or repurchased by the Fund.
Investing in VRDP Shares involves risks. See Risk Factors beginning
on page 37 of this Information Memorandum.
The Funds primary investment objective is to provide, through
investment in a professionally managed portfolio of investment-grade tax-exempt municipal securities, current income exempt from both regular federal and Pennsylvania income taxes, consistent with the Funds investment policies. The secondary
investment objective of the Fund is the enhancement of portfolio value relative to the Pennsylvania municipal bond market through investments in tax-exempt Pennsylvania municipal securities that, in the opinion of the Funds investment adviser
(the Investment Adviser), are underrated or undervalued or that represent municipal markets that are undervalued. It is a fundamental policy of the Fund that, under normal circumstances, the Fund will invest at least 80% of its net
assets, including assets attributable to any principal amount of any borrowings (including the issuance of commercial paper or notes) or preferred shares outstanding (Managed Assets), in municipal securities and other related investments
that pay interest exempt from regular federal and Pennsylvania income taxes. As a non-fundamental policy, under normal circumstances, the Fund will invest at least 80% of its Managed Assets in investment-grade securities that, at the time of
investment, are rated within the four highest grades (Baa or BBB or better) by at least one nationally recognized statistical rating organization (NRSRO) or are unrated but judged to be of comparable quality by Nuveen Asset Management,
LLC (Nuveen Asset Management or the Sub-Adviser), the sub-adviser to the Fund. Also, as a non-fundamental policy, the Fund may invest up to 20% of its Managed Assets in municipal securities that, at the time of investment,
are rated below investment grade or are unrated but judged to be of comparable quality by the Sub-Adviser. Additionally, as a non-fundamental policy, no more than 10% of the Funds Managed Assets may be invested in municipal securities rated
below B3/B- or that are unrated but judged to be of comparable quality by the Sub-Adviser. There is no assurance that the Fund will achieve its investment objectives.
This Information Memorandum summarizes the current investment objectives and policies of the Fund.
The Funds principal office is located at 333 West Wacker Drive, Chicago, Illinois 60606, and its telephone number is (800) 257-8787.
THE NEW VRDP SHARES REPRESENT INVESTMENTS IN THE FUND AND DO NOT REPRESENT AN INTEREST IN OR OBLIGATIONS OF, AND ARE NOT INSURED BY, ANY
OF THE FUNDS INVESTMENT ADVISER, THE SUB-ADVISER, THE LIQUIDITY PROVIDERS, THE REMARKETING AGENTS OR THE TENDER AND PAYING AGENT.
v
This Information Memorandum does not constitute an offer to exchange or otherwise
purchase any Premium Income VRDP Shares. This Information Memorandum has not been reviewed by any federal or state securities commission or any regulatory authority of any jurisdiction, nor has any such commission or authority passed upon the
accuracy or adequacy of this Information Memorandum. Any representation to the contrary is unlawful and may be a criminal offense.
The date of this
Information Memorandum is [ ], 2013.
This
Information Memorandum is furnished by the Fund on a confidential basis, and sets forth the terms of the New VRDP Shares. The information contained or incorporated by reference in this Information Memorandum has been provided by the Fund and other
sources identified herein.
The offer and issuance of the New VRDP Shares have not been registered under the Securities
Act of 1933, as amended (the Securities Act), or any state securities laws, and unless so registered, the New VRDP Shares may not be offered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of except pursuant to an
exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the New VRDP Shares to be issued in the Premium Income Reorganization are being offered and
sold only to holders of VRDP Shares of Premium Income that are qualified institutional buyers (as defined in Rule 144A under the Securities Act) in accordance with the exemption from the registration requirements of the Securities Act
provided by Section 4(a)(2) of the Securities Act and are subject to certain restrictions on transfer as further described under Notice to Investors.
This Information Memorandum does not constitute an offer to exchange or otherwise purchase any Premium Income VRDP Shares. The offer for the New VRDP Shares is being made only to the holders of Premium
Income VRDP Shares in connection with the Premium Income Reorganization. This Information Memorandum is personal to each investor to which it is made available and has been prepared solely for use in connection with the Premium Income
Reorganization. Distribution of this Information Memorandum to any person other than a beneficial owner of Premium Income VRDP Shares and those persons, if any, retained to advise such beneficial owner is not authorized.
The New VRDP Shares will be issued in book-entry form, as global securities (the global securities). The global securities
will be deposited with, or on behalf of, The Depository Trust Company (DTC) and registered in the name of Cede & Co., the nominee of DTC. Beneficial interests in the global securities will be held only through DTC and any of its
participants. Unless the context otherwise requires, references in this Information Memorandum to holders of VRDP Shares or holders of New VRDP Shares include the Beneficial Owners of interests in the VRDP Shares or New VRDP
Shares, respectively, and references to the VRDP Shares or New VRDP Shares include any beneficial interest therein. See Book-Entry Procedures and Settlement for further discussion of these matters.
This Information Memorandum contains summaries and other information believed to be accurate as of the date hereof with respect to
certain terms of certain documents, but reference is made to the actual documents (copies of which will be made available on a confidential basis to owners of VRDP Shares upon request to the Fund) for complete information with respect thereto, and
all such summaries are qualified in their entirety by such reference.
vi
The distribution of this Information Memorandum in certain jurisdictions may be restricted
by law. Persons in possession of this Information Memorandum are required to inform themselves about and to observe any such restrictions. This Information Memorandum does not constitute, and may not be used for or in connection with, an offer or
solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such offer or solicitation.
No action has been taken by the Fund that would permit an offering of the New VRDP Shares or the circulation or distribution of this Information Memorandum or any other material in relation to the Fund,
the Liquidity Provider or the New VRDP Shares in any jurisdiction where action for that purpose is required.
THIS INFORMATION
MEMORANDUM IS FOR INFORMATIONAL PURPOSES ONLY. INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE FUND, THE LIQUIDITY PROVIDER AND THE TERMS OF THE NEW VRDP SHARES, INCLUDING THE MERITS AND RISKS INVOLVED. INVESTORS SHOULD BE AWARE THAT THEY
MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF AN INVESTMENT IN NEW VRDP SHARES FOR AN INDEFINITE PERIOD OF TIME.
NONE
OF THE FUND, PREMIUM INCOME, THE LIQUIDITY PROVIDER OR THE REMARKETING AGENT OR THEIR RESPECTIVE AFFILIATES MAKES ANY REPRESENTATION REGARDING THE LEGALITY OF INVESTMENT IN THE NEW VRDP SHARES BY ANY PERSON UNDER APPLICABLE LEGAL INVESTMENT OR
SIMILAR LAWS OR REGULATIONS OR THE PROPER CLASSIFICATION OF SUCH AN INVESTMENT THEREUNDER.
THE CONTENTS OF THIS INFORMATION
MEMORANDUM ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR AND TAX ADVISOR AS TO LEGAL, BUSINESS AND TAX ADVICE.
Notwithstanding anything to the contrary contained in this Information Memorandum or any other express or implied agreement to the
contrary, each beneficial owner of VRDP Shares (and each employee, representative or other agent of each beneficial owner) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of an investment in
the New VRDP Shares and all materials of any kind that are provided to the beneficial owner of VRDP Shares relating to such tax treatment and tax structure (as such terms are defined in U.S. Treasury regulation section 1.6011-4).
In this Information Memorandum, references to
U.S. Dollars
,
Dollars
and
$
are to
United States dollars.
vii
FORWARD LOOKING STATEMENTS
Any projections, forecasts and estimates contained or incorporated by reference herein are forward looking statements and are based upon
certain assumptions. Projections, forecasts and estimates are necessarily speculative in nature, and some or all of the assumptions underlying any projections, forecasts or estimates may not materialize or may vary significantly from actual results.
Actual results may vary from any projections, forecasts and estimates and the variations may be material. Some important factors that could cause actual results to differ materially from those in any forward looking statements include changes in
interest rates, market, financial or legal uncertainties, the state of the market in municipal securities (especially those issued by the Commonwealth of Pennsylvania, a municipality in Pennsylvania, or a political subdivision or agency or
instrumentality of such Commonwealth or municipality), the funding and solvency of the Commonwealth of Pennsylvania and other governmental entities and municipal issuers located in such Commonwealth, and the timing and frequency of defaults on
underlying investments. Consequently, the inclusion of any projections, forecasts and estimates herein should not be regarded as a representation by the Fund or any of its affiliates or any other person or entity of the results that will actually be
achieved by the Fund. None of the Fund or its affiliates has any obligation to update or otherwise revise any projections, forecasts and estimates including any revisions to reflect changes in economic conditions or other circumstances arising after
the date hereof or to reflect the occurrence of unanticipated events, even if the underlying assumptions do not come to fruition.
viii
TABLE OF CONTENTS
ix
NOTICE TO INVESTORS
Each person acquiring New VRDP Shares, by its acceptance thereof, will be deemed to have acknowledged, represented to and agreed with the
Fund, the Liquidity Provider and the Remarketing Agent as follows:
(1) It
understands and acknowledges that the securities have not been registered under the Securities Act or any other applicable securities law, are being offered for sale pursuant to Section 4(a)(2) of the Securities Act, and may not be offered,
sold or otherwise transferred except in compliance with the registration requirements of the Securities Act or any other applicable securities law, pursuant to an exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with the conditions for transfer set forth in paragraph (4) below.
(2) It is a qualified institutional buyer (QIB), as defined in
Rule 144A promulgated under the Securities Act, and is acquiring the securities for its own account or for the account of another QIB.
(3) It acknowledges that none of the Fund, the Liquidity Provider, the Remarketing Agent or any person representing any of the foregoing has made any
representation to it with respect to the Fund, the Liquidity Provider or the Remarketing Agent or the offering or sale of any securities other than the information contained or incorporated by reference in this Information Memorandum, which has been
delivered to it and upon which it is relying in making its investment decision with respect to the securities. Further, it acknowledges that with respect to the information supplied by the Liquidity Provider for inclusion in this Information
Memorandum, no representation is made by the Fund as to the accuracy or completeness of such information. The Liquidity Provider accepts no responsibility for the accuracy or completeness of this Information Memorandum or the New VRDP Statement or
any other information or disclosure contained or incorporated by reference herein or in the New VRDP Statement, or omitted herefrom or from the New VRDP Statement. In addition, no representation is made regarding New VRDP Shares or the advisability
of investing in New VRDP Shares. Moreover, it acknowledges that it has had access to such financial and other information concerning the Fund and the Liquidity Provider and the securities as it has deemed necessary in connection with its decision to
purchase the securities offered hereby, including an opportunity to ask questions of and request information from the Fund and the Liquidity Provider.
(4) It is purchasing the securities for its own account, or for one or more investor accounts for which it is acting as a fiduciary or agent, in each case
for investment, and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act, subject to any requirements of law that the disposition of its property or the property of such investor
account or accounts be at all times within its or their control and subject to its or their ability to resell such securities pursuant to Rule 144A or any exemption from registration available under the Securities Act. It agrees on its own behalf
and on behalf of any investor account for which it is purchasing the securities and each subsequent holder or owner of the securities by its acceptance thereof will agree to offer, sell or otherwise transfer such securities only (a) to the
Fund, (b) to or through the Remarketing Agent in a Remarketing, (c) to the Liquidity Provider pursuant to the New VRDP Purchase Agreement or (d) for so long as the securities offered hereby are eligible for resale pursuant to Rule
144A, but subject to the restrictions on transfer, outside of a Remarketing, described herein, to a person it reasonably believes is a QIB that purchases for its own account or for the account of a QIB to whom notice is given that the transfer is
being made in reliance on Rule 144A, subject in each of the
1
foregoing cases to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control. Each purchaser
acknowledges that each New VRDP Share will contain a legend substantially to the following effect:
THE SECURITIES HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR ANY STATE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, ONLY (A) TO THE FUND, (B) TO OR THROUGH THE REMARKETING AGENT IN A REMARKETING,
(C) TO THE LIQUIDITY PROVIDER PURSUANT TO THE NEW VRDP PURCHASE AGREEMENT OR (D) FOR SO LONG AS THE SECURITIES OFFERED HEREBY ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, BUT SUBJECT TO THE RESTRICTIONS ON TRANSFER, OUTSIDE OF A
REMARKETING APPLICABLE TO THIS SECURITY, TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR ANY EXEMPTION FROM REGISTRATION AVAILABLE UNDER THE SECURITIES ACT. THE PURCHASE OBLIGATION IS TRANSFERABLE ONLY IN CONNECTION WITH A TRANSFER OF NEW VRDP SHARES; IT IS NOT SEPARATELY TRANSFERABLE.
NUVEEN FUND ADVISORS, LLC (INVESTMENT ADVISER), AFFILIATED PERSONS OF THE INVESTMENT ADVISER (AS DEFINED IN
SECTION 2(a)(3) OF THE 1940 ACT) (OTHER THAN THE FUND, IN THE CASE OF A PURCHASE OF NEW VRDP SHARES WHICH ARE TO BE CANCELLED WITHIN 10 DAYS OF PURCHASE BY THE FUND), AND PERSONS OVER WHICH THE INVESTMENT ADVISER, OR AFFILIATED PERSONS OF THE
INVESTMENT ADVISER (AS DEFINED IN SECTION 2(a)(3) OF THE 1940 ACT), EXERCISE DISCRETIONARY INVESTMENT OR VOTING AUTHORITY (OTHER THAN THE FUND, IN THE CASE OF A PURCHASE OF NEW VRDP SHARES WHICH ARE TO BE CANCELLED WITHIN 10 DAYS OF PURCHASE BY
THE FUND), ARE NOT PERMITTED TO PURCHASE NEW VRDP SHARES WITHOUT THE PRIOR WRITTEN CONSENT OF THE LIQUIDITY PROVIDER AND ANY SUCH PURCHASES SHALL BE VOID
AB
INITIO
;
PROVIDED
,
HOWEVER
, THAT PURCHASES OF NEW VRDP SHARES
MAY BE MADE BY BROKER-DEALERS THAT ARE AFFILIATED PERSONS OF THE INVESTMENT ADVISER IN RISKLESS PRINCIPAL TRANSACTIONS WITH RESPECT TO SUCH PURCHASES OF NEW VRDP SHARES.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF SHALL BE DEEMED TO HAVE AGREED THAT, IN CONNECTION WITH ANY TRANSFER OF NEW VRDP SHARES, IT IS TRANSFERRING TO THE TRANSFEREE THE RIGHT TO RECEIVE FROM
THE FUND ANY DIVIDENDS DECLARED AND UNPAID FOR EACH DAY PRIOR TO THE TRANSFEREE BECOMING THE BENEFICIAL OWNER OF THE NEW VRDP SHARES IN EXCHANGE FOR PAYMENT OF THE PURCHASE PRICE FOR SUCH NEW VRDP SHARES BY THE TRANSFEREE.
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(5) It acknowledges that the Fund, the
Liquidity Provider and the Remarketing Agent and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements and agrees that, if any of the acknowledgments, representations or warranties deemed to
have been made by its purchase of securities are no longer accurate, it shall promptly notify the Fund, the Liquidity Provider and the Remarketing Agent. If it is acquiring any securities as a fiduciary or agent for one or more investor accounts, it
represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each such account.
SUMMARY
This is only a summary. You should review the more detailed information contained elsewhere in this Information Memorandum and the documents incorporated by reference or otherwise summarized in this
Information Memorandum, including the information set forth in the sections Risk Factors, How the Fund Manages Portfolio Risk and The Funds InvestmentsDerivatives and Hedging Strategies, the form of
the Statement Establishing and Fixing the Rights and Preferences of the New VRDP Shares (previously defined as the New VRDP Statement), attached hereto as Appendix A, and the form of the VRDP Purchase Agreement with respect to the New
VRDP Shares (previously defined as the New VRDP Purchase Agreement), attached hereto as Appendix B. Certain of the capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the New VRDP
Statement.
The Fund
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Nuveen Pennsylvania Investment Quality Municipal Fund (previously defined as the Fund) is a diversified, closed-end management investment company. The Funds common shares,
$0.01 par value, are traded on the NYSE under the ticker symbol NQP. As of August 26, 2013, the Fund had 16,109,304 common shares outstanding. As of August 26, 2013, the Fund also had 1,125 VRDP Shares outstanding (previously defined as
the Outstanding VRDP Shares). In connection with the reorganization of Nuveen Pennsylvania Premium Income Municipal Fund 2 (previously defined as Premium Income) into the Fund (previously defined as the Premium Income
Reorganization), the Fund will issue 1,050 New VRDP Shares. Further, in connection with the concurrent reorganizations of Nuveen Pennsylvania Dividend Advantage Municipal Fund (Dividend Advantage) and Nuveen Pennsylvania Dividend
Advantage Municipal Fund 2 (Dividend Advantage 2 and collectively with Premium Income and Dividend Advantage, the Target Funds and each, a Target Fund) into the Fund (the Dividend Advantage
Reorganizations and collectively with the Premium Income Reorganization, the Reorganizations and each, a Reorganization), the Fund will issue 4,774,000 MuniFund Term Preferred Shares (previously defined as MTP
Shares).
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The Offering
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This Information Memorandum is provided for information purposes in connection with the offering of the New VRDP Shares pursuant to the Premium Income Reorganization. Each New VRDP Share has a
liquidation preference of $100,000 per share.
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This Information Memorandum is provided exclusively to holders of VRDP Shares of Premium Income who were holders of Premium Income VRDP Shares as of the close of
business on August 26, 2013. Upon the closing of the Premium Income Reorganization, Premium Income will transfer substantially all of its assets to the Fund in exchange for common and preferred shares of the Fund, and the assumption by the Fund
of substantially all of the liabilities of Premium Income. Premium Income will then be liquidated, dissolved and terminated in accordance with applicable law. Holders of VRDP Shares of Premium Income will receive on a one-for-one basis New VRDP
Shares of the Fund in exchange for VRDP Shares of Premium Income held immediately prior to the Premium Income Reorganization.
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Description of the New VRDP Shares
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The terms of the New VRDP Shares of the Fund to be issued pursuant to the Premium Income Reorganization will be substantially identical, as of the closing of the reorganization, to the VRDP
Shares of Premium Income exchanged therefor. Also, the terms of the remarketing for the New VRDP Shares will be the same as those for the Premium Income VRDP Shares. The description of the New VRDP Shares is qualified in its entirety by the terms
set forth in the New VRDP Statement and the New VRDP Purchase Agreement. See Description of the New VRDP Shares.
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Liquidity Providers; the Purchase Obligation
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The New VRDP Shares will have the benefit of an unconditional demand feature pursuant to a purchase obligation, provided by the same bank that provides such demand feature for the Premium Income
VRDP Shares immediately prior to the Premium Income Reorganization (previously defined as the Liquidity Provider), pursuant to the New VRDP Purchase Agreement. (The bank also is the Liquidity Provider for the outstanding VRDP Shares of
the Fund.) The initial term of the New VRDP Purchase Agreement with the Liquidity Provider is expected to be no less than the remaining term of the purchase agreement with respect to the VRDP Shares of Premium Income immediately prior to the Premium
Income Reorganization. See The Purchase Obligation and Liquidity Provider.
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Ratings
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As a condition to the closing of the Premium Income Reorganization, the Fund must obtain short-term and long-term ratings for the New VRDP Shares equivalent to the ratings of the Premium Income
VRDP Shares immediately prior to the closing.
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The short-term ratings on the New VRDP Shares are directly related to the short-term ratings assigned to the Liquidity Provider. Changes in the credit quality of the
Liquidity Provider could cause a downgrade in the short-term credit ratings of the New VRDP Shares, make the New VRDP Shares less liquid in the secondary market and cause losses to holders of VRDP Shares.
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Investment Objectives and Policies
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The Funds primary investment objective is to provide, through investment in a professionally managed portfolio of investment-grade
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4
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tax-exempt municipal securities, current income exempt from both regular federal and Pennsylvania income taxes, consistent with the Funds investment policies. The secondary investment
objective of the Fund is the enhancement of portfolio value relative to the Pennsylvania municipal bond market through investments in tax-exempt Pennsylvania municipal securities that, in the opinion of the Investment Adviser (as defined below), are
underrated or undervalued or that represent municipal markets that are undervalued. See The Funds InvestmentsInvestment Objectives and Policies.
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There can be no assurance that the Fund will achieve its investment objectives.
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Management of the Fund
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Nuveen Fund Advisors, LLC (Nuveen Fund Advisors or the Investment Adviser) is the Funds investment adviser. Nuveen Fund Advisors, a registered investment adviser,
is a wholly-owned subsidiary of Nuveen Investments, Inc. (Nuveen or Nuveen Investments). Nuveen Fund Advisors has selected Nuveen Asset Management, LLC (previously defined as Nuveen Asset Management or the
Sub-Adviser) to serve as the sub-adviser to the Fund. See Management of the Fund.
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Taxation
|
The Fund has elected to be treated, and intends to continue to qualify each year, as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
Code), and generally does not expect to be subject to federal income tax.
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Under normal circumstances, the Fund will invest at least 80% of its net assets, including assets attributable to any principal amount of any borrowings (including the
issuance of commercial paper or notes) or preferred shares outstanding, in municipal securities and other related investments that pay interest exempt from regular federal and Pennsylvania income taxes. Accordingly, the dividends paid by the Fund
from such interest will ordinarily be similarly exempt. To the extent the Fund invests in municipal securities of issuers outside of Pennsylvania, dividends paid by the Fund may be subject to Pennsylvania income taxes. See Material Income Tax
Considerations for a detailed discussion of the foregoing matters.
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Governing Law
|
The Funds declaration of trust, as amended (the Declaration of Trust), and the New VRDP Statement are governed by the laws of the Commonwealth of Massachusetts.
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The New VRDP Purchase Agreement and the Tender and Paying Agent Agreement and Remarketing Agreement with respect to the New VRDP Shares are governed by the laws of the
State of New York.
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Risk Factors
|
Risk is inherent in all investing. You should carefully consider the risks of investing in VRDP Shares. See Risk Factors, The Funds InvestmentsInvestment Objectives
and Policies and Derivatives and Hedging Strategies and How the Fund Manages Portfolio Risk.
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5
THE FUND
The Fund is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the
1940 Act). The Fund was organized as a Massachusetts business trust on December 19, 1990 and commenced investment operations on February 21, 1991. The Funds common shares are listed on the NYSE under the symbol NQP. The
Funds principal office is located at 333 West Wacker Drive, Chicago, Illinois 60606, and its telephone number is (800) 257-8787.
The following provides information about the Funds outstanding shares as of August 26, 2013.
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|
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|
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|
Title of Class
|
|
Amount
Authorized
|
|
Amount Held by
the Fund or for its
Account
|
|
Amount
Outstanding
|
Common Shares
|
|
Unlimited
|
|
|
|
16,109,304
|
VRDP Shares
|
|
Unlimited
|
|
|
|
1,125
|
The following provides information about the Funds outstanding preferred shares, as adjusted to
reflect the issuance of the New VRDP Shares and MTP Shares following the completion of the Reorganizations as if such Reorganizations had been completed as of August 26, 2013.
|
|
|
|
|
|
|
|
|
Title of Class
|
|
Amount
Authorized
|
|
Amount Held by
the Fund or for its
Account
|
|
Shares
Outstanding
|
|
Aggregate
Liquidation
Preference
Outstanding
|
VRDP Shares
|
|
Unlimited
|
|
|
|
2,175
|
|
$217,500,000
|
MTP Shares
|
|
Unlimited
|
|
|
|
4,774,000
|
|
$ 47,740,000
|
DESCRIPTION OF THE NEW VRDP SHARES
The terms of the New VRDP Shares of the Fund to be issued pursuant to the Premium Income Reorganization will be substantially
identical, as of the closing of the reorganization, to the terms of the outstanding VRDP Shares of Premium Income for which they are exchanged. Attached as exhibits to this Information Memorandum are forms of the New VRDP Statement and the New VRDP
Purchase Agreement. You are urged to review the New VRDP Statement and the New VRDP Purchase Agreement. This Information Memorandum only summarizes some of the terms of the New VRDP Shares, and it is qualified in its entirety by the terms set forth
in the New VRDP Statement and the New VRDP Purchase Agreement. Certain of the capitalized terms used herein and not defined have the meanings ascribed to them in the New VRDP Statement.
The New VRDP Shares have the following features, which will be substantially identical to those of the Premium Income VRDP Shares as of
the closing of the Premium Income Reorganization:
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the same short-term and long-term credit ratings from one or more rating agencies;
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|
|
the same Liquidation Preference ($100,000 per share) and Final Mandatory Redemption Date (as detailed above);
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|
|
the same terms with respect to the payment of an adjustable dividend rate set weekly by a Remarketing Agent;
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6
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|
|
the same right to give notice on any business day to tender the securities for remarketing in seven days;
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|
the same terms with respect to the Mandatory Tender for remarketing upon the occurrence of certain events; and
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continuing to have the benefit of an unconditional demand feature pursuant to the New VRDP Purchase Agreement provided by the same bank acting as
Liquidity Provider with respect to the Premium Income VRDP Shares as of the closing date of the Premium Income Reorganization.
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Following the Premium Income Reorganization, based on VRDP Shares outstanding as of August 26, 2013, the Fund will have 1,050 New VRDP Shares outstanding. The New VRDP Shares will rank on parity with
each other and with the outstanding VRDP Shares of the Fund with respect to the payment of dividends by the Fund and the distribution of assets in the event of the Funds liquidation, will have the same Liquidation Preference ($100,000 per
share) and will be entitled to one vote per share. The New VRDP Shares will also rank on parity with the MTP Shares as to the payment of dividends and the distribution of assets in the event of the Funds liquidation.
Upon issuance of the New VRDP Shares, the Fund will have two VRDP Series outstanding
. Dividend rates may
vary between the two series, because, for example, the applicable Remarketing Agent may reset the rate for one VRDP Series at a different level from that set by the Remarketing Agent for the other VRDP Series, or the rate for one VRDP Series, but
not both VRDP Series, may reset to the Maximum Rate (or a different level of Maximum Rate) in accordance with the terms of the applicable Statement Establishing and Fixing the Rights and Preferences of VRDP Shares (each, a Statement and
together, the Statements). Redemptions prior to the Final Mandatory Redemption Dates for each VRDP Series may occur at different times and in different amounts. In the event that the Fund were to make a partial redemption of New VRDP
Shares, the redemption may not necessarily be effected pro rata among all series of preferred shares then outstanding.
Each
of the New VRDP Purchase Agreement and the VRDP Purchase Agreement for the outstanding VRDP Shares of the Fund has an expiration date (each expiration date being referred to as a Scheduled Termination Date), subject to periodic extension
or replacement. There is no assurance that a liquidity provider will renew, or continue to renew, the respective VRDP Purchase Agreement or that a replacement liquidity provider will be appointed. Each VRDP Series requires that the liquidity
providers Purchase Obligation be renewed upon each Scheduled Termination Date for a term of at least 180 days (or replaced with a purchase obligation with such minimum term). If a liquidity provider does not renew its respective VRDP
Purchase Agreement and the liquidity provider is not replaced, all VRDP Shares of the relevant VRDP Series will be subject to Mandatory Purchase by the liquidity provider prior to the expiration of the Purchase Obligation.
Remarketing
. The terms of the remarketing for the New VRDP Shares will be the same as for the Premium
Income VRDP Shares. Shareholders of the New VRDP Shares will have the option to tender New VRDP Shares for remarketing at the Purchase Price (defined below) on any Business Day not less than seven days after delivery of a Notice of Tender to a
tender and paying agent appointed by the Fund (the Tender and Paying Agent) with the consent of the Liquidity Provider. In addition, the New VRDP Shares will be subject to mandatory tender for remarketing by the Remarketing Agent at the
Purchase Price in the circumstances set forth in the New VRDP Statement. The Remarketing Agent
7
will use its best efforts in each case to remarket any New VRDP Shares so tendered. If no remarketing occurs on or before the relevant Purchase Date, or New VRDP Shares remain unsold pursuant to
an attempted remarketing, the Tender and Paying Agent will deliver all such unsold New VRDP Shares that have been delivered to the Tender and Paying Agent to the Liquidity Provider for purchase on such Purchase Date. In addition, the New VRDP Shares
will be subject to mandatory purchase by the Liquidity Provider at the Purchase Price for the New VRDP Shares in the event of termination of the New VRDP Purchase Agreement if the Fund has not obtained an Alternate VRDP Purchase Agreement prior to
such termination. The Purchase Price with respect to the New VRDP Shares is equal to the Liquidation Preference of New VRDP Shares to be purchased on a Purchase Date
plus
any accumulated but unpaid dividends (whether or not earned
or declared), if any, to, but excluding, the relevant Purchase Date. The date designated for (i) purchase of New VRDP Shares pursuant to an optional or mandatory tender for remarketing or (ii) mandatory purchase by the Liquidity Provider
is referred to herein as a Purchase Date.
The Remarketing Agent for the New VRDP Shares is expected to be the
same remarketing agent as the remarketing agent for the Premium Income VRDP Shares, as well as for the outstanding Series of VRDP Shares of the Fund.
Unconditional Demand Feature
. The New VRDP Shares will have the benefit of an unconditional demand feature pursuant to a purchase obligation, to be provided by the same bank
that provides such demand feature to the Premium Income VRDP Shares as of the closing date of the Premium Income Reorganization (previously defined as the Liquidity Provider), pursuant to the New VRDP Purchase Agreement. The purchase
obligation of the Liquidity Provider is transferable only in connection with a transfer of New VRDP Shares; it is not separately transferable.
Dividends and Rate Periods
. It is anticipated that the Premium Income Reorganization will close on or about January 13, 2014 or such other date as the parties may agree.
The applicable dividend rate of the New VRDP Shares commencing on, and including, the date of issuance, to, and including, the next succeeding Rate Determination Date, will be equal to the dividend rate in effect for the Premium Income VRDP Shares
immediately prior to the closing. Generally, the dividend rate will be reset weekly by the Remarketing Agent. Dividends on New VRDP Shares are expected to be exempt from regular federal and Pennsylvania income taxes, with exceptions for certain
portions that may represent capital gains or ordinary income, if any, generally from portfolio transactions and market discount.
Dividends on the New VRDP Shares will be declared daily to the Holders thereof at the close of business on each such day and paid on each Dividend Payment Date to the Holders thereof at the close of
business on the day immediately preceding such Dividend Payment Date. In connection with any transfer of New VRDP Shares, the transferor as Beneficial Owner of New VRDP Shares will be deemed to have agreed pursuant to the terms of the New VRDP
Shares to transfer to the transferee the right to receive from the Fund any dividends declared and unpaid for each day prior to the transferee becoming the Beneficial Owner of the New VRDP Shares in exchange for payment of the purchase price for
such New VRDP Shares by the transferee.
Maximum Rate.
The Maximum Rate for the New VRDP Shares
on any Rate Determination Date or in respect of the occurrence of a failed remarketing for the VRDP Shares will be the Applicable Percentage of the Applicable Base Rate plus the Applicable Spread. The terms of the Maximum Rate, including the
Applicable Percentage of the Applicable Base Rate and Applicable
8
Spread, are described in the New VRDP Statement. The Maximum Rate for VRDP Shares will depend on the long-term rating assigned to the VRDP Shares, the length of the Rate Period and whether or not
the Fund has given notification to the Remarketing Agent and the Tender and Paying Agent that any ordinary income or capital gains will be included in the dividend on VRDP Shares for that Rate Period.
LEVERAGE
The Fund may utilize the following forms of leverage: (a) portfolio investments that have the economic effect of leverage, including but not limited to investments in futures, options and inverse
floating rate securities, and (b) the issuance of preferred shares. The Fund and each Target Fund currently engages in leverage through the issuance of preferred shares and the use of inverse floaters. Certain important ratios related to the
Funds and each Target Funds use of leverage for the last three fiscal years are set forth below:
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Fund
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Asset Coverage Ratio
|
|
|
332.17
|
%
|
|
|
325.72
|
%
|
|
|
301.69
|
%
|
Regulatory Leverage Ratio
(1)
|
|
|
30.10
|
%
|
|
|
30.70
|
%
|
|
|
33.15
|
%
|
Effective Leverage Ratio
(2)
|
|
|
37.52
|
%
|
|
|
37.61
|
%
|
|
|
39.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium Income
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Asset Coverage Ratio
|
|
|
329.94
|
%
|
|
|
336.04
|
%
|
|
|
310.84
|
%
|
Regulatory Leverage Ratio
(1)
|
|
|
30.31
|
%
|
|
|
29.76
|
%
|
|
|
32.17
|
%
|
Effective Leverage Ratio
(2)
|
|
|
35.90
|
%
|
|
|
35.57
|
%
|
|
|
36.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Advantage
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Asset Coverage Ratio
|
|
|
326.92
|
%
|
|
|
321.17
|
%
|
|
|
300.61
|
%
|
Regulatory Leverage Ratio
(1)
|
|
|
30.59
|
%
|
|
|
31.14
|
%
|
|
|
33.27
|
%
|
Effective Leverage Ratio
(2)
|
|
|
33.65
|
%
|
|
|
34.20
|
%
|
|
|
34.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Advantage 2
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Asset Coverage Ratio
|
|
|
335.81
|
%
|
|
|
330.46
|
%
|
|
|
313.73
|
%
|
Regulatory Leverage Ratio
(1)
|
|
|
29.78
|
%
|
|
|
30.26
|
%
|
|
|
31.87
|
%
|
Effective Leverage Ratio
(2)
|
|
|
35.89
|
%
|
|
|
35.66
|
%
|
|
|
35.53
|
%
|
(1)
|
Regulatory leverage consists of preferred shares or debt issued by the fund. Both of these are part of a funds capital structure. Regulatory leverage is sometimes
referred to as 1940 Act Leverage and is subject to asset coverage limits set forth in the 1940 Act.
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(2)
|
Effective leverage is a funds effective economic leverage, and includes both regulatory leverage and the leverage effects of certain derivative investments in the
funds portfolio. Currently, the leverage effects of Tender Option Bond (TOB) inverse floater holdings, in addition to any regulatory leverage, are included in effective leverage ratios.
|
THE PURCHASE OBLIGATION
The following is a brief description of the terms of the New VRDP Purchase Agreement. This description does not purport to be complete and is subject to and qualified in its entirety by reference to
the form of the New VRDP Purchase Agreement in Appendix B.
9
As long as New VRDP Shares are outstanding, except as otherwise provided pursuant to the New
VRDP Statement in connection with a Special Rate Period (which requires prior notice and the consent of the Liquidity Provider and constitutes a Mandatory Tender Event), the Fund will maintain a VRDP Purchase Agreement for the New VRDP Shares
providing for a Purchase Obligation with a liquidity provider with short-term debt ratings in one of the two highest ratings categories from the Requisite NRSROs or such other short-term debt ratings, if any, as may be required for the New VRDP
Shares to satisfy the eligibility criteria under Rule 2a-7 under the 1940 Act on an ongoing basis to the extent that the Fund can do so on a commercially reasonable basis as determined in the sole discretion of the Funds Board of Trustees (the
Board).
Pursuant to the New VRDP Purchase Agreement, the Liquidity Provider will purchase at the Purchase Price
any outstanding New VRDP Shares that are properly tendered in accordance with the New VRDP Statement and the New VRDP Purchase Agreement, including any New VRDP Shares that are the subject of a failed remarketing on the Purchase Date for an Optional
Tender or a Mandatory Tender for remarketing, and all outstanding New VRDP Shares on the Purchase Date for a Mandatory Purchase Event. The obligation of the Liquidity Provider to purchase New VRDP Shares pursuant to the New VRDP Purchase Agreement
will run to the benefit of holders of New VRDP Shares and will be unconditional and irrevocable in accordance with the provisions of the New VRDP Purchase Agreement, without regard to, without limitation, any failure of the representations,
warranties, agreements or performance of the Tender and Paying Agent set forth in the New VRDP Purchase Agreement or of the Fund set forth in the New VRDP Fee Agreement (as defined below) or the termination of the obligations of the Remarketing
Agent under the Remarketing Agreement for the New VRDP Shares. The provisions of the New VRDP Purchase Agreement and the VRDP Purchase Agreement for the outstanding VRDP Shares of the Fund, which will remain outstanding following the Premium Income
Reorganization, are substantially identical.
VRDP Fee Agreement
Pursuant to a VRDP Fee Agreement with the Liquidity Provider with respect to the New VRDP Shares (the New VRDP Fee
Agreement), the Fund will pay to the Liquidity Provider a monthly fee in consideration of the Liquidity Providers agreement to provide the Purchase Obligation for the New VRDP Shares under the New VRDP Purchase Agreement. The New VRDP
Fee Agreement is expected to have substantially the same terms and conditions as the corresponding existing agreement with Premium Income, including certain representations, warranties and covenants as to the New VRDP Shares, including the covenant
that the Fund will not agree or consent to any amendment, supplement, modification or repeal of the New VRDP Fee Agreement, the Declaration of Trust, the New VRDP Statement, the New VRDP Shares, the By-Laws, the Remarketing Agreement with respect to
the New VRDP Shares or the Tender and Paying Agent Agreement with respect to the New VRDP Shares (or any provision therein, nor waive any provision thereof), to which it is a party (or to which its consent is required), without the prior written
consent of the Liquidity Provider, and the Liquidity Provider, without the prior written consent of the Fund, will not agree or consent to any amendment, supplement, modification or repeal of the New VRDP Purchase Agreement, nor waive any provision
thereof.
In addition, the New VRDP Fee Agreement is expected to include a covenant substantially as follows, as in the
corresponding existing agreement with Premium Income:
Unless the Fund receives the prior written consent of the Liquidity
Provider, the Fund will maintain the Funds Effective Leverage Ratio at or below 45%; provided, however, in the event that
10
the Funds Effective Leverage Ratio exceeds 45% (a) solely by reason of fluctuations in the market value of its portfolio securities, in such event and to the extent the Effective
Leverage Ratio exceeds 46% and (b) in any event other than an event described in the immediately preceding clause (a), the Fund shall cause its Effective Leverage Ratio to be 45% or lower within 10 Business Days. In addition, in certain
circumstances when a Failed Remarketing ConditionPurchased VRDP Shares has occurred and is continuing, the Fund will limit the creation of new tender option bond trusts providing for the issuance of floating rate trust certificates so as not
to cause the Effective Leverage Ratio to exceed 40% without the prior written consent of the Liquidity Provider, unless the proceeds are used to replace a like amount of outstanding floating rate trust certificates or to repurchase or redeem a like
Liquidation Preference amount of VRDP Shares; provided, the Fund will not be required by the foregoing to reduce the notional amount of floating rate trust certificates then outstanding.
Effective Leverage Ratio means the quotient of:
(A) the sum of (i) the aggregate liquidation preference of the Funds senior securities (as that term is defined in the 1940 Act) that are stock, excluding, without duplication,
any such senior securities for which the Fund has issued a Notice of Redemption and either has delivered Deposit Securities to the Tender and Paying Agent or otherwise has adequate Deposit Securities on hand for the purpose of such redemption;
(ii) the aggregate principal amount of the Funds senior securities representing indebtedness (as that term is defined in the 1940 Act); and (iii) the aggregate principal amount of floating rate trust certificates
corresponding to the associated residual floating rate trust certificates owned by the Fund (less the aggregate principal amount of any such floating rate trust certificates owned by the Fund and corresponding to the associated residual floating
rate trust certificates owned by the Fund),
divided by
(B) the sum of (i) the Market Value of the Funds total assets (including amounts attributable to senior securities), but
excluding, without duplication of any amounts otherwise subtracted as accrued liabilities, any assets consisting of Deposit Securities referred to in clause (i) of paragraph (A) above), less the amount of the Funds accrued liabilities (which
accrued liabilities shall include obligations of the Fund under each Derivative Contract in an amount equal to the Derivative Termination Value thereof payable by the Fund to the related counterparty), other than liabilities for the aggregate
principal amount of senior securities representing indebtedness, and (ii) the aggregate principal amount of floating rate trust certificates corresponding to the associated residual floating rate trust certificates owned by the Fund (less the
aggregate principal amount of any such floating rate trust certificates owned by the Fund and corresponding to the associated residual floating rate trust certificates owned by the Fund).
LIQUIDITY PROVIDER
Information regarding the Liquidity Providers current short-term and long-term debt ratings assigned by Fitch Ratings, Inc. (Fitch), Moodys Investors Service, Inc.
(Moodys) and Standard & Poors Ratings Services, a Standard & Poors Financial Services LLC business (S&P) is available at
www.fitchratings.com
,
www.moodys.com
and
www.standardandpoors.com
, respectively. No assurances can be given that the current ratings of the Liquidity Providers instruments will be maintained.
11
Additional information regarding the Liquidity Provider is available in public reports filed
by the Liquidity Provider or its bank holding company parent, if applicable, with the SEC and/or applicable bank regulatory authority.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
None of the Fund, the Investment Adviser, the Liquidity Provider, the Remarketing Agent or the Tender and Paying Agent takes any
responsibility for the accuracy of the information in this section concerning DTC and DTCs book-entry system, makes any representation as to the completeness of such information or makes any representation as to the absence of material changes
in such information subsequent to the date hereof.
The New VRDP Shares will be book-entry (global) securities. Upon
issuance, all book-entry securities will be represented by one or more fully-registered global securities. Each global security will be deposited with, or on behalf of, DTC, a securities depository, and will be registered in the name of DTC or a
nominee of DTC. DTC will thus be the only registered holder of New VRDP Shares.
Purchasers of New VRDP Shares may only hold
interests in the global securities directly through DTC if they are participants in the DTC system. Purchasers may also hold interests through a securities intermediarybanks, brokerage houses and other institutions that maintain securities
accounts for customersthat has an account with DTC or its nominee. DTC will maintain accounts showing the security holdings of its Agent Members, and these Agent Members will in turn maintain accounts showing the security holdings of their
customers. Some of these customers may themselves be securities intermediaries holding securities for their customers. Thus, each Beneficial Owner of a book-entry security will hold that security indirectly through various intermediaries.
The interest of each Beneficial Owner in a book-entry security will be evidenced solely by entries on the books of the
Beneficial Owners securities intermediary or Agent Member. The actual purchaser of the securities will generally not be entitled to have the securities represented by the global securities registered in its name and will not be considered the
owner under the terms of the securities and their governing documents. That means that the Fund and the Tender and Paying Agent or any other agent of the Fund will be entitled to treat the registered holder, DTC or its nominee, as the holder of the
securities for all purposes. In most cases, the Beneficial Owner will also not be able to obtain a paper certificate evidencing its ownership of New VRDP Shares. The laws of some jurisdictions require some purchasers of securities to take physical
delivery of their securities in definitive form. These laws may impair the ability to own, transfer or pledge beneficial interests in book-entry securities.
A Beneficial Owner of book-entry securities represented by a global security may exchange the securities for definitive (paper) securities only if:
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|
|
DTC is unwilling or unable to continue as depositary for such global security and the Fund does not appoint a qualified replacement for DTC within 90
days; or
|
|
|
|
the Fund in its sole discretion decides to allow some or all book-entry securities to be exchangeable for definitive securities in registered form.
|
12
Unless indicated otherwise, any global security that is so exchangeable will be exchangeable
in whole for definitive securities in registered form, with the same terms and of an equal aggregate amount. Definitive securities will be registered in the name or names of the person or persons specified by DTC in a written instruction to the
registrar of the New VRDP Shares. DTC may base its written instruction upon directions that it receives from Agent Members.
In this Information Memorandum, in the case of book-entry securities, references to actions taken by Beneficial Owners will mean actions
taken by DTC upon instructions from its Agent Members, and references to payments and notices relating to redemptions or the tendering of New VRDP Shares will mean payments and notices related to the redemption or tender of New VRDP Shares to DTC as
the registered holder of the securities for distribution to Agent Members in accordance with DTCs procedures. If fewer than all the New VRDP Shares are being redeemed, DTCs practice is to determine by lot the amount of the interest of
each Agent Member in the New VRDP Shares to be redeemed.
Each sale of a book-entry security will settle in immediately
available funds through DTC unless otherwise stated. Neither the Fund nor the Tender and Paying Agent, or any agent of either, will have any responsibility or liability for any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in any book-entry securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
Neither DTC nor DTCs nominee will consent or vote with respect to the New VRDP Shares unless authorized by a participant in accordance with DTCs procedures. Under its usual procedures, DTC
mails an omnibus proxy (the Omnibus Proxy) to the Fund as soon as possible after the record date. The Omnibus Proxy assigns DTCs nominee consenting or voting rights to the Agent Members to whose accounts the New VRDP Shares are
credited on the record date (identified in a listing attached to the Omnibus Proxy).
Dividend payments on the New VRDP Shares
and payments upon redemption of New VRDP Shares will be made to DTCs nominee or such other nominee as may be requested by an authorized representative of DTC. DTCs practice is to credit participants accounts upon DTCs receipt
of funds and corresponding detail information from the Fund or the Tender and Paying Agent on the payment date in accordance with their respective holdings shown on DTC records. Payments by Agent Members to Beneficial Owners will be governed by
standing instructions and customary practices. Payment of dividends or redemption proceeds to DTCs nominee is the responsibility of the Fund or the Tender and Paying Agent, disbursement of such payments to participants will be the
responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Agent Members or securities intermediaries who hold through an Agent Member.
THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTCS BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE FUND BELIEVES TO
BE RELIABLE. THE FUND, THE INVESTMENT ADVISER, THE SUB-ADVISER, THE LIQUIDITY PROVIDER, THE REMARKETING AGENT OR THE TENDER AND PAYING AGENT TAKE NO RESPONSIBILITY FOR THE ACCURACY OF THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTCS
BOOK-ENTRY SYSTEM. NO REPRESENTATION IS MADE BY THE FUND, THE INVESTMENT ADVISER, THE SUB-ADVISER, THE LIQUIDITY PROVIDER, THE REMARKETING AGENT OR THE TENDER AND PAYING AGENT AS TO THE COMPLETENESS OR ACCURACY OF SUCH INFORMATION OR AS TO
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THE ABSENCE OF MATERIAL ADVERSE CHANGES IN SUCH INFORMATION SUBSEQUENT TO THE DATE HEREOF. NO ATTEMPT HAS BEEN MADE BY THE FUND, THE INVESTMENT ADVISER, THE SUB-ADVISER, THE LIQUIDITY PROVIDER,
THE REMARKETING AGENT AND THE TENDER AND PAYING AGENT TO DETERMINE WHETHER DTC IS OR WILL BE FINANCIALLY OR OTHERWISE CAPABLE OF FULFILLING ITS OBLIGATIONS. THE FUND AND THE LIQUIDITY PROVIDER WILL NOT HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO ANY
DTC AGENT MEMBER, SECURITIES INTERMEDIARIES, OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO DIVIDEND PAYMENTS TO OR THE PROVIDING OF NOTICE FOR THE DTC AGENT MEMBERS, THE SECURITIES INTERMEDIARIES OR THE BENEFICIAL OWNERS.
IT IS THE DUTY OF EACH BENEFICIAL OWNER TO ARRANGE WITH THE DTC AGENT MEMBER OR SECURITIES INTERMEDIARIES TO RECEIVE FROM SUCH DTC AGENT
MEMBER OR SECURITIES INTERMEDIARY DIVIDEND PAYMENTS AND ALL OTHER COMMUNICATIONS WHICH THE DTC AGENT MEMBER OR SECURITIES INTERMEDIARY RECEIVES FROM DTC.
THE FUNDS INVESTMENTS
Investment Objectives and
Policies
The Funds primary investment objective is to provide, through investment in a professionally managed
portfolio of investment-grade tax-exempt municipal securities, current income exempt from both regular federal and Pennsylvania income taxes, consistent with the Funds investment policies. The secondary investment objective of the Fund is the
enhancement of portfolio value relative to the Pennsylvania municipal bond market through investments in tax-exempt Pennsylvania municipal securities that, in the opinion of the Investment Adviser, are underrated or undervalued or that represent
municipal markets that are undervalued.
It is a fundamental policy of the Fund that, under normal circumstances, the Fund
will invest at least 80% of its net assets, including assets attributable to any principal amount of any borrowings (including the issuance of commercial paper or notes) or preferred shares outstanding (Managed Assets), in municipal
securities and other related investments that pay interest exempt from regular federal and Pennsylvania income taxes.
As a
non-fundamental policy, under normal circumstances, the Fund will invest at least 80% of its Managed Assets in investment-grade securities that, at the time of investment, are rated within the four highest grades (Baa or BBB or better) by at least
one nationally recognized statistical rating organization (NRSRO) or are unrated but judged to be of comparable quality by Nuveen Asset Management, the sub-adviser to the Fund. Also, as a non-fundamental policy, the Fund may invest up to
20% of its Managed Assets in municipal securities that, at the time of investment, are rated below investment grade or are unrated but judged to be of comparable quality by the Sub-Adviser. Additionally, as a non-fundamental policy, no more than 10%
of the Funds Managed Assets may be invested in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by the Sub-Adviser.
Securities of below investment grade quality (Ba/BB or below) are commonly referred to as junk bonds. Issuers of securities rated Ba/BB or B are regarded as having current capacity to make
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principal and interest payments but are subject to business, financial or economic conditions which could adversely affect such payment capacity. Municipal securities rated below investment grade
quality are obligations of issuers that are considered predominately speculative with respect to the issuers capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater investment risk,
including the possibility of issuer default and bankruptcy and increased market price volatility. Municipal securities rated below investment grade tend to be less marketable than higher-quality securities because the market for them is less broad.
The market for unrated municipal securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly and a fund may have greater difficulty selling its portfolio
securities. The Fund will be more dependent on the Sub-Advisers research and analysis when investing in these securities. Municipal securities rated Baa or BBB are considered investment grade securities; municipal securities rated
Baa are considered medium grade obligations which lack outstanding investment characteristics and have speculative characteristics, while municipal securities rated BBB are regarded as having adequate capacity to pay principal and interest.
Municipal securities rated AAA in which the Fund may invest may have been so rated on the basis of the existence of insurance guaranteeing the timely payment, when due, of all principal and interest.
The foregoing credit quality policies apply only at the time a security is purchased, and the 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 issuer or that valuation changes of various bonds cause the Funds portfolio to fail to satisfy those policies. In determining
whether to retain or sell such a security, the Investment Adviser and/or the Sub-Adviser may consider such factors as the Investment Advisers and/or the Sub-Advisers 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.
The
Fund will primarily invest in municipal securities with long-term maturities in order to maintain an average effective maturity of 15-30 years, including the effects of leverage, but the average effective maturity of obligations held by the Fund may
be shortened as a result of portfolio transactions effected by the Adviser and/or the Sub-Adviser, depending on market conditions. As of April 30, 2013, the average effective maturity of the portfolio of the Fund was 16.03 years. As a result,
the Funds portfolio at any given time may include both long-term and intermediate-term municipal securities. Moreover, during temporary defensive periods (e.g., times when, in the Investment Advisers and/or the
Sub-Advisers
opinion, temporary imbalances of supply and demand or other temporary dislocations in the tax-exempt bond market adversely affect the price at which long-term or intermediate-term municipal
securities are available), and in order to keep the Funds cash fully invested, the Fund may invest any percentage of its net assets in short-term investments including high quality, short-term debt securities that may be either tax-exempt or
taxable and up to 10% of its Managed Assets in securities of other open- or closed-end investment companies (including exchange-traded funds) that invest primarily in municipal securities of the types in which the Fund may invest directly. The Fund
will generally select obligations which may not be redeemed at the option of the issuer for approximately seven to nine years.
The Fund has not established a limit on the percentage of its portfolio that may be invested in municipal bonds subject to the
alternative minimum tax provisions of federal tax law, and the Fund expects that a substantial portion of the income it produces may be includable in alternative minimum taxable income.
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The Fund may purchase municipal securities that are additionally secured by insurance, bank
credit agreements or escrow accounts. The credit quality of companies that provide such credit enhancements will affect the value of those securities. Although the insurance feature may reduce certain financial risks, the premiums for insurance and
the higher market price paid for insured obligations may reduce the Funds income. A municipal security with an insurance feature will be deemed to have the rating of its insurer. The insurance feature does not guarantee the market value of the
insured obligations, and the effectiveness and value of the insurance itself is dependent on the continued creditworthiness of the insurer.
The Fund may enter into certain derivative instruments in pursuit of its investment objectives, including 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. 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. The Fund may not enter into a futures contract 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 or related options.
The Fund may
invest in inverse floating rate securities. Inverse floating rate securities represent a leveraged investment in the underlying municipal bond deposited. Inverse floating rate securities offer the opportunity for higher income than the underlying
bond, but will subject the Fund to the risk of lower or even no income if short-term interest rates rise sufficiently. By investing in an inverse floating rate security rather than directly in the underlying bond, the Fund will experience a greater
increase in its net asset value if the underlying municipal bond increases in value, but will also experience a correspondingly larger decline in its net asset value if the underlying bond declines in value.
The Fund may borrow money for the repurchase of its shares or for temporary or emergency purposes, such as for the payment of dividends
or the settlement of portfolio transactions.
Municipal Securities
General.
The 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 bonds, notes and securities that provide for the payment of interest income that is exempt from
regular federal and Pennsylvania income taxes. Municipal securities are generally debt obligations issued by state and local governmental entities and may be issued by U.S. territories and possessions to finance or refinance public projects such as
roads, schools, and water supply systems. Municipal securities may also be issued 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. Municipal securities may be issued and purchased in the form of bonds, notes, leases or certificates of participation; structured as callable or non-callable; with payment forms
including fixed coupon,
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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 may increase the effective leverage of the funds.
The municipal securities in which the
Fund invests are generally issued by the Commonwealth of Pennsylvania, a municipality in Pennsylvania, or a political subdivision or agency or instrumentality of such Commonwealth or municipality, and pay interest that, in the opinion of bond
counsel to the issuer (or on the basis of other authority believed by the Sub-Adviser to be reliable), is exempt from regular federal and Pennsylvania income taxes, although the interest may be subject to the federal alternative minimum tax. The
Fund may invest in municipal bonds issued by United States territories and possessions (such as Puerto Rico or Guam) that are exempt from regular federal and Pennsylvania income taxes.
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 bonds 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.
Municipal Leases and Certificates of
Participation.
The 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 that is issued by a state or local government to acquire equipment and facilities. Income
from such obligations generally is 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, the Funds original investment. To the extent that the 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, the Fund will only purchase municipal securities representing lease obligations where the Investment Adviser and/or the Sub-Adviser 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 typically are
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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 the Fund with the right to a pro rata undivided interest in the underlying municipal securities. In addition, such participations generally provide the 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.
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
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 tax laws place substantial limitations on the size of such issues. The Funds distributions of its interest income from private activity bonds may subject certain
investors to the federal alternative minimum tax.
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Inverse Floating Rate Securities.
Inverse floating rate
securities (sometimes referred to as inverse floaters) 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: floating rate
securities (sometimes referred to as short-term floaters or tender option bonds) and inverse floating rate securities (sometimes referred to as inverse floaters or residual interest securities). Both classes of beneficial interests are represented
by certificates. 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, the institution granting the tender option 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, the 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, the Fund, as the holder of the
inverse floater, assumes the interest rate cash flow risk and the market value risk associated with the municipal bond 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 total face value of the short-term floaters in relation to the value of the inverse floaters that are issued by the special purpose trust, and can exceed three times
for more highly leveraged trusts. 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 the Fund, as the holder of the residual
inverse floating rate securities.
Because increases in the interest rate on the short-term floaters reduce the residual
interest paid on inverse floaters, and because fluctuations in the value of the municipal bond deposited in the special purpose trust affect the value of the inverse floater only, and not the value of the short-term floater issued by the trust,
inverse floaters value is generally more volatile than that of fixed rate bonds. The market price of inverse floating rate securities is generally more volatile than the underlying bonds due to the leveraging effect of this ownership
structure. These securities generally will underperform the market of fixed rate bonds in a rising interest rate environment (i.e., when bond values are falling), but tend to out-perform the market of fixed rate bonds when interest rates decline or
remain relatively stable. Although volatile, inverse floaters typically offer the potential for yields higher than those available on fixed rate bonds with comparable credit quality, coupon, call provisions and maturity. Inverse floaters have
varying degrees of liquidity or illiquidity based upon the ability to sell the underlying bonds deposited in a special purpose trust at an attractive price. The Fund may invest in inverse floating rate securities issued by special purpose trusts
whose sponsors have recourse to the Fund pursuant to a separate shortfall and forbearance agreement. Such an agreement would require the Fund to reimburse the third-party sponsor of the trust, upon termination of the trust issuing the inverse
floater, for the difference between the liquidation value of the bonds held in the trust and the principal amount due to the holders of floating rate securities issued by the trust. The Fund will enter into such a recourse agreement (i) when
the liquidity provider with respect to the floating rate securities issued by the special purpose trust requires such a recourse agreement because the level of leverage in the special purpose trust exceeds the level that the liquidity provider is
willing to support absent such an
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agreement; and/or (ii) to seek to prevent the liquidity provider from collapsing the special purpose trust in the event that the municipal obligation held in the trust has declined in value.
In an instance where the Fund has entered such a recourse agreement, the Fund may suffer a loss that exceeds the amount of its original investment in the inverse floating rate securities; such loss could be as great as that original investment
amount plus the face amount of the floating rate securities issued by the trust.
The Fund will segregate or earmark liquid
assets with its custodian in accordance with the 1940 Act to cover its obligations with respect to its investments in special purpose trusts.
The Fund may invest in both inverse floating rate securities and floating rate securities (as discussed below) issued by the same special purpose trust.
Floating Rate Securities.
The Fund may also invest in floating rate securities, as described above, issued
by special purpose trusts. Floating rate securities may take the form of short-term floating rate securities or the option period may be substantially longer. Generally, the interest rate earned will be based upon the market rates for municipal
securities with maturities or remarketing provisions that are comparable in duration to the periodic interval of the tender option, which may vary from weekly, to monthly, to extended periods of one year or multiple years. Since the option feature
has a shorter term than the final maturity or first call date of the underlying bond deposited in the trust, the Fund, as the holder of the floating rate securities, relies upon the terms of the agreement with the financial institution furnishing
the option as well as the credit strength of that institution. As further assurance of liquidity, the terms of the trust provide for a liquidation of the municipal bond deposited in the trust and the application of the proceeds to pay off the
floating rate securities. The trusts that are organized to issue both short-term floating rate securities and inverse floaters generally include liquidation triggers to protect the investor in the floating rate securities.
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, generally are 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 generally are 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.
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.
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Derivatives and Hedging Strategies
The Fund may periodically engage in hedging transactions, and otherwise use various types of derivative instruments, described below, to
reduce risk, to effectively gain particular market exposures, to seek to enhance returns, and to reduce transaction costs, among other reasons. In addition to inverse floating rate securities and structured notes, the Fund may invest in certain
other 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 whose prices, in the Investment Advisers and/or the Sub-Advisers opinion, correlate with the prices of the Funds investments. The Investment Adviser and/or the Sub-Adviser uses derivatives to shorten or
lengthen the effective duration of the Funds portfolio securities, and therefore the interest rate risk, and to adjust other aspects of the portfolios risk/return profile. The Fund may use these instruments if the Fund deems it more
efficient from a transaction cost, total return or income standpoint than investing in cash securities.
Hedging
is a term used for various methods of seeking to preserve portfolio capital value by offsetting price changes in one investment through making another investment whose price should tend to move in the opposite direction.
A derivative is a financial contract whose value is based on (or derived from) a traditional security (such as a
stock or a bond), an asset (such as a commodity like gold), or a market index (such as the Barclays Capital Municipal Bond Index). Some forms of derivatives may trade on exchanges, while non-standardized derivatives, which tend to be more
specialized and complex, trade in over-the-counter or a one-on-one basis. It may be desirable and possible in various market environments to partially hedge the portfolio against fluctuations in market value due to market interest rate
or credit quality fluctuations, or instead to gain a desired investment exposure, by entering into various types of derivative transactions, including financial futures and index futures as well as related put and call options on such instruments,
structured notes, or interest rate swaps on taxable or tax-exempt securities or indexes (which may be forward-starting), credit default swaps, and options on interest rate swaps, among others.
These transactions present certain risks. In particular, the imperfect correlation between price movements in the futures contract and
price movements in the securities being hedged creates the possibility that losses on the hedge by the Fund may be greater than gains in the value of the securities in the Funds portfolio. In addition, futures and options markets may not be
liquid in all circumstances. As a result, in volatile markets, the Fund may not be able to close out the transaction without incurring losses substantially greater than the initial deposit. Finally, the potential deposit requirements in futures
contracts create an ongoing greater potential financial risk than do options transactions, where the exposure is limited to the cost of the initial premium. Losses due to hedging transactions will reduce yield. Net gains, if any, from hedging and
other portfolio transactions will be distributed as taxable distributions to shareholders. These hedging strategies may generate taxable income.
The Fund will invest in these instruments only in markets believed by the Investment Adviser and/or the Sub-Adviser to be active and sufficiently liquid.
The Investment Adviser and/or the Sub-Adviser 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.
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There is no assurance that these derivative strategies will be available at any time or that
the Investment Adviser and/or the Sub-Adviser will determine to use them for the Fund or, if used, that the strategies will be successful.
Swap Transactions.
The Fund may enter into total return, interest rate and credit default swap agreements and interest rate caps, floors and collars. The Fund may also enter
into options on the foregoing types of swap agreements (swap options).
The Fund may enter into swap transactions
for any purpose consistent with its investment objective, such as for the purpose of attempting to obtain or preserve a particular return or spread at a lower cost than obtaining a return or spread through purchases and/or sales of instruments in
other markets, as a duration management technique, to reduce risk arising from the ownership of a particular instrument, or to gain exposure to certain sectors or markets in the most economical way possible.
Swap agreements are two party contracts entered into primarily by institutional investors for a specified period of time. In a standard
swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on a particular predetermined asset, reference rate or index. The gross returns to be exchanged or swapped between the parties are
generally calculated with respect to a notional amount, e.g., the return on or increase in value of a particular dollar amount invested at a particular interest rate or in a basket of securities representing a particular index. The notional amount
of the swap agreement generally is only used as a basis upon which to calculate the obligations that the parties to the swap agreement have agreed to exchange. The Funds current obligations under a net swap agreement will be accrued daily
(offset against any amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by assets determined to be liquid by the Sub-Adviser. See Segregation of Assets below.
Some, but not all, swaps may be cleared, in which case a central clearing counterparty stands between each buyer and seller and
effectively guarantees performance of each contract, to the extent of its available resources for such purpose. Uncleared swaps have no such protection; each party bears the risk that its direct counterparty will default.
Interest Rate Swaps, Caps, Collars and Floors.
Interest rate swaps are bilateral contracts in which each
party agrees to make periodic payments to the other party based on different referenced interest rates (e.g., a fixed rate and a floating rate) applied to a specified notional amount. The purchase of an interest rate floor entitles the purchaser, to
the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate floor. The purchase of an interest rate cap entitles the purchaser,
to the extent that a specified index rises above a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate cap. Interest rate collars involve selling a cap and purchasing
a floor or vice versa to protect the Fund against interest rate movements exceeding given minimum or maximum levels.
The use
of interest rate transactions, such as interest rate swaps and caps, is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. Depending on the state
of interest rates in general, the Funds use of interest rate swaps or caps could enhance or harm the overall performance of such Funds common shares. To the extent there is a decline in interest rates, the value of the interest rate swap
or cap could decline, and could result in a decline in the net asset value of the common shares. In addition, if
22
short-term
interest rates are lower than the Funds fixed rate of payment on the interest rate swap, the swap will reduce common share net earnings.
If, on the other hand, short-term interest rates are higher than the fixed rate of payment on the interest rate swap, the swap will enhance common share net earnings. Buying interest rate caps could enhance the performance of the common shares by
providing a maximum leverage expense. Buying interest rate caps could also decrease the net earnings of the common shares in the event that the premium paid by the Fund to the counterparty exceeds the additional amount such Fund would have been
required to pay had it not entered into the cap agreement.
Total Return Swaps.
In a total
return swap, one party agrees to pay the other the total return of a defined underlying asset during a specified period, in return for periodic payments based on a fixed or variable interest rate or the total return from other underlying
assets. A total return swap may be applied to any underlying asset but is most commonly used with equity indices, single stocks, bonds and defined baskets of loans and mortgages. The Fund might enter into a total return swap involving an underlying
index or basket of securities to create exposure to a potentially widely-diversified range of securities in a single trade. An index total return swap can be used by the Investment Adviser and/or the Sub-Adviser to assume risk, without the
complications of buying the component securities from what may not always be the most liquid of markets.
In connection with
the Funds position in a swap contract, the Fund will segregate liquid assets or will otherwise cover its position in accordance with applicable SEC requirements. See Segregation of Assets below.
Credit Default Swaps.
A credit default swap is a bilateral contract that enables an investor to buy or sell
protection against a defined-issuer credit event. The Fund may enter into credit default swap agreements either as a buyer or a seller. The Fund may buy protection to attempt to mitigate the risk of default or credit quality deterioration in an
individual security or a segment of the fixed income securities market to which it has exposure, or to take a short position in individual bonds or market segments which it does not own. The Fund may sell protection in an attempt to gain
exposure to the credit quality characteristics of particular bonds or market segments without investing directly in those bonds or market segments.
As the buyer of protection in a credit default swap, the Fund would pay a premium (by means of an upfront payment or a periodic stream of payments over the term of the agreement) in return for the right
to deliver a referenced bond or group of bonds to the protection seller and receive the full notional or par value (or other agreed upon value) upon a default (or similar event) by the issuer(s) of the underlying referenced obligation(s). If no
default occurs, the protection seller would keep the stream of payments and would have no further obligation to the Fund. Thus, the cost to the Fund would be the premium paid with respect to the agreement. If a credit event occurs, however, the Fund
may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity that may have little or no value. The Fund bears the risk that the protection seller may fail to satisfy
its payment obligations.
If the Fund is a seller of protection in a credit default swap and no credit event occurs, the Fund
would generally receive an up-front payment or a periodic stream of payments over the term of the swap. If a credit event occurs, however, generally the Fund would have to pay the buyer the full notional value of the swap in exchange for an equal
face amount of deliverable obligations of the reference entity that may have little or no value. As the protection seller, the Fund effectively adds
23
economic leverage to its portfolio because, in addition to being subject to investment exposure on its total net assets, the Fund is subject to investment exposure on the notional amount of the
swap. Thus, the Fund bears the same risk as it would by buying the reference obligations directly, plus the additional risks related to obtaining investment exposure through a derivative instrument discussed below under Risks Associated
with Swap Transactions.
Swap Options.
A swap option is a contract that gives a
counterparty the right (but not the obligation), in return for payment of a premium, to enter into a new swap agreement or to shorten, extend, cancel, or otherwise modify an existing swap agreement at some designated future time on specified terms.
A cash-settled option on a swap gives the purchaser the right, in return for the premium paid, to receive an amount of cash equal to the value of the underlying swap as of the exercise date. The Fund may write (sell) and purchase put and call swap
options. Depending on the terms of the particular option agreement, the Fund generally would incur a greater degree of risk when it writes a swap option than when it purchases a swap option. When the Fund purchases a swap option, it risks losing
only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when the Fund writes a swap option, upon exercise of the option the Fund would become obligated according to the terms of the underlying
agreement.
Risks Associated with Swap Transactions.
The use of swap transactions is a highly
specialized activity which involves strategies and risks different from those associated with ordinary portfolio security transactions. If the Investment Adviser and/or the Sub-Adviser is incorrect in its forecasts of default risks, market spreads
or other applicable factors or events, the investment performance of the Fund would diminish compared with what it would have been if these techniques were not used. As the protection seller in a credit default swap, the Fund effectively adds
economic leverage to its portfolio because, in addition to being subject to investment exposure on its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. The Fund generally may only close out a swap,
cap, floor, collar or other two-party contract with its particular counterparty, and generally may only transfer a position with the consent of that counterparty. In addition, the price at which the Fund may close out such a two party contract may
not correlate with the price change in the underlying reference asset. If the counterparty defaults, the Fund will have contractual remedies, but there can be no assurance that the counterparty will be able to meet its contractual obligations or
that the Fund will succeed in enforcing its rights. It also is possible that developments in the derivatives market, including changes in government regulation, could adversely affect the Funds ability to terminate existing swap or other
agreements or to realize amounts to be received under such agreements.
Futures and Options on Futures
Generally.
A futures contract is an agreement between two parties to buy and sell a security, index or interest rate (each a financial instrument) for a set price on a future date. Certain futures contracts,
such as futures contracts relating to individual securities, call for making or taking delivery of the underlying financial instrument. However, these contracts generally are closed out before delivery by entering into an offsetting purchase or sale
of a matching futures contract (same exchange, underlying financial instrument, and delivery month). Other futures contracts, such as futures contracts on interest rates and indices, do not call for making or taking delivery of the underlying
financial instrument, but rather are agreements pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the financial instrument at the close of the last trading day of the
contract and the price at which the contract was originally written. These contracts also may be settled by entering into an offsetting futures contract.
24
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund
upon the purchase or sale of a futures contract. Initially, the Fund will be required to deposit with the futures broker, known as a futures commission merchant (FCM), an amount of cash or securities equal to a varying specified
percentage of the contract amount. This amount is known as initial margin. The margin deposit is intended to ensure completion of the contract. Minimum initial margin requirements are established by the futures exchanges and may be revised. In
addition, FCMs may establish margin deposit requirements that are higher than the exchange minimums. Cash held in the margin account generally is not income producing. However, coupon-bearing securities, such as Treasury securities, held in margin
accounts generally will earn income. Subsequent payments to and from the FCM, called variation margin, will be made on a daily basis as the price of the underlying financial instrument fluctuates, making the futures contract more or less valuable, a
process known as marking the contract to market. Changes in variation margin are recorded by the Fund as unrealized gains or losses. At any time prior to expiration of the futures contract, the Fund may elect to close the position by taking an
opposite position that will operate to terminate its position in the futures contract. A final determination of variation margin is then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a gain or loss.
In the event of the bankruptcy or insolvency of an FCM that holds margin on behalf of the Fund, the Fund may be entitled to the return of margin owed to it only in proportion to the amount received by the FCMs other customers, potentially
resulting in losses to the Fund. Futures transactions also involve brokerage costs and the Fund may have to segregate additional liquid assets in accordance with applicable SEC requirements. See Segregation of Assets below.
A futures option gives the purchaser of such option the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise of a call option, the purchaser acquires a long position in the futures contract and the writer is assigned
the opposite short position. Upon the exercise of a put option, the opposite is true.
Bond Futures and Forward
Contracts.
Bond futures contracts are agreements in which one party agrees to deliver to the other an amount of cash equal to a specific dollar amount times the difference between the value of a specific bond at the close
of the last trading day of the contract and the price at which the agreement is made. No physical delivery of securities is made. Forward contracts are agreements to purchase or sell a specified security or currency at a specified future date (or
within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks, foreign exchange dealers or broker-dealers and are usually for less than one year, but may be renewed. Forward
contracts are generally purchased or sold in over-the-counter transactions.
Under regulations of the Commodity Futures
Trading Commission (CFTC) currently in effect, which may change from time to time, with respect to futures contracts purchased by the Fund, the Fund will set aside in a segregated account liquid securities with a value at least equal to
the value of instruments underlying such futures contracts less the amount of initial margin on deposit for such contracts. The current view of the staff of the SEC is that the Funds long and short positions in futures contracts must be
collateralized with cash or certain liquid assets held in a segregated account or covered in order to counter the impact of any potential leveraging.
Parties to a futures contract must make initial margin deposits to secure performance of the contract. There are also requirements to make variation margin deposits from time to
time as the value of the futures contract fluctuates.
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Options on Currency Futures Contracts.
Currency futures
contracts are standardized agreements between two parties to buy and sell a specific amount of a currency at a set price on a future date. While similar to currency forward contracts, currency futures contracts are traded on commodities exchanges
and are standardized as to contract size and delivery date. An option on a currency futures contract gives the holder of the option the right to buy or sell a position in a currency futures contract, at a set price and on or before a specified
expiration date. Trading options on international (non-U.S.) currency futures contracts is relatively new. The ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market.
Index Futures.
A tax-exempt bond index which assigns relative values to the tax-exempt bonds included in
the index is traded on the Chicago Board of Trade. The index fluctuates with changes in the market values of all tax-exempt bonds included rather than a single bond. An index future is a bilateral agreement pursuant to which two parties agree to
take or make delivery of an amount of cashrather than any securityequal to a specified dollar amount times the difference between the index value at the close of the last trading day of the contract and the price at which the index
future was originally written. Thus, an index future is similar to traditional financial futures except that settlement is made in cash.
Index Options.
The Fund may also purchase put or call options on U.S. government or tax-exempt bond index futures and enter into closing transactions with respect to such
options to terminate an existing position. Options on index futures are similar to options on debt instruments except that an option on an index future gives the purchaser the right, in return for the premium paid, to assume a position in an index
contract rather than an underlying security at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance of the writers futures margin account which represents the amount by which the market price of the index futures contract, at exercise, is less than the exercise price of the option on the
index future.
Bond index futures and options transactions would be subject to risks similar to transactions in financial
futures and options thereon as described above.
Limitations on the Use of Futures, Futures Options and
Swaps.
Pursuant to a claim for exemption filed with the National Futures Association on behalf of the Fund, the Fund is not deemed to be a commodity pool operator or a commodity pool under the Commodity Exchange Act
(CEA) and neither it nor the Investment Adviser or the Sub-Adviser is currently subject to registration or regulation as such under the CEA. In February 2012, the Commodity Futures Trading Commission (CFTC) announced
substantial amendments to certain exemptions, and to the conditions for reliance on those exemptions, from registration as a commodity pool operator. Under amendments to the exemption provided under CFTC Regulation 4.5, if the Fund uses futures,
options on futures, or swaps other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums on these positions (after taking into account unrealized profits and unrealized losses on any such positions
and excluding the amount by which options that are in-the-money at the time of purchase are in-the-money) may not exceed 5% of the Funds net asset value, or alternatively, the aggregate net notional value of those
positions may not exceed 100% of the Funds net asset value (after taking into account unrealized profits and unrealized losses on any such positions). The CFTC amendments to Regulation 4.5 took effect on December 31, 2012, and the Fund
intends to comply with amended Regulation 4.5s requirements such that the Investment Adviser and/or the Sub-Adviser will
26
not be required to register with respect to the Fund as a commodity pool operator with the CFTC. The Fund reserves the right to engage in transactions involving futures, options thereon and swaps
to the extent allowed by CFTC regulations in effect from time to time and in accordance with the Funds policies. However, the requirements for qualification as a regulated investment company under Subchapter M of the Code may limit
the extent to which the funds may enter into futures transactions, engage in options transactions or engage in swap transactions.
Segregation of Assets
As a closed-end investment company registered with the SEC, the Fund is subject to the federal securities laws, including the 1940 Act,
the rules thereunder, and various interpretive provisions of the SEC and its staff. In accordance with these laws, rules and positions, the Fund must set aside (often referred to as asset segregation) liquid assets, or engage
in other SEC or staff-approved measures, to cover open positions with respect to certain kinds of derivatives instruments. In the case of forward currency contracts that are not contractually required to cash settle, for example, the
Fund must set aside liquid assets equal to such contracts full notional value while the positions are open. With respect to forward currency contracts that are contractually required to cash settle, however, the Fund is permitted to set aside
liquid assets in an amount equal to the Funds daily marked-to-market net obligations (i.e., the Funds daily net liability) under the contracts, if any, rather than such contracts full notional value. The Fund reserves the right to
modify its asset segregation policies in the future to comply with any changes in the positions from time to time articulated by the SEC or its staff regarding asset segregation.
To the extent that the Fund uses its assets to cover its obligations as required by the 1940 Act, the rules thereunder, and applicable
positions of the SEC and its staff, such assets may not be used for other operational purposes. The Investment Adviser and/or the Sub-Adviser will monitor the Funds use of derivatives and will take action as necessary for the purpose of
complying with the asset segregation policy stated above. Such actions may include the sale of the Funds portfolio investments.
The Fund may invest in inverse floating rate securities issued by special purpose trusts. With respect to such investments, the Fund will segregate or earmark assets in an amount equal to at least 100% of
the face amount of the floating rate securities issued by such trusts.
Short-Term Investments
Short-Term Taxable Fixed Income Securities.
For temporary defensive purposes or to keep cash on hand fully
invested, the Fund may invest up to 100% of its net assets in cash equivalents and short-term taxable fixed-income securities, although the 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 taxable short-term investments would result in a portion of the dividends paid being subject to regular federal income tax, the federal alternative minimum tax
applicable to individuals and Pennsylvania personal income tax. Short-term taxable fixed income investments are defined to include, without limitation, the following:
(a) U.S. government securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the
U.S. Treasury or by U.S. government agencies or instrumentalities. U.S. government agency securities include securities issued by (a) the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United
27
States, Small Business Administration, and the Government National Mortgage Association, whose securities are supported by the full faith and credit of the United States; (b) the Federal
Home Loan Banks, Federal Intermediate Credit Banks, and the Tennessee Valley Authority, whose securities are supported by the right of the agency to borrow from the U.S. Treasury; (c) the Federal National Mortgage Association, whose securities
are supported by the discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; and (d) the Student Loan Marketing Association, whose securities are supported only by its credit. While the
U.S. government provides financial support to such U.S. government-sponsored agencies or instrumentalities, no assurance can be given that it always will do so since it is not so obligated by law. The U.S. government, its agencies, and
instrumentalities do not guarantee the market value of their securities. Consequently, the value of such securities may fluctuate.
(b) Certificates of deposit issued against funds deposited in a bank or a savings and loan association. Such certificates are for a definite period of time,
earn a specified rate of return, and are normally negotiable. The issuer of a certificate of deposit agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon. Under current FDIC regulations, the
maximum insurance payable as to any one certificate of deposit is $100,000; therefore, certificates of deposit purchased by the Fund may not be fully insured.
(c) Repurchase agreements, which involve purchases of debt securities. At the time the Fund purchases securities pursuant to a repurchase agreement, it
simultaneously agrees to resell and redeliver such securities to the seller, who also simultaneously agrees to buy back the securities at a fixed price and time. This assures a predetermined yield for the Fund during its holding period, since the
resale price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for the Fund to invest temporarily available cash. The Fund may enter into repurchase agreements only with respect to
obligations of the U.S. government, its agencies or instrumentalities; certificates of deposit; or bankers acceptances in which the Fund may invest. Repurchase agreements may be considered loans to the seller, collateralized by the underlying
securities. The risk to the Fund is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event of default, the repurchase agreement provides that the Fund is entitled to sell the underlying collateral. If
the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, the Fund could incur a loss of both principal and interest. The Investment Adviser and/or the Sub-Adviser monitors the
value of the collateral at the time the action is entered into and at all times during the term of the repurchase agreement. The Investment Adviser and/or the Sub-Adviser does so in an effort to determine that the value of the collateral always
equals or exceeds the agreed-upon repurchase price to be paid to the Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of the Fund to liquidate the collateral could be delayed or impaired because of certain
provisions of the bankruptcy laws.
(d) Commercial paper, which consists of
short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. There is no
secondary market for such notes. However, they are redeemable by the Fund at any time. The Investment Adviser and/or the Sub-Adviser will consider the financial condition of the corporation (e.g., earning power, cash flow, and other liquidity
measures) and will continuously monitor the corporations ability to meet all of its financial obligations, because the Funds liquidity might be impaired if the corporation were unable to pay principal and interest on demand. Investments
in commercial paper will be limited to commercial
28
paper rated in the highest categories by a major rating agency and which mature within one year of the date of purchase or carry a variable or floating rate of interest.
Short-Term Tax-Exempt Fixed Income Securities.
Short-term tax-exempt fixed income securities are securities
that are exempt from regular federal income tax and mature within three years or less from the date of issuance. Short-term tax-exempt fixed income securities are defined to include, without limitation, the following:
1. Bond Anticipation Notes (BANs) are usually general obligations of state and
local governmental issuers which are sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or bonds. The ability of an issuer to meet its obligations on its BANs is primarily
dependent on the issuers access to the long-term municipal bond market and the likelihood that the proceeds of such bond sales will be used to pay the principal and interest on the BANs.
2. Tax Anticipation Notes (TANs) are issued by state and local governments to
finance the current operations of such governments. Repayment is generally to be derived from specific future tax revenues. TANs are usually general obligations of the issuer. A weakness in an issuers capacity to raise taxes due to, among
other things, a decline in its tax base or a rise in delinquencies, could adversely affect the issuers ability to meet its obligations on outstanding TANs.
3. Revenue Anticipation Notes (RANs) are issued by governments or governmental bodies with the expectation that future revenues from a designated
source will be used to repay the notes. In general, they also constitute general obligations of the issuer. A decline in the receipt of projected revenues, such as anticipated revenues from another level of government, could adversely affect an
issuers ability to meet its obligations on outstanding RANs. In addition, the possibility that the revenues would, when received, be used to meet other obligations could affect the ability of the issuer to pay the principal and interest on
RANs.
4. Construction Loan Notes are issued to provide construction financing
for specific projects. Frequently, these notes are redeemed with funds obtained from the Federal Housing Administration.
5. Bank Notes are notes issued by local government bodies and agencies, such as those
described above, to commercial banks as evidence of borrowings. The purposes for which the notes are issued are varied but they are frequently issued to meet short-term working capital or capital project needs. These notes may have risks similar to
the risks associated with TANs and RANs.
6. Tax-Exempt Commercial Paper
(Municipal Paper) represents very short-term unsecured, negotiable promissory notes issued by states, municipalities and their agencies. Payment of principal and interest on issues of municipal paper may be made from various sources to
the extent the funds are available therefrom. Maturities of municipal paper generally will be shorter than the maturities of TANs, BANs or RANs. There is a limited secondary market for issues of Municipal Paper.
Certain municipal securities may carry variable or floating rates of interest whereby the rate of interest is not fixed but varies with
changes in specified market rates or indices, such as a bank prime rate or a tax-exempt money market index.
29
While the various types of notes described above as a group represent the major portion of
the short-term tax-exempt note market, other types of notes are available in the marketplace and the Fund may invest in such other types of notes to the extent permitted under their investment objectives, policies and limitations. Such notes may be
issued for different purposes and may be secured differently from those mentioned above.
When-Issued and Delayed Delivery Transactions
The 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 15-45 days of the trade date. On such transactions the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment. Beginning on the date the Fund enters into a
commitment to purchase securities on a when-issued or delayed delivery basis, the Fund is required under rules of the SEC to maintain in a separate account liquid assets, consisting of cash, cash equivalents or liquid securities having a market
value, at all times, at least equal to the amount of the commitment. Income generated by any such assets which provide taxable income for federal income tax purposes is includable in the taxable income of the Fund and, to the extent distributed,
will be taxable to shareholders. The Fund may enter into contracts to purchase municipal securities on a forward basis (i.e., where settlement will occur more than 60 days from the date of the transaction) only to the extent that the Fund
specifically collateralizes such obligations with a security that is expected to be called or mature within 60 days before or after the settlement date of the forward transaction. The commitment to purchase securities on a when-issued, delayed
delivery or forward basis may involve an element of risk because no interest accrues on the bonds prior to settlement and, at the time of delivery, the market value may be less than cost.
Structured Notes
The 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.
Other Investment Companies
The 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, the Fund may invest a portion of its Managed Assets in pooled investment vehicles (other than investment
30
companies) that invest primarily in municipal securities of the types in which the Fund may invest directly. The 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. The Fund may invest in
investment companies that are advised by the Investment Adviser and/or the Sub-Adviser or their affiliates to the extent permitted by applicable law and/or pursuant to exemptive relief from the SEC. The Fund has not applied for and currently does
not intend to apply for such relief. As a shareholder in an investment company, the 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 the Fund invests in other investment companies.
The Investment Adviser and/or the Sub-Adviser 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. 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.
Other Investment Policies
and Techniques
Illiquid Securities.
The Fund may invest in illiquid securities (i.e.,
securities that are not readily marketable), including, but not limited to, restricted securities (securities the disposition of which is restricted under the federal securities laws), securities that may be resold only pursuant to Rule 144A under
the Securities Act that are deemed to be illiquid, and certain repurchase agreements.
Restricted securities may be sold only
in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act. Where registration is required, the Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to
develop, the Fund might obtain a less favorable price than that which prevailed when it decided to sell. Illiquid securities will be priced at a fair value as determined in good faith by the Board or its delegatee.
Portfolio Trading and Turnover Rate.
Portfolio trading may be undertaken to accomplish the investment
objectives of the Fund in relation to actual and anticipated movements in interest rates. In addition, a security may be sold and another of comparable quality purchased at approximately the same time to take advantage of what the Investment Adviser
and/or the Sub-Adviser believes to be a temporary price disparity between the two securities. Temporary price disparities between two comparable securities may result from supply and demand imbalances where, for example, a temporary oversupply of
certain bonds may cause a temporarily low price for such bonds, as compared with other bonds of like quality and characteristics. The Fund may also engage to a limited extent in short-term trading consistent with its investment objectives.
Securities may be sold in anticipation of a market decline (a rise in interest rates) or purchased in anticipation of a market rise (a decline in interest rates) and later sold.
Subject to the foregoing, the Fund will attempt to achieve its investment objectives by prudent selection of municipal securities with a
view to holding them for investment. While there can be no
31
assurance thereof, the Fund anticipates that its annual portfolio turnover rate will generally not exceed 100%. However, the rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. Therefore, depending upon market conditions, the annual portfolio turnover rate of the Fund may exceed 100% in particular years. A higher portfolio turnover rate would result in correspondingly greater
brokerage commissions and other transactional expenses that are borne by the Fund. Although these commissions and expenses are not reflected in the Funds Total Annual Expenses in the Joint Proxy Statement (as defined below), they
will be reflected in the Funds total return. In addition, high portfolio turnover may result in the realization of net short-term capital gains by the Fund which, when distributed to shareholders, will be taxable as ordinary income for federal
income tax purposes or may result in greater amounts of net capital gain distributions. See Material Income Tax ConsiderationsFederal Income Tax Matters.
Repurchase Agreements.
As temporary investments, the Fund may invest in repurchase agreements. A repurchase agreement is a contractual agreement whereby the seller of
securities (U.S. government securities or municipal securities) agrees to repurchase the same security at a specified price on a future date agreed upon by the parties. The agreed-upon repurchase price determines the yield during the Funds
holding period. Repurchase agreements are considered to be loans collateralized by the underlying security that is the subject of the repurchase contract. Income generated from transactions in repurchase agreements will be taxable. See
Material Income Tax ConsiderationsFederal Income Tax Matters for information relating to the allocation of taxable income between common shares and preferred shares. The Fund will only enter into repurchase agreements with
registered securities dealers or domestic banks that, in the opinion of the Investment Adviser and/or the Sub-Adviser, present minimal credit risk. The risk to the Fund is limited to the ability of the issuer to pay the agreed-upon repurchase price
on the delivery date; however, although the value of the underlying collateral at the time the transaction is entered into always equals or exceeds the agreed-upon repurchase price, if the value of the collateral declines there is a risk of loss of
both principal and interest. In the event of default, the collateral may be sold but the Fund might incur a loss if the value of the collateral declines, and might incur disposition costs or experience delays in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by the Fund may be delayed or limited. The Investment Adviser and/or the Sub-Adviser will monitor the value
of the collateral at the time the transaction is entered into and at all times subsequent during the term of the repurchase agreement in an effort to determine that such value always equals or exceeds the agreed-upon repurchase price. In the event
the value of the collateral declines below the repurchase price, the Investment Adviser and/or the Sub-Adviser will demand additional collateral from the issuer to increase the value of the collateral to at least that of the repurchase price,
including interest.
Zero Coupon Bonds.
The Fund may invest in zero coupon bonds. A zero coupon
bond is a bond that does not pay interest for its entire life. The market prices of zero coupon bonds are affected to a greater extent by changes in prevailing levels of interest rates and therefore tend to be more volatile in price than securities
that pay interest periodically. In addition, because the Fund accrues income with respect to these securities prior to the receipt of such interest, it may have to dispose of portfolio securities under disadvantageous circumstances in order to
obtain cash needed to pay income dividends in amounts necessary to avoid unfavorable tax consequences.
Investment Restrictions
In addition to the Funds investment objectives, the following investment restrictions are fundamental policies for
the Fund and may not be changed without the approval of the holders of a
32
majority of the outstanding common shares and preferred shares of the Fund, voting together as a single class, and of the holders of a majority of the outstanding preferred shares, voting
separately. For this purpose, a majority of the outstanding shares means the vote of (1) 67% or more of the voting securities present at a meeting, if the holders of more than 50% of the outstanding voting securities are present or
represented by proxy; or (2) more than 50% of the outstanding voting securities, whichever is less.
Except as described
below, the Fund may not:*
1) Issue senior securities, as defined in the 1940
Act, other than preferred shares, except to the extent such issuance might be involved with respect to borrowings described under subparagraph (2) below or with respect to transactions involving futures contracts or the writing of options
within the limits described in Certain Trading Strategies of the FundFinancial Futures and Options Transactions.
2) Borrow money, except from banks for temporary or emergency purposes or for repurchase of its shares, and then only in an amount not exceeding one-third of the value of the
Funds total assets including the amount borrowed. While any such borrowings exceed 5% of the Funds total assets, no additional purchases of investment securities will be made.
3) Underwrite any issue of securities, except to the extent that the purchase of Municipal Obligations in
accordance with its investment objectives, policies and limitations may be deemed to be an underwriting.
4) Invest more than 25% of its total assets in securities of issuers in any one industry; provided, however, that
such limitation shall not be applicable to Municipal Obligations other than those Municipal Obligations backed only by the assets and revenues of non-governmental users, nor shall it apply to Municipal Obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
5) Purchase or sell real
estate, but this shall not prevent the Fund from investing in Municipal Obligations secured by real estate or interests therein.
6) Purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund
from purchasing or selling options, futures contracts or derivative instruments or from investing in securities or other instruments backed by physical commodities).
7) Make loans, except as permitted by the Investment Company Act of 1940, as amended, and exemptive orders granted under the Investment Company Act of 1940,
as amended.
8) 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 United States Government, its agencies and instrumentalities or to the investment of 25% of its total assets.
9) Pledge, mortgage or hypothecate its assets, except that, to secure borrowings permitted
by subparagraph (2) above, it may pledge securities having a market value at the time of pledge not exceeding 20% of the value of the Funds total assets.
33
10) Invest more than 10% of its total assets
in repurchase agreements maturing in more than seven days.
11) Purchase or
retain the securities of any issuer other than the securities of the Fund if, to the Funds knowledge, those directors of the Fund, or those officers and directors of the 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.
*The
fundamental investment restrictions are presented as they appear in the Funds initial registration statement or, where applicable, as adopted or amended with shareholder approval. Accordingly, references to specific documents and sections
thereof and the use of certain defined terms do not necessarily correspond with cross-references, sections and/or defined terms used herein.
For the purpose of applying the limitation set forth in subparagraph (8) above, a governmental 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, 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 security 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 security will be determined in accordance with the principles set forth above. The foregoing restrictions do not limit the percentage of
the Funds assets that may be invested in municipal securities insured by any given insurer.
The Fund is diversified for
purposes of the 1940 Act. Consequently, as to 75% of the Funds total assets, the Fund may not (i) purchase the securities of any one issuer (other than cash, securities of other investment companies and securities issued by the U.S.
Government or its agencies or instrumentalities) if immediately after such purchase, more than 5% of the value of the Funds total assets would be invested in securities of such issuer or (ii) purchase more than 10% of the outstanding
voting securities of such issuer.
Subject to certain exemptions under the 1940 Act, the Fund may invest up to 10% of its
total assets in the aggregate in shares of other investment companies and up to 5% of its total 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, the 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 of the Fund would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, the securities of other
investment companies may be leveraged and therefore will be subject to the same leverage risks described herein.
34
In addition to the foregoing fundamental investment policies, the Fund is also subject to
the following non-fundamental restrictions and policies, which may be changed by the Board. The Fund may not:
(1) 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.
(2) Invest more than 10% of its Managed Assets in securities of other open-
and closed-end investment companies (including ETFs) that invest primarily in municipal securities of the type in which the Fund may invest directly.
(3) 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.
(4) Purchase securities when borrowings exceed 5% of its total assets if and so long as preferred shares are outstanding.
(5) 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 securities 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 the Sub-Adviser determines that such investment should enable the Fund to better maximize the value of its existing investment in such issuer.
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.
The Fund may be subject to certain restrictions imposed by either guidelines of one or more NRSROs that may issue ratings for preferred
shares, including VRDP Shares, or, if issued, commercial paper or notes, or, if the Fund borrows from a lender, by the lender. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those
imposed on the Fund by the 1940 Act. If these restrictions were to apply, it is not anticipated that these covenants or guidelines would impede the Sub-Adviser from managing the Funds portfolio in accordance with the Funds investment
objectives and policies.
MANAGEMENT OF THE FUND
Trustees and Officers
The management of the Fund, including general supervision of the duties performed by the Investment Adviser under an investment
management agreement between the Investment Adviser and the Fund (the Investment Management Agreement), is the responsibility of the Board. The Fund currently has ten (10) trustees, one (1) of whom is an interested
person (as defined in the 1940 Act)
35
and nine (9) of whom are not interested persons (the independent trustees). Information concerning the trustees and officers of the Fund, including, as applicable, their
principal occupations and other affiliations, the number of portfolios each oversees, other directorships they hold and their compensation and share ownership is incorporated into this Information Memorandum by reference to the Funds Annual
Report for the fiscal year ended April 30, 2013 and the Joint Proxy Statement relating to the Funds 2013 Annual Meeting as filed with the SEC (the Joint Proxy Statement).
Investment Adviser and Sub-Adviser
Nuveen Fund Advisors, LLC (previously defined as Nuveen Fund Advisors or the Investment Adviser) is the investment adviser to the Fund and is responsible for overseeing the
Funds overall investment strategy, including the use of leverage, and its implementation. Nuveen Fund Advisors also is responsible for the ongoing monitoring of any sub-adviser to the Fund, managing the Funds business affairs and
providing certain clerical, bookkeeping and other administrative services to the Fund. Nuveen Fund Advisors is located at 333 West Wacker Drive, Chicago, Illinois 60606.
Nuveen Fund Advisors, a registered investment adviser, is a wholly-owned subsidiary of Nuveen Investments, Inc. Founded in 1898, Nuveen Investments and its affiliates had approximately $216 billion in
assets under management as of June 30, 2013. On November 13, 2007, Nuveen Investments was acquired by investors led by Madison Dearborn Partners, LLC (the MDP Acquisition).
Nuveen Fund Advisors has selected its wholly-owned subsidiary, Nuveen Asset Management, LLC (previously defined as Nuveen Asset
Management or the Sub-Adviser), located at 333 West Wacker Drive, Chicago, IL 60606, to serve as a sub-adviser to the Fund, pursuant to a sub-advisory agreement between Nuveen Fund Advisors and Nuveen Asset Management (the
Sub-Advisory Agreement). Nuveen Asset Management, a registered investment adviser, oversees day-to-day operations and manages the investment of the Funds assets on a discretionary basis, subject to the supervision of Nuveen Fund
Advisors. Pursuant to the Sub-Advisory Agreement, Nuveen Asset Management will be compensated for the services it provides to the Fund with a portion of the management fee Nuveen Fund Advisors receives from the Fund. Nuveen Fund Advisors and Nuveen
Asset Management retain the right to reallocate investment advisory responsibilities and fees between themselves in the future.
The Fund is dependent upon services and resources provided by the Investment Adviser, and therefore the Investment Advisers parent,
Nuveen Investments. Nuveen Investments 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 its or its affiliates portfolio management operations and would not otherwise adversely affect its ability to fulfill its obligations to the funds under the investment
management agreements.
36
Portfolio Management
Subject to the supervision of Nuveen Fund Advisors, Nuveen Asset Management is responsible for execution of specific investment strategies and day-to-day investment operations. Nuveen Asset Management
manages the funds using a team of analysts and a portfolio manager that focuses on a specific group of funds. Paul Brennan, CFA, CPA, is the portfolio manager of the Fund. Mr. Brennan assumed portfolio manager responsibility for the Fund in
2011.
Mr. Brennan is Senior Vice President of Nuveen Asset Management. Mr. Brennan manages several Nuveen municipal
national and state mutual funds and closed-end bond funds. Mr. Brennan has been a portfolio manager at Nuveen since 1997 and a Senior Vice President since 2011. He began his career in the investment business in 1991, as a municipal credit analyst
for Flagship Financial, before becoming a portfolio manager in 1994. He joined Nuveen Investments in 1997, when Nuveen acquired Flagship Financial. He earned his B.S. in Accountancy and Finance from Wright State University. He is a CPA, has earned
the Chartered Financial Analyst (CFA) designation, and currently sits on the Nuveen Asset Management Investment Management Committee. Information about Mr. Brennans compensation, other accounts managed and any material conflicts of
interest is contained in the Funds most recent Form N-CSR. See Available Information.
Investment Management Agreement
and Sub-Advisory Agreement
Pursuant to the Investment Management Agreement, the Fund has agreed to pay an annual
management fee for the overall advisory and administrative services and general office facilities provided by Nuveen Fund Advisors. The Funds management fee consists of two componentsa complex-level component, based on the aggregate
amount of all eligible fund assets managed by Nuveen Fund Advisors, and a specific fund-level component, based only on the amount of Managed Assets within the Fund. The fund-level fee is a maximum of 0.45% of the Funds average total daily
Managed Assets, with lower fee levels for assets that exceed $125 million. The complex-level fee is a maximum of 0.20% of the Funds daily Managed Assets for all Nuveen-sponsored funds in the U.S. that constitute eligible assets,
with lower fee levels of complex-level assets that exceed $55 billion. Eligible assets do not include assets attributable to investments in other Nuveen funds or assets in excess of a determined amount (originally $2 billion) added to
the Nuveen fund complex in connection with Nuveen Fund Advisors assumption of the management of the former First American Funds effective January 1, 2011.
In addition to Nuveen Fund Advisors management fee, the Fund pays all other costs and expenses of its operations, including compensation of its trustees (other than those affiliated with Nuveen Fund
Advisors), custodian, transfer agency and dividend disbursing expenses, legal fees, expenses of its independent registered accounting firm, expenses of repurchasing shares, expenses of issuing any preferred shares, expenses of preparing, printing
and distributing shareholder reports, notices, proxy statements and reports to governmental agencies, listing fees and taxes, if any. All fees and expenses are accrued daily and deducted before payment of distributions to shareholders.
RISK FACTORS
Risk is inherent in all investing. Investing in any investment company security involves risk, including the risk that the holders of VRDP Shares of any series may receive little or no return on their
investment or even that holders of VRDP Shares may lose part or all of their investment. Therefore,
37
you should consider carefully the following risks that are assumed when investing in New VRDP Shares of the Fund. See also The Funds Investments and How the Fund
Manages Portfolio Risk.
Risks of Investing in New VRDP Shares
Insolvency and/or Bankruptcy of the Liquidity Provider.
In the event of a material credit or capital
impairment of the Liquidity Provider, there is no assurance that the Liquidity Provider will be able to fulfill its obligation to purchase New VRDP Shares. The Liquidity Providers solvency and ability to fulfill its obligation to pay for New
VRDP Shares that are tendered for Remarketing and cannot successfully be remarketed by the Remarketing Agent or that are subject to Mandatory Purchase may deteriorate before a holder of New VRDP Shares can successfully tender the New VRDP Shares for
Remarketing or purchase or before the occurrence of the Mandatory Purchase Date, as applicable. In addition, an NRSRO could downgrade the ratings of the Liquidity Provider, which could affect the liquidity of the New VRDP Shares as discussed more
fully below. In the event of the filing of a bankruptcy proceeding of the Liquidity Provider, the New VRDP Purchase Agreement may be terminated prior to a Mandatory Purchase being effected, and the Fund may not be able to enter into a new VRDP
Purchase Agreement with a replacement liquidity provider in a timely manner, if at all. In this instance, a holder of New VRDP Shares may not be able to sell New VRDP Shares or may experience delays in receiving payment or may not recover all or a
portion of any loss sustained from having to sell the New VRDP Shares without the benefit of the New VRDP Purchase Agreement.
Remarketing Risk
. Holders of VRDP Shares may elect to tender their New VRDP Shares to the Tender and Paying
Agent for Remarketing pursuant to an Optional Tender, or a Mandatory Tender may occur as described herein. There can be no assurance that the Remarketing Agent will be able to remarket all the New VRDP Shares tendered in a Remarketing. The
Remarketing Agent in its sole discretion may purchase for its own account New VRDP Shares in a Remarketing; however, the Remarketing Agent will not be obligated to purchase any New VRDP Shares that would otherwise remain unsold in a Remarketing. If
any New VRDP Shares tendered in a Remarketing are not remarketed, the Tender and Paying Agent will tender such New VRDP Shares for purchase, pursuant to a Final Notice of Purchase, to the Liquidity Provider. During the term of the New VRDP Purchase
Agreement, the Liquidity Provider has an unconditional and irrevocable obligation to purchase New VRDP Shares tendered for purchase on the relevant Purchase Date pursuant to a Final Notice of Purchase.
Failure of the Liquidity Provider to Fulfill its Purchase Obligation.
If New VRDP Shares are not sold in a
Remarketing on or before the Purchase Date, or an attempted Remarketing results in unsold New VRDP Shares, or if a Mandatory Purchase Event occurs, the Liquidity Provider will be obligated to purchase the New VRDP Shares pursuant to a Final Notice
of Purchase. The ability of a holder of New VRDP Shares to realize payment from the Liquidity Provider will depend on the ability of the Liquidity Provider to pay for the New VRDP Shares tendered pursuant to a Final Notice of Purchase. If the
Liquidity Provider should default on its Purchase Obligation under the New VRDP Purchase Agreement, a holder of New VRDP Shares might have limited or no ability to sell its New VRDP Shares or to recover all or a portion of any loss sustained from
otherwise selling the New VRDP Shares, especially when market interest rates are rising. If the Liquidity Provider continues to fail to perform its duties and the Fund cannot find a replacement liquidity provider, holders of VRDP Shares may be
required to continue to hold their New VRDP Shares for an indefinite period of time.
Inability to Extend the Purchase
Obligation or Engage a Successor Liquidity Provider.
In the event the Fund is unable to extend the New VRDP Purchase Agreement beyond the Scheduled
38
Termination Date or engage a successor liquidity provider pursuant to an Alternate VRDP Purchase Agreement providing for a Purchase Obligation on the same terms and conditions as the New VRDP
Purchase Agreement and that can be maintained on a commercially reasonable basis, as determined in the sole discretion of the Board, a Mandatory Purchase Event will occur and each holder of New VRDP Shares will be required to deliver its New VRDP
Shares for purchase by the Liquidity Provider.
A Mandatory Tender Event or Mandatory Purchase Event May Occur At
Times When Attractive Alternative Investment Opportunities Are Not Available.
A Mandatory Tender Event or Mandatory Purchase Event with respect to one or more new VRDP Series may occur in circumstances that are unfavorable
to holders of New VRDP Shares, at times when attractive alternative investment opportunities for reinvestment of the proceeds of a Remarketing or purchase by the Liquidity Provider are not available.
Interest Rate Risk.
Bonds typically fall in value when interest rates rise and rise in value when interest
rates fall. Bonds with longer periods before maturity are often more sensitive to interest rate changes. The Fund will primarily invest in municipal bonds with long-term maturities. VRDP Shares generally pay dividends based on short-term interest
rates. Long-term municipal bond yields are typically, although not always, higher than short-term interest rates. Long-term, intermediate-term and short-term interest rates may fluctuate. If short-term interest rates rise, the yield on VRDP Shares
may rise such that the amount of dividends paid to holders of VRDP Shares exceeds the income from the municipal securities in the Funds portfolio. However, dividend rates on the VRDP Shares would need to greatly exceed the Funds net
portfolio income before the Funds ability to pay dividends on the VRDP Shares would be jeopardized. If long-term interest rates rise, the value of the Funds investment portfolio will decline, reducing the amount of assets serving as the
Minimum VRDP Asset Coverage for the VRDP Shares.
Additionally, in certain market environments, short-term market interest
rates may be higher than the Maximum Rate allowable for the dividend reset for the New VRDP Shares. In such extreme circumstances, this scenario may adversely affect the valuation of the New VRDP Shares and the liquidity of the New VRDP Shares
through the remarketing process.
No Public Trading Market
. The New VRDP Shares will be a new
issue of securities and there is currently no established trading market for such shares. The Fund does not intend to apply for a listing of the New VRDP Shares on a securities exchange or an automated dealer quotation system. Accordingly, there can
be no assurance as to the development or liquidity of any market for the New VRDP Shares outside of Remarketings by the Remarketing Agent and the Purchase Obligation of the Liquidity Provider. Unless otherwise permitted by the Fund, a holder of VRDP
Shares may sell, transfer or otherwise dispose of New VRDP Shares only in whole shares and only pursuant to a Remarketing in accordance with the remarketing procedures set forth in the Statement (attached hereto as Appendix A);
provided
,
however
, that (a) a sale, transfer or other disposition of New VRDP Shares from a holder of VRDP Shares who holds New VRDP Shares through an Agent Member to another holder of VRDP Shares who holds New VRDP Shares through the same Agent
Member will be permitted, and (b) in the case of all transfers other than pursuant to Remarketings, the Agent Member (or other person, if permitted by the Fund) to whom such transfer is made will advise the Remarketing Agent and Tender and
Paying Agent. The Fund has not registered, and does not intend to register, the New VRDP Shares under the Securities Act. Accordingly, the New VRDP Shares are subject to restrictions on transferability and resale and may only be purchased by and
sold to qualified institutional buyers (as defined in Rule 144A under the Securities Act or any successor provision) in
39
accordance with Rule 144A under the Securities Act or any successor provision. In addition, in the case of New VRDP Shares tendered for remarketing by any Beneficial Owner other than the
Liquidity Provider or the Remarketing Agent, the Remarketing Agent will remarket the New VRDP Shares tendered by such Beneficial Owner only to persons that also are registered investment companies under the 1940 Act (other than New VRDP Shares that
the Remarketing Agent in its sole discretion purchases for its own account). If at any time the Fund is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), in order to preserve
the exemption for resales and transfers under Rule 144A, the Fund will furnish, or cause to be furnished, to holders of VRDP Shares and prospective purchasers of New VRDP Shares, upon request, information with respect to the Fund satisfying the
requirements of subsection (d)(4) of Rule 144A. See Available Information.
Subordination
Risk
. While holders of New VRDP Shares will have equal liquidation and distribution rights to any other preferred shares that might be issued by the Fund, they will be subordinated to the rights of holders of senior
indebtedness, if any, of the Fund. Therefore, dividends, distributions and other payments to holders of New VRDP Shares in liquidation or otherwise may be subject to prior payments due to the holders of senior indebtedness. In addition, the 1940 Act
may provide debt holders with voting rights that are superior to the voting rights of holders of preferred shares, including holders of New VRDP Shares. The Fund currently has no senior indebtedness. If the Fund enters into borrowings in accordance
with its fundamental investment policies, delayed delivery purchases and/or forward delivery contracts or interest rate swaps or caps, the rights of lenders and counterparties in those transactions will also be senior to those of holders of New VRDP
Shares.
Ratings and Asset Coverage Risk
. As a condition to the closing of the Premium Income
Reorganization, the Fund must obtain short-term and long-term ratings for the New VRDP Shares equivalent to the ratings of the corresponding series of Premium Income VRDP Shares immediately prior to the closing.
The short-term ratings on the New VRDP Shares are directly related to the short-term ratings assigned to the Liquidity Provider. Changes
in the credit quality of the Liquidity Provider could cause a downgrade in the short-term credit ratings of the New VRDP Shares for a VRDP Series and make the New VRDP Shares less liquid in the secondary market and cause losses to holders of VRDP
Shares.
There can be no assurance that one or more Rating Agencies will not downgrade New VRDP Shares, including as a result
of altering its or their rating criteria, that the Fund will maintain any ratings of the New VRDP Shares or, if at any time the New VRDP Shares have one or more ratings, that any particular ratings will be maintained. The Fund may, at any time,
replace a Rating Agency with another Rating Agency or terminate the services of any Rating Agencies then providing a rating for the New VRDP Shares without replacement, in either case, without the approval of holders of New VRDP Shares or other
shareholders of the Fund. In the event a Rating Agency ceases to furnish a long-term rating or the Fund terminates the services of a Rating Agency then providing a long-term rating for the New VRDP Shares, such rating, to the extent it would have
been taken into account in any of the provisions of the New VRDP Shares which are included in the Statement, will be disregarded, and only the ratings of the then-designated Rating Agency or Agencies, if any, will be taken into account (for the
avoidance of doubt, other than the effect of the absence of such ratings for purposes of determining the Maximum Rate) for such series. In addition, the Rating Agency Guidelines adopted by the Fund may be changed or eliminated at any time without
the approval of the holders of New VRDP Shares or other shareholders of the Fund, including in connection with the change or elimination of any or all long-term ratings of the New VRDP Shares.
40
The ratings do not eliminate or necessarily mitigate the risks of investing in New VRDP
Shares. A Rating Agency could downgrade New VRDP Shares, which may make New VRDP Shares less liquid in the secondary market, although the downgrade would probably result in higher dividend rates. The short-term credit ratings address the timely
payment of the Purchase Price of the New VRDP Shares by the Liquidity Provider pursuant to the New VRDP Purchase Agreement. The ratings on the New VRDP 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 do not address the likelihood that an owner of the New VRDP Shares will be able to sell such shares in a Remarketing or otherwise.
Risk of Mandatory and Optional Redemptions.
The Fund may be forced to redeem New VRDP Shares to meet
regulatory or Rating Agency requirements, or requirements under the New VRDP Fee Agreement, or may voluntarily redeem New VRDP Shares at any time, including in circumstances that are unfavorable to holders of New VRDP Shares, at times when
attractive alternative investment opportunities for reinvestment of the redemption proceeds are not available.
Tax
Risk.
The Fund is relying on an opinion of special tax counsel that the New VRDP Shares will qualify as equity in the Fund for U.S. federal income tax purposes. Because there is no direct legal authority on the
classification of instruments similar to the New VRDP Shares, investors should be aware that the Internal Revenue Service and other governmental taxing authorities could assert a contrary position. See Material Income Tax Considerations.
Dividend Rate Risk
. The New VRDP Shares are variable dividend rate securities. The value of
such securities generally are less sensitive to interest and dividend rate changes but may decline in value if their dividend rate does not rise as much, or as quickly, as interest and dividend rates in general. Conversely, variable dividend rate
securities will not generally increase in value if interest and dividend rates decline.
Multiple Series
Risk.
Following the Reorganizations, the Fund will have multiple series of preferred shares outstanding, including both VRDP Shares and MTP Shares. While all preferred shares of the Fund will have equal priority as to the
payment of dividends and the distribution of assets in the event of the Funds liquidation, there are some differences between the terms applicable to each series. To the extent that the terms of the various series differ with respect to
required asset coverage levels, cure periods or other events affecting the dividend rate or mandatory or optional redemption terms applicable to such series, such events may impact one series of preferred shares differently than another series of
preferred shares.
Income Risk.
The Funds income is based primarily on the interest it
earns from its investments, which can vary widely over the short and long term. If interest rates drop, the Funds income available over time to make dividend payments with respect to the New VRDP Shares could drop as well if the Fund purchases
securities with lower interest coupons. This risk is magnified when prevailing short-term interest rates increase and the Fund holds residual interest municipal bonds.
Certain Affiliations of the Liquidity Provider and Remarketing Agent for the New VRDP Shares.
The Liquidity Provider and Remarketing Agent for the New VRDP Shares will be
affiliates of each other (as is currently the case for those entities) and are currently the Liquidity Provider and Remarketing Agent, respectively, for the outstanding Series of VRDP Shares of the Fund. Because the Liquidity Provider and its
affiliated Remarketing Agent serve multiple roles, such affiliated entities
41
may be subject to potential conflicts of interest in connection with their various legal duties and contractual obligations relating to the New VRDP Shares. These affiliations could, among other
things, affect the Remarketing Agents determination of the Applicable Rate and the Funds ability to change Remarketing Agents should the Fund seek to do so during the tenure of the affiliated Liquidity Provider.
Other Dividend Risks.
In addition to the interest rate risks noted above, the Fund may otherwise be unable
to pay dividends on New VRDP Shares in extraordinary circumstances.
General Risks of Investing in the Fund
Investment and Market Risk.
An investment in the Funds shares is subject to investment risk,
including the possible loss of the entire amount that you invest. Your investment in New VRDP Shares represents an indirect investment in the municipal securities owned by the 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. In addition, the ability of municipalities to collect revenue and service their obligations could be materially and adversely affected by an economic downturn or prolonged
recession.
Market Conditions.
The financial crisis in the U.S. and global economies over the
past several years, including the European sovereign debt crisis, has resulted, and may continue to result, in an unusually high degree of volatility in the financial markets, both domestic and foreign, and in the net asset values of many investment
companies, including to some extent the Fund. Conditions in the U.S. and global economies have resulted, and may continue to result, in fixed income instruments experiencing unusual liquidity issues, increased price volatility and, in some cases,
credit downgrades and increased likelihood of default. The financial condition of federal, state and local governments may be sensitive to market events, which may, in turn, adversely affect the marketability of notes and bonds they issue. Declines
in real estate prices and general business activity have reduced and may continue to reduce tax revenues of many state and local governments and could affect the economic viability of projects that are the sole source of revenue to support various
municipal securities. Further, some state and local governments have been and in the future may be subject to direct ballot referenda that could limit their financial flexibility, or their ability to levy taxes or raise tax revenues, which may
adversely affect the marketability of notes and bonds issued by those state and local governments. In addition, global economies and financial markets are becoming increasingly interconnected, which increases the possibilities that conditions in one
country or region might adversely impact issuers in a different country or region. Because the situation is widespread and largely unprecedented, it may be unusually difficult to identify both risks and opportunities using past models of the
interplay of market forces, or to predict the duration of these market conditions. The severity or duration of these conditions may also be affected by policy changes made by governments or quasi-governmental organizations. In addition, on
August 5, 2011, S&P lowered its long-term sovereign credit rating on the U.S. federal government debt to AA+ from AAA. The downgrade by S&P could increase volatility in both stock and bond markets, result in
higher interest rates and higher U.S. Treasury yields and increase the costs of all kinds of debt. These events could have significant adverse effects on the economy generally. See Risk FactorsMunicipal Securities Market Risk.
Credit and Below-Investment-Grade Risk.
Credit risk is the risk that one or more municipal
securities in the Funds portfolio will decline in price, or the issuer thereof will fail to pay interest or principal when due, because the issuer of the security 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
42
ability to make interest and principal payments, which could have a negative impact on the Funds net asset value or dividends. Credit risk is increased when a portfolio security is
downgraded or the perceived creditworthiness of the issuer deteriorates. If a downgrade occurs, the Investment Adviser and/or the Sub-Adviser will consider what action, including the sale of the security, is in the best interests of the Fund.
Municipal securities of below-investment-grade quality, commonly referred to as junk bonds, are regarded as having predominantly speculative characteristics with respect to the issuers capacity to pay interest and repay principal when due, and
they are more susceptible to default or decline in market value due to adverse economic and business developments than investment-grade municipal securities. Also, to the extent that the rating assigned to a municipal security in the Funds
portfolio is downgraded by any NRSRO, the market price and liquidity of such security may be adversely affected. The market values for municipal securities of below-investment-grade quality tend to be volatile, and these securities are less liquid
than investment-grade municipal securities. For these reasons, an investment in the Fund, compared with a portfolio consisting solely of investment-grade securities, may experience the following:
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increased price sensitivity resulting from a deteriorating economic environment and/or changing interest rates;
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greater risk of loss due to default or declining credit quality;
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adverse issuer-specific events that are more likely to render the issuer unable to make interest and/or principal payments; and
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the possibility that a negative perception of the below-investment-grade market develops, resulting in the price and liquidity of
below-investment-grade securities becoming depressed, and this negative perception could last for a significant period of time.
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Adverse changes in economic conditions are more likely to lead to a weakened capacity of a below-investment-grade issuer to make principal payments and interest payments compared to an investment-grade
issuer. The principal amount of below-investment-grade securities outstanding has proliferated in the past decade as an increasing number of issuers have used below-investment-grade securities for financing. The recent economic downturn may severely
affect the ability of highly leveraged issuers to service their debt obligations or to repay their obligations upon maturity. As the national economy slowly recovers from the recent economic downturn, with decreased tax and other revenue streams of
municipal issuers, or in the event interest rates rise sharply, increasing the interest cost on variable rate instruments and negatively impacting economic activity, the number of defaults by below-investment-grade municipal issuers is likely to
increase. Similarly, prolonged downturns in profitability in specific industries could adversely affect private activity bonds. The market values of lower-quality debt securities tend to reflect individual developments of the issuer to a greater
extent than do higher-quality securities, which react primarily to fluctuations in the general level of interest rates. Factors having an adverse impact on the market value of lower-quality securities may have an adverse impact on the Funds
net asset value. In addition, the Fund may incur additional expenses to the extent it is required to seek recovery upon a default in payment of principal or interest on its portfolio holdings. In certain circumstances, the Fund may be required to
foreclose on an issuers assets and take possession of its property or operations. In such circumstances, the Fund would incur additional costs in disposing of such assets and potential liabilities from operating any business acquired.
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The secondary market for below-investment-grade securities may not be as liquid as the
secondary market for more highly rated securities, a factor that may have an adverse effect on the Funds ability to dispose of a particular security. There are fewer dealers in the market for below-investment-grade municipal securities than
the market for investment-grade municipal securities. The prices quoted by different dealers for below-investment-grade municipal securities may vary significantly, and the spread between the bid and ask price is generally much larger for
below-investment-grade municipal securities than for higher-quality instruments. Under adverse market or economic conditions, the secondary market for below-investment-grade securities could contract further, independent of any specific adverse
changes in the condition of a particular issuer, and these instruments may become illiquid. As a result, the Fund could find it more difficult to sell these securities or may be able to sell the securities only at prices lower than if such
securities were widely traded. Prices realized upon the sale of such lower rated or unrated securities, under these circumstances, may be less than the prices used in calculating the Funds net asset value.
Issuers of such below-investment-grade securities are highly leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is the case with higher rated securities. For example, during an economic downturn or a sustained period of rising interest rates,
highly leveraged issuers of below-investment-grade securities may experience financial stress. During such periods, such issuers may not have sufficient revenues to meet their interest payment obligations. The issuers ability to service its
debt obligations also may be adversely affected by specific developments, the issuers inability to meet specific projected forecasts or the unavailability of additional financing. The risk of loss from default by the issuer is significantly
greater for the holders of below-investment-grade securities because such securities are generally unsecured and are often subordinated to other creditors of the issuer. Prices and yields of below-investment-grade securities will fluctuate over time
and, during periods of economic uncertainty, volatility of below-investment-grade securities may adversely affect the Funds net asset value. In addition, investments in below-investment-grade zero coupon bonds rather than income-bearing
below-investment-grade securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates.
The Fund may invest in distressed securities, which are securities issued by companies that are involved in bankruptcy or insolvency proceedings or are experiencing other financial difficulties at the
time of acquisition by the Fund. The issuers of such securities may be in transition, out of favor, financially leveraged or troubled, or potentially troubled, and may be or have recently been involved in major strategic actions, restructurings,
bankruptcy, reorganization or liquidation. These characteristics of these companies can cause their securities to be particularly risky, although they also may offer the potential for high returns. These companies securities may be considered
speculative, and the ability of the companies to pay their debts on schedule could be affected by adverse interest rate movements, changes in the general economic climate, economic factors affecting a particular industry or specific developments
within the companies. Distressed securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to protect and recover its investment.
Investments in lower rated or unrated securities may present special tax issues for the Fund, including where the issuers of these
securities default on their obligations pertaining thereto, and the federal income tax consequences to the Fund as a holder of such distressed securities may not be clear.
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Municipal Securities Market Risk.
Investing in the municipal
securities market involves certain risks. The municipal securities 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 became
severely constrained. As a result, some firms were unwilling to commit their capital to purchase and to serve as a dealer for municipal securities. The amount of public information available about the municipal securities in the Funds
portfolio is generally less than that for corporate equities or bonds, and the Funds investment performance may therefore be more dependent on the Investment Advisers and/or the Sub-Advisers analytical abilities than if the Fund
were to invest in stocks or taxable bonds. The secondary market for municipal securities, particularly the below-investment-grade bonds in which the Fund may invest, also tends to be less well developed or liquid than many other securities markets,
which may adversely affect the Funds ability to sell its municipal securities at attractive prices or at prices approximating those at which the Fund currently values them. Municipal securities may contain redemption provisions, which may
allow the securities to be called or redeemed prior to their stated maturity, potentially resulting in the distribution of principal and a reduction in subsequent interest distributions.
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. Issuers of municipal securities might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, the 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 the event of a default in the payment of
interest or repayment of principal, or both, the 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 the
Funds ownership or operation of such assets may not be tax-exempt and may not be of the type that would allow the Fund to continue to qualify as a regulated investment company for federal income tax purposes.
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. Additionally, unusually high rates of default on the underlying mortgage loans may reduce revenues available for the payment of principal or interest on such
mortgage revenue bonds.
Special Risks Related to Certain Municipal Obligations.
The 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
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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
the 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 the Fund, although the Fund does not anticipate that such a remedy would normally
be pursued. To the extent that the 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, the 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.
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 the Funds portfolio will decline in value because of increases in market interest rates. As interest rates decline, issuers of municipal
securities may prepay principal earlier than scheduled, forcing the Fund to reinvest in lower-yielding securities and potentially reducing the Funds income. As interest rates increase, slower-than-expected principal payments may extend the
average life of securities, potentially locking-in a below-market interest rate and reducing the Funds value. 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 Fund primarily invests in longer-term municipal securities, the Funds value will fluctuate more in response to changes in market interest rates than if the 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 typically have not
been highly correlated to the fluctuations of the prices of investment-grade-quality securities in response to changes in market interest rates.
Concentration Risk.
The Fund invests its net assets in a portfolio of municipal securities that are exempt from regular federal and Pennsylvania income taxes. The Fund is
therefore more susceptible to political, economic or regulatory factors affecting issuers of such securities. Information about factors affecting the economy the Commonwealth of Pennsylvania (the Commonwealth) and other financial and
demographic information can be found in the most recent offering statements relating to debt offerings of state and local issuers. It should be noted that the creditworthiness of obligations issued by local Pennsylvania issuers may be unrelated to
the creditworthiness of obligations issued by the Commonwealth and that there is no obligation on the part of the Commonwealth to make payment on such local obligations in the event of default.
Many factors, including national economic, social and environmental policies and conditions, which are not within the control of the
issuers of Pennsylvania municipal obligations, 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
Pennsylvania municipal obligations, the market value or marketability of such securities or the ability of the
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respective issuers of such securities acquired by the Fund to pay interest on or principal of the municipal securities. This information has not been independently verified.
Inverse Floating Rate Securities Risk.
The 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 The
Funds InvestmentsMunicipal SecuritiesInverse 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.
The Fund may invest in inverse floating rate securities issued by special purpose trusts that have recourse to the Fund. In the Investment Advisers and/or the Sub-Advisers discretion, the Fund
may enter into a separate shortfall and forbearance agreement with the third-party sponsor of a special purpose trust. The Fund may enter into such recourse agreements: (i) when the liquidity provider to the special purpose trust requires such
an agreement because the level of leverage in the trust exceeds the level that the liquidity provider is willing to support absent such an agreement; and/or (ii) to seek to prevent the liquidity provider from collapsing the trust in the event
that the municipal obligation held in the trust has declined in value. Such an agreement would require the Fund to reimburse the third-party sponsor of the trust, upon termination of the trust issuing the inverse floater, the difference between the
liquidation value of the bonds held in the trust and the principal amount due to the holders of floating rate interests. In such instances, the Fund may be at risk of loss that exceeds its investment in the inverse floating rate securities.
Inverse floating rate securities may increase or decrease in value at a greater rate than the underlying interest rate, which
effectively leverages the Funds investment. As a result, the market value of such securities generally will be more volatile than that of fixed rate securities.
The Funds investments in inverse floating rate securities issued by special purpose trusts that have recourse to the Fund may be highly leveraged. The structure and degree to which a Funds
inverse floating rate securities are highly leveraged will vary based upon a number of factors, including the size of the trust itself and the terms of the underlying municipal security. An inverse floating rate security generally is considered
highly leveraged if the principal amount of the short-term floating rate interests issued by the related special purpose trust has a three to one gearing to the principal amount of the inverse floating rate securities owned by the trust. In the
event of a significant decline in the value of an underlying security, the Fund may suffer losses in excess of the amount of its investment (up to an amount equal to the value of the municipal securities underlying the inverse floating rate
securities) as a result of liquidating special purpose trusts or other collateral required to maintain the Funds anticipated effective leverage ratio.
The Funds investment in inverse floating rate securities will create effective leverage. Any effective leverage achieved through the Funds investment in 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.
The amount of fees paid to Nuveen Asset Management for investment advisory services will be higher if
the Fund uses leverage because the fees will be calculated based on the Funds Managed
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Assetsthis may create an incentive for Nuveen Asset Management to leverage the Fund. As previously described, Managed Assets means the total assets of the Fund, minus the sum of its accrued
liabilities (other than liabilities incurred for the express purpose of creating effective leverage). Total assets for this purpose shall include assets attributable to a Funds use of effective leverage (whether or not those assets are
reflected in the Funds financial statements for purposes of generally accepted accounting principles), such as, but not limited to, the portion of assets in special purpose trusts of which a Fund owns the inverse floater certificates that has
been effectively financed by the trusts issuance of floating rate certificates.
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 special purpose trust. The market price of inverse floating rate securities is more volatile than the underlying securities
due to leverage. The leverage attributable to such inverse floating rate securities may be called away on relatively short notice and therefore may be less permanent than more traditional forms of leverage. In certain circumstances, the
likelihood of an increase in the volatility of net asset value may be greater for a fund (like the Fund) that relies primarily on inverse floating rate securities to achieve a desired effective leverage ratio. The Fund may be required to sell its
inverse floating rate securities at less than favorable prices, or liquidate other Fund portfolio holdings in certain circumstances, including, but not limited to, the following:
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If the Fund has a need for cash and the securities in a special purpose trust are not actively trading due to adverse market conditions;
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If special purpose trust sponsors (as a collective group or individually) experience financial hardship and consequently seek to terminate their
respective outstanding trusts; and
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If the value of an underlying security declines significantly (to a level below the notional value of the floating rate securities issued by the trust)
and if additional collateral has not been posted by the Fund.
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Leverage
Risk.
Leverage risk is the risk associated with the use of borrowings, the issuance of preferred shares or the use of inverse floating rate securities to leverage the common shares. There can be no assurance that the
Funds leveraging strategy will be successful. Through the use of financial leverage, the Fund seeks to enhance potential common share earnings over time by borrowing or issuing preferred shares at short-term municipal rates and investing at
long-term municipal rates which are typically, though not always, higher. The types of leverage used by the Fund may pay fixed rates of interest or dividends or may fluctuate with short- to intermediate-term yields. The income benefit from leverage
will be reduced (increased) to the extent that the difference narrows (widens) between the net earnings on the Funds portfolio securities and its cost of leverage. If short- or intermediate-term rates rise and the Funds leverage costs
fluctuate, the Funds cost of leverage could exceed the fixed rate of return on longer-term bonds held by the Fund that were acquired during periods of lower interest rates, reducing the ability of the Fund to pay dividends on the New VRDP
Shares. This could occur even if short- or intermediate-term and long-term municipal rates rise. Because of the costs of leverage, the Fund may incur losses even if the Fund has positive returns, if they are not sufficient to cover the costs
48
of leverage. The Funds cost of leverage includes both the interest rate paid on its borrowings or dividends on preferred shares as well as any other ongoing fees and expenses associated
with those borrowings or preferred shares. The Fund also bears the one-time costs associated with establishing borrowing facilities, issuing preferred shares and refinancing such leverage. To the extent that the Fund issues preferred shares with
relatively short terms to redemption (e.g., MTP Shares), refinancing risk will increase. To the extent that the Fund issues preferred shares with a liquidity provider feature (e.g., VRDP Shares), the Fund is subject to refinancing risk if the
liquidity provider acquires VRDP Shares pursuant to its purchase obligation and holds them for six months of unsuccessful remarketings, triggering a mandatory redemption. Refinancing risk is the risk that the Fund is unable to replace existing
leverage at all or on favorable terms. If the Fund is unable to replace its leverage upon a term redemption date or mandatory redemption of MTP Shares or VRDP Shares, it may be forced to reduce leverage and sell portfolio securities when it
otherwise would not do so. More frequent refinancings may also increase the one-time costs of establishing leverage. If the Fund is unable to replace existing leverage on comparable terms, its costs of leverage will increase.
The Fund is required to maintain certain regulatory and rating agency asset coverage requirements in connection with its outstanding
preferred shares, in order to be able to maintain the ability to declare and pay common share distributions and to maintain the rating of its preferred shares. In order to maintain required asset coverage levels, the Fund may be required to alter
the composition of its investment portfolio or take other actions, such as redeeming preferred shares with the proceeds from portfolio transactions, at what might be an inopportune time in the market.
The Fund may invest in the securities of other investment companies, which may themselves be leveraged and therefore present similar
risks to those described above. In addition, the Funds investments in leveraged investment companies magnify the Funds leverage risk.
The amount of fees paid to the Investment Adviser (which in turn pays a portion of its fees to the Sub-Adviser) for investment and advisory services will be higher when the Fund uses financial leverage
because the advisory fees are calculated based on the Funds Managed Assetsthis may create an incentive for the Investment Adviser and/or the Sub-Adviser to leverage the Fund.
Tax Risk.
To qualify for the favorable U.S. federal income tax treatment generally accorded to regulated
investment companies, among other things, the Fund must derive in each taxable year at least 90% of its gross income from certain prescribed sources and satisfy a diversification test on a quarterly basis. If the Fund fails to satisfy the qualifying
income or diversification requirements in any taxable year, the Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the
applicable requirements. Additionally, relief is provided for certain de minimis failures of the diversification requirements where the Fund corrects the failure within a specified period. In order to be eligible for the relief provisions with
respect to a failure to meet the diversification requirements, the Fund may be required to dispose of certain assets. If these relief provisions are not available to the Fund and it fails to qualify for treatment as a regulated investment company,
all of its taxable income (including its net capital gain) would be subject to federal income tax at regular corporate rates without any deduction for distributions to shareholders, and all distributions from the Fund (including underlying
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.
To qualify to pay exempt-interest dividends, which are treated as items of interest excludable from gross income for federal income tax
purposes, at least 50% of the value of the total assets of the
49
Fund must consist of obligations exempt from regular federal income tax as of the close of each quarter of the Funds taxable year. If the proportion of taxable investments held by the Fund
exceeded 50% of the Funds total assets as of the close of any quarter of the Funds taxable year, the Fund would not satisfy the general eligibility test that would permit it to pay exempt-interest dividends for that taxable year.
The value of the Funds investments and its net asset value may be adversely affected by changes in tax rates and
policies. Because interest income from municipal securities held by the Fund is normally not subject to regular federal or Pennsylvania income tax, the attractiveness of municipal securities in relation to other investment alternatives is affected
by changes in federal and Pennsylvania 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 the Funds net asset value and ability to acquire and dispose of municipal securities at desirable yield and price levels. Additionally, the Fund is
not a suitable investment 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.
The Fund will invest in municipal securities in reliance at the time of purchase on an
opinion of bond counsel to the issuer (or on the basis of other authority believed by the Sub-Adviser to be reliable) that the interest paid on those securities will be excludable from gross income for regular federal income tax purposes, and
neither the Investment Adviser nor the Sub-Adviser will independently verify that opinion. Subsequent to the Funds acquisition of such a municipal security, however, the security may be determined to pay, or to have paid, taxable income. As a
result, the treatment of dividends previously paid or to be paid by the Fund as exempt-interest dividends could be adversely affected, subjecting the Funds shareholders to increased federal income tax liabilities. In certain
circumstances, the Fund will make payments to holders of preferred shares to offset the tax effects of a taxable distribution.
Under highly unusual circumstances, the Internal Revenue Service may determine that a municipal bond issued as tax-exempt should in fact
be taxable. If the Fund held such a bond, it might have to distribute taxable ordinary income dividends or reclassify as taxable income amounts previously distributed as exempt-interest dividends. In addition, future legislation may change the tax
treatment of municipal bond interest.
For federal income tax purposes, distributions of ordinary taxable income (including
any net short-term capital gain) will be taxable to shareholders as ordinary income (and will not be eligible for favorable taxation as qualified dividend income), and capital gain dividends will be taxed at long-term capital gain rates.
Borrowing Risk.
The Fund may borrow money for the repurchase of its shares or for temporary or
emergency purposes, such as for the payment of dividends or the settlement of portfolio transactions. Borrowing may exaggerate changes in the Funds net asset value and may affect the Funds net income. When the 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.
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Inflation Risk.
Inflation is the reduction in the purchasing
power of money resulting from the increase in the price of goods and services. Inflation risk is the risk that the inflation-adjusted (or real) value of assets or income from investment will be worth less in the future. As inflation
increases, the real value of the dividends paid to preferred shareholders declines.
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 and may make issuer default more likely, which may result in a decline in the value of the Funds portfolio.
Derivatives Risk.
The 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 the Funds use of derivatives is successful will depend on, among other things, if the Investment Adviser and/or the Sub-Adviser correctly forecasts market values, interest rates and other applicable factors.
If the Investment Adviser and/or the Sub-Adviser incorrectly forecasts these and other factors, the investment performance of the 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.
The 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 the Investment Adviser and/or the Sub-Adviser of not
only 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, the 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 the Funds ability to terminate existing swap agreements or to realize amounts to be received under such agreements. The derivatives market is subject to a changing regulatory environment. It is possible that regulatory
or other developments in the derivatives market could adversely affect the Funds ability to successfully use derivative instruments. See Hedging Risk and Counterparty Risk.
Hedging Risk.
The Funds use of derivatives or other transactions to reduce risk involves costs and
will be subject to the Investment Advisers and/or the Sub-Advisers 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
the Investment Advisers and/or the Sub-Advisers judgment in this respect will be correct. In addition, no assurance can be given that the Fund will enter into hedging or other transactions at times or under circumstances in which it may
be advisable to do so.
Other Investment Companies Risk.
The Fund may invest in the securities
of other investment companies. Such securities may be leveraged. As a result, the Fund may be indirectly exposed to leverage through an investment in such securities. Utilization of leverage is a speculative investment technique and involves certain
risks. An investment in securities of other investment companies that are leveraged may expose the Fund to higher volatility in the market value of such securities and the possibility that the Funds long-term returns on such securities will be
diminished.
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Counterparty Risk.
Changes in the credit quality of the
companies that serve as the 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, the Fund assumes the risk that its counterparties could experience similar financial hardships. In the event of insolvency of a counterparty, the Fund may sustain losses or be unable to
liquidate a derivatives position.
Illiquid Securities Risk.
The 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 restricted securities, which are securities that may not be resold unless they have
been registered under the Securities Act of 1933, as amended, or can be sold in a private transaction 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 the 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 United States on September 11, 2001), war and other geopolitical
events. The Fund cannot predict the effects of similar events in the future on the U.S. economy. Below-investment-grade securities tend to be more volatile than higher rated securities so that these events and any actions resulting from them may
have a greater impact on the prices and volatility of below-investment-grade securities than on higher rated securities.
Income Risk.
The 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, the Funds income available over time to make dividend payments could drop as well if the Fund purchases securities with lower interest coupons.
Call Risk or Prepayment Risk.
During periods of declining interest rates or for other purposes, issuers of
callable bonds with higher interest coupons may exercise their option to call (or prepay) bonds before their maturity date, forcing the Fund to reinvest in lower-yielding securities. This is known as call or prepayment risk.
Reinvestment Risk.
Reinvestment risk is the risk that income from the 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 Funds portfolios current earnings rate.
Economic Sector Risk.
The Fund may invest 25% or more of its total assets in municipal securities in the same economic sector. This may make the Fund more susceptible to
adverse economic, political or regulatory occurrences affecting an economic sector. As concentration increases, so does the potential for fluctuation in the value of the Funds assets.
Reliance on Investment Adviser.
The Fund is dependent upon services and resources provided by the
Investment Adviser and the Sub-Adviser, and therefore the Investment Advisers and the
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Sub-Advisers
parent, Nuveen Investments. Nuveen Investments, through its own business or the financial support of its affiliates, may not be able to
generate sufficient cash flow from operations or ensure that future borrowings will be available in an amount sufficient to enable it to pay its indebtedness or to fund its other liquidity needs.
Personnel Turnover Risk.
As a result of deteriorating market conditions or other reasons, Nuveen
Investments, the Investment Adviser and/or the Sub-Adviser may need to implement cost reductions in the future which could make the retention of qualified and experienced personnel more difficult and could lead to personnel turnover.
Certain Affiliations.
Certain broker-dealers may be considered to be affiliated persons of the Fund, the
Investment Adviser, the Sub-Adviser and/or Nuveen Investments. Absent an exemption from the SEC or other regulatory relief, the Fund generally is 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 the Funds ability to engage in
securities transactions and take advantage of market opportunities.
Anti-Takeover
Provisions.
The Funds organizational documents include 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.
MATERIAL INCOME TAX CONSIDERATIONS
Any discussion of U.S. federal, state and local tax considerations in this Information Memorandum was written in connection with the
promotion and marketing by the Fund of the New VRDP Shares. Such discussion was not intended or written to be legal or tax advice to any person and was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding
any U.S. federal and state tax penalties. Each investor should seek advice based on its particular circumstances from an independent tax advisor.
The discussion below under the caption Federal Income Tax Matters is the opinion of Sidley Austin LLP (Special Tax Counsel) on the anticipated U.S. federal income tax consequences
to United States persons (as defined by section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the Code)) of acquiring, holding and disposing of the New VRDP Shares. Vedder Price P.C. will provide an opinion on the
anticipated U.S. federal income tax consequences of certain aspects of the Premium Income Reorganization, including an opinion substantially to the effect that the Fund will not recognize gain or loss upon the receipt of substantially all the assets
of Premium Income in exchange for shares of the Fund (including New VRDP Shares) and the assumption of substantially all the liabilities of Premium Income and a holder of the Premium Income VRDP Shares will not recognize gain or loss upon the
exchange of such shares solely for New VRDP Shares. Such opinion will be based, in part, on Special Tax Counsels opinion that the New VRDP Shares will constitute equity of the Fund for federal income tax purposes.
The discussion below under the caption Pennsylvania Tax Matters is the opinion of K&L Gates LLP (Pennsylvania Tax
Counsel) on the anticipated Pennsylvania personal income tax consequences and Pennsylvania corporate net income tax consequences of distributions made with respect to the New VRDP Shares.
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Because the discussion below is general in nature and does not address all of the tax
consequences related to the New VRDP Shares and because the tax laws governing the New VRDP Shares and their acquisition are complex, you should consult your tax advisor about the tax consequences of acquiring and holding the New VRDP Shares under
your particular circumstances before voting on the Premium Income Reorganization.
Federal Income Tax Matters
This discussion is based on the current provisions and interpretations of the Code and the accompanying Treasury regulations and on
current judicial and administrative rulings. All of these authorities are subject to change and any change can apply retroactively.
Upon issuance of the New VRDP Shares in connection with the Premium Income Reorganization, and subject to certain assumptions and conditions, and based upon certain representations made by the Fund,
including representations regarding the terms of the exchange, the nature of the Funds assets and the conduct of the Funds business, Special Tax Counsel will deliver its opinion concluding that for federal income tax purposes
(1) the Fund will qualify as a regulated investment company under the Code, (2) the New VRDP Shares will qualify as equity in the Fund, and (3) distributions made with respect to the New VRDP Shares will qualify as exempt-interest
dividends to the extent reported by the Fund and not otherwise limited under Section 852(b)(5)(A) of the Code (under which the total amount of dividends that may be reported as exempt-interest dividends is limited, based on the total amount of
exempt interest generated by the Fund).
Investors should be aware that Special Tax Counsels opinions are not binding on
the Internal Revenue Service or any court. See the discussions below under the captions Treatment of New VRDP Shares as Equity and Demand Feature as Part of Stock. In addition, the Funds qualification and taxation as a
regulated investment company depends upon the Funds ability to meet on a continuing basis, through actual annual operating results, certain requirements in the federal tax laws. Special Tax Counsel will not review the Funds compliance
with those requirements. Accordingly, no assurance can be given that the actual results of the Funds operations for any particular taxable year will satisfy such requirements.
Qualification and Taxation of the Fund.
The Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code, and intends to distribute substantially all of its net income and gains to its shareholders. Therefore, it is not expected that the Fund will be subject to any federal income tax to the extent its earnings are
so distributed. To qualify under Subchapter M for tax treatment as a regulated investment company, the Fund must, among other requirements: (a) distribute to its shareholders at least 90% of the sum of (i) its investment company taxable
income (as that term is defined in the Code) determined without regard to the deduction for dividends paid and (ii) its net tax-exempt income (the excess of its gross tax-exempt interest income over certain disallowed deductions) and
(b) diversify its holdings so that, at the end of each fiscal quarter of the Fund (i) at least 50% of the value of the Funds total assets is represented by cash, cash items, U.S. government securities, securities of other regulated
investment companies, and other securities, with these other securities limited, with respect to any one issuer, to an amount not greater in value than 5% of the Funds total assets, and to not more than 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of the Funds total assets is invested in the securities of any one issuer (other than U.S. government securities or securities of other regulated investment companies), two or more
issuers (other than securities of other regulated
54
investment companies) controlled by the Fund and engaged in the same, similar or related trades or businesses or one or more qualified publicly traded partnerships. In meeting these requirements
of Subchapter M of the Code, the Fund may be restricted in the utilization of certain of the investment techniques described under The Funds Investments. If in any year the Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company and not cure such failure, the Fund would incur a regular federal corporate income tax on its taxable income for that year, and distributions to its shareholders would be taxable to such holders as
ordinary income to the extent of the earnings and profits of the Fund.
A regulated investment company that fails to
distribute, by the close of each calendar year, an amount equal to the sum of 98% of its ordinary taxable income for such year and 98.2% of its capital gain net income for the one year period ending October 31 in such year, plus any shortfalls
from the prior years required distribution, is liable for a 4% excise tax on the excess of the required distribution for such calendar year over the distributed amount for such calendar year. To avoid the imposition of this excise tax, the
Fund generally intends to make the required distributions of its ordinary taxable income, if any, and its capital gain net income, to the extent possible, by the close of each calendar year.
Treatment of New VRDP Shares as Equity.
In order for any distributions to owners of the Funds New
VRDP Shares to be eligible to be treated as exempt-interest dividends, the New VRDP Shares must be classified as equity for federal income tax purposes. The Investment Adviser believes and, as discussed above, Special Tax Counsel will deliver its
opinion concluding that, the New VRDP Shares will qualify as equity in the Fund for federal income tax purposes. By acquiring New VRDP Shares, an investor agrees to treat the New VRDP Shares as equity for federal income tax purposes.
Distributions on New VRDP Shares.
A holder of New VRDP Shares will be required to report the dividends
declared by the Fund for each day on which such holder of New VRDP Shares is the shareholder of record. Distributions, if any, in excess of the Funds earnings and profits will first reduce the adjusted tax basis of a shareholders shares
and, after that basis has been reduced to zero, will constitute capital gain to the shareholder (assuming the shares are held as a capital asset). As long as the Fund qualifies as a regulated investment company under the Code, no part of its
distributions to shareholders are expected to qualify for the dividends received deduction available to corporate shareholders or qualified dividend income treatment for non-corporate shareholders.
Tax Character of Distributions
In General.
The tax character of the Funds distributions in the hands of the Funds shareholders will be primarily determined by the tax character of the
Funds underlying income. Although the Fund expects that most of its income will be tax-exempt, some of the Funds income may be taxable as capital gains or ordinary income. In addition, the Funds tax-exempt income may be subject to
the federal alternative minimum tax. The Internal Revenue Service requires a regulated investment company that has two or more classes of shares outstanding to designate to each such class proportionate amounts of each type of its income for each
tax year based upon the percentage of total dividends distributed to each class for such year. The Fund intends each year to allocate, to the fullest extent practicable, net tax-exempt interest, net capital gain and ordinary income, if any, between
its common shares and preferred shares in proportion to the total dividends paid to each class with respect to such year. To the extent permitted under applicable law, the Fund reserves the right to make special allocations of income within a class,
consistent with the objectives of the Fund.
55
Exempt-Interest Dividends.
The Fund intends to qualify to pay
exempt-interest dividends, as defined in the Code, on its preferred shares by satisfying the requirement that at the close of each quarter of its taxable year, at least 50% of the value of its total assets consists of tax-exempt municipal bonds.
Exempt-interest dividends are dividends paid by the Fund that are attributable to interest on municipal bonds and are so reported by the Fund in written statements to its shareholders. The Fund intends to invest primarily in municipal bonds the
income of which is exempt from regular federal and Pennsylvania income taxes. Thus, substantially all of the Funds dividends to the preferred shareholders is expected to qualify as exempt-interest dividends. Exempt-interest dividends will be
exempt from federal income tax, subject to the possible application of the federal alternative minimum tax.
Dividends
Attributable to Ordinary Income and Capital Gains.
Distributions to shareholders by the Fund of net income received, if any, from taxable temporary investments and net short-term capital gains, if any, realized by the Fund
will be taxable to its shareholders as ordinary income. In addition, gains of the Fund that are attributable to market discount on municipal securities will be treated as ordinary income. Distributions by the Fund of net capital gain (that is, the
excess of net long-term capital gain over net short-term capital loss), if any, are taxable as long-term capital gain regardless of the length of time the shareholder has owned shares of the Fund. The amount of capital gains and ordinary income
allocable to the Funds New VRDP Shares will depend upon the amount of such income realized by the Fund, but is not generally expected to be significant. Except for dividends paid on New VRDP Shares that include an allocable portion of any net
capital gain or ordinary income, the Fund anticipates that all other dividends paid on New VRDP Shares will constitute exempt-interest dividends for federal income tax purposes.
The Fund may notify the Remarketing Agent of the amount of any net capital gain or ordinary income taxable for regular federal and
Pennsylvania income tax purposes to be included in any dividend on New VRDP Shares prior to the Rate Determination Date establishing the Applicable Rate for such dividend. If the Fund allocates any net capital gain or ordinary income for regular
federal and Pennsylvania income tax purposes to New VRDP Shares without having given such advance notice, the Fund will make certain payments to owners of New VRDP Shares to which such allocation was made to offset the federal and Pennsylvania
income tax effect thereof.
Sales, Exchanges and Other Dispositions of New VRDP Shares.
On the
sale or other disposition of New VRDP Shares (other than redemptions, the rules for which are described below under the caption Redemptions of New VRDP Shares), the amount paid for the sellers right to any dividends that are
accumulated but unpaid at the time of such sale or other disposition will be treated as dividends and subject to the rules described above under the caption Tax Character of Distributions. The balance of the amount paid, will generally
be treated as (1) capital gain to the extent it exceeds the sellers basis in the New VRDP Shares, and (2) capital loss to the extent it is less than the sellers basis in the New VRDP Shares. Present law taxes both long-term and
short-term capital gains of corporations at the rates applicable to ordinary income. In the case of non-corporate taxpayers, current law taxes short-term capital gains and ordinary income at a maximum rate of 39.6% and long-term capital gains at a
maximum rate of 20%. In addition, because of certain limitations on itemized deductions and the deduction for personal exemptions, the effective rate of tax may be higher in certain circumstances.
Losses realized by a shareholder on the sale or exchange of New VRDP Shares held for six months or less are disallowed to the extent of
any distribution of exempt-interest dividends received (or
56
deemed received on a sale) with respect to such shares, unless the Fund declares exempt-interest dividends on a daily basis in an amount equal to at least 90% of its net tax-exempt interest and
distributes such dividends on a monthly or more frequent basis. If not disallowed, such losses are treated as long-term capital losses to the extent of any distribution of long-term capital gain received with respect to such shares. For purposes of
determining whether New VRDP Shares have been held for six months or less, the holding period will be suspended by reason of the New VRDP Purchase Agreement, thus causing the rules described in the preceding sentences to apply unless with respect to
the loss disallowance rule, the Fund satisfies the exception described above.
Any loss realized on a sale or exchange of New
VRDP Shares will be disallowed to the extent those shares are replaced by substantially identical stock or securities 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.
Redemptions
of New VRDP Shares.
Gain or loss, if any, resulting from a redemption of the New VRDP Shares (determined by treating any part of the redemption price that represents accrued but unpaid dividends as dividends on the New
VRDP Shares rather than as part of the amount paid in exchange for the New VRDP Shares) will be taxed as gain or loss from the sale or exchange of the VRDP Shares under Section 302 of the Code rather than as a dividend, but only if the
redemption distribution (a) is deemed not to be essentially equivalent to a dividend, (b) is in complete redemption of an owners interest in the Fund, (c) is substantially disproportionate with respect to the owner, or
(d) with respect to non-corporate owners, is in partial liquidation of the Fund. For purposes of (a), (b) and (c) above, a shareholders ownership of the common shares and preferred shares will be taken into account, as will
shares attributed to such shareholder under attribution rules contained in the Code.
Tax on Net Investment
Income
. A new 3.8% tax imposed on net investment income has gone into effect as of January 1, 2013. The tax applies to individuals, estates and trusts with incomes above certain threshold amounts. The types of investment
income used to calculate net investment income include taxable distributions (if any) made by the Fund with respect to VRDP Shares and gains (if any) from the sale or other disposition of VRDP Shares.
Consequences of Insufficient Distributions.
If at any time when the Funds New VRDP Shares are
outstanding the Fund fails to meet the VRDP Basic Maintenance Amount or the Minimum VRDP Asset Coverage, the Fund will be required to suspend distributions to holders of its common shares until such maintenance amount or asset coverage, as the case
may be, is restored. This may prevent the Fund from distributing at least 90% of its investment company taxable income (as that term is defined in the Code) determined without regard to the deduction for dividends paid and net tax-exempt income and
may therefore jeopardize the Funds qualification for taxation as a regulated investment company or cause the Fund to incur an income tax liability or the non-deductible 4% excise tax on the undistributed taxable income (including gain), or
both. Upon failure to meet the VRDP Basic Maintenance Amount or the Minimum VRDP Asset Coverage, the Fund will be required to redeem New VRDP Shares in order to maintain or restore such maintenance amount or asset coverage and avoid the adverse
consequences to the Fund and its shareholders of failing to qualify as a regulated investment company. There can be no assurance, however, that any such redemption would achieve such objectives.
Demand Feature as Part of Stock.
The treatment of the demand feature under the New VRDP Purchase Agreement
as part of the New VRDP Shares is not binding on the Internal Revenue Service
57
or any court. If a New VRDP Share and the demand feature under the New VRDP Purchase Agreement are treated as separate property rights (for example, as a share of stock and an option), then the
tax consequences to investors, including the timing and character of income, gain and loss, will be different from those described in this Information Memorandum, and the tax consequences of the Reorganizations to holders of Premium Income VRDP
Shares will be different from those described in the Joint Proxy Statement and this Information Memorandum. You should consult your tax advisor about the tax consequences to you if New VRDP Shares and the demand feature under the New VRDP Purchase
Agreement are treated as separate property rights.
The foregoing is a general summary of the provisions of the Code and
regulations thereunder presently in effect as they directly govern the federal income taxation of the Fund and holders of New VRDP Shares. These provisions are subject to change by legislative, judicial or administrative action, and any such change
may be retroactive. Moreover, the foregoing does not address many of the factors that may be determinative of whether an investor will be liable for the federal alternative minimum tax. Shareholders are advised to consult their own tax advisors for
more detailed information concerning the regular federal income tax and federal alternative minimum income tax consequences of purchasing, holding and disposing of New VRDP Shares.
Pennsylvania Tax Matters
The discussion below is based on the opinion of
K&L Gates LLP (Pennsylvania Tax Counsel) on the anticipated Pennsylvania personal income tax consequences and Pennsylvania corporate net income tax consequences of distributions made with respect to the New VRDP Shares. Pennsylvania
Tax Counsels opinion is based on the provisions and interpretations of the Pennsylvania Tax Reform Code of 1971 and the accompanying administrative regulations in effect at the time of the opinion and on current judicial and administrative
rulings then in effect. All of these authorities are subject to change, and any change can apply retroactively.
Upon issuance
of the New VRDP Shares, and subject to certain assumptions and conditions as discussed further below, and based upon certain representations made by the Fund, Pennsylvania Tax Counsel will deliver its opinion concluding that for Pennsylvania
personal income tax purposes and corporate net income tax purposes, the exchange of the Premium Income VRDP Shares for the New VRDP Shares will not result in gain or loss to the Fund or to a holder of the Premium Income VRDP Shares that participates
in the exchange, and distributions made with respect to the New VRDP Shares will qualify as distributions exempt from Pennsylvania personal income tax and corporate net income tax to the extent that the distributions are attributable to income
earned by the Fund as interest on obligations of the Commonwealth of Pennsylvania and its political subdivisions, agencies and instrumentalities, the interest on which is statutorily free from state taxation in the Commonwealth of Pennsylvania, and
on certain qualifying obligations of the United States government, its possessions or territories (U.S. Qualifying Obligations). The exemption of interest on U.S. Qualifying Obligations from the Pennsylvania corporate net income tax
will, however, be subject to reduction to the extent of the deductible expenses (if any) of the holder of New VRDP Shares attributable to the production of such interest.
Pennsylvania Tax Counsels opinion and this discussion are based on the assumptions that the exchange of the Premium Income VRDP Shares for the New VRDP Shares will be treated as a non-taxable
exchange for United States federal income tax purposes, that the Fund will at all times qualify
58
for treatment as a regulated investment company under Subchapter M of the Code, that the Fund will be registered under the 1940 Act, and that the New VRDP Shares will qualify as stock in the Fund
for federal tax purposes.
Investors should be aware that Pennsylvania Tax Counsels opinion is not binding on the
Pennsylvania taxing authorities or on any court. In addition, the Funds qualification and taxation as a regulated investment company depend upon the Funds ability to meet on a continuing basis, through actual annual operating results,
certain requirements in the federal and Pennsylvania tax laws. Pennsylvania Tax Counsel will not review the Funds compliance with those requirements. Accordingly, no assurance can be given that the actual results of the Funds operations
for any particular taxable year will satisfy such requirements.
The exchange of the Premium Income VRDP Shares for the New
VRDP Shares will not result in gain or loss under either the Pennsylvania personal income tax or the Pennsylvania corporate net income tax to the Fund or to a participating shareholder.
Distributions from the Fund that are attributable to income earned by the Fund derived from interest on obligations which are statutorily
free from state taxation in Pennsylvania (Exempt Obligations) will not be taxable to shareholders for purposes of the Pennsylvania personal income tax. The term Exempt Obligations includes (i) those obligations issued by
the Commonwealth of Pennsylvania and its political subdivisions, agencies and instrumentalities, the interest from which is statutorily free from state taxation in the Commonwealth of Pennsylvania, and (ii) U.S. Qualifying Obligations.
Distributions from the Fund attributable to most other sources, including capital gains, will not be exempt from the Pennsylvania personal income tax.
Gain from the sale, exchange, or other disposition of New VRDP Shares will generally be subject to the Pennsylvania personal income tax. New VRDP Shares may be subject to Pennsylvania inheritance tax and
Pennsylvania estate tax if owned by a Pennsylvania decedent at the time of death.
To the extent that a shareholder is subject
to state and local taxes outside of Pennsylvania, distributions by the Fund and income or gains from the sale, exchange, or other disposition of New VRDP Shares may represent taxable income in those jurisdictions.
Corporate shareholders will not be subject to the Pennsylvania corporate net income tax on distributions made by the Fund, provided such
distributions are derived from interest on Exempt Obligations. If any part of the interest on such Exempt Obligations consists of interest on U.S. Qualifying Obligations, the exemption of that part from the Pennsylvania corporate net income tax will
be subject to reduction to the extent of the deductible expenses (if any) of the holder of New VRDP Shares attributable to the production of that part. To support any claim for exemption, the corporate taxpayer must submit evidence that the income
was received from a regulated investment company and submit a schedule indicating the percentage of income applicable to exempt and non-exempt assets. Distributions of capital gain attributable to Exempt Obligations will be subject to the
Pennsylvania corporate net income tax. Corporate shareholders are urged to consult their tax advisors.
The Fund will not be
subject to the Pennsylvania corporate net income tax or capital stock/franchise tax.
59
The foregoing is a general summary of certain provisions of applicable Pennsylvania tax
law as presently in effect as it directly governs the taxation of Pennsylvania resident individual and corporate holders of New VRDP Shares of the Fund. This summary does not address the taxation of other shareholders nor does it discuss any local
taxes that may be applicable. Shareholders should consult with their own tax advisor for more detailed information concerning Pennsylvania state and local tax matters.
HOW THE FUND MANAGES PORTFOLIO RISK
Investment
Limitations
The Fund has adopted certain investment limitations designed to limit investment risk and maintain portfolio
diversification. These limitations are fundamental and may not be changed without the approval of the holders of a majority of the outstanding common shares and preferred shares voting together as a single class, and the approval of the
holders of a majority of the outstanding preferred shares voting as a separate class. When used with respect to particular shares of the Fund, a majority of the outstanding shares means (i) 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 (ii) more than 50% of the shares, whichever is less. Among other restrictions, the Fund may not invest more than 25% of total Fund
assets in securities of issuers in any one industry, except that this limitation does not apply to municipal bonds backed by the assets and revenues of governments or political subdivisions of governments or to the investment of 25% of its total
assets. The Fund may become subject to guidelines which are more limiting than the investment restrictions set forth above in order to obtain and maintain ratings from Moodys, Fitch or S&P on the New VRDP Shares. See The Funds
InvestmentsInvestment Restrictions for a complete list of the fundamental and non-fundamental investment policies of the Fund.
Quality Investments
As
a non-fundamental policy, under normal circumstances, the Fund will invest at least 80% of its Managed Assets in investment-grade securities that, at the time of investment, are rated within the four highest grades (Baa or BBB or better) by at least
one NRSRO or are unrated but judged to be of comparable quality by the Sub-Adviser.
Hedging Strategies
The Fund may use various investment strategies designed to limit the risk of bond price fluctuations and to preserve capital. These
hedging strategies include using 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 the Investment Adviser
and/or the Sub-Adviser, correlate with the prices of the Funds investments. These hedging strategies may generate taxable income. See The Funds InvestmentsDerivatives and Hedging Strategies.
60
DESCRIPTION OF OUTSTANDING SHARES
Common Shares
The
Declaration of Trust authorizes an unlimited amount of common shares, par value $0.01 per share. If the Reorganizations are consummated, the Fund will issue additional common shares to the common shareholders of each Target Fund based on the
relative per share net asset value of the Fund and the net asset values of the assets of such Target Fund that are transferred in connection with the Reorganizations, in each case as of the Valuation Time. The value of the Funds and each
Target Funds net assets shall be calculated net of the liquidation preference (including accumulated and unpaid dividends) of all of the Funds and each Target Funds outstanding preferred shares.
The terms of the Funds common shares to be issued pursuant to the Reorganizations will be identical to the terms of the Funds
common shares that are then outstanding. All of the Funds common shares have equal rights with respect to the payment of dividends and the distribution of assets upon liquidation. The Funds common shares, when issued, will be fully paid
and non-assessable and have no preemptive, conversion or exchange rights or rights to cumulative voting.
Whenever preferred
shares, including the New VRDP Shares, are outstanding, the Fund may not declare a dividend or distribution to common shareholders (other than a distribution in common shares of the Fund) or purchase its common shares unless all accumulated
dividends on preferred shares have been paid, and unless asset coverage (as defined in the 1940 Act) with respect to preferred shares at the time of declaration of such dividend or distribution or at the time of such purchase would be at least 200%
after giving effect to the dividend, distribution or purchase price.
VRDP Shares
The Fund currently has outstanding 1,125 VRDP Shares, with a liquidation preference of $100,000 per share (previously defined as the
Outstanding VRDP Shares), which will remain outstanding following the closing of the Reorganizations.
The
Outstanding VRDP Shares have a 30-year final mandatory redemption date, subject to earlier redemption or repurchase by the Fund, and pay an adjustable dividend rate set weekly by the remarketing agent. Holders of Outstanding VRDP Shares have the
right to give notice on any business day to tender the securities for remarketing in seven days. The Outstanding VRDP Shares are also subject to a mandatory tender for remarketing upon the occurrence of certain events, such as non-payment of
dividends by the Fund. Should a remarketing be unsuccessful, the dividend rate will reset to a maximum rate as defined in the governing documents.
The Outstanding VRDP Shares have the benefit of an unconditional demand feature pursuant to a purchase agreement provided by a bank acting as liquidity provider to ensure full and timely repayment of the
liquidation preference amount plus any accumulated and unpaid dividends to holders upon the occurrence of certain events. The agreement requires the liquidity provider to purchase all Outstanding VRDP Shares tendered for sale that were not
successfully remarketed. The liquidity provider must also purchase all Outstanding VRDP Shares prior to termination of the purchase agreement, including by reason of the failure of the liquidity provider to maintain certain short-term ratings, if
the Fund has not obtained an alternate purchase agreement before the termination date. The Outstanding VRDP Shares currently are rated by at least one NRSRO.
61
The obligation to purchase Outstanding VRDP Shares pursuant to the purchase agreement is
unconditional and irrevocable, and as such the short-term ratings assigned to the Outstanding VRDP Shares are directly linked to the short-term creditworthiness of the associated liquidity provider.
MTP Shares
After
giving effect to the Dividend Advantage Reorganizations, the Fund will have two series of MTP Shares with an aggregate of 4,774,000 MTP Shares outstanding. The terms of the MTP Shares to be issued pursuant to the Dividend Advantage Reorganizations
will be substantially identical, as of the closing of the Dividend Advantage Reorganizations, to the terms of the outstanding MTP Shares of Dividend Advantage and Dividend Advantage 2 for which they are exchanged. The aggregate liquidation
preference of the Funds MTP Shares received by Dividend Advantage and Dividend Advantage 2 in connection with the Dividend Advantage Reorganizations will equal the aggregate liquidation preference of the outstanding MTP Shares of Dividend
Advantage and Dividend Advantage 2, respectively, held immediately prior to the closing of the Dividend Advantage Reorganizations.
The holders of the MTP Shares are entitled to receive cumulative cash dividends and distributions on such shares when, as and if declared by, or under authority granted by, the Board. Dividends on the MTP
Shares will be payable monthly based on the fixed dividend rate set forth in the Statement Establishing and Fixing the Rights and Preferences of the MTP Shares (the MTP Statement). The MTP Shares are senior securities in priority to the
Funds common shares as to payments of dividends and as to distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund. The MTP Shares have equal priority as to payments of dividends and as to distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Fund with other preferred shares of the Fund outstanding or issued in the future, including the New VRDP Shares to be issued in connection with the Premium Income
Reorganization.
The MTP Shares are subject to optional and mandatory redemption in certain circumstances. The Fund is
obligated to redeem the MTP Shares on November 1, 2015, unless earlier redeemed or repurchased by the Fund, at a redemption price equal to the liquidation preference per share ($10.00) plus an amount equal to accumulated but unpaid dividends
thereon. The MTP Shares also may be redeemed in whole or in part at the option of the Fund at a redemption price equal to the liquidation preference, plus an amount equal to all unpaid dividends and distributions accumulated to (but excluding) the
optional redemption date (whether or not earned by the Fund, but excluding interest thereon). In the event the Fund fails to comply with its effective leverage ratio requirements and any such failure is not cured within the applicable cure period,
the Fund may become obligated to redeem a number of MTP Shares necessary to regain compliance with such requirements.
Except
as otherwise provided in the Declaration of Trust, the MTP Statement, or as otherwise required by applicable law, (i) each holder of MTP Shares is entitled to one vote for each MTP Share held on each matter submitted to a vote of shareholders
of the Fund, and (ii) the holders of the MTP Shares, along with holders of other outstanding preferred shares of the Fund vote with holders of common shares of the Fund as a single class; provided, however, that holders of preferred shares,
including MTP Shares, are entitled as a class to elect two trustees of the Fund at all times. The holders of outstanding common shares and preferred shares, including MTP Shares, voting as a single class, elect the balance of the trustees of the
Fund.
The holders of the MTP Shares, as a separate class, have voting and consent rights with respect to actions that would
adversely affect any preference, right or power of the MTP Shares or the holders
62
of the MTP Shares. The holders of the MTP Shares also are entitled to vote as a class with holders of other preferred shares of the Fund on matters that relate to the conversion of the Fund to an
open-end investment company, certain plans of reorganization adversely affecting holders of the preferred shares or any other action requiring a vote of security holders of the Fund under Section 13(a) of the 1940 Act. In certain circumstances,
holders of preferred shares, including the MTP Shares, are entitled to elect additional trustees in the event at least two full years dividends are due and unpaid and sufficient cash or specified securities have not been deposited for their
payment, or at any time holders of preferred shares are entitled under the 1940 Act to elect a majority of the trustees of the Fund.
NET ASSET VALUE
The Funds net asset
value per common share is determined as of the close of the regular session trading (normally 4:00 p.m. Eastern time) on each day the NYSE is open for business. Net asset value is calculated by taking the market value of the 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 the Board or its delegate.
The Funds custodian calculates the Funds net asset value. The
custodian uses prices for portfolio securities from a pricing service the Funds Board has approved. The pricing service values portfolio securities at the mean between the quoted bid and asked price or the yield equivalent when quotations are
readily available. Securities for which quotations are not readily available (which will constitute the majority of the Funds portfolio securities) are valued at fair value as determined by the Board in reliance upon data supplied by the
pricing service. The pricing service uses methods that consider yields or prices of municipal securities of comparable quality, type of issue, coupon, maturity, and ratings; dealers indications of value; and general market conditions. The
pricing service may use electronic data processing techniques or a matrix system, or both. The Funds officers review the pricing services procedures and valuations, under the general supervision of the Board.
CERTAIN PROVISIONS IN THE DECLARATION OF TRUST AND BY-LAWS
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund.
However, the Funds Declaration of Trust contains an express disclaimer of shareholder liability for debts or obligations of the Fund and requires that notice of such limited liability be given in each agreement, obligation or instrument
entered into or executed by the Fund or the trustees. The Funds Declaration of Trust further provides for indemnification out of the assets and property of the Fund for all loss and expense of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would be unable to meet its obligations. The Fund believes that the likelihood of
such circumstances is remote.
The Funds Declaration of Trust 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 Funds Declaration of Trust requires a vote by holders of at least two-thirds of the outstanding common shares and preferred shares,
voting 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
63
consolidation of the Fund with any corporation, or a reorganization or recapitalization 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) in certain circumstances, a termination of the Fund, or (5) a removal of trustees 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 trustees fixed in accordance with the Funds Declaration of Trust or the Funds By-Laws, in which case the
affirmative vote of the holders of at least a majority of the Funds outstanding common shares and preferred shares, voting 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 trustee, when the trustee has been elected by only one class), only the required vote by the applicable class or series will be required. In the case of the conversion of the Fund to an open-end investment company, or in the case
of any of the foregoing transactions constituting a plan of reorganization (as that term is used in the 1940 Act) which adversely affects the holders of preferred shares, the action in question will also require the affirmative vote of the holders
of at least two-thirds of the Funds preferred shares 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 trustees fixed in accordance with the
Funds Declaration of Trust or the Funds
By-Laws,
the affirmative vote of the holders of at least a majority of the Funds preferred shares outstanding at the time, voting as a separate class.
None of the foregoing voting provisions may be amended or repealed except by the vote of at least two-thirds of the common shares and preferred shares, voting as a single class. The votes required to approve the conversion of the 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 preferred shares are higher than those required by the 1940 Act. The Board believes that the
provisions of the Funds Declaration of Trust relating to such higher votes are in the best interest of the Fund.
The
Funds Declaration of Trust provides that the obligations of the Fund are not binding upon the Funds trustees individually, but only upon the assets and property of the Fund, and that the trustees shall not be liable for errors of
judgment or mistakes of fact or law. Nothing in the Funds Declaration of Trust, however, protects a trustee against any liability to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
In addition, the By-Laws require the Board be
divided into three classes with staggered terms. This provision of the By-Laws could delay for up to two years the replacement of a majority of the Board. Holders of preferred shares, voting as a separate class, are entitled to elect two of the
Funds trustees.
The provisions of the Funds Declaration of Trust and By-Laws described above could have the
effect of depriving the common shareholders of opportunities to sell their common shares at a premium over the then-current market price of the common shares by discouraging a third party from seeking to obtain control of the Fund in a tender offer
or similar transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a third party. They provide, however, the advantage of potentially requiring persons seeking
control of the Fund to negotiate with its management regarding the price to be paid and facilitating the continuity of the Funds investment objectives and policies. The Board has considered the foregoing anti-takeover provisions and concluded
that they are in the best interests of the Fund.
64
The Funds Declaration of Trust provides that common shareholders shall have no right
to acquire, purchase or subscribe for any shares or securities of the Fund, other than such right, if any, as the Board in its discretion may determine.
Reference should be made to the Funds Declaration of Trust on file with the Securities and Exchange Commission (the SEC) for the full text of these provisions.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT, REDEMPTION AGENT AND REMARKETING AGENT
The custodian of the assets of the Fund is State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts
02111. The custodian performs custodial, fund accounting and portfolio accounting services and also serves as the Funds transfer, shareholder services and dividend paying agent with respect to the Funds common shares.
It is anticipated that the Tender and Paying agent for the New VRDP Shares will be The Bank of New York Mellon, Corporate Trust Division,
Dealing and Trading Group, 101 Barclay Street, Floor 7W, New York, New York 10286. The Tender and Paying Agent will act as the Funds tender agent, transfer agent and registrar, dividend disbursing agent, paying agent and redemption price
disbursing agent with respect to the NewVRDP Shares.
The Fund anticipates that it will enter into a remarketing agreement
with RBC Capital Markets, LLC, Short Term Department, U.S. Debt Capital Markets, Three World Financial Center, 200 Vesey Street, 8th Floor, New York, New York 10281 (RBC), such that RBC will continue to serve as the remarketing agent
with respect to the New VRDP Shares. For more information on the role of the Remarketing Agent, please see the New VRDP Statement.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements of the Fund appearing in the Funds Annual Report for the year ended April 30, 2013 are incorporated by reference herein. The financial statements have been audited by
Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon and incorporated herein by reference. Such financial statements are incorporated herein by reference in reliance upon such report given
on the authority of such firm as experts in accounting and auditing. Ernst & Young LLP provides auditing services to the Fund. The principal business address of Ernst & Young LLP is 155 North Wacker Drive, Chicago, Illinois 60606.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Exchange Act and the 1940 Act and is required to file reports, proxy
statements and other information with the SEC. These documents can be accessed through the SECs Internet site at www.sec.gov or can be inspected and copied for a fee at the SECs public reference room, 100 F Street, N.E., Washington, D.C.
20549.
The Funds audited financial statements for the fiscal year ended April 30, 2013, together with the report
of Ernst & Young LLP thereon, are incorporated in this Information Memorandum by
65
reference to its 2013 Annual Report. Copies of the Annual Report may be obtained from www.sec.gov or by visiting www.nuveen.com. Other than the financial statements included in the Funds
Annual Report, the information contained in, or that can be accessed through, the Securities and Exchange Commissions or the Funds website is not part of this Information Memorandum.
If at any time the Fund is not subject to Section 13(a) or 15(d) of the Exchange Act, the Fund will furnish to holders of New VRDP
Shares and prospective investors, upon their request, the information specified in Rule 144A(d)(4) under the Securities Act in order to permit compliance with Rule 144A in connection with resales of New VRDP Shares.
Statements in this Information Memorandum about the contents of any contract or other document are not necessarily complete. Copies of
the Statements, VRDP Purchase Agreements, Remarketing Agreements and Tender and Paying Agent Agreements for the Fund and Premium Income, as well as the proposed forms thereof for the New VRDP Shares, are available upon request from the Fund, and
each statement herein about the contents of any such document is qualified in all respects by reference to such document.
66
APPENDIX AFORM OF STATEMENT ESTABLISHING AND FIXING THE
RIGHTS AND PREFERENCES OF VARIABLE RATE DEMAND PREFERRED SHARES
NUVEEN PENNSYLVANIA INVESTMENT QUALITY MUNICIPAL FUND
STATEMENT ESTABLISHING AND FIXING THE
RIGHTS AND PREFERENCES OF SERIES 3
VARIABLE RATE DEMAND PREFERRED SHARES
(Relating to the issuance of Series 3 Variable Rate Demand Preferred Shares by the above-named fund in
exchange for the outstanding Series 2 Variable Rate Demand Preferred Shares of
Nuveen Pennsylvnia Premium Income Municipal Fund 2 (NPY))
Effective Date: [
]
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TABLE OF CONTENTS
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NUVEEN PENNSYLVANIA INVESTMENT QUALITY MUNICIPAL FUND
STATEMENT ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES OF SERIES 3 VARIABLE RATE DEMAND PREFERRED SHARES
NUVEEN PENNSYLVANIA INVESTMENT QUALITY MUNICIPAL FUND
, a Massachusetts business trust (the Fund), hereby certifies that:
FIRST: Pursuant to authority expressly vested in the Board of Trustees of the Fund by Article IV of the Funds Declaration of Trust,
the Board of Trustees has, by resolution, authorized the issuance of preferred shares, $.01 par value per share, classified as Variable Rate Demand Preferred Shares (VRDP) with a liquidation preference of $100,000 per share in such one
or more series as may be authorized and issued from time to time (each, a Series, and each such Series being referred to herein as a Series of VRDP, and shares of all such Series being referred to herein individually as a
VRDP Share and collectively as VRDP Shares or VRDP);
SECOND: The preferences (including liquidation
preference), voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the shares of the Series 3 Variable Rate Demand Preferred Shares designated below are as follows or as set forth in
such an amendment or supplement hereto:
DESIGNATION OF SERIES 3 VRDP
Series 3: A series of preferred shares, par value $.01 per share, liquidation preference $100,000 per share, is hereby authorized and
designated Series 3 Variable Rate Demand Preferred Shares, also referred to herein as Series 3 VRDP or Series 3 VRDP Shares or generally as VRDP or VRDP Shares. Each share of Series 3 VRDP
shall be issued on a date determined by the Board of Trustees of the Fund or pursuant to their delegated authority; and have such other preferences, voting powers, limitations as to dividends, qualifications and terms and conditions of redemption,
in addition to those required by applicable law or as set forth in the Declaration, as set forth in Parts I and II of this Statement (as defined below). With respect to the initial issuance of Series 3 VRDP, each share of Series 3 VRDP shall have an
Applicable Rate equal to the rate determined by the Remarketing Agent on the Acquired Fund VRDP (as defined below) on Wednesday, [
] for the Initial Rate Period from, and including the Date of
Original Issue to, and including [
] and an initial Dividend Payment Date of [
]. The Series 3 VRDP shall constitute a separate series of preferred
shares of the Fund and each share of Series 3 VRDP shall be identical.
The number of Series 3 Variable Rate Demand Preferred Shares which
the Board of Trustees has initially authorized for issuance is 1,050. The Board of Trustees may, from time to time, authorize the issuance of additional Series 3 Variable Rate Demand Preferred Shares in accordance with the terms hereof.
One share of Series 3 VRDP initially authorized for issuance as stated above shall be issued and distributed in respect of each share of
Series 2 Variable Rate Demand Preferred Shares of Nuveen Pennsylvnia Premium Income Municipal Fund 2 (the Acquired Fund VRDP) outstanding on the date of distribution in connection with the reorganization of Nuveen Pennsylvnia Premium
Income Municipal Fund 2 (the Acquired Fund) as described in the Information Memorandum (as defined below).
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DEFINITIONS
The following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural
and vice versa), unless the context otherwise requires:
(a)
Agent
Member
means a Person with an account at the Securities Depository that holds one or more Series 3 VRDP Shares through the Securities Depository, directly or indirectly, for a Beneficial Owner and that will be authorized and
instructed, directly or indirectly, by a Beneficial Owner to disclose information to the Remarketing Agent and the Tender and Paying Agent with respect to such Beneficial Owner.
(b)
Alternate VRDP Purchase Agreement
means any agreement with a successor
Liquidity Provider replacing the VRDP Purchase Agreement (or any replacement therefor) upon its termination in accordance with its terms and containing a Purchase Obligation substantially identical to the Purchase Obligation therein as determined by
the Fund.
(c)
Applicable Base Rate
means (i) with respect to a
Rate Period of fewer than 49 days, the greater of (a) the SIFMA Municipal Swap Index Rate or (b) the LIBOR Rate, and (ii) with respect to a Rate Period of 49 or more days, the LIBOR Rate.
(d)
Applicable Percentage
shall have the meaning set forth in the
definition of the Maximum Rate.
(e)
Applicable Rate
means the
dividend rate per annum on any Series 3 VRDP Shares for a Rate Period determined as set forth in paragraph (e)(i) of Section 2 of Part I of this Statement or in the definition of Maximum Rate.
(f)
Applicable Rate Determination
means each periodic operation of the
process of determining the Applicable Rate for the Series 3 VRDP Shares for a Subsequent Rate Period, as provided in the Remarketing Agreement and Part II of this Statement.
(g)
Applicable Spread
means, in connection with the Maximum Rate for any
Rate Period (and subject to adjustment as described in the definition of Maximum Rate) (i) when there is not a Failed Remarketing Condition, 200 basis points (2.00%), and (ii) while a Failed Remarketing Condition has occurred or is
continuing, 200 basis points (2.00%) (up to 59 days of a continued Failed Remarketing Condition), 225 basis points (2.25%) (60 days but fewer than 90 days of a continued Failed Remarketing Condition), 250 basis points (2.50%) (90 days
but fewer than 120 days of a continued Failed Remarketing Condition), 275 basis points (2.75%) (120 days but fewer than 150 days of a continued Failed Remarketing Condition), 300 basis points (3.00%) (150 days but fewer than 180 days of a
continued Failed Remarketing Condition), and 400 basis points (4.00%) (180 days or more of a continued Failed Remarketing Condition);
provided
, that, if at any time when the Applicable Spread is 225 basis points (2.25%), 250 basis points
(2.50%), 275 basis points (2.75%), 300 basis points (3.00%) or 400 basis points (4.00%) the Failed Remarketing Condition no longer exists due to the successful remarketing of all Purchased VRDP Shares, such Applicable Spread of 225 basis
points (2.25%), 250 basis points (2.50%), 275 basis points (2.75%), 300 basis points (3.00%) or 400 basis points (4.00%) will continue to be the Applicable Spread in connection with determining the Maximum Rate in effect for each Rate
Period commencing with the first Subsequent Rate Period after the Failed Remarketing Condition no longer exists through and including the first Subsequent Rate Period ending on or after the 45th day after the day the Failed Remarketing Condition no
longer exists;
provided
further
, that (i) if a new Failed Remarketing Condition occurs prior to the end of such period and the Applicable Spread is then 225 basis points (2.25%), the date such new Failed Remarketing Condition
occurs will be deemed to be the 60th day of a continued Failed Remarketing Condition, (ii) if a new Failed Remarketing Condition occurs prior to the end of such period and the Applicable Spread is then 250 basis points (2.50%), the date such
new Failed Remarketing Condition occurs will be deemed to be the 90th day of a continued Failed Remarketing Condition, (iii) if a new Failed Remarketing Condition
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occurs prior to the end of such period and the Applicable Spread is then 275 basis points (2.75%), the date such new Failed Remarketing Condition occurs will be deemed to be the 120th day of a
continued Failed Remarketing Condition, (iv) if a new Failed Remarketing Condition occurs prior to the end of such period and the Applicable Spread is then 300 basis points (3.00%), the date such new Failed Remarketing Condition occurs will be
deemed to be the 150th day of a continued Failed Remarketing Condition, and (v) if a new Failed Remarketing Condition occurs prior to the end of such period and the Applicable Spread is then 400 basis points (4.00%), the date such new Failed
Remarketing Condition occurs will be deemed to be the 180th day of a continued Failed Remarketing Condition, in each case, solely for purposes of determining the Applicable Spread.
(h)
Beneficial Owner
means a Person in whose name Series 3 VRDP Shares are
recorded as beneficial owner of such VRDP Shares by the Securities Depository, an Agent Member or other securities intermediary on the records of such Securities Depository, Agent Member or securities intermediary, as the case may be, or such
Persons subrogee, including the Liquidity Provider to the extent it is at any time the Beneficial Owner of Series 3 VRDP Shares (irrespective of any assignment or transfer by the Liquidity Provider of its voting rights).
(i)
Board of Trustees
means the Board of Trustees of the Fund or any duly
authorized committee thereof.
(j)
Business Day
means a day
(a) other than a day on which commercial banks in The City of New York, New York are required or authorized by law or executive order to close and (b) on which the New York Stock Exchange is not closed.
(k)
Code
means the Internal Revenue Code of 1986, as amended.
(l)
Common Shares
means the common shares of beneficial interest, par
value $.01 per share, of the Fund.
(m)
Cure Date
means the VRDP Basic
Maintenance Cure Date or the Minimum VRDP Asset Coverage Cure Date, as the case may be.
(n)
Custodian
means a bank, as defined in Section 2(a)(5) of the 1940 Act, that has the qualifications prescribed in paragraph 1 of Section 26(a) of the 1940 Act, or such other
entity as shall be providing custodian services to the Fund as permitted by the 1940 Act or any rule, regulation, or order thereunder, and shall include, as appropriate, any similarly qualified sub-custodian duly appointed by the Custodian.
(o)
Date of Original Issue,
with respect to any Series 3 VRDP Share, means
the date on which the Fund initially issued such Series 3 VRDP Share.
(p)
Declaration
means the Declaration of Trust of the Fund, as it may be amended from time to time in accordance with the provisions thereof.
(q)
Deposit Securities
means, as of any date, any United States
dollar-denominated security or other investment of a type described below that either (i) is a demand obligation payable to the holder thereof on any Business Day or (ii) has a maturity date, mandatory redemption date or mandatory payment
date, on its face or at the option of the holder, preceding the relevant payment date in respect of which such security or other investment has been deposited or set aside as a Deposit Security:
|
(1)
|
cash or any cash equivalent;
|
|
(2)
|
any U.S. Government Security;
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|
(3)
|
any Municipal Obligation that has a credit rating from at least one NRSRO that is the highest applicable rating generally ascribed by such NRSRO to Municipal Obligations with substantially similar terms as of the date
of this Statement (or such ratings future equivalent), including (A) any such Municipal Obligation that has been pre-refunded by the issuer thereof with the proceeds of such refunding having been irrevocably deposited in trust or escrow
for the repayment thereof and (B) any such fixed or variable rate Municipal Obligation that qualifies as an eligible security under Rule 2a-7 under the 1940 Act;
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|
(4)
|
any investment in any money market fund registered under the 1940 Act that qualifies under Rule 2a-7 under the 1940 Act, or similar investment vehicle described in Rule 12d1-1(b)(2) under the 1940 Act, that invests
principally in Municipal Obligations or U.S. Government Securities or any combination thereof; or
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|
(5)
|
any letter of credit from a bank or other financial institution that has a credit rating from at least one NRSRO that is the highest applicable rating generally ascribed by such NRSRO to bank deposits or short-term debt
of similar banks or other financial institutions as of the date of this Statement (or such ratings future equivalent).
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(r)
Discounted Value,
as of any Valuation Date, means, (i) with
respect to a Fitch Eligible Asset, the quotient of the Market Value thereof divided by the applicable Fitch Discount Factor, or as otherwise set forth in the Fitch Guidelines as then used by the Fund, (ii) (a) with respect to a
Moodys Eligible Asset that is not currently callable as of such Valuation Date at the option of the issuer thereof, the quotient of the Market Value thereof divided by the applicable Moodys Discount Factor, or as otherwise set forth in
the Moodys Guidelines as then used by the Fund, or (b) with respect to a Moodys Eligible Asset that is currently callable as of such Valuation Date at the option of the issuer thereof, the quotient of (1) the lesser of the
Market Value or call price thereof, including any call premium, divided by (2) the applicable Moodys Discount Factor, or as otherwise set forth in the Moodys Guidelines as then used by the Fund, (iii) with respect to an S&P
Eligible Asset, the quotient of the Market Value thereof divided by the applicable S&P Discount Factor, or as otherwise set forth in the S&P Guidelines as then used by the Fund, and (iv) with respect to any Other Rating Agency, as set
forth in the Other Rating Agency Guidelines as then used by the Fund.
(s)
Dividend Payment Date,
except as otherwise provided in paragraph
(d) of Section 2 of Part I of this Statement, means the date that is the first Business Day of each calendar month on which dividends on shares of Series 3 VRDP are paid to Holders.
(t)
Dividend Period,
with respect to Series 3 VRDP, means the period from,
and including, the Date of Original Issue of shares of such Series to, but excluding, the initial Dividend Payment Date for shares of such Series and any period thereafter from, and including, one Dividend Payment Date for shares of such Series to,
but excluding, the next succeeding Dividend Payment Date for shares of such Series.
(u)
Effective Leverage Ratio
shall have the meaning set forth in the VRDP
Fee Agreement.
(v)
Effective Leverage Ratio Cure Period
shall have the
meaning set forth in the VRDP Fee Agreement.
(w)
Electronic Means
means email transmission, facsimile transmission or other similar electronic means of communication providing evidence of transmission (but excluding online communications systems covered by a separate agreement) acceptable to the sending party and
the receiving party, in any case if operative as between any two parties, or, if not operative, by telephone (promptly confirmed by any other method set forth in this definition), which, in the case of notices to the Tender and Paying Agent, shall
be sent by such means as set forth in Section 7.02 of the Tender and Paying Agent Agreement or as specified in the related notice.
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(x)
Exchange Act
means the
U.S. Securities Exchange Act of 1934, as amended.
(y)
Extraordinary Corporate
Event
means, as to the Liquidity Provider, (i) the consolidation, amalgamation with, or merger with or into or the transfer of all or substantially all of the Liquidity Providers assets to, another entity or (ii) the
dissolution, for any reason, of the Liquidity Provider other than in connection with the consolidation, amalgamation with, or merger with or into another entity or the transfer of all or substantially all of the Liquidity Providers assets;
provided
,
however
, that with respect to (i) above, an Extraordinary Corporate Event does not include any of the listed occurrences where (x) the surviving entity, or transferee of all or substantially all of the Liquidity
Providers assets, (a) assumes all of the obligations of the Liquidity Provider (including by operation of law) under the terms of the VRDP Purchase Agreement and (b) has short-term debt ratings in one of the two highest rating
categories from the Requisite NRSROs or such other short-term debt ratings as may be required for the VRDP Shares to satisfy the eligibility criteria under Rule 2a-7 under the 1940 Act and (y) the Liquidity Provider has provided notice in
writing to the Fund confirming the information described in (x) at least 10 days prior to the scheduled date of the applicable listed occurrence in (i) above.
(z)
Failed Remarketing Condition
means a Failed Remarketing
ConditionPurchased VRDP Shares or a Failed Remarketing ConditionUnpurchased VRDP Shares.
(aa)
Failed Remarketing ConditionPurchased VRDP Shares
means that the
Liquidity Provider acquires and continues to be the beneficial owner for federal income tax purposes of any Series 3 VRDP Shares in connection with purchases made pursuant to the Purchase Obligation (whether as a result of an unsuccessful
Remarketing or a Mandatory Purchase) on any Purchase Date including Series 3 VRDP Shares the Liquidity Provider continues to be the beneficial owner of for federal income tax purposes after the expiration or termination of the VRDP Purchase
Agreement.
(bb)
Failed Remarketing ConditionPurchased VRDP Shares
Redemption
means redemption by the Fund, at a Redemption Price equal to $100,000 per share
plus
accumulated but unpaid dividends thereon (whether or not earned or declared) to, but excluding, the date fixed by the Board of Trustees
for redemption, of Series 3 VRDP Shares that the Liquidity Provider shall have acquired pursuant to the Purchase Obligation and continued to be the beneficial owner of for federal income tax purposes for a period of six months during which such VRDP
Shares cannot be successfully remarketed (i.e., a Failed Remarketing ConditionPurchased VRDP Shares shall have occurred and be continuing for such period of time with respect to such VRDP Shares), determined by the Fund on a first-in,
first-out basis, in accordance with and subject to the provisions of the VRDP Fee Agreement and this Statement.
(cc)
Failed Remarketing ConditionUnpurchased VRDP Shares
means that a
Beneficial Owner (other than the Liquidity Provider or its affiliates) continues to hold Series 3 VRDP Shares, that were subject to a valid Tender, after any Purchase Date as a result of the failure by the Liquidity Provider for any reason to
purchase such VRDP Shares pursuant to the Purchase Obligation (whether as a result of an unsuccessful Remarketing or a Mandatory Purchase) (Unpurchased VRDP Shares), until such time as all Outstanding Unpurchased VRDP Shares are
(i) successfully Remarketed, (ii) purchased by the Liquidity Provider pursuant to the Purchase Obligation, or (iii) if not successfully Remarketed or purchased by the Liquidity Provider pursuant to the Purchase Obligation, the subject
of a validly tendered Notice of Revocation (or any combination of the foregoing); and any Unpurchased VRDP Shares shall be deemed tendered for Remarketing until the earliest to occur of the foregoing events (i), (ii) or (iii) with respect
to such Unpurchased VRDP Shares.
(dd)
Failure to Deposit
means, with
respect to shares of Series 3 VRDP, a failure by the Fund to pay to the Tender and Paying Agent, not later than 12:00 noon, New York City time, (A) on the Business Day immediately preceding any Dividend Payment Date for shares of such Series,
in funds available on such Dividend Payment Date in The City of New York, New York, the full amount of any dividend (whether or not
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earned or declared) to be paid on such Dividend Payment Date on any share of such Series or (B) on the Business Day immediately preceding any redemption date in funds available on such
redemption date for shares of such Series in The City of New York, New York, the Redemption Price to be paid on such redemption date for any share of such Series after Notice of Redemption is provided pursuant to paragraph (c) of
Section 10 of Part 1 of this Statement;
provided
,
however
, that the foregoing clause (B) shall not apply to the Funds failure to pay the Redemption Price in respect of Series 3 VRDP 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.
(ee)
Final Notice of Purchase
means, in connection with an Optional Tender
or a Mandatory Tender, a Notice of Purchase delivered by the Tender and Paying Agent to the Liquidity Provider (or directly to the Liquidity Provider by Beneficial Owners or their Agent Members, in the case of an Optional Tender, or Holders, in the
case of a Mandatory Tender, if there is no Tender and Paying Agent or for any reason the Tender and Paying Agent does not perform its obligations) on the Purchase Date indicating the number of Series 3 VRDP Shares to be purchased on such date
pursuant to the Purchase Obligation, or, in connection with a Mandatory Purchase, the Mandatory Purchase Notice delivered by the Fund or the Tender and Paying Agent on behalf of the Fund.
(ff)
Fitch
means Fitch Ratings, Inc., a Delaware corporation, and its
successors.
(gg)
Fitch Discount Factor
means the discount factors set
forth in the Fitch Guidelines for use in calculating the Discounted Value of the Funds assets in connection with Fitchs ratings of Series 3 VRDP Shares.
(hh)
Fitch Eligible Assets
means assets of the Fund set forth in the Fitch
Guidelines as eligible for inclusion in calculating the Discounted Value of the Funds assets in connection with Fitchs ratings of Series 3 VRDP Shares.
(ii)
Fitch Guidelines
means the guidelines, as may be amended from time to
time, applied by Fitch in connection with Fitchs ratings of Series 3 VRDP Shares.
(jj)
Gross-up Payment
means payment to a Beneficial Owner of an amount
which, when taken together with the aggregate amount of Taxable Allocations made to such Beneficial Owner to which such Gross-up Payment relates, would cause such Beneficial Owners dividends in dollars (after regular federal and Pennsylvania
personal 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 Beneficial Owner if the amount of such
aggregate Taxable Allocations would have been excludable from the gross income of such Beneficial Owner.
Such Gross-up Payment shall be
calculated (i) without consideration being given to the time value of money; (ii) only taking into account the regular federal income tax and Pennsylvania personal income tax with respect to dividends received from the Fund (that is,
without giving effect to any other Pennsylvania tax or any other federal tax based on income, such as (A) the alternative minimum tax or (B) the Medicare tax, which is imposed at the rate of 3.8% on the net investment income
(which includes taxable dividends and net capital gains) of certain individuals, trusts and estates); and (iii) assuming that each Taxable Allocation and each Gross-up Payment (except to the extent such Gross-up Payment is designated as an
exempt-interest dividend under Section 852(b)(5) of the Code or successor provisions) would be taxable in the hands of each Beneficial Owner at the maximum marginal combined regular federal and Pennsylvania personal income tax rate applicable
to ordinary income (taking into account the federal income tax deductibility of state and local 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.
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(kk)
Holder
means a Person in
whose name a Series 3 VRDP Share is registered in the registration books of the Fund maintained by the Tender and Paying Agent.
(ll)
Information Memorandum
means the proxy statement of the Fund and the
Acquired Fund, dated [
], and the information memorandum attached thereto, as amended, revised or supplemented from time to time, including, if applicable, in connection with any Remarketing or
offering of additional Series 3 VRDP Shares.
(mm)
Initial Rate
Period,
with respect to Series 3 VRDP Shares, means the period commencing on and including the Date of Original Issue in connection with the initial issuance of shares of such Series and ending on, and including, [
], the next succeeding Wednesday, as set forth under Designation of Series 3 VRDP above.
(nn)
Investment Adviser
shall mean Nuveen Fund Advisors, LLC, or any
successor company or entity.
(oo)
Late Charge
shall have the meaning
specified in paragraph (e)(i)(C) of Section 2 of Part I of this Statement.
(pp)
LIBOR Dealer
means RBC Capital Markets, LLC and such other dealer or
dealers as the Fund from time to time may appoint or in lieu of any thereof, their respective affiliates and successors.
(qq)
LIBOR Rate
means, on any Rate Determination Date, (i) the rate
for deposits in U.S. dollars for the designated Rate Period, which appears on Reuters display page LIBOR01 (Page LIBOR01) (or such other page as may replace that page on that service, or such other service as may be selected by the LIBOR
Dealer or its successors that are LIBOR Dealers) as of 11:00 a.m. London time, on the day that is the London Business Day preceding the Rate Determination Date (the LIBOR Determination Date), or (ii) if such rate does not appear on
Page LIBOR01 or such other page as may replace such Page LIBOR01, (A) the LIBOR Dealer shall determine the arithmetic mean of the offered quotations of the Reference Banks to leading banks in the London interbank market for deposits in U.S.
dollars for the designated Rate Period in an amount determined by such LIBOR Dealer by reference to requests for quotations as of approximately 11:00 a.m. (London time) on such date made by such LIBOR Dealer to the Reference Banks, (B) if at
least two of the Reference Banks provide such quotations, the LIBOR Rate shall equal such arithmetic mean of such quotations, (C) if only one or none of the Reference Banks provide such quotations, the LIBOR Rate shall be deemed to be the
arithmetic mean of the offered quotations that leading banks in The City of New York selected by the LIBOR Dealer (after obtaining the Funds approval) are quoting on the relevant LIBOR Determination Date for deposits in U.S. dollars for the
designated Rate Period in an amount determined by the LIBOR Dealer (after obtaining the Funds approval) that is representative of a single transaction in such market at such time by reference to the principal London offices of leading banks in
the London interbank market;
provided
,
however
, that if one of the LIBOR Dealers does not quote a rate required to determine the LIBOR Rate, the LIBOR Rate will be determined on the basis of the quotation or quotations furnished by any
Substitute LIBOR Dealer or Substitute LIBOR Dealers selected by the Fund to provide such rate or rates not being supplied by the LIBOR Dealer;
provided
further
, that if the LIBOR Dealer and Substitute LIBOR Dealers are required but
unable to determine a rate in accordance with at least one of the procedures provided above, the LIBOR Rate shall be the LIBOR Rate as determined on the previous Rate Determination Date. If the number of days in a Rate Period shall be (i) seven
or more but fewer than 21 days, such rate shall be the seven-day LIBOR Rate; (ii) 21 or more but fewer than 49 days, such rate shall be the one-month LIBOR rate; (iii) 49 or more but fewer than 77 days, such rate shall be the two-month
LIBOR rate; (iv) 77 or more but fewer than 112 days, such rate shall be the three-month LIBOR rate; (v) 112 or more but fewer than 140 days such rate shall be the four-month LIBOR rate; (vi) 140 or more but fewer than 168 days,
such rate shall be the five-month LIBOR rate; (vii) 168 or more but fewer than 189 days, such rate shall be the six-month LIBOR rate; (viii) 189 or more but fewer than 217 days, such rate shall be the seven-month LIBOR rate; (ix) 217
or more but fewer than 252 days, such rate shall be the eight-month LIBOR rate;
A-10
(x) 252 or more but fewer than 287 days, such rate shall be the nine-month LIBOR rate; (xi) 287 or more but fewer than 315 days, such rate shall be the ten-month LIBOR rate;
(xii) 315 or more but fewer than 343 days, such rate shall be the eleven-month LIBOR rate; and (xiii) 343 or more but fewer than 365 days, such rate shall be the twelve-month LIBOR rate.
(rr)
Liquidation Preference,
with respect to a given number of Series 3
VRDP Shares, means $100,000 times that number.
(ss)
Liquidity Account
Investments
means Deposit Securities or any other security or investment owned by the Fund that is rated at least investment grade by each NRSRO then rating such security or investment.
(tt)
Liquidity Provider
means any entity in such capacity pursuant to a
VRDP Purchase Agreement, initially, Royal Bank of Canada, acting through its WFC, New York, Branch.
(uu)
Liquidity Provider Ratings Event
means the Liquidity Provider shall
fail to maintain at any time short-term debt ratings in one of the two highest ratings categories from the Requisite NRSROs or such other short-term debt ratings, if any, as may be required for the Series 3 VRDP Shares to satisfy the eligibility
criteria under Rule 2a-7 under the 1940 Act.
(vv)
Liquidity Provider Ratings
Event Termination Date
means the date established by the Tender and Paying Agent, acting upon instructions of the Fund pursuant to the Tender and Paying Agent Agreement, for termination of the VRDP Purchase Agreement upon the occurrence of
a Liquidity Provider Ratings Event, which date shall be not less than 16 days nor more than 30 days following such Liquidity Provider Ratings Event.
(ww)
London Business Day
means any day on which commercial banks are
generally open for business in London.
(xx)
Mandatory Purchase
means
the mandatory purchase of Outstanding Series 3 VRDP Shares by the Liquidity Provider pursuant to the VRDP Purchase Agreement in connection with a Mandatory Purchase Event.
(yy)
Mandatory Purchase Date
means the Purchase Date for a Mandatory
Purchase in accordance with this Statement and the VRDP Purchase Agreement.
(zz)
Mandatory Purchase Event
means (i) in connection with the
termination of the VRDP Purchase Agreement due to its expiration as of a Scheduled Termination Date, by the fifteenth day prior to any such Scheduled Termination Date, (a) the Liquidity Provider shall not have agreed to an extension or further
extension of the Scheduled Termination Date to a date not earlier than 180 days from the Scheduled Termination Date of the VRDP Purchase Agreement then in effect, and (b) the Fund shall not have obtained and delivered to the Tender and Paying
Agent an Alternate VRDP Purchase Agreement with a termination date not earlier than 180 days from the Scheduled Termination Date of the VRDP Purchase Agreement being replaced, or (ii) in connection with the termination of the VRDP Purchase
Agreement due to a Liquidity Provider Ratings Event or Related Party Termination Event, by the fifteenth day prior to the Liquidity Provider Ratings Event Termination Date or Related Party Termination Date, as the case may be, the Fund shall not
have obtained and delivered to the Tender and Paying Agent an Alternate VRDP Purchase Agreement with a termination date not earlier than 180 days from the Liquidity Provider Ratings Event Termination Date or Related Party Termination Date, as the
case may be, of the VRDP Purchase Agreement being replaced. The Mandatory Purchase Event shall be deemed to occur on such fifteenth day prior to any Scheduled Termination Date, Liquidity Provider Ratings Event Termination Date or Related Party
Termination Date, as the case may be.
A-11
(aaa)
Mandatory Purchase
Notice
means, in connection with the Mandatory Purchase of Series 3 VRDP Shares, a notice delivered by the Fund or the Tender and Paying Agent on behalf of the Fund to the Holders and the Liquidity Provider specifying a Mandatory Purchase
Date.
(bbb)
Mandatory Tender
with respect to a Mandatory Tender Event,
means the mandatory tender of all Series 3 VRDP Shares by Holders for Remarketing or, in the event (i) no Remarketing occurs on or before the Purchase Date or (ii) pursuant to an attempted Remarketing, Series 3 VRDP Shares remain unsold
and the Remarketing Agent does not purchase for its own account the unsold Series 3 VRDP Shares tendered to the Tender and Paying Agent for Remarketing (
provided
, that the Remarketing Agent may seek to sell such Series 3 VRDP Shares in a
subsequent Remarketing prior to the Purchase Date), for purchase by the Liquidity Provider at the Purchase Price pursuant to Section 1 of Part II of this Statement and the VRDP Purchase Agreement.
(ccc)
Mandatory Tender Event
means (a) each failure by the Fund to
make a scheduled payment of dividends on any Series 3 VRDP Share, on a Dividend Payment Date; (b) the occurrence of a Liquidity Provider Ratings Event (which shall constitute a single Mandatory Tender Event upon the occurrence of such Liquidity
Provider Ratings Event, whether or not continuing and whether or not such Liquidity Provider Ratings Event also results in a Mandatory Purchase Event;
provided
that, a subsequent Liquidity Provider Ratings Event, following restoration of the
short-term debt ratings to the requisite level, shall constitute a new Mandatory Tender Event); (c) with the prior written consent of the Liquidity Provider with respect to its classification as a Mandatory Tender Event, each failure by the
Fund to pay the Liquidity Provider the applicable fee due in advance under the terms of the VRDP Fee Agreement by seven Business Days prior to the beginning of the month to which such payment relates; (d) the eighth day prior to the scheduled
date of the occurrence of an Extraordinary Corporate Event; (e) the Fund shall have obtained and delivered to the Tender and Paying Agent an Alternate VRDP Purchase Agreement by the fifteenth day prior to the Scheduled Termination Date,
Liquidity Provider Ratings Event Termination Date or Related Party Termination Date, as the case may be, of the VRDP Purchase Agreement being replaced; (f) the occurrence of an Optional Early Replacement Event; (g) the Fund shall have
provided a Notice of Proposed Special Rate Period in accordance with this Statement; or (h) in the event of a breach by the Fund of its Effective Leverage Ratio covenant with the Liquidity Provider in the VRDP Fee Agreement and the failure to
cure such breach within 60 days from the date of such breach (which 60-day period would include the Effective Leverage Ratio Cure Period), to the extent that the Liquidity Provider (in its sole discretion) thereafter provides written notice to the
Fund that the failure to timely cure such breach constitutes a Mandatory Tender Event (subject to the Fund curing such breach prior to the delivery date of such notice from the Liquidity Provider).
(ddd)
Mandatory Tender Notice
means, in connection with the Mandatory
Tender of Series 3 VRDP Shares, a notice delivered by the Fund or the Tender and Paying Agent on behalf of the Fund to the Holders and the Liquidity Provider specifying a Mandatory Tender Event and Purchase Date.
(eee)
Market Value
of any asset of the Fund means the market value thereof
determined by an independent third-party pricing service designated from time to time by the Board of Trustees. Market Value of any asset shall include any interest accrued thereon. The pricing service values portfolio securities at the mean between
the quoted bid and asked price or the yield equivalent when quotations are readily available. Securities for which quotations are not readily available are valued at fair value as determined by the pricing service using methods which include
consideration of: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating; indications as to value from dealers; and general market conditions. The pricing service may employ electronic data processing
techniques or a matrix system, or both, to determine valuations.
(fff)
Maximum
Rate
means, for Series 3 VRDP Shares on any Rate Determination Date or in respect of the occurrence of a Failed Remarketing Condition for shares of such Series, the Applicable Percentage of the Applicable Base Rate
plus
the
Applicable Spread. The Maximum Rate for Series 3 VRDP Shares will depend on the long-term rating assigned to the Series 3 VRDP Shares, the length of the Rate Period
A-12
and whether or not the Fund has given notification prior to the Applicable Rate Determination for the Rate Period pursuant to Section 6 of Part II hereto that any ordinary income or capital
gains will be included in the dividend on Series 3 VRDP Shares for that Rate Period. The Applicable Percentage of the Applicable Base Rate is as follows:
|
|
|
|
|
Long-Term
Ratings*
|
|
|
|
Applicable Percentage of
Applicable Base RateNo
Notification
|
Moodys
|
|
Fitch/S&P
|
|
|
Aa3 to Aaa
|
|
AA- to AAA
|
|
100%
|
Baa3 to A1
|
|
BBB- to A+
|
|
110%
|
Below Baa3
**
|
|
Below BBB-
**
|
|
135%
|
* And/or the equivalent ratings of an Other Rating
Agency then rating the Series 3 VRDP Shares utilizing the higher of the ratings of the Rating Agencies then rating the Series 3 VRDP Shares.
** Includes unrated, if no Rating Agency is then rating the Series 3 VRDP Shares.
|
provided, however
, that in the event the Fund has given notification prior to the Applicable Rate Determination for the
Rate Period pursuant to Section 6 of Part II hereof that any ordinary income and capital gains will be included in the dividend on Series 3 VRDP Shares for that Rate Period, the Applicable Percentage in the foregoing table shall be divided by
the quantity 1 minus the maximum marginal combined regular federal and Pennsylvania personal income tax rate applicable to ordinary income (taking into account the federal income tax deductibility of state and local taxes paid or incurred) or the
maximum marginal regular federal corporate income tax rate applicable to ordinary income, whichever is greater.
The Applicable
Percentage as so determined and the Applicable Spread may be subject to upward (and if previously adjusted upward, subsequent downward) adjustment as provided in the Remarketing Agreement,
provided
, that, notwithstanding any provision to the
contrary in the Remarketing Agreement, the Maximum Rate is equal to or higher than the rates determined as set forth above, and immediately following any such increase, the Fund would be in compliance with the Minimum VRDP Asset Coverage and the
VRDP Basic Maintenance Amount in the Rating Agency Guidelines (if applicable). Furthermore, in the event of Special Rate Periods of greater than 364 days, the Maximum Rate may be subject to upward adjustment as provided in the Remarketing Agreement,
provided
, that, notwithstanding any provision to the contrary in the Remarketing Agreement, immediately following any such increase, the Fund would be in compliance with the Minimum VRDP Asset Coverage and the VRDP Basic Maintenance Amount
(if applicable).
A Maximum Rate in effect in respect of a Failed Remarketing Condition will continue to be the Applicable Rate
(i) until the first day of the next succeeding Subsequent Rate Period after a Failed Remarketing Condition no longer exists in the case of a Minimum Rate Period or a Special Rate Period of 28 Rate Period Days or fewer, and (ii) until the
first day of the next succeeding Dividend Period after a Failed Remarketing Condition no longer exists in the case of a Special Rate Period of greater than 28 Rate Period Days.
Notwithstanding any provision to the contrary in the Remarketing Agreement, in no event shall the Maximum Rate exceed 15%;
provided
,
however
, that in the event the Fund has given notification prior to the Applicable Rate Determination for the Rate Period pursuant to Section 6 of Part II hereof that any ordinary income or capital gains will be included in the dividend
on Series 3 VRDP Shares for that Rate Period, the Maximum Rate shall not exceed 15% divided by the quantity 1 minus the maximum marginal combined regular federal and Pennsylvania personal income tax rate applicable to ordinary income (taking into
account the federal income tax deductibility of state and local taxes paid or incurred) or the maximum marginal regular federal corporate income tax rate applicable to ordinary income, whichever is greater.
(ggg)
Minimum Rate Period
means any Rate Period consisting of seven Rate
Period Days, as adjusted to reflect any changes when the regular day that is a Rate Determination Date is not a Business Day.
A-13
(hhh)
Minimum VRDP Asset
Coverage
means asset coverage, as defined in Section 18(h) of the 1940 Act as of the date of the VRDP Fee Agreement with such changes thereafter as agreed with the prior written consent of the Liquidity Provider, of at least 200% or
such higher percentage as required and specified in the VRDP Fee Agreement, but, in any event, not more than 250%, with respect to all outstanding senior securities of the Fund which are stock, including all Outstanding VRDP Shares (or, in each
case, if higher, such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of declaring dividends on its
common shares or stock).
(iii)
Minimum VRDP Asset Coverage Cure Date,
with respect to the failure by the Fund to maintain the Minimum VRDP Asset Coverage (as required by Section 6 of Part I of this Statement) as of the last Business Day of each month, means the tenth Business Day of the following month.
(jjj)
Moodys
means Moodys Investors Service, a Delaware
corporation, and its successors.
(kkk)
Moodys Discount Factor
means the discount factors set forth in the Moodys Guidelines for use in calculating the Discounted Value of the Funds assets in connection with Moodys ratings of Series 3 VRDP Shares.
(lll)
Moodys Eligible Assets
means assets of the Fund set forth in
the Moodys Guidelines as eligible for inclusion in calculating the Discounted Value of the Funds assets in connection with Moodys ratings of Series 3 VRDP Shares.
(mmm)
Moodys Guidelines
means the guidelines, as may be amended from
time to time, in connection with Moodys ratings of Series 3 VRDP Shares.
(nnn)
Municipal Obligations
means municipal securities as described in the
Information Memorandum.
(ooo)
1940 Act
means the Investment Company
Act of 1940, as amended.
(ppp)
Notice of Proposed Special Rate Period
means any notice with respect to a proposed Special Rate Period of Series 3 VRDP Shares pursuant to paragraph (c) of Section 4 of Part I of this Statement.
(qqq)
Notice of Purchase
means, as the context requires, a Preliminary
Notice of Purchase or a Final Notice of Purchase, in each case, substantially in the form attached to the VRDP Purchase Agreement.
(rrr)
Notice of Redemption
means any notice with respect to the redemption
of Series 3 VRDP Shares pursuant to paragraph (c) of Section 10 of Part I of this Statement.
(sss)
Notice of Revocation
means, in connection with the revocation by a
Beneficial Owner or its Agent Member of its Notice of Tender, a notice, substantially in the form attached to the Tender and Paying Agent Agreement, delivered by a Beneficial Owner or its Agent Member to the Tender and Paying Agent indicating an
intention to revoke the tender of some or all of the Series 3 VRDP Shares for sale on a Purchase Date pursuant to Section 1 of Part II of this Statement.
(ttt)
Notice of Special Rate Period
means any notice with respect to a
Special Rate Period of VRDP Shares pursuant to paragraph (d)(i) of Section 4 of Part I of this Statement.
A-14
(uuu)
Notice of Tender
means,
in connection with an Optional Tender, a notice, substantially in the form attached to the Tender and Paying Agent Agreement, delivered by a Beneficial Owner or its Agent Member to the Tender and Paying Agent, indicating an intention to tender
Series 3 VRDP Shares for sale on a Purchase Date pursuant to Section 1 of Part II of this Statement.
(vvv)
NRSRO
means a nationally recognized statistical rating
organization within the meaning of Section 3(a)(62) of the Exchange Act that is not an affiliated person (as defined in Section 2(a)(3) of the 1940 Act) of the Fund or the Liquidity Provider, including, at the date
hereof, Fitch, Moodys and S&P.
(www)
Optional Early Replacement
Event
means the Fund shall have obtained and delivered to the Tender and Paying Agent an Alternate VRDP Purchase Agreement and provided notice thereof (which notice also designates an Optional Early Termination Date) to Holders and the
Liquidity Provider in accordance with the Tender and Paying Agent Agreement given at any time prior to the 30th calendar day preceding the then-prevailing Scheduled Termination Date. The date of the occurrence of the Optional Early Replacement Event
shall be the date of such notice.
(xxx)
Optional Early Termination
Date
means the date established by the Tender and Paying Agent, acting upon instructions of the Fund pursuant to the Tender and Paying Agent Agreement, for termination of the VRDP Purchase Agreement upon the occurrence of an Optional Early
Replacement Event, which date shall be not less than 16 days nor more than 30 days following such Optional Early Replacement Event.
(yyy)
Optional Tender
means any tender of Series 3 VRDP Shares by a
Beneficial Owner or its Agent Member to the Tender and Paying Agent, other than a Mandatory Tender, for Remarketing or, in the event (i) no Remarketing occurs on or before the Purchase Date, or (ii) pursuant to an attempted Remarketing
Series 3 VRDP Shares remain unsold and the Remarketing Agent does not purchase for its own account the unsold Series 3 VRDP Shares tendered to the Tender and Paying Agent for Remarketing (provided that the Remarketing Agent may seek to sell such
Series 3 VRDP Shares in a subsequent Remarketing prior to the Purchase Date), for purchase by the Liquidity Provider pursuant to Section 1 of Part II of this Statement and the VRDP Purchase Agreement.
(zzz)
Other Rating Agency
means each NRSRO, if any, other than Fitch,
Moodys or S&P then providing a rating for the Series 3 VRDP Shares pursuant to the request of the Fund.
(aaaa)
Other Rating Agency Eligible Assets
means assets of the Fund set
forth in the Other Rating Agency Guidelines as eligible for inclusion in calculating the Discounted Value of the Funds assets in connection with Other Rating Agency ratings of Series 3 VRDP Shares.
(bbbb)
Other Rating Agency Guidelines
means the guidelines provided by each
Other Rating Agency, as may be amended from time to time, in connection with the Other Rating Agencys rating of Series 3 VRDP Shares.
(cccc)
Other Special Rate Period Provisions
shall have the meaning
specified in paragraph (f) of Section 4 of Part I of this Statement.
(dddd)
Outstanding
means, as of any date with respect to VRDP Shares of any
Series, the number of shares of such Series theretofore issued by the Fund except, without duplication, (i) any shares of such Series theretofore cancelled or delivered to the Tender and Paying Agent (or other relevant tender and paying agent)
for cancellation or redeemed by the Fund, (ii) any shares of such Series with respect to which, in the case of Series 3 VRDP Shares, the Fund has given a Notice of Redemption and irrevocably deposited with the Tender and Paying Agent sufficient
Deposit Securities to redeem such VRDP Shares, pursuant to Section 10 of Part I of this Statement or, in the case of VRDP Shares of any other Series, the Fund has taken the equivalent action under
A-15
the statement applicable to such shares, (iii) any shares of such Series as to which the Fund shall be a Beneficial Owner, and (iv) any shares of such Series represented by any
certificate in lieu of which a new certificate has been executed and delivered by the Fund;
provided
,
however
, with respect to clause (ii), any such Series 3 VRDP Share will be deemed to be Outstanding for purposes of the VRDP Purchase
Agreement until redeemed by the Fund.
(eeee)
Person
means and includes
an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
(ffff)
Preferred Shares
means the preferred shares of the Fund, and
includes the VRDP Shares of each Series.
(gggg)
Preliminary Notice of
Purchase
shall have the meaning specified in paragraph (b) of Section 2 of Part II of this Statement.
(hhhh)
Purchase Date,
with respect to any purchase of Series 3 VRDP Shares,
means (i) in connection with an Optional Tender, the date specified in a Notice of Tender, which date shall be no earlier than the seventh day (or, if such day is not a Business Day, the next succeeding Business Day) following delivery to the
Tender and Paying Agent of the Notice of Tender, (ii) in connection with a Mandatory Tender, the date specified in the Mandatory Tender Notice (or, if such day is not a Business Day, the next succeeding Business Day), subject to the immediately
succeeding sentence below, or (iii) in connection with a Mandatory Purchase, the Mandatory Purchase Date specified in the Mandatory Purchase Notice (or, if such day is not a Business Day, the next succeeding Business Day). The Purchase Date in
respect of a Mandatory Tender Event shall be not later than seven days following the date a Mandatory Tender Notice is sent to Holders by Electronic Means;
provided
, that: (A) the Purchase Date in connection with the failure of the Fund
to pay the applicable fee to the Liquidity Provider may not be later than the last Business Day of the month such payment was due; (B) the Purchase Date in connection with the occurrence of an Extraordinary Corporate Event may not be later than
the Business Day immediately preceding the occurrence of the Extraordinary Corporate Event (and, if no earlier Purchase Date is specified in a Mandatory Tender Notice with respect to such Extraordinary Corporate Event, the Business Day immediately
preceding the occurrence of the Extraordinary Corporate Event shall be deemed to be the Purchase Date irrespective of the failure to have given or sent a Mandatory Tender Notice); (C) the Purchase Date in connection with the Fund obtaining an
Alternate VRDP Purchase Agreement may not be later than the Business Day immediately preceding the termination of the VRDP Purchase Agreement being replaced; and (D) the Purchase Date in connection with a Notice of Proposed Special Rate Period
may not be later than the first day of such proposed Special Rate Period.
(iiii)
Purchase Obligation
means the unconditional and irrevocable
obligation of the Liquidity Provider during the term and pursuant to the terms of the VRDP Purchase Agreement to purchase Outstanding Series 3 VRDP Shares on any Purchase Date at the Purchase Price from Beneficial Owners, in the case of any Optional
Tender, and Holders, in the case of any Mandatory Tender, in each case following delivery of a Final Notice of Purchase with respect to such Series 3 VRDP Shares, and Holders, in the case of any Mandatory Purchase.
(jjjj)
Purchase Price
means an amount equal to the Liquidation Preference
of any Series 3 VRDP Shares to be purchased on a Purchase Date,
plus
any accumulated but unpaid dividends thereon (whether or not earned or declared), if any, to, but excluding, the relevant Purchase Date.
(kkkk)
Purchased VRDP Shares
means all Series 3 VRDP Shares purchased by
the Liquidity Provider pursuant to the VRDP Purchase Agreement, so long as such Series 3 VRDP Shares are owned by the Liquidity Provider.
A-16
(llll)
Rate Determination Date
means, with respect to any Series 3 VRDP Shares, the last day of a Rate Period for such Series or, if such day is not a Business Day, the next succeeding Business Day;
provided
,
however
, that the next succeeding Rate Determination Date
will be the day of the week that is the regular Rate Determination Date if such day is a Business Day.
(mmmm)
Rate Period,
with respect to Series 3 VRDP, means the Initial Rate
Period and any Subsequent Rate Period, including any Special Rate Period, for shares of such Series.
(nnnn)
Rate Period Days,
for any Rate Period, means the number of days that
would constitute such Rate Period but for the application of paragraph (d) of Section 2 of Part I of this Statement or paragraph (b) of Section 4 of Part I of this Statement.
(oooo)
Rating Agency
means each of Fitch (if Fitch is then rating Series 3
VRDP Shares), Moodys (if Moodys is then rating Series 3 VRDP Shares), S&P (if S&P is then rating Series 3 VRDP Shares), and any Other Rating Agency.
(pppp)
Rating Agency Certificate
has the meaning specified in paragraph
(b) of Section 7 of Part I of this Statement.
(qqqq)
Rating Agency
Eligible Assets
means Fitch Eligible Assets, Moodys Eligible Assets, S&P Eligible Assets and Other Rating Agency Eligible Assets, as applicable.
(rrrr)
Rating Agency Guidelines
means Fitch Guidelines, Moodys
Guidelines, S&P Guidelines and any Other Rating Agency Guidelines.
(ssss)
Redemption Price
means the applicable redemption price specified in
paragraph (a) or (b) of Section 10 of Part I of this Statement.
(tttt)
Reference Banks
means four major banks in the London interbank
market selected by the Remarketing Agent or its affiliates or successors or such other party as the Fund may from time to time appoint.
(uuuu)
Related Party
means a related party for purposes of
Section 267(b) or Section 707(b) of the Code, as such provisions may be amended from time to time.
(vvvv)
Related Party Termination Date
means the effective date of the
Related Party Termination Event.
(wwww)
Related Party Termination
Event
means termination of the VRDP Purchase Agreement by its terms as of the Related Party Termination Date in the event of the Liquidity Provider becoming a Related Party of the Fund other than through the acquisition of Series 3 VRDP
Shares pursuant to the terms of the VRDP Purchase Agreement.
(xxxx)
Remarketing
means the remarketing of Series 3 VRDP Shares by the
Remarketing Agent on behalf of Beneficial Owners thereof pursuant to an Optional Tender or on behalf of the Holders thereof pursuant to a Mandatory Tender, as provided in the Remarketing Agreement and Part II of this Statement.
(yyyy)
Remarketing Agent
means the entity appointed as such with respect to
Series 3 VRDP Shares by a resolution of the Board of Trustees and any additional or successor companies or entities appointed by the Board of Trustees which have entered into a Remarketing Agreement with the Fund.
(zzzz)
Remarketing Agreement
means the agreement with respect to the Series
3 VRDP Shares by and among the Fund, the Investment Adviser and the Remarketing Agent, which provides, among
A-17
other things, that the Remarketing Agent will follow the Applicable Rate Determination procedures for purposes of determining the Applicable Rate for shares of Series 3 VRDP and the Remarketing
Procedures, as amended, modified or supplemented from time to time.
(aaaaa)
Remarketing Notice
shall have the meaning specified in paragraph
(b) of Section 2 of Part II of this Statement.
(bbbbb)
Remarketing
Procedures
means the procedures for conducting Remarketings set forth in Part II of this Statement.
(ccccc)
Requisite NRSROs
means (i) any two NRSROs that have issued a
rating with respect to a security or class of debt obligations of an issuer; or (ii) if only one NRSRO has issued a rating with respect to such security or class of debt obligations of an issuer at the time a purchaser Acquires (as such term is
defined in Rule 2a-7 under the 1940 Act) the security, that NRSRO.
(ddddd)
S&P
means Standard & Poors Ratings Services, a
Standard & Poors Financial Services LLC business, and its successors.
(eeeee)
S&P Discount Factor
means the discount factors set forth in the
S&P Guidelines for use in calculating the Discounted Value of the Funds assets in connection with S&Ps ratings of VRDP Shares.
(fffff)
S&P Eligible Assets
means assets of the Fund set forth in the
S&P Guidelines as eligible for inclusion in calculating the Discounted Value of the Funds assets in connection with S&Ps ratings of VRDP Shares.
(ggggg)
S&P Guidelines
means the guidelines, as may be amended from
time to time, in connection with S&Ps ratings of VRDP Shares.
(hhhhh)
Scheduled Termination Date
means [
], or any succeeding date to which the term of the VRDP Purchase Agreement is extended.
(iiiii)
SEC
means the Securities and Exchange Commission.
(jjjjj)
Securities Act
means the Securities Act of 1933, as amended.
(kkkkk)
Securities Depository
means The Depository Trust Company, New York,
New York, and any substitute for or successor to such securities depository that shall maintain a book-entry system with respect to the VRDP Shares.
(lllll)
SIFMA Municipal Swap Index
means, on any Rate Determination Date,
the Securities Industry and Financial Markets Association Municipal Swap Index, produced and made available by Municipal Market Data as of 3:00 p.m., New York City time, on the Rate Determination Date.
(mmmmm)
SIFMA Municipal Swap Index Rate
means, on any Rate Determination
Date, (i) the SIFMA Municipal Swap Index produced and made available on such date, or (ii) if such index is not made available by 3:00 p.m., New York City time, on such date, the SIFMA Municipal Swap Index Rate as in effect on the previous
Rate Determination Date.
(nnnnn)
Special Rate Period,
with respect to
Series 3 VRDP Shares, means a Rate Period that is established in accordance with paragraph (a) of Section 4 of Part I of this Statement.
A-18
(ooooo)
Special Redemption
Provisions
shall have the meaning specified in paragraph (a)(i) of Section 10 of Part I of this Statement.
(ppppp)
Statement
means this statement establishing and fixing the rights
and preferences of Series 3 VRDP Shares, as it may be amended or supplemented from time to time.
(qqqqq)
Subsequent Rate Period,
with respect to shares of Series 3 VRDP,
means the period from, and including, the first day following the Initial Rate Period of shares of such Series to, and including, the next Rate Determination Date for shares of such Series and any period thereafter from, and including, the first day
following a Rate Determination Date for shares of such Series to, and including, the next succeeding Rate Determination Date for shares of such Series;
provided
,
however
, that if any Subsequent Rate Period is also a Special Rate
Period, such term shall mean the period commencing on the first day of such Special Rate Period and ending on, and including, the last day of the last Dividend Period thereof; except for Special Rate Periods, each Subsequent Rate Period will be a
Minimum Rate Period.
(rrrrr)
Substitute LIBOR Dealer
means any LIBOR
Dealer selected by the Fund; provided that none of such entities shall be an existing LIBOR Dealer.
(sssss)
Taxable Allocation
shall have the meaning specified in paragraph
(a) of Section 3 of Part I of this Statement.
(ttttt)
Tender
means an Optional Tender or Mandatory Tender, as applicable.
(uuuuu)
Tender and
Paying Agent
means The Bank of New York Mellon, or any successor Person, which has entered into an agreement with the Fund to act in such capacity as the Funds tender agent, transfer agent, registrar, dividend disbursing agent,
paying agent and redemption price disbursing agent and calculation agent in connection with the payment of regularly scheduled dividends with respect to the Series 3 VRDP Shares.
(vvvvv)
Tender and Paying Agent Agreement
means the agreement with respect
to the Series 3 VRDP Shares entered into between the Fund and the Tender and Paying Agent, as amended, modified or supplemented from time to time, or any similar agreement with a successor Tender and Paying Agent.
(wwwww)
U.S. Government Securities
means direct obligations of the United
States or of its agencies or instrumentalities that are entitled to the full faith and credit of the United States and that, other than United States Treasury Bills, provide for the periodic payment of interest and the full payment of principal at
maturity or call for redemption.
(xxxxx)
Valuation Date
means, for
purposes of determining whether the Fund is maintaining the VRDP Basic Maintenance Amount, each Business Day commencing with the Date of Original Issue.
(yyyyy)
Voting Period
shall have the meaning specified in paragraph (b)(i)
of Section 5 of Part I of this Statement.
(zzzzz)
VRDP Basic Maintenance
Amount,
as of any Valuation Date, shall have the meaning set forth in the Rating Agency Guidelines.
(aaaaaa)
VRDP Basic Maintenance Cure Date,
with respect to the failure by
the Fund to satisfy the VRDP Basic Maintenance Amount (as required by paragraph (a) of Section 7 of Part I of this Statement) as of a given Valuation Date, shall have the meaning set forth in the Rating Agency Guidelines, but in no event
shall it be longer than 10 calendar days following such Valuation Date.
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(bbbbbb)
VRDP Basic Maintenance
Report
shall have the meaning set forth in the Rating Agency Guidelines.
(cccccc)
VRDP Fee Agreement
means the Variable Rate Demand Preferred Shares
(VRDP) Fee Agreement with respect to Series 3 VRDP Shares, dated as of [
], between the Fund and the Liquidity Provider, as amended, modified or supplemented from time to time, or any similar
agreement with a successor Liquidity Provider.
(dddddd)
VRDP Purchase
Agreement
means the Variable Rate Demand Preferred Shares (VRDP) Purchase Agreement with respect to Series 3 VRDP Shares, dated as of [
], between the Tender and Paying Agent and the
Liquidity Provider, as amended, modified or supplemented, or any Alternate VRDP Purchase Agreement.
PART I
1.
Number of Authorized Shares.
The initial number of authorized shares constituting Series 3 VRDP is as set forth above under the title Designation of Series 3
VRDP.
2.
Dividends.
(a)
Ranking.
The shares of Series 3 VRDP shall rank on a
parity with each other, with shares of any other Series of VRDP and with shares of any other series of Preferred Shares as to the payment of dividends by the Fund.
(b)
Cumulative Cash Dividends.
The Holders of Series 3
VRDP Shares shall be entitled to receive, when, as and if declared by the Board of Trustees, out of funds legally available therefor in accordance with the Declaration and applicable law, cumulative cash dividends at the Applicable Rate for shares
of such Series, determined as set forth in paragraph (e) of this Section 2, and no more (except to the extent set forth in Section 3 of Part I of this Statement and Section 6 of Part II of this Statement), payable on the Dividend
Payment Dates with respect to shares of such Series determined pursuant to paragraph (d) of this Section 2. Holders of Series 3 VRDP Shares shall not be entitled to any dividend, whether payable in cash, property or shares, in excess of
full cumulative dividends, as herein provided, on Series 3 VRDP Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Series 3 VRDP Shares which may be in arrears, and no
additional sum of money shall be payable in respect of such arrearage, except that the Fund shall pay as a supplemental dividend a Late Charge (as defined below in paragraph (e)(i)(C) of this Section 2) on account of a Failure to Deposit, if
any, in respect of each day during the period commencing on the day a Failure to Deposit occurs through and including the day immediately preceding the earlier of (i) the day the Failure to Deposit is cured and (ii) the third Business Day
next succeeding the day on which the Failure to Deposit occurred.
(c)
Dividends Cumulative from Date of Original Issue.
Dividends on Series 3 VRDP Shares shall be declared daily and accumulate at the Applicable Rate for shares of such Series from the Date of Original Issue thereof.
(d)
Dividend Payment Dates and Adjustment Thereof.
The
Dividend Payment Date with respect to Series 3 VRDP Shares shall be the first Business Day of each calendar month;
provided
,
however
, that:
(i) notwithstanding the foregoing, the Fund in its discretion may establish
more frequent Dividend Payment Dates than monthly in respect of any Minimum Rate Period, and the Dividend Payment Date for the Dividend Period prior to the commencement of a Special Rate Period shall be the Business Day immediately preceding the
first day of such Special Rate Period; and
A-20
(ii) notwithstanding the
foregoing, the Fund in its discretion may establish the Dividend Payment Dates in respect of any Special Rate Period for Series 3 VRDP Shares consisting of more than seven Rate Period Days;
provided
,
however
, that such dates shall be
set forth in the Notice of Proposed Special Rate Period and Notice of Special Rate Period relating to such Special Rate Period, as delivered to the Remarketing Agent, which Notice of Proposed Special Rate Period and Notice of Special Rate Period
shall be filed with the Secretary of the Fund; and further provided that (1) any such Dividend Payment Date shall be a Business Day and (2) the last Dividend Payment Date in respect of such Special Rate Period shall be the Business Day
immediately following the last day thereof, as such last day is determined in accordance with paragraph (b) of Section 4 of Part I of this Statement.
(e)
Applicable Rates and Calculation of Dividends.
(i)
Applicable Rates.
The dividend rate on
Series 3 VRDP Shares during the Initial Rate Period shall be equal to the rate per annum specified under Designation of Series 3 VRDP above. Except for Special Rate Periods, each Subsequent Rate Period will be a Minimum Rate Period. For
each Subsequent Rate Period of shares of such Series thereafter, the dividend rate on shares of such Series shall be equal to the rate per annum that results from the Applicable Rate Determination for shares of such Series on the Rate Determination
Date immediately preceding such Subsequent Rate Period;
provided
,
however
, that:
(A) if an Applicable Rate Determination for any such Subsequent Rate Period is
not held for any reason other than as described below, the dividend rate on shares of such Series for such Subsequent Rate Period will be adjusted to the Maximum Rate for shares of such Series on the Rate Determination Date therefor;
(B) in the event of a Failed Remarketing Condition, the Applicable Rate as of
the close of business on the day the Failed Remarketing Condition first occurs will be adjusted to the Maximum Rate (with the Applicable Spread subject to adjustment as set forth in the definition of Applicable Spread), and the Maximum Rate will
continue to be the Applicable Rate (i) until the first day of the next succeeding Subsequent Rate Period after a Failed Remarketing Condition no longer exists in the case of a Minimum Rate Period or a Special Rate Period of 28 Rate Period Days
or fewer, and (ii) until the first day of the next succeeding Dividend Period after a Failed Remarketing Condition no longer exists in the case of a Special Rate Period of greater than 28 Rate Period Days;
(C) if any Failure to Deposit shall have occurred with respect to shares of
such Series during any Dividend Period thereof, but, prior to 12:00 noon, New York City time, on the third Business Day next succeeding the date on which such Failure to Deposit occurred, such Failure to Deposit shall have been cured in accordance
with paragraph (f) of this Section 2, and the Fund shall have paid to the Tender and Paying Agent as a late charge (Late Charge), daily supplemental dividends equal in the aggregate to the sum of (1) if such Failure to
Deposit consisted of the failure timely to pay to the Tender and Paying Agent the full amount of dividends with respect to any Dividend Period of the shares of such Series, an amount computed by multiplying (x) the Applicable Rate for the Rate
Period during which such Failure to Deposit occurs on the Dividend Payment Date for such Dividend Period plus 2.00% by (y) a fraction, the numerator of which shall be the number of days for which such Failure to Deposit has not been cured in
accordance with paragraph (f) of this Section 2 (including the day such Failure to Deposit occurs and excluding the day such Failure to Deposit is cured) and the denominator of which shall be 360, and applying the rate obtained against the
aggregate Liquidation Preference of the Outstanding shares of such Series (with the amount for each individual day that such Failure to Deposit occurs or continues uncured being declared as a supplemental dividend on that day) and (2) if such
Failure to Deposit consisted of the failure timely to pay to the Tender and Paying Agent the Redemption
A-21
Price of the shares, if any, of such Series for which Notice of Redemption has been provided by the Fund pursuant to paragraph (c) of Section 10 of Part I of this Statement, an amount
computed by multiplying, (x) for the Rate Period during which such Failure to Deposit occurs on the redemption date, the Applicable Rate plus 2.00% by (y) a fraction, the numerator of which shall be the number of days for which such
Failure to Deposit is not cured in accordance with paragraph (f) of this Section 2 (including the day such Failure to Deposit occurs and excluding the day such Failure to Deposit is cured) and the denominator of which shall be 360, and
applying the rate obtained against the aggregate Liquidation Preference of the Outstanding shares of such Series to be redeemed (with the amount for each individual day that such Failure to Deposit occurs or continues uncured being declared as a
supplemental dividend on that day), and if a Rate Determination Date occurs on the date on which such Failure to Deposit occurred or on either of the two Business Days succeeding that date, and the Failure to Deposit has not been cured on such Rate
Determination Date in accordance with paragraph (f) of this Section 2, no Applicable Rate Determination will be held in respect of shares of such Series for the Subsequent Rate Period relating to such Rate Determination Date 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 Rate Determination Date for such Subsequent Rate Period; or
(D) if any Failure to Deposit shall have occurred with respect to shares of
such Series during any Dividend Period thereof, and, prior to 12:00 noon, New York City time, on the third Business Day next succeeding the date on which such Failure to Deposit occurred, such Failure to Deposit shall not have been cured in
accordance with paragraph (f) of this Section 2 or the Fund shall not have paid the applicable Late Charge to the Tender and Paying Agent, no Applicable Rate Determination will occur in respect of shares of such Series for the first
Subsequent Rate Period thereof thereafter (or for any Rate Period thereof thereafter to and including the Rate Period during which (1) such Failure to Deposit is cured in accordance with paragraph (f) of this Section 2 and
(2) the Fund pays the applicable Late Charge to the Tender and Paying Agent, in each case no later than 12:00 noon, New York City time, on the fourth Business Day prior to the end of such Rate Period), and the dividend rate for shares of such
Series for each such Subsequent Rate Period shall be a rate per annum equal to the Maximum Rate for shares of such Series on the Rate Determination 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 Baa3/BBB-).
Each dividend rate
determined in accordance with this paragraph (e)(i) of Section 2 of Part I of this Statement shall be an Applicable Rate.
(ii)
Calculation of Dividends.
The amount of dividends per share payable
on shares of Series 3 VRDP on any Dividend Payment Date shall be computed by multiplying the Applicable Rate for shares of such Series for each Rate Period 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 for which each Applicable Rate is in effect and the denominator of which shall be the actual number of
days in the year (365 or 366), and applying each such rate obtained against $100,000.
(f)
Curing a Failure to Deposit.
A Failure to Deposit with respect to shares of Series 3 VRDP shall have been cured (if such Failure to Deposit is not solely due to the
willful failure of the Fund to make the required payment to the Tender and Paying Agent) with respect to any Dividend Period of shares of such Series if, within the respective time periods described in paragraph (e)(i) of this Section 2, the
Fund shall have paid to the Tender and Paying Agent (A) all accumulated but unpaid dividends on shares of such Series and (B) without duplication, the Redemption Price for shares, if any, of such Series for which Notice of Redemption
A-22
has been provided by the Fund pursuant to paragraph (c) of Section 10 of Part I of this Statement;
provided
,
however
, that the foregoing clause (B) shall not apply to
the Funds failure to pay the Redemption Price in respect of VRDP Shares when the related Redemption Notice provides that redemption of such shares is subject to one or more conditions precedent and any such condition precedent shall not have
been satisfied at the time or times and in the manner specified in such Notice of Redemption.
(g)
Dividend Payments by Fund to Tender and Paying Agent.
In connection with each Dividend Payment Date for Series 3 VRDP Shares, the Fund shall pay to the Tender and Paying Agent, not later than 12:00 noon, New York City time, on the earlier of (i) the third Business Day next succeeding the Rate
Determination Date immediately preceding the Dividend Payment Date and (ii) the Business Day immediately preceding the Dividend Payment Date, an aggregate amount of Deposit Securities equal to the dividends to be paid to all Holders of shares
of such Series on such Dividend Payment Date, or as otherwise provided for and in connection with designation of a Special Rate Period. If an aggregate amount of funds equal to the dividends to be paid to all Holders of shares of such Series on such
Dividend Payment Date are not available in New York, New York, by 12:00 noon, New York City time, on the Business Day immediately preceding such Dividend Payment Date, the Tender and Paying Agent will notify the Liquidity Provider by Electronic
Means of such fact prior to the close of business on such day.
(h)
Tender and Paying Agent as Trustee of Dividend Payments by Fund.
All Deposit Securities paid to the Tender and Paying Agent for the payment of dividends on Series 3 VRDP Shares shall be held in trust for the
payment of such dividends by the Tender and Paying Agent for the benefit of the Holders specified in paragraph (i) of this Section 2. Any moneys paid to the Tender and Paying Agent in accordance with the foregoing but not applied by the
Tender and Paying Agent to the payment of dividends will, to the extent permitted by law, be repaid to the Fund as soon as possible after the date on which such moneys were so to have been applied upon request of the Fund.
(i)
Dividends Paid to Holders.
Each dividend on Series 3
VRDP Shares shall be declared daily to the Holders thereof at the close of business on each such day and paid on each Dividend Payment Date to the Holders thereof at the close of business on the day immediately preceding such Dividend Payment Date.
In connection with any transfer of Series 3 VRDP Shares, the transferor as Beneficial Owner of Series 3 VRDP Shares shall be deemed to have agreed pursuant to the terms of the Series 3 VRDP Shares to transfer to the transferee the right to receive
from the Fund any dividends declared and unpaid for each day prior to the transferee becoming the Beneficial Owner of the Series 3 VRDP Shares in exchange for payment of the Purchase Price for such Series 3 VRDP Shares by the transferee.
(j)
Dividends Credited Against Earliest Accumulated But
Unpaid Dividends.
Any dividend payment made on Series 3 VRDP Shares that is insufficient to cover the entire amount of dividends payable shall first be credited against the earliest accumulated but unpaid dividends due with respect to such
shares. Dividends in arrears for any past Dividend Period may be declared and paid at any time, without reference to any regular Dividend Payment Date, to the Holders as their names appear on the record books of the Fund on such date, not exceeding
15 days preceding the payment date thereof, as may be fixed by the Board of Trustees.
(k)
Dividends Designated as Exempt-Interest Dividends.
Dividends on Series 3 VRDP Shares shall be designated as exempt-interest dividends up to the amount of tax-exempt income of the Fund, to the extent permitted by, and for purposes of, Section 852 of the Code.
3.
Gross-Up Payments.
Holders of Series 3 VRDP Shares
shall be entitled to receive, when, as and if declared by the Board of Trustees, out of funds legally available therefor, dividends in an amount equal to the aggregate Gross-up Payments as follows:
(a) If the Fund allocates any net capital gains or ordinary income taxable for regular federal
and Pennsylvania personal income tax purposes to a dividend paid on Series 3 VRDP Shares without either having given advance notice thereof to the Remarketing Agent or simultaneously increasing such dividend payment by an additional amount, both as
provided in Section 6 of Part II of this Statement (such allocation
A-23
being referred to herein as a Taxable Allocation), the Fund shall, prior to the end of the calendar year in which such dividend was paid, provide notice thereof to the Remarketing
Agent and direct the Tender and Paying Agent to send such notice with a Gross-up Payment to the Holder 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 Fund.
(b) The Fund shall not be required to make Gross-up Payments
with respect to any net capital gains or ordinary income determined by the Internal Revenue Service to be allocable in a manner different from the manner used by the Fund.
4.
Designation of Special Rate Periods.
(a)
Length of and Preconditions for Special Rate Period.
The Fund, at its option, may designate any succeeding Subsequent Rate Period for Series 3 VRDP 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, subject to
adjustment as provided in paragraph (b) of this Section 4. A designation of a Special Rate Period shall be effective only if (A) it is permitted by applicable law and the Declaration, (B) notice thereof shall have been given in
accordance with paragraph (c) and paragraph (d)(i) of this Section 4, (C) no Series 3 VRDP Shares are owned by the Liquidity Provider pursuant to the Purchase Obligation on either the Rate Determination Date for such proposed Special
Rate Period or on the first day of such Special Rate Period and full cumulative dividends and any amounts due with respect to redemptions payable prior to such date have been paid in full, in each case, on Series 3 VRDP Shares, and (D) if any
Notice of Redemption shall have been provided by the Fund pursuant to paragraph (c) of Section 10 of Part I of this Statement with respect to any shares of such Series, the Redemption Price with respect to such shares shall have been
deposited with the Tender and Paying Agent. In the event the Fund wishes to designate any succeeding Subsequent Rate Period for Series 3 VRDP Shares as a Special Rate Period consisting of more than 28 Rate Period Days, the Fund shall notify Fitch
(if Fitch is then rating shares of such Series), Moodys (if Moodys is then rating shares of such Series) and S&P (if S&P is then rating shares of such Series) in advance of the commencement of such Subsequent Rate Period that the
Fund wishes to designate such Subsequent Rate Period as a Special Rate Period and shall provide Fitch (if Fitch is then rating shares of such Series), Moodys (if Moodys is then rating shares of such Series) and S&P (if S&P is
then rating shares of such Series) with such documents as the applicable Rating Agency may request.
(b)
Adjustment of Length of Special Rate Period.
In the
event the Fund wishes to designate a Subsequent Rate Period for Series 3 VRDP Shares as a Special Rate Period, but the day that would otherwise be the last day of such Special Rate Period is not a Wednesday that is a Business Day, then the Special
Rate Period shall end on the next Business Day and the succeeding Subsequent Rate Period will end on the following Wednesday.
(c)
Notice of Proposed Special Rate Period.
If the Fund
proposes to designate any succeeding Subsequent Rate Period for Series 3 VRDP Shares as a Special Rate Period pursuant to paragraph (a) of this Section 4, not less than 20 (or such lesser number of days as may be agreed to from time to
time by the Remarketing Agent) nor more than 30 days prior to the date the Fund proposes to designate as the first day of such Special Rate Period (which shall be such day that would otherwise be the first day of a Minimum Rate Period), notice
(Notice of Proposed Special Rate Period) shall be sent by the Fund by Electronic Means (or by first-class mail, postage prepaid, where the Series 3 VRDP Shares are in physical form) to the Holders of shares of such Series with copies
provided to the Tender and Paying Agent, the Liquidity Provider and the Remarketing Agent. Each such notice shall state (A) that the Fund may exercise its option to designate a succeeding Subsequent Rate Period of shares of such Series as a
Special Rate Period, specifying the first day thereof, (B) that the Fund will, by 11:00 a.m., New York City time, on the second Business Day immediately preceding such date (or by such later time or date, or both, as may be agreed to by the
Remarketing Agent) notify the Remarketing Agent of either (x) its determination, subject to certain conditions, to exercise such option, or (y) its determination not to exercise such option, (C) the Rate Determination Date immediately
prior to the first day of such Special Rate Period, (D) that such Special Rate Period shall not commence if (1) any Series 3 VRDP Shares are owned by the Liquidity Provider pursuant to the Purchase Obligation on either the Rate
Determination Date for such proposed Special Rate Period or on the first day of such Special Rate Period, or (2) full cumulative
A-24
dividends or any amounts due with respect to redemptions payable prior to such Rate Determination Date have not been paid in full, in each case, on Series 3 VRDP Shares (E) the scheduled
Dividend Payment Dates for shares of such Series during such Special Rate Period and (F) a description of the Other Special Rate Period Provisions, if any, applicable to shares of such Series in respect of such Special Rate Period.
(d)
Notice of Special Rate Period.
No later than 11:00
a.m., New York City time, on the second Business Day immediately preceding the first day of any proposed Special Rate Period for Series 3 VRDP Shares as to which notice has been given as set forth in paragraph (c) of this Section 4 (or
such later time or date, or both, as may be agreed to by the Remarketing Agent), the Fund shall deliver to the Remarketing Agent and the Liquidity Provider either:
(i) a notice (Notice of Special Rate Period) stating (A) that
the Fund has determined to designate the next succeeding Rate Period of shares of such Series as a Special Rate Period, specifying the same and the first day thereof, (B) the Rate Determination Date immediately prior to the first day of such
Special Rate Period, (C) that such Special Rate Period shall not commence if (1) any Series 3 VRDP Shares are owned by the Liquidity Provider pursuant to the Purchase Obligation on either such Rate Determination Date or on the first day of
such Special Rate Period, or (2) full cumulative dividends or any amounts due with respect to redemptions payable, in each case, on Series 3 VRDP Shares, prior to such Rate Determination Date have not been paid in full, (D) the scheduled
Dividend Payment Dates for shares of such Series during such Special Rate Period and (E) the Other Special Rate Period Provisions, if any, applicable to shares of such Series in respect of such Special Rate Period, such notice to be accompanied
by (if then applicable) a VRDP Basic Maintenance Report showing that, as of the third Business Day immediately preceding such proposed Special Rate Period, Fitch Eligible Assets (if Fitch is then rating the shares of such Series), Moodys
Eligible Assets (if Moodys is then rating the shares of such Series) and S&P Eligible Assets (if S&P is then rating the shares of such Series) each have an aggregate Discounted Value at least equal to the VRDP Basic Maintenance Amount
as of such Business Day (assuming for purposes of the foregoing calculation that (a) the Maximum Rate is the Maximum Rate on such Business Day as if such Business Day were the Rate Determination Date for the proposed Special Rate Period, and
(b) the Moodys Discount Factors applicable to Moodys Eligible Assets are determined by reference to the first Exposure Period (as defined in the Moodys Guidelines) longer than the Exposure Period then applicable to the Fund,
as described in the Moodys Guidelines); or
(ii) a notice stating
that the Fund has determined not to exercise its option to designate a Special Rate Period for shares of such Series and that the next succeeding Rate Period of shares of such Series shall be a Minimum Rate Period.
(e)
Failure to Deliver Notice of Special Rate Period.
If
the Fund fails to deliver either of the notices described in paragraphs (d)(i) or (d)(ii) of this Section 4 (and, in the case of the notice described in paragraph (d)(i) of this Section 4, a VRDP Basic Maintenance Report to the effect set
forth in such paragraph (if Fitch, Moodys or S&P is then rating the shares of the Series in question)) with respect to any designation of any proposed Special Rate Period to the Remarketing Agent and the Liquidity Provider by 11:00 a.m.,
New York City time, on the second Business Day immediately preceding the first day of such proposed Special Rate Period (or by such later time or date, or both, as may be agreed to by the Remarketing Agent and the Liquidity Provider), the Fund shall
be deemed to have delivered a notice to the Remarketing Agent and the Liquidity Provider with respect to such Special Rate Period to the effect set forth in paragraph (d)(ii) of this Section 4. In the event the Fund delivers to the Remarketing
Agent and the Liquidity Provider a notice described in paragraph (d)(i) of this Section 4, it shall file a copy of such notice with the Secretary of the Fund, and the contents of such notice shall be binding on the Fund. In the event the Fund
delivers to the Remarketing Agent and the Liquidity Provider a notice described in paragraph (d)(ii) of this Section 4, the Fund will provide Fitch (if Fitch is then rating the shares of the Series in question), Moodys (if Moodys is
then rating the shares of the Series in question) and S&P (if S&P is then rating the shares of the Series in question) a copy of such notice.
A-25
(f)
Other
Special Rate Period Provisions.
In connection with any Special Rate Period designated pursuant to this Section 4, the Fund, without the vote or consent of any Holder of Series 3 VRDP Shares but with prior written consent of the Liquidity
Provider, may provide for provisions relating solely to such Special Rate Period that differ from those provided in this Statement, including with respect to the Purchase Obligation, optional tender provisions, mandatory tender provisions, mandatory
purchase provisions, the dividend rate setting provisions (including as to the Maximum Rate), and, if the dividend may be determined by reference to an index, formula or other method, the manner in which it will be determined, Special Redemption
Provisions or other redemption provisions (other than Section 10(b)(i)(A) of this Statement) and modified or new definitions (Other Special Rate Period Provisions); provided that such provisions do not affect the parity ranking of
Series 3 VRDP Shares relative to any other series of Preferred Shares of the Fund then outstanding with respect to dividends or distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund.
5.
Voting Rights.
(a)
One Vote Per VRDP Share.
Except as otherwise provided
in the Declaration or as otherwise required by law, (i) each Holder of VRDP Shares shall be entitled to one vote for each VRDP Share held by such Holder on each matter submitted to a vote of shareholders of the Fund, and (ii) the holders
of outstanding Preferred Shares, including each VRDP Share, and of Common Shares shall vote together as a single class;
provided
,
however
, that the holders of outstanding Preferred Shares, including VRDP Shares, voting as a class, to
the exclusion of the holders of all other securities and classes of shares of beneficial interest of the Fund, shall be entitled to elect two trustees of the Fund at all times, each Preferred Share, including each VRDP Share, entitling the holder
thereof to one vote. Subject to paragraph (b) of this Section 5, the holders of outstanding Common Shares and Preferred Shares, including VRDP Shares, voting together as a single class, shall elect the balance of the trustees.
(b)
Voting for Additional Trustees.
(i)
Voting Period.
During any period in which any one or more of the
conditions described in subparagraphs (A) or (B) of this paragraph (b)(i) shall exist (such period being referred to herein as a Voting Period), the number of trustees constituting the Board of Trustees shall be automatically
increased by the smallest number that, when added to the two trustees elected exclusively by the holders of Preferred Shares, including VRDP Shares, would constitute a majority of the Board of Trustees as so increased by such smallest number; and
the holders of Preferred Shares, including VRDP Shares, shall be entitled, voting as a class on a one-vote-per-share basis (to the exclusion of the holders of all other securities and classes of shares of beneficial interest of the Fund), to elect
such smallest number of additional trustees, together with the two trustees that such holders are in any event entitled to elect. A Voting Period shall commence:
(A) if at the close of business on any Dividend Payment Date accumulated
dividends (whether or not earned or declared) on any outstanding Preferred Shares, including VRDP Shares, equal to at least two full years dividends shall be due and unpaid and sufficient cash or specified securities shall not have been
deposited with the Tender and Paying Agent for the payment of such accumulated dividends; or
(B) if at any time holders of Preferred Shares are entitled under the 1940
Act to elect a majority of the trustees of the Fund.
Upon the termination of a Voting Period, the voting rights described in this
paragraph (b)(i) shall cease, subject always, however, to the revesting of such voting rights in the holders of Preferred Shares upon the further occurrence of any of the events described in this paragraph (b)(i).
(ii)
Notice of Special Meeting.
As soon as practicable after the
accrual of any right of the holders of Preferred Shares to elect additional trustees as described in paragraph (b)(i) of this
A-26
Section 5, the Fund shall call a special meeting of such holders, and the Fund shall mail a notice of such special meeting to such holders, such meeting to be held not less than 10 nor more
than 20 days after the date of mailing of such notice. If a special meeting is not called by the Fund, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special
meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting of holders of Preferred Shares held during a Voting Period at which trustees are to be
elected, such holders, voting together as a class (to the exclusion of the holders of all other securities and classes of shares of beneficial interest of the Fund), shall be entitled to elect the number of trustees prescribed in paragraph (b)(i) of
this Section 5 on a one-vote-per-share basis.
(iii)
Terms of
Office of Existing Trustees.
The terms of office of all persons who are trustees of the Fund at the time of a special meeting of Holders and holders of other Preferred Shares to elect trustees shall continue, notwithstanding the election at such
meeting by the Holders and such other holders of other Preferred Shares of the number of trustees that they are entitled to elect, and the persons so elected by the Holders and such other holders of other Preferred Shares, together with the two
incumbent trustees elected by the Holders and such other holders of other Preferred Shares and the remaining incumbent trustees elected by the holders of the Common Shares and Preferred Shares, shall constitute the duly elected trustees of the Fund.
(iv)
Terms of Office of Certain Trustees to Terminate Upon Termination
of Voting Period.
Simultaneously with the termination of a Voting Period, the terms of office of the additional trustees elected by the Holders and holders of other Preferred Shares pursuant to paragraph (b)(i) of this Section 5 shall
terminate, the remaining trustees shall constitute the trustees of the Fund and the voting rights of the Holders and such other holders to elect additional trustees pursuant to paragraph (b)(i) of this Section 5 shall cease, subject to the
provisions of the last sentence of paragraph (b)(i) of this Section 5.
(c)
Holders of VRDP Shares to Vote on Certain Other Matters.
(i)
Increases in Capitalization and Certain Amendments.
So long as any
VRDP Shares are Outstanding, the Fund shall not, without the affirmative vote or consent of the Holders of at least a majority of the Series 3 VRDP Shares outstanding at the time, in person or by proxy, either in writing or at a meeting, voting as a
separate class: (a) authorize, create or issue any class or series of shares ranking prior to or on a parity with Series 3 VRDP Shares with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund, or authorize, create or issue additional shares of any Series of VRDP Shares (except that, notwithstanding the foregoing, the Board of Trustees, without the vote or consent of the Holders of Series 3 VRDP
Shares, may from time to time authorize and create, and the Fund may from time to time issue additional shares of, any Series of VRDP, including Series 3 VRDP, or classes or series of Preferred Shares ranking on a parity with Series 3 VRDP Shares
with respect to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund), or (b) amend, alter or repeal the provisions of the Declaration, or this Statement, whether by
merger, consolidation or otherwise, so as to materially and adversely affect any preference, right or power of such Series 3 VRDP 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 VRDP Share will be deemed to affect such preferences, rights or powers only if the terms of such division adversely affect the Holders of Series 3
VRDP Shares and (iii) the authorization, creation and issuance of classes or series of shares ranking junior to Series 3 VRDP Shares with respect to the payment of dividends and the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund will be deemed to affect such preferences, rights or powers only if such issuance would, at the time thereof, cause the Fund not to satisfy the Minimum VRDP Asset Coverage. For purposes of the foregoing, except
as otherwise set forth in this Statement,
A-27
no matter shall be deemed to materially and adversely affect any right, preference or power of the Series 3 VRDP Shares or the Holders thereof unless such matter (i) alters or abolishes any
preferential right of such Series; (ii) creates, alters or abolishes any right in respect of redemption of such Series; or (iii) creates or alters (other than to abolish or to comply with applicable law) any restriction on transfer
applicable to such Series. So long as any Series 3 VRDP Shares are Outstanding, the Fund shall not, without the affirmative vote or consent of the Holders of at least 66
2
⁄
3
% of the Series 3 VRDP Shares outstanding at the time, in person or by proxy, either in writing or at a meeting, voting as a separate class, file a voluntary application for relief under federal bankruptcy law or
any similar application under state law for so long as the Fund is solvent and does not foresee becoming insolvent. If any action set forth above would adversely affect the rights of Series 3 VRDP in a manner different from any other Series of VRDP,
the 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 the Series 3 VRDP outstanding at the time, in person or by proxy, either in writing or at a meeting (the Series
3 VRDP voting as a separate class). Notwithstanding the foregoing, the Fund, without approval of Holders of Series 3 VRDP Shares or other shareholders of the Fund, has the right to (x) terminate the services of any and all Rating Agencies
providing a long-term rating for the Series 3 VRDP Shares, and such rating or ratings, to the extent it or they would have been taken into account in any of the provisions in this Statement, will be disregarded (for the avoidance of doubt, other
than the effect of the absence of such ratings for purposes of determining the Maximum Rate) and (y) provide for Other Special Rate Period Provisions in accordance with, but subject to the limitations set forth in, paragraph (f) of
Section 4 of Part I of this Statement.
(ii)
1940 Act Matters.
Unless a higher percentage is provided for in the Declaration, (A) the affirmative vote of the holders of at least a majority of the Outstanding Preferred Shares, including VRDP Shares, outstanding at the time, voting as a separate
class, shall be required to approve any conversion of the 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 Preferred Shares, including VRDP 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 VRDP Shares, voting as a separate class, shall be required to approve any action not described in the first sentence of this Section 5(c)(ii) requiring a vote of security holders of the Fund under Section 13(a) of
the 1940 Act. For purposes of the foregoing, majority of the Outstanding Preferred Shares means (i) 67% or more of such shares present at a meeting, if the holders of more than 50% of such shares are present or represented by proxy,
or (ii) more than 50% of such shares, whichever is less. In the event a vote of Holders of Series 3 VRDP Shares is required pursuant to the provisions of Section 13(a) of the 1940 Act, the Fund shall, not later than 10 Business Days prior
to the date on which such vote is to be taken, notify Fitch (if Fitch is then rating the Series 3 VRDP Shares), Moodys (if Moodys is then rating the Series 3 VRDP Shares) and S&P (if S&P is then rating the Series 3 VRDP Shares)
that such vote is to be taken and the nature of the action with respect to which such vote is to be taken. The Fund shall, not later than 10 Business Days after the date on which such vote is taken, notify Moodys (if Moodys is then
rating the Series 3 VRDP Shares) of the results of such vote.
(iii)
Exclusive Right to Vote on Certain Matters.
Notwithstanding the
foregoing, and except as otherwise required by the 1940 Act, whenever a vote of Holders of Series 3 VRDP Shares is otherwise required by this Statement, the Declaration or applicable law, (i) Holders of Outstanding shares of Series 3 VRDP will
be entitled as a Series, to the exclusion of the holders of all other shares, including other Preferred Shares, Common Shares and other classes of shares of beneficial interest of the Fund, to vote on matters affecting shares of Series 3 VRDP that
do not adversely affect any of the rights of holders of such other shares, including other Preferred Shares, Common Shares and other classes of shares of beneficial interest, as expressly set forth in the Declaration or statement establishing and
designating any such shares, and (ii) Holders of Outstanding shares of Series 3 VRDP will not be entitled to vote on matters affecting any other Preferred Shares that do not adversely affect any of the rights of Holders of shares of Series 3
VRDP, as expressly set forth in the Declaration and this Statement.
A-28
(d)
Board May
Take Certain Actions Without Shareholder Approval.
The Fund is not required to maintain any particular short-term or long-term ratings for the Series 3 VRDP Shares, and, subject only to Section 9 of this Part I, the Board of Trustees,
without the vote or consent of any holder of Preferred Shares, including any Series of VRDP, or any other shareholder of the Fund, may from time to time adopt, amend, alter or repeal any or all of the definitions contained herein, add covenants and
other obligations of the Fund, or confirm the applicability of covenants and other obligations set forth herein, in connection with obtaining, maintaining or changing the rating of any Rating Agency which is then rating the Series 3 VRDP Shares, and
any such adoption, amendment, alteration or repeal will not be deemed to affect the preferences, rights or powers of Series 3 VRDP Shares, or the Holders thereof.
Subject only to Section 9 of this Part I, the Board of Trustees may, at any time, replace a Rating Agency or terminate the services of
any Rating Agencies then providing a rating for the Series 3 VRDP Shares without replacement, in either case, without the approval of Holders of Series 3 VRDP Shares or other shareholders of the Fund. In the event a Rating Agency ceases to furnish a
long-term rating for the Series 3 VRDP Shares or the Fund terminates the services of a Rating Agency then providing a long-term rating for the Series 3 VRDP Shares, such rating, to the extent it would have been taken into account in any of the
provisions of the Series 3 VRDP Shares included in this Statement, will be disregarded, and only the ratings of the then-designated Rating Agency or Agencies, if any, will be taken into account (for the avoidance of doubt, other than the effect of
the absence of such ratings for purposes of determining the Maximum Rate).
Notwithstanding anything herein to the contrary, the Rating
Agency Guidelines, as they may be amended from time to time by the respective Rating Agency, will be reflected in a written document and may be amended by the respective Rating Agency without the vote, consent or approval of the Fund, the Board of
Trustees and any Holders of Series 3 VRDP Shares, or any other shareholder of the Fund.
Notwithstanding the foregoing, nothing in this
Section 5 is intended in any way to limit the ability of (i) the Fund to make certain adjustments in the Remarketing Agreement as provided under the definition of Maximum Rate, subject to the limitations set forth in such
definition, or (ii) the Board of Trustees to amend or alter other provisions of this Statement, without the vote or consent of any Holder of Series 3 VRDP Shares, or any other shareholder of the Fund, as otherwise provided in this Statement.
(e)
Voting Rights Set Forth Herein are Sole Voting
Rights.
Unless otherwise required by law, the Holders of Series 3 VRDP Shares shall not have any voting rights, relative rights or preferences or other special rights other than those specifically set forth herein.
(f)
No Preemptive Rights or Cumulative Voting.
The
Holders of Series 3 VRDP Shares shall have no preemptive rights or rights to cumulative voting.
(g)
Voting for Trustees Sole Remedy for Funds Failure
to Pay Dividends.
In the event that the Fund fails to pay any dividends on the Series 3 VRDP Shares, the exclusive remedy of the Holders shall be the right to vote for trustees pursuant to the provisions of this Section 5.
(h)
Holders Entitled to Vote.
For purposes of determining
any rights of the Holders to vote on any matter, whether such right is created by this Statement, by the other provisions of the Declaration, by statute or otherwise, no Holder shall be entitled to vote any Series 3 VRDP Share and no Series 3 VRDP
Share shall be deemed to be outstanding for the purpose of voting or determining the number of shares required to constitute a quorum if, prior to or concurrently with the time of determination of shares entitled to vote or shares deemed
outstanding for quorum purposes, as the case may be, the requisite Notice of Redemption with respect to such shares shall have been provided as set forth in paragraph (c) of Section 10 of Part I of this Statement and Deposit Securities in
an amount equal to the Redemption Price for the redemption of such shares shall have been deposited in trust with the Tender and Paying Agent for that purpose. Series 3 VRDP Shares owned (legally or beneficially) or controlled by the Fund shall not
have any voting rights or be deemed to be Outstanding for voting or for calculating the voting percentage required on any other matter or other purposes.
A-29
6.
Minimum VRDP
Asset Coverage.
The Fund shall maintain, as of the last Business Day of each month in which any Series 3 VRDP Share is Outstanding, the Minimum VRDP Asset Coverage.
|
7.
VRDP
|
Basic Maintenance Amount.
|
(a) Subject
to paragraph (c) below, so long as Series 3 VRDP Shares are Outstanding, the Fund shall maintain, on each Valuation Date, and shall verify to its satisfaction that it is maintaining on such Valuation Date, (i) Fitch Eligible Assets having
an aggregate Discounted Value equal to or greater than the VRDP Basic Maintenance Amount (if Fitch is then rating the Series 3 VRDP Shares), (ii) Moodys Eligible Assets having an aggregate Discounted Value equal to or greater than the
VRDP Basic Maintenance Amount (if Moodys is then rating the Series 3 VRDP Shares), (iii) S&P Eligible Assets having an aggregate Discounted Value equal to or greater than the VRDP Basic Maintenance Amount (if S&P is then rating
the Series 3 VRDP Shares), and (iv) Other Rating Agency Eligible Assets having an aggregate Discounted Value equal to or greater than the VRDP Basic Maintenance Amount (if any Other Rating Agency is then rating the Series 3 VRDP Shares).
(b) Subject to paragraph (c) below, the Fund shall deliver to each Rating Agency which is
then rating Series 3 VRDP Shares and any other party specified in the Rating Agency Guidelines all certificates that are set forth in the respective Rating Agency Guidelines regarding Minimum VRDP Asset Coverage, the VRDP Basic Maintenance Amount
and/or related calculations at such times and containing such information as set forth in the respective Rating Agency Guidelines (each, a Rating Agency Certificate). Subject to paragraph (c) below, a failure by the Fund to deliver
a Rating Agency Certificate with respect to the VRDP Basic Maintenance Amount shall be deemed to be delivery of a Rating Agency Certificate indicating the Discounted Value for all assets of the Fund is less than the VRDP Basic Maintenance Amount, as
of the relevant Valuation Date.
(c) The Fund is not required to maintain any particular
long-term ratings for the Series 3 VRDP Shares, and the Rating Agency Guidelines may be changed or eliminated at any time without the approval of Holders of Series 3 VRDP Shares or any other shareholders of the Fund, including in connection with the
change or elimination of any or all long-term ratings then applicable to the Series 3 VRDP Shares.
8.
Restrictions on Dividends and Other Distributions.
(a)
Dividends on Preferred 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 shares of beneficial interest of the Fund ranking, as to the payment of dividends, on a parity with Series 3 VRDP Shares for
any period unless full cumulative dividends have been or contemporaneously are declared and paid on the shares of each Series of VRDP through its most recent dividend payment date. When dividends are not paid in full upon the shares of each Series
of VRDP through its most recent dividend payment date or upon the shares of any other class or series of shares of beneficial interest of the Fund ranking on a parity as to the payment of dividends with VRDP Shares through their most recent
respective dividend payment dates, all dividends declared and paid upon VRDP Shares and any other such class or series of shares of beneficial interest ranking on a parity as to the payment of dividends with VRDP Shares shall be declared and paid
pro rata so that the amount of dividends declared and paid per share on VRDP Shares and such other class or series of shares of beneficial interest shall in all cases bear to each other the same ratio that accumulated dividends per share on the VRDP
Shares and such other class or series of shares of beneficial interest bear to each other (for purposes of this sentence, the amount of dividends declared and paid per Series 3 VRDP Share shall be based on the Applicable Rate for such share for the
Dividend Periods during which dividends were not paid in full).
(b)
Dividends and Other Distributions With Respect to Common Shares Under the 1940 Act.
The Board of Trustees shall not declare any dividend (except a dividend payable in Common Shares), or declare any other
distribution, upon the Common Shares, or purchase Common Shares, unless in every such case
A-30
the Preferred Shares have, at the time of any such declaration or purchase, an asset coverage (as defined in and determined pursuant to the 1940 Act) of at least 200% (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are shares or stock of a closed-end investment company as a condition of declaring dividends on its common shares or stock)
after deducting the amount of such dividend, distribution or purchase price, as the case may be.
(c)
Other Restrictions on Dividends and Other
Distributions.
For so long as any Series 3 VRDP Share is Outstanding, and except as set forth in paragraph (a) of this Section 8 and paragraph (c) of Section 11 of this Part I, (A) the Fund shall not declare, pay or set
apart for payment any dividend or other distribution (other than a dividend or distribution paid in shares of, or in options, warrants or rights to subscribe for or purchase, Common Shares or other shares, if any, ranking junior to the Series 3 VRDP
Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up) in respect of the Common Shares or any other shares of the Fund ranking junior to or on a parity with the Series 3 VRDP 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 Fund ranking junior to the Series 3 VRDP Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up), or any such parity shares (except by conversion
into or exchange for shares of the Fund ranking junior to or on a parity with Series 3 VRDP Shares as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up), unless (i) full cumulative dividends
on shares of Series 3 VRDP 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 Tender and Paying Agent and (ii) the Fund has redeemed
the full number of Series 3 VRDP Shares required to be redeemed by any provision for mandatory redemption pertaining thereto, and (B) the Fund shall not declare, pay or set apart for payment any dividend or other distribution (other than a
dividend or distribution paid in shares of, or in options, warrants or rights to subscribe for or purchase, Common Shares or other shares, if any, ranking junior to Series 3 VRDP 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 Fund ranking junior to Series 3 VRDP 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 Fund ranking junior to Series 3 VRDP Shares as to the payment
of dividends and the distribution of assets upon dissolution, liquidation or winding up), unless, to the extent any Rating Agency or Agencies are then providing a long-term rating for the Series 3 VRDP Shares, immediately after such transaction the
Discounted Value of Rating Agency Eligible Assets (as determined by each Rating Agency, if any, then rating the Series 3 VRDP Shares) would at least equal the VRDP Basic Maintenance Amount (if any), if then required by such Rating Agency or
Agencies.
|
9.
|
Short-Term Ratings.
The Fund will use its reasonable best efforts to maintain at least one short-term rating on the Series 3 VRDP Shares, to the extent that the Liquidity Provider
then has a short-term debt rating.
|
10.
Redemption.
(a)
Optional Redemption.
(i) Subject to the provisions of paragraph (iv) of this paragraph (a),
shares of Series 3 VRDP may be redeemed, at the option of the Fund, at any time, as a whole or from time to time in part, out of funds legally available therefor, at a Redemption Price per share equal to the sum of $100,000
plus
an amount
equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to, but not including, the date fixed for redemption;
provided
,
however
, that (1) shares of Series 3 VRDP may not be redeemed in part if after
such partial redemption fewer than 50 shares of such Series remain Outstanding; (2) shares of Series 3 VRDP are not redeemable
A-31
by the Fund during the Initial Rate Period; and (3) subject to subparagraph (ii) of this paragraph (a), the Notice of Special Rate Period relating to a Special Rate Period for shares of
Series 3 VRDP, as delivered to the Remarketing Agent and filed with the Secretary of the Fund, may provide that shares of such Series shall not be redeemable during the whole or any part of such Special Rate Period or shall be redeemable during the
whole or any part of such Special Rate Period only upon payment of such redemption premium or premiums as shall be specified therein (Special Redemption Provisions).
(ii) A Notice of Special Rate Period relating to Series 3 VRDP for a Special
Rate Period thereof may contain Special Redemption Provisions only if the Funds Board of Trustees, after consultation with the Remarketing Agent and the Liquidity Provider, determines that such Special Redemption Provisions are in the best
interest of the Fund.
(iii) If fewer than all of the Outstanding shares
of Series 3 VRDP are to be redeemed pursuant to subparagraph (i) of this paragraph (a), the number of shares of such Series to be redeemed shall be selected either pro rata from the Holders of shares of such Series in proportion to the number
of shares of such Series held by such Holders or by lot or in such manner as the Funds Board of Trustees may determine to be fair and equitable. The Funds Board of Trustees will have the full power and authority to prescribe the terms
and conditions upon which Series 3 VRDP Shares will be redeemed from time to time.
(iv) The Fund may not on any date send a Notice of Redemption pursuant to
paragraph (c) of this Section 10 in respect of a redemption contemplated to be effected pursuant to this paragraph (a) unless on such date (a) the Fund has available Deposit Securities with maturity or tender dates not later than
the day preceding the applicable redemption date and having a value not less than the amount (including any applicable premium) due to Holders of Series 3 VRDP Shares by reason of the redemption of such shares on such redemption date and
(b) the Discounted Value of Fitch Eligible Assets (if Fitch is then rating the Series 3 VRDP Shares), the Discounted Value of Moodys Eligible Assets (if Moodys is then rating the Series 3 VRDP Shares) and the Discounted Value of
S&P Eligible Assets (if S&P is then rating the Series 3 VRDP Shares) each at least equals the VRDP Basic Maintenance Amount, and would at least equal the VRDP Basic Maintenance Amount immediately subsequent to such redemption if such
redemption were to occur on such date. For purposes of determining in clause (b) of the preceding sentence whether the Discounted Value of Moodys Eligible Assets at least equals the VRDP Basic Maintenance Amount, the Moodys Discount
Factors applicable to Moodys Eligible Assets shall be determined by reference to the first Exposure Period longer than the Exposure Period then applicable to the Fund, as described in the definition of Moodys Discount Factor herein.
(b)
Mandatory Redemption.
(i) (A) The Fund shall redeem
all Outstanding Series 3 VRDP Shares on December 1, 2042, at a Redemption Price equal to $100,000 per share
plus
accumulated but unpaid dividends thereon (whether or not earned or declared) to, but excluding, such date.
(B) Except as otherwise provided below, the Fund shall redeem Preferred Shares, if the Fund
fails to, if applicable, have Fitch Eligible Assets (if Fitch is then rating the Series 3 VRDP Shares) with a Discounted Value, Moodys Eligible Assets (if Moodys is then rating the Series 3 VRDP Shares) with a Discounted Value, S&P
Eligible Assets (if S&P is then rating the Series 3 VRDP Shares) with a Discounted Value, or Other Rating Agency Eligible Assets (if any Other Rating Agency is then rating the Series 3 VRDP Shares) with a Discounted Value greater than or equal
to the VRDP Basic Maintenance Amount, and such failure is not cured on or before the VRDP Basic Maintenance Cure Date. In the event of failure by the Fund to have Rating Agency Eligible Assets with a Discounted Value greater than or equal to the
VRDP Basic Maintenance
A-32
Amount, if then applicable, the Fund may seek to cure such failure on or prior to the VRDP Basic Maintenance Cure Date by complying with the requirements of the Rating Agency or Rating Agencies,
if any, then rating the Series 3 VRDP Shares as in effect at the time of failure. Alternatively, on or prior to such VRDP Basic Maintenance Cure Date, the Fund may choose to cure by (a) complying with the VRDP Basic Maintenance Amount
applicable to long-term ratings for the Series 3 VRDP Shares lower than the ratings prevailing at the time of failure or (b) terminating the services of the Rating Agency or Agencies then providing a long-term rating of the Series 3 VRDP
Shares. The number of Preferred Shares to be redeemed, which at the Funds sole option (to the extent permitted by the 1940 Act and Massachusetts law) may include any number or proportion of Preferred Shares of any series, shall be equal to the
lesser of (i) the minimum number of Preferred Shares, together with all other Preferred Shares subject to retirement, the redemption of which, if deemed to have occurred immediately prior to the opening of business on the VRDP Basic Maintenance
Cure Date, would result in the Funds having each of Fitch Eligible Assets (if Fitch is then rating the Series 3 VRDP Shares) with a Discounted Value, Moodys Eligible Assets (if Moodys is then rating the Series 3 VRDP Shares) with a
Discounted Value, S&P Eligible Assets (if S&P is then rating the Series 3 VRDP Shares) with a Discounted Value and Other Rating Agency Eligible Assets (if any Other Rating Agency is then rating the Series 3 VRDP Shares) with a Discounted
Value greater than or equal to the VRDP Basic Maintenance Amount on such VRDP Basic Maintenance Cure Date (
provided
,
however
, that, if there is no such minimum number of Preferred Shares the redemption or retirement of which would have
such result, all Series 3 VRDP Shares and other Preferred Shares then outstanding shall be redeemed), and (ii) the maximum number of Preferred Shares, together with all other Preferred Shares subject to retirement, that can be redeemed out of
funds legally available therefor in accordance with the Declaration and applicable law. To the extent that the Fund redeems VRDP Shares in accordance with the foregoing, the Fund shall allocate the number to be redeemed
pro rata
among each
Series of VRDP subject to redemption or retirement. The Fund shall effect such redemption on the date fixed by the Fund therefor, which date shall not be earlier than 10 days nor later than 30 days after the VRDP Basic Maintenance Cure Date, except
that if the Fund does not have funds legally available for the redemption of all of the required number of VRDP Shares and other Preferred Shares which are subject to redemption or retirement or the Fund otherwise is unable as a result of applicable
law to effect such redemption on or prior to 30 days after the VRDP Basic Maintenance Cure Date, the Fund shall redeem those VRDP Shares and other Preferred Shares which it was unable to redeem on the earliest practicable date on which it is able to
effect such redemption. The Fund will redeem any Series 3 VRDP Shares at a redemption price equal to $100,000 per share, plus accumulated but unpaid dividends thereon (whether or not earned or declared) to, but excluding, the date fixed by the Board
of Trustees for redemption.
(C) The Fund shall redeem Preferred Shares, if the Fund fails
to maintain the Minimum VRDP Asset Coverage in accordance with this Statement, and such failure is not cured on or before the Minimum VRDP Asset Coverage Cure Date. The number of Preferred Shares to be redeemed, which at the Funds sole option
(to the extent permitted by the 1940 Act and Massachusetts law) may include any number or proportion of Preferred Shares of any series, shall be equal to the lesser of (i) the minimum number of Preferred Shares, together with all other
Preferred Shares subject to retirement, the redemption of which, if deemed to have occurred immediately prior to the opening of business on the Minimum VRDP Asset Coverage Cure Date, would result in the Funds maintaining the Minimum VRDP
Asset Coverage on such Minimum VRDP Asset Coverage Cure Date (
provided
,
however
, that, if there is no such minimum number of Preferred Shares the redemption or retirement of which would have such result, all VRDP Shares and other
Preferred Shares then outstanding shall be redeemed), and (ii) the maximum number of Preferred Shares, together with all other Preferred Shares subject to retirement, that can be redeemed out of funds legally available therefor in accordance
with the Declaration and applicable law. To the extent that the Fund redeems VRDP Shares in accordance with the foregoing, the Fund shall allocate the number to be redeemed
pro rata
among each Series of VRDP subject to redemption or
retirement. The Fund shall effect such redemption on the date fixed by the Fund therefor, which date shall not be earlier than 10 days nor later than 30 days after the Minimum VRDP Asset Coverage Cure Date, except that if the Fund does not have
funds legally available for the redemption of all of the required number of VRDP Shares and other Preferred Shares which are subject to redemption or retirement or the Fund otherwise is unable as a result of applicable law to effect such redemption
on or prior to 30 days after the Minimum VRDP Asset
A-33
Coverage Cure Date, the Fund shall redeem those VRDP Shares and other Preferred Shares which it was unable to redeem on the earliest practicable date on which it is able to effect such
redemption. The Fund will redeem any Series 3 VRDP Shares at a redemption price equal to $100,000 per share, plus accumulated but unpaid dividends thereon (whether or not earned or declared) to, but excluding, the date fixed by the Board of Trustees
for redemption.
(D) Except in the case of a Failed Remarketing ConditionPurchased
VRDP Shares Redemption, as described below, if fewer than all of the Outstanding shares of Series 3 VRDP are to be redeemed pursuant to this paragraph (b), the number of shares of such Series to be redeemed shall be redeemed pro rata, by lot or
other fair method, from the Holders of shares of such Series in proportion to the number of shares of such Series held by such Holders.
(ii) (A) In accordance with this Statement and
if then required pursuant to the VRDP Fee Agreement, if the Liquidity Provider acquires any Series 3 VRDP Shares pursuant to the Purchase Obligation and continues to be the beneficial owner for federal income tax purposes of such Purchased VRDP
Shares for a period of six months during which such Purchased VRDP Shares cannot be successfully remarketed (i.e., a Failed Remarketing ConditionPurchased VRDP Shares shall have occurred and be continuing for such period of time with respect
to such Purchased VRDP Shares), the Fund shall effect a Failed Remarketing ConditionPurchased VRDP Shares Redemption;
provided
, that, as of the date of redemption: (i) to the extent any Series 3 VRDP Shares are Outstanding and held
by Persons other than the Liquidity Provider, the Purchase Obligation of the Liquidity Provider whose Series 3 VRDP Shares are subject to the Failed Remarketing ConditionPurchased VRDP Shares Redemption remains in effect to the extent required
by, and in accordance with, the VRDP Purchase Agreement to which such Liquidity Provider is a party, and (ii) to the extent (a) any Series 3 VRDP Shares are Outstanding and held by Persons other than the Liquidity Provider and (b) the
Purchase Obligation of the Liquidity Provider whose Series 3 VRDP Shares are subject to the Failed Remarketing ConditionPurchased VRDP Shares Redemption remains in effect to the extent required by, and in accordance with, the VRDP Purchase
Agreement to which such Liquidity Provider is a party, the Liquidity Provider whose Series 3 VRDP Shares are subject to the Failed Remarketing ConditionPurchased VRDP Shares Redemption shall have made written affirmation to the Fund not later
than the Business Day immediately preceding the Redemption Date to the effect that the Liquidity Provider is in compliance with the Purchase Obligation in accordance with its terms. Notwithstanding the foregoing proviso, any failure or delay by the
Liquidity Provider whose Series 3 VRDP Shares are subject to the Failed Remarketing ConditionPurchased VRDP Shares Redemption to deliver the affirmation referred to in the foregoing proviso shall not relieve the Fund of its obligation to
effectuate a Failed Remarketing ConditionPurchased VRDP Shares Redemption and shall only result in a delay by the Fund to effectuate a Failed Remarketing ConditionPurchased VRDP Shares Redemption until one (1) Business Day following
the date that such Liquidity Provider delivers such affirmation or such affirmation is no longer required. The six-month holding period for Purchased VRDP Shares acquired and held as a result of a continuing Failed Remarketing
ConditionPurchased VRDP Shares shall be determined by the Fund on a first-in, first-out basis. The Fund shall effect a Failed Remarketing ConditionPurchased VRDP Shares Redemption on the date fixed by the Fund therefor, which date shall
not be later than three Business Days after the expiration of the six-month period, except that if the Fund does not have funds legally available for the redemption of all of the required number of Purchased VRDP Shares which are subject to the
Failed Remarketing ConditionPurchased VRDP Shares Redemption or the Fund otherwise is unable as a result of applicable law to effect such redemption on or prior to three Business Days after the expiration of the six-month period, the Fund
shall redeem those Series 3 VRDP Shares which it was unable to redeem on the earliest practicable date on which it is able to effect such redemption.
(B) Upon the occurrence and continuance of a Failed Remarketing
ConditionPurchased VRDP Shares with respect to any Series 3 VRDP Shares, by the fifth Business Day following delivery of notice thereof from the Liquidity Provider in accordance with the VRDP Fee Agreement, the Fund shall cause the Custodian
to segregate, by means of appropriate identification on its books and records or otherwise in accordance with the Custodians normal
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procedures, from the other assets of the Fund (a Liquidity Account) Liquidity Account Investments with a Market Value equal to at least 110% of the Liquidation Preference of such
Purchased VRDP Shares. If, while the Failed Remarketing ConditionPurchased VRDP Shares with respect to such Purchased VRDP Shares is continuing, the aggregate Market Value of the Liquidity Account Investments included in the Liquidity Account
for such Purchased VRDP Shares as of the close of business on any Business Day is less than 110% of the Liquidation Preference of such Purchased VRDP Shares, then the Fund shall cause the Custodian and the Investment Adviser to take all such
necessary actions, including segregating additional assets of the Fund as Liquidity Account Investments, so that the aggregate Market Value of the Liquidity Account Investments included in the Liquidity Account for such Purchased VRDP Shares is at
least equal to 110% of the Liquidation Preference of such Purchased VRDP Shares not later than the close of business on the next succeeding Business Day. With respect to assets of the Fund segregated as Liquidity Account Investments, the Investment
Adviser, on behalf of the Fund, shall be entitled to instruct the Custodian with a copy to the Liquidity Provider on any date to release any Liquidity Account Investments with respect to any Purchased VRDP Shares from such segregation and to
substitute therefor other Liquidity Account Investments, so long as (x) the assets of the Fund segregated as Liquidity Account Investments with respect to such Purchased VRDP Shares at the close of business on such date have a Market Value
equal to 110% of the Liquidation Preference of such Purchased VRDP Shares and (y) the assets of the Fund designated and segregated as Deposit Securities at the close of business on such date have a Market Value equal to the Liquidity
Requirement (if any) determined in accordance with paragraph (C) below with respect to such Purchased VRDP Shares for such date. The Fund shall cause the Custodian not to permit any lien, security interest or encumbrance to be created or
permitted to exist on or in respect of any Liquidity Account Investments included in the Liquidity Account for any Purchased VRDP Shares, other than liens, security interests or encumbrances arising by operation of law and any lien of the Custodian
with respect to the payment of its fees or repayment for its advances.
(C) Subject to notice having been received as referred to in subsection
(B) above, the Market Value of the Deposit Securities held in the Liquidity Account for any Purchased VRDP Shares, from and after the day (or if such day is not a Business Day, the next succeeding Business Day) preceding the expiration of the
six-month period for the Failed Remarketing ConditionPurchased VRDP Shares applicable to such Purchased VRDP Shares (which, for the avoidance of doubt, may result in multiple six month periods, each in respect of a Failed Remarketing
ConditionPurchased VRDP Shares in respect of applicable Purchased VRDP Shares) specified in the table set forth below, shall not be less than the percentage of the Liquidation Preference for such Purchased VRDP Shares set forth below opposite
such day (the Liquidity Requirement), but in all cases subject to the cure provisions of paragraph (D) below:
|
|
|
|
|
Number of Days*
Preceding
|
|
Value of Deposit Securities
as Percentage of Liquidation Preference
|
|
135
|
|
|
20
|
%
|
105
|
|
|
40
|
%
|
75
|
|
|
60
|
%
|
45
|
|
|
80
|
%
|
15
|
|
|
100
|
%
|
*
|
Or if such day is not a Business Day, the next succeeding Business Day
|
(D) If the aggregate Market Value of the Deposit Securities included in the
Liquidity Account for any Purchased VRDP Shares as of the close of business on any Business Day is less than the Liquidity Requirement in respect of such Purchased VRDP Shares for such Business Day,
A-35
then the Fund shall cause the segregation of additional or substitute Deposit Securities in respect of the Liquidity Account for such Purchased VRDP Shares, so that the aggregate Market Value of
the Deposit Securities included in the Liquidity Account for such Purchased VRDP Shares is at least equal to the Liquidity Requirement for such Purchased VRDP Shares not later than the close of business on the next succeeding Business Day.
(E) The Deposit Securities included in the Liquidity Account for any Purchased
VRDP Shares may be applied by the Fund, in its discretion, towards payment of the Redemption Price for such Purchased VRDP Shares. Upon the earlier to occur of (x) the successful remarketing of the Purchased VRDP Shares or (y) the deposit
by the Fund with the Tender and Paying Agent with arrangements satisfactory to the Liquidity Provider of Deposit Securities having an initial combined Market Value sufficient to effect the redemption of such Purchased VRDP Shares on the Redemption
Date for such Purchased VRDP Shares, the requirement of the Fund to maintain a Liquidity Account for such Purchased VRDP Shares as contemplated by this Section 10(b)(ii) shall lapse and be of no further force and effect.
(F) The provisions of paragraphs (A) through (E) of this
Section 10(b)(ii) may be amended by the Fund, by resolution of the Board of Trustees duly adopted, without shareholder approval in order to conform to the terms of a VRDP Fee Agreement or as otherwise necessary or desirable in the judgment of
the Board of Trustees, provided that the Fund receives the prior written consent of the Liquidity Provider.
(iii) At least six months prior to the scheduled mandatory Redemption Date of
December 1, 2042 specified in Section 10(b)(i) above, if any Series 3 VRDP Shares then remain Outstanding, the Fund shall cause the Custodian to segregate in a Liquidity Account (but without duplication of any Liquidity Account then in
effect pursuant to Section 10(b)(ii) above), by means of appropriate identification on its books and records or otherwise in accordance with the Custodians normal procedures, from the other assets of the Fund, Liquidity Account
Investments with a Market Value equal to at least 110% of the Liquidation Preference of the then Outstanding Series 3 VRDP Shares. The Fund shall maintain such Liquidity Account in accordance with Section 10(b)(ii)(B), (C) and
(D) above and comply with the requirements set forth therein with respect to Liquidity Account Investments and the Liquidity Requirement;
provided
, that for purposes of this Section 10(b)(iii) all references therein to Purchased
VRDP Shares shall be deemed to be to all Outstanding Series 3 VRDP Shares, all references therein to the Failed Remarketing ConditionPurchased VRDP Shares or the related six-month period shall be deemed to be to the six-month period preceding
the scheduled mandatory Redemption Date of December 1, 2042, and the references to notice by the Liquidity Provider shall not be applicable. The Deposit Securities included in the Liquidity Account for the Outstanding Series 3 VRDP Shares may
be applied by the Fund, in its discretion, towards payment of the Redemption Price for the Outstanding Series 3 VRDP Shares. Upon the deposit by the Fund with the Tender and Paying Agent with arrangements satisfactory to the Liquidity Provider of
Deposit Securities having an initial combined Market Value sufficient to effect the redemption of the Outstanding Series 3 VRDP Shares on the December 1, 2042 Redemption Date for the Outstanding Series 3 VRDP Shares, the requirement of the Fund
to maintain a Liquidity Account for the Outstanding Series 3 VRDP Shares as contemplated by this Section 10(b)(iii) shall lapse and be of no further force and effect.
(c)
Notice of Redemption.
If the Fund shall determine or
be required to redeem, in whole or in part, shares of Series 3 VRDP pursuant to paragraph (a) or (b)(i) of this Section 10, the Fund will send a notice of redemption (the Notice of Redemption), by Electronic Means (or by first
class mail, postage prepaid, in the case where the Series 3 VRDP Shares are in physical form), to Holders thereof and the Liquidity Provider or, in the case of a redemption pursuant to paragraph (b)(ii) of this Section 10, only to the Liquidity
Provider, or request the Tender and Paying Agent, on behalf of the Fund to promptly do so by Electronic Means (or by first class mail, postage prepaid, in the case where the Series 3 VRDP Shares are in physical form) so long as the Notice of
Redemption is furnished by the Fund to the Tender and Paying Agent in electronic format at least five
A-36
(5) Business Days prior to the date a Notice of Redemption is required to be delivered to the Holders, unless a shorter period of time shall be acceptable to the Tender and Paying Agent. A
Notice of Redemption shall be sent to Holders not less than 10 days prior to the date fixed for redemption in such Notice of Redemption (the Redemption Date). Each such Notice of Redemption shall state: (i) the Redemption Date;
(ii) the number of Series 3 VRDP Shares to be redeemed and the Series thereof; (iii) the CUSIP number for VRDP Shares of such Series; (iv) the Redemption Price; (v) the place or places where the certificate(s), if any, for such
VRDP Shares (properly endorsed or assigned for transfer, if the Board of Trustees requires and the Notice of Redemption states) are to be surrendered for payment of the Redemption Price; (vi) that dividends on the Series 3 VRDP Shares to be
redeemed will cease to accumulate from and after such Redemption Date; and (vii) the provisions of this Statement under which such redemption is made. If fewer than all Series 3 VRDP Shares held by any Holder are to be redeemed, the Notice of
Redemption delivered to such Holder shall also specify the number of Series 3 VRDP Shares to be redeemed from such Holder. The Fund may provide in any Notice of Redemption relating to a redemption contemplated to be effected pursuant to this
Statement that such redemption is subject to one or more conditions precedent and that the Fund shall not be required to effect such redemption unless each such condition has been satisfied at the time or times and in the manner specified in such
Notice of Redemption. No defect in the Notice of Redemption or delivery thereof shall affect the validity of redemption proceedings, except as required by applicable law.
(d)
No Redemption Under Certain Circumstances.
Notwithstanding the provisions of paragraphs (a) or (b) of this Section 10, if any dividends on shares of Series 3 VRDP (whether or not earned or declared) are in arrears, no shares of such Series shall be redeemed unless all
Outstanding shares of such Series are simultaneously redeemed, and the Fund shall not purchase or otherwise acquire any shares of such Series;
provided
,
however
, that the foregoing shall not prevent the purchase or acquisition of all
Outstanding shares of such Series pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to, and accepted by, Holders of all Outstanding shares of such Series.
(e)
Absence of Funds Available for Redemption.
To the
extent that any redemption for which Notice of Redemption has been provided is not made by reason of the absence of legally available funds therefor in accordance with the Declaration and applicable law, such redemption shall be made as soon as
practicable to the extent such funds become available. Failure to redeem Series 3 VRDP Shares shall be deemed to exist at any time after the date specified for redemption in a Notice of Redemption when the Fund shall have failed, for any reason
whatsoever, to deposit in trust with the Tender and Paying Agent the Redemption Price with respect to any shares for which such Notice of Redemption has been sent;
provided
,
however
, that the foregoing shall not apply in the case of
the Funds failure to deposit in trust with the Tender and Paying Agent the Redemption Price with respect to any shares where (1) the Notice of Redemption relating to such redemption provided that such redemption was subject to one or more
conditions precedent and (2) any such condition precedent shall not have been satisfied at the time or times and in the manner specified in such Notice of Redemption. Notwithstanding the fact that the Fund may not have redeemed Series 3 VRDP
Shares for which a Notice of Redemption has been provided, dividends may be declared and paid on Series 3 VRDP Shares and shall include those Series 3 VRDP Shares for which a Notice of Redemption has been provided.
(f)
Tender and Paying Agent as Trustee of Redemption Payments
by Fund.
All moneys paid to the Tender and Paying Agent for payment of the Redemption Price of Series 3 VRDP Shares called for redemption shall be held in trust by the Tender and Paying Agent for the benefit of Holders of shares so to be
redeemed.
(g)
Deposit with the Tender and Paying Agent;
Shares for Which Notice of Redemption Has Been Given Are No Longer Outstanding.
Provided a Notice of Redemption has been provided pursuant to paragraph (c) of this Section 10, not later than 12:00 noon, New York City time, on a
Business Day not less than ten (10) days preceding the redemption date specified in such notice, the Fund shall irrevocably deposit with the Tender and Paying Agent an aggregate amount of Deposit Securities in an amount equal to the Redemption
Price to be paid on the redemption date for the Series 3 VRDP Shares that are subject to such notice. Provided a Notice
A-37
of Redemption has been provided pursuant to paragraph (c) of this Section 10, upon the deposit with the Tender and Paying Agent of Deposit Securities in an amount equal to the
Redemption Price to be paid on the redemption date for the Series 3 VRDP Shares that are the subject of such notice, dividends on such shares shall cease to accumulate, except as included in the Redemption Price, and such shares shall no longer be
deemed to be Outstanding, except as noted below with respect to the VRDP Purchase Agreement, for any purpose, and all rights of the Holders of the shares so called for redemption shall cease and terminate, except the right of such Holders to receive
the Redemption Price, but without any interest or other additional amount, except as provided in paragraph (e)(i) of Section 2 of this Part I and in Section 3 of Part I of this Statement. Upon surrender in accordance with the Notice of
Redemption of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Trustees shall so require and the Notice of Redemption shall so state), the Redemption Price shall be paid by the Tender and
Paying Agent to the Holders of Series 3 VRDP Shares subject to redemption. In the case that fewer than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued, representing the unredeemed shares, without
cost to the Holder thereof. The Fund shall be entitled to receive from the Tender and Paying Agent, promptly after the date fixed for redemption, any cash deposited with the Tender and Paying Agent in excess of (i) the aggregate Redemption
Price of the Series 3 VRDP Shares called for redemption on such date and (ii) all other amounts to which Holders of Series 3 VRDP Shares called for redemption may be entitled. Any funds so deposited that are unclaimed at the end of 90 days from
such redemption date shall, to the extent permitted by law, be repaid to the Fund, after which time the Holders of Series 3 VRDP Shares so called for redemption may look only to the Fund for payment of the Redemption Price and all other amounts to
which they may be entitled. The Fund shall be entitled to receive, from time to time after the date fixed for redemption, any interest on the funds so deposited. Notwithstanding the foregoing, Series 3 VRDP Shares will be deemed to be Outstanding
for purposes of the VRDP Purchase Agreement until redeemed by the Fund.
(h)
Compliance With Applicable Law.
In effecting any redemption pursuant to this Section 10, the Fund shall use its best efforts to comply with all applicable conditions precedent to effecting such redemption
under the 1940 Act and any applicable Massachusetts law, but shall effect no redemption except in accordance with the 1940 Act and any applicable Massachusetts law.
(i)
Only Whole VRDP Shares May Be Redeemed.
In the case
of any redemption pursuant to this Section 10, only whole Series 3 VRDP Shares shall be redeemed, and in the event that any provision of the Declaration would require redemption of a fractional share, the Tender and Paying Agent shall be
authorized to round up so that only whole shares are redeemed.
(j)
Modification of Redemption Procedures.
Notwithstanding the foregoing provisions of this Section 10, the Fund may, in its sole discretion, modify the procedures set forth above with respect to notification of
redemption for the Series 3 VRDP Shares,
provided
that such modification does not materially and adversely affect the Holders of the Series 3 VRDP Shares or cause the Fund to violate any law, rule or regulation; and provided further that no
such modification shall in any way alter the obligations of the Tender and Paying Agent without its prior written consent. Furthermore, if in the sole discretion of the Board of Trustees, after consultation with counsel, modification of the
foregoing redemption provisions are permissible under the rules and regulations or interpretations of the SEC and the Code with respect to the redemption of Series 3 VRDP Shares owned by the Liquidity Provider, the Fund, without shareholder
approval, by resolution of the Board of Trustees, may modify such redemption procedures.
(a)
Ranking.
The shares of Series 3 VRDP shall rank on a
parity with each other, with shares of any other Series of VRDP and with shares of any other series of Preferred Shares as to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund.
(b)
Distributions Upon Liquidation.
Upon the dissolution,
liquidation or winding up of the affairs of the Fund, whether voluntary or involuntary, the Holders of Series 3 VRDP Shares then outstanding
A-38
shall be entitled to receive and to be paid out of the assets of the Fund available for distribution to its shareholders, before any payment or distribution shall be made on the Common Shares or
on any other class of shares of the Fund ranking junior to the Series 3 VRDP Shares upon dissolution, liquidation or winding up, an amount equal to the Liquidation Preference with respect to such shares plus an amount equal to all dividends thereon
(whether or not earned or declared) accumulated but unpaid to (but not including) the date of final distribution in same day funds, together with any payments required to be made pursuant to Section 3 of Part I of this Statement in connection
with the liquidation of the Fund. After the payment to the Holders of the Series 3 VRDP Shares of the full preferential amounts provided for in this paragraph (b), the Holders of Series 3 VRDP Shares as such shall have no right or claim to any of
the remaining assets of the Fund.
(c)
Pro Rata
Distributions.
In the event the assets of the Fund available for distribution to the Holders of Series 3 VRDP Shares upon any dissolution, liquidation or winding up of the affairs of the Fund, whether voluntary or involuntary, shall be
insufficient to pay in full all amounts to which such Holders are entitled pursuant to paragraph (b) of this Section 11, no such distribution shall be made on account of Series 3 VRDP or any shares of any other class or series of Preferred
Shares ranking on a parity with the Series 3 VRDP Shares with respect to the distribution of assets upon such dissolution, liquidation or winding up unless proportionate distributive amounts shall be paid on account of the Series 3 VRDP Shares,
ratably, in proportion to the full distributable amounts for which holders of all such parity shares are respectively entitled upon such dissolution, liquidation or winding up.
(d)
Rights of Junior Shares.
Subject to the rights of the
holders of shares of any series or class or classes of shares ranking on a parity with the Series 3 VRDP Shares with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund, after payment shall
have been made in full to the Holders of the Series 3 VRDP Shares as provided in paragraph (b) of this Section 11, but not prior thereto, any other series or class or classes of shares ranking junior to the Series 3 VRDP Shares with
respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the Holders of the Series 3 VRDP Shares shall not be entitled to share therein.
(e)
Certain Events Not Constituting Liquidation.
Neither
the sale of all or substantially all the property or business of the Fund, nor the merger, consolidation or reorganization of the Fund into or with any business or statutory trust, corporation or other entity nor the merger, consolidation or
reorganization of any business or statutory trust, corporation or other entity into or with the Fund shall be a dissolution, liquidation or winding up, whether voluntary or involuntary, for the purposes of this Section 11.
12.
Purchase Obligation.
As long as Series 3 VRDP Shares
are Outstanding, except as otherwise provided pursuant to Section 4 of Part I of this Statement in connection with a Special Rate Period, the Fund shall maintain a VRDP Purchase Agreement providing for a Purchase Obligation with a Liquidity
Provider with short-term debt ratings in one of the two highest ratings categories from the Requisite NRSROs or, if applicable, such other short-term debt ratings as may be required for the Series 3 VRDP Shares to satisfy the eligibility criteria
under Rule 2a-7 under the 1940 Act on an ongoing basis to the extent that the Fund can do so on a commercially reasonable basis as determined in the sole discretion of the Board of Trustees. If the Fund maintains a VRDP Purchase Agreement providing
a Purchase Obligation, the provisions herein relating to the Liquidity Provider shall be operative and the following shall apply:
(a) The Fund shall notify, or cause the Tender and Paying Agent to notify, Holders by
Electronic Means, or by first class mail, postage prepaid, in the case in which Series 3 VRDP Shares are in physical form, (A) in the event of a Mandatory Tender Event or Mandatory Purchase Event, (B) upon at least seven days prior
notice in the event that there is a substitute Liquidity Provider (including, but not limited to, as to the Liquidity Provider, its consolidation, amalgamation with, or merger with or into, another entity, or the transfer of all or substantially all
of the Liquidity Providers assets to another entity), or (C) any downgrade in the rating of the Series 3 VRDP Shares or the Liquidity Provider by an NRSRO then rating the Series 3 VRDP Shares or Liquidity Provider.
A-39
(b) In the event of a Failed Remarketing
Condition, the Fund will require in the Tender and Paying Agent Agreement that the Tender and Paying Agent will notify the Fund and Holders by telephone or Electronic Means, or by first class mail, postage prepaid, in the case in which Series 3 VRDP
Shares are in physical form, of such Failed Remarketing Condition.
(c) Each Series 3 VRDP
Share shall be subject to Tender to the Tender and Paying Agent for Remarketing on the related Purchase Date or, in the event (i) no Remarketing occurs or (ii) pursuant to an attempted Remarketing shares remain unsold and the Remarketing
Agent does not purchase for its own account the unsold Series 3 VRDP Shares tendered to the Tender and Paying Agent for Remarketing (provided that the Remarketing Agent may seek to sell such Series 3 VRDP Shares in a subsequent Remarketing prior to
the Purchase Date), to the Liquidity Provider for purchase on such Purchase Date pursuant to a Final Notice of Purchase. If there is no Tender and Paying Agent or the Tender and Paying Agent does not perform such obligation pursuant to the VRDP
Purchase Agreement, Beneficial Owners and their Agent Members shall have the right to tender their Series 3 VRDP Shares directly to the Liquidity Provider pursuant to a Final Notice of Purchase. In the event there is no Tender and Paying Agent or
for any reason the Tender and Paying Agent does not, or in the reasonable judgment of the Fund will not, perform its obligations under the VRDP Purchase Agreement, the Fund (i) upon becoming aware thereof, shall promptly notify the Liquidity
Provider, the Remarketing Agent and Holders by Electronic Means of such event, and (ii) so long as such event is continuing, shall use its best efforts to direct the Remarketing Agent to forward, concurrently with the delivery thereof to the
Liquidity Provider or as promptly as practicable thereafter, any Remarketing Notice to each Beneficial Owner or Holder tendering Series 3 VRDP Shares that are the subject of such notice.
(d) The Fund will require in the Tender and Paying Agent Agreement that, pursuant to a Tender,
Series 3 VRDP Shares that are not sold in a Remarketing will be tendered by the Tender and Paying Agent to the Liquidity Provider for payment of the Purchase Price on the Purchase Date pursuant to the VRDP Purchase Agreement.
(e) Except as set forth in Section 10(b)(ii) of Part I of this Statement in connection
with a mandatory redemption of Series 3 VRDP Shares, the Fund shall have no obligation to purchase Series 3 VRDP Shares acquired by the Liquidity Provider pursuant to the VRDP Purchase Agreement or otherwise.
(f) Series 3 VRDP Shares are subject to Mandatory Purchase by the Liquidity Provider upon the
occurrence of a Mandatory Purchase Event. Promptly following the occurrence of a Mandatory Purchase Event, and in any event within three (3) Business Days thereafter, the Fund, or the Tender and Paying Agent at the direction of the Fund
(
provided
, that the Tender and Paying Agent may require up to two (2) Business Days prior notification by Electronic Means by the Fund), shall provide a Mandatory Purchase Notice by Electronic Means to Holders and the Liquidity Provider,
specifying a Mandatory Purchase Date for all Outstanding Series 3 VRDP Shares. The Mandatory Purchase Date shall not be later than seven days following the date a Mandatory Purchase Notice is sent to Holders by Electronic Means, and in any event
shall be not later than the Business Day immediately preceding the termination of the VRDP Purchase Agreement. Any notice given in respect of a Mandatory Purchase under this Statement shall be conclusively presumed to have been duly given, whether
or not the Holders receive such notice. Upon the occurrence of a Mandatory Purchase Event, all Outstanding Series 3 VRDP Shares automatically shall be subject to Mandatory Purchase by the Liquidity Provider at the Purchase Price on the Mandatory
Purchase Date, including any Series 3 VRDP Shares tendered pursuant to an Optional Tender and Mandatory Tender for which the Purchase Date has not yet occurred.
(g) In the event Series 3 VRDP Shares are issued in certificated form and a Holder fails to
deliver such Series 3 VRDP Shares to which a Mandatory Purchase relates, on or prior to the Mandatory Purchase Date, the Holder of such Series 3 VRDP Shares will not be entitled to any payment (including any accumulated but unpaid dividends thereon,
whether or not earned or declared) other than the Purchase Price of such undelivered Series 3 VRDP Shares as of the scheduled Purchase Date. Any such undelivered VRDP Shares will be deemed to be delivered to the Tender and Paying Agent, and the
Tender and Paying Agent will place
A-40
stop-transfer orders against the undelivered Series 3 VRDP Shares. Any moneys held by the Tender and Paying Agent for the purchase of undelivered Series 3 VRDP Shares shall be held in a separate
account, shall not be invested, and shall be held for the exclusive benefit of the Holder of such undelivered Series 3 VRDP Shares. The undelivered Series 3 VRDP Shares shall be deemed to be no longer Outstanding (except as to entitlement to payment
of the Purchase Price), and the Fund will issue to the purchaser replacement Series 3 VRDP Share certificates in lieu of such undelivered Series 3 VRDP Shares.
(h) The Fund shall use its best efforts to engage at all times a Tender and Paying Agent to
perform the duties specified in this Statement, the Tender and Paying Agent Agreement and the VRDP Purchase Agreement with respect to the Tender and Paying Agent.
The provisions of paragraphs (a) through (g) of this Section 12 may be amended by the Board of Trustees, by resolution duly
adopted, without shareholder approval in order to conform to a VRDP Purchase Agreement providing a Purchase Obligation.
13.
Miscellaneous.
(a)
Amendment of or Supplements to this Statement.
The
Board of Trustees may, by resolution duly adopted, without shareholder approval (except as otherwise provided by this Statement or required by applicable law), amend or supplement this Statement to (1) reflect any amendments or supplements
hereto which the Board of Trustees is entitled to adopt pursuant to the terms of this Statement without shareholder approval or (2) provide for the issuance of additional shares of Series 3 VRDP (and terms relating thereto). Each such
additional share of Series 3 VRDP shall be governed by the terms of this Statement as so amended or supplemented.
(b)
No Fractional Shares.
No fractional Series 3 VRDP
Shares shall be issued.
(c)
Status of VRDP Shares
Redeemed, Exchanged or Otherwise Acquired by the Fund.
Series 3 VRDP Shares which are redeemed, exchanged or otherwise acquired by the Fund shall return to the status of authorized and unissued Preferred Shares without designation as to series,
provided
,
however
, that any Series 3 VRDP Shares which are provisionally delivered by the Fund to or for the account of an agent of the Fund or to or for the account of a purchaser of the Series 3 VRDP Shares, but for which final
payment is not received by the Fund, shall return to the status of authorized and unissued Series 3 VRDP Shares.
(d)
Purchase Obligation Part of VRDP Shares.
Each Holder
and Beneficial Owner, by virtue of acquiring Series 3 VRDP Shares, is deemed to have agreed, for U.S. federal income tax purposes, to treat the Purchase Obligation as part of the Series 3 VRDP Shares rather than as a separate property right.
(e)
Treatment of VRDP Shares as Stock.
Each Holder and
Beneficial Owner, by virtue of acquiring Series 3 VRDP Shares, is deemed to have agreed, for U.S. federal income tax purposes, to treat the Series 3 VRDP Shares as stock in the Fund.
(f)
Board May Resolve Ambiguities.
To the extent
permitted by applicable law, the Board of Trustees may interpret or adjust the provisions of this Statement to resolve any inconsistency or ambiguity or to remedy any formal defect, and may amend this Statement with respect to any additional shares
of Series 3 VRDP prior to the issuance of such shares.
(g)
Headings Not Determinative.
The headings contained in
this Statement are for convenience of reference only and shall not affect the meaning or interpretation of this Statement.
(h)
Notices.
All notices or communications, unless
otherwise specified in the By-laws of the Fund or this Statement, shall be sufficiently given if in writing and delivered in person, by Electronic Means or mailed by first-class mail, postage prepaid.
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PART II
1.
Remarketing Procedures.
(a) Pursuant to an Optional Tender, Beneficial Owners may elect to tender their Series 3 VRDP
Shares (in denominations of $100,000 and integral multiples thereof) for purchase at the Purchase Price on the Purchase Date designated in the Notice of Tender (or if such day is not a Business Day, on the next succeeding Business Day). Each Notice
of Tender shall be irrevocable (except as described below) and effective upon receipt and shall:
(i) be delivered by a Beneficial Owner, directly or through its Agent Member, by email
transmission (or if email transmission shall be unavailable, by facsimile transmission), to the Tender and Paying Agent not later than 2:00 p.m., New York City time, on any Business Day;
(ii) state the series and the aggregate number of Series 3 VRDP Shares to be purchased, the
CUSIP number of the Series 3 VRDP Shares to be purchased, and the Purchase Date and be in substantially the form of and contain such other information specified in an exhibit to the VRDP Purchase Agreement; and
(iii) state that the tendering Beneficial Owner acknowledges that such Beneficial Owner is
required to deliver the Series 3 VRDP Shares that are the subject of a Notice of Tender (that has not been duly revoked as described below) on or before 2:00 p.m., New York City time, on the Purchase Date.
(b) Upon receipt of a Notice of Tender, the Tender and Paying Agent shall provide a copy to
the Liquidity Provider and the Remarketing Agent (with a copy to the Fund) as promptly as practicable by Electronic Means, but no later than 4:00 p.m., New York City time, on the date of receipt or deemed receipt.
(c) Any Notice of Tender delivered to the Tender and Paying Agent by a Beneficial Owner or its
Agent Member after 2:00 p.m., New York City time, shall be deemed to have been received by the Tender and Paying Agent on the next succeeding Business Day, and the Purchase Date shall be adjusted such that the Purchase Date shall be the Business Day
next succeeding the date specified as the Purchase Date in the relevant Notice of Tender.
(d) The determination of the Tender and Paying Agent as to whether a Notice of Tender has been
properly delivered pursuant to the foregoing in paragraph (a)(i) and (ii) shall be conclusive and binding upon the Beneficial Owner and its Agent Member.
(e) (i) Series 3 VRDP Shares are subject to
Mandatory Tender upon the occurrence of a Mandatory Tender Event.
(ii) Promptly following the occurrence of a Mandatory Tender Event, and in any
event within three (3) Business Days thereafter, the Fund, or the Tender and Paying Agent at the direction of the Fund (
provided
, that the Tender and Paying Agent may require up to two (2) Business Days prior notification by
Electronic Means by the Fund), shall provide a Mandatory Tender Notice by Electronic Means to Holders, the Remarketing Agent and the Liquidity Provider, specifying a Purchase Date for all Outstanding Series 3 VRDP Shares. Any notice given in respect
of a Mandatory Tender under this Statement will be conclusively presumed to have been duly given, whether or not the Holders receive such notice.
(iii) Upon the occurrence of a Mandatory Tender Event, all Outstanding Series
3 VRDP Shares automatically shall be subject to Mandatory Tender and delivered to the Tender and Paying Agent for purchase on the designated Purchase Date by purchasers in the Remarketing in the event of a successful Remarketing or otherwise by the
Liquidity Provider, including any Series 3
A-42
VRDP Shares previously tendered pursuant to an Optional Tender for which the Purchase Date has not yet occurred. In the event that Series 3 VRDP Shares are issued in certificated form and a
Holder of Series 3 VRDP Shares fails to deliver such Series 3 VRDP Shares to which a Mandatory Tender relates on or prior to the Purchase Date, the Holder of such Series 3 VRDP Shares shall not be entitled to any payment (including any accumulated
but unpaid dividends thereon, whether or not earned or declared) other than the Purchase Price of such undelivered Series 3 VRDP Shares as of the scheduled Purchase Date. Any such undelivered Series 3 VRDP Shares will be deemed to be delivered to
the Tender and Paying Agent, and the Tender and Paying Agent will place stop-transfer orders against the undelivered Series 3 VRDP Shares. Any moneys held by the Tender and Paying Agent for the purchase of undelivered Series 3 VRDP Shares will be
held in a separate account by the Tender and Paying Agent, will not be invested, and will be held for the exclusive benefit of the Holder of such undelivered Series 3 VRDP Shares. The undelivered Series 3 VRDP Shares will be deemed to be no longer
Outstanding (except as to entitlement to payment of the Purchase Price), and the Fund will issue to the purchaser replacement Series 3 VRDP Share certificates in lieu of such undelivered Series 3 VRDP Shares.
(f) A Beneficial Owner or its Agent Member that delivered a Notice of Tender in connection with
an Optional Tender may deliver in writing by email transmission (or if email transmission shall be unavailable, by facsimile transmission) to the Tender and Paying Agent, not later than 10:00 a.m., New York City time, on or prior to the Business Day
immediately preceding the Purchase Date, a notice to the effect that such Beneficial Owner wishes to revoke its election to tender some or all of the Series 3 VRDP Shares that were specified in such Notice of Tender to be purchased (a Notice
of Revocation). Any Notice of Revocation delivered to the Tender and Paying Agent shall be promptly delivered by Electronic Means by the Tender and Paying Agent to the Liquidity Provider and the Remarketing Agent (with a copy to the Fund) by
12:00 noon, New York City time, on the Business Day immediately preceding the relevant Purchase Date. The Remarketing Agent (following receipt of such Notice of Revocation) shall notify the Tender and Paying Agent and the Liquidity Provider of the
number of Series 3 VRDP Shares specified in such Notice of Revocation that are subject to an agreement of sale pursuant to a Remarketing by email transmission or facsimile transmission not later than 2:00 p.m., New York City time, on the Business
Day immediately preceding the Purchase Date. The Tender and Paying Agent shall deliver such notification to the Beneficial Owner or its Agent Member promptly following receipt from the Remarketing Agent, and in any event by 4:00 p.m., New York City
time, on the Business Day immediately preceding the Purchase Date. Any such Notice of Revocation shall be effective (without further action on the part of the Beneficial Owner or its Agent Member) as a revocation of the Optional Tender of the number
of Series 3 VRDP Shares specified therein as being sought to be revoked, but (except as set forth below) only if and to the extent that the Remarketing Agent has not entered into an agreement to sell such Series 3 VRDP Shares. A Notice of Revocation
shall be effective as to the number of Series 3 VRDP Shares specified therein as having been revoked less the number of such Series 3 VRDP Shares in respect of which the Remarketing Agent has so notified the Tender and Paying Agent and the Liquidity
Provider that it has entered into an agreement of sale. Notwithstanding the foregoing, tendered Series 3 VRDP Shares, if any, that remain unsold on the related Purchase Date shall be allocated by the Remarketing Agent to each Notice of Revocation
received in respect of Series 3 VRDP Shares tendered for purchase on such Purchase Date and not already satisfied in the chronological order in which each such Notice of Revocation was received by the Tender and Paying Agent, and each such Notice of
Revocation shall be effective only to the extent of such allocation and availability of unsold Series 3 VRDP Shares.
(g) The Fund shall use its best efforts to engage at all times a Remarketing Agent that is a
nationally recognized securities dealer with expertise in remarketing variable-rate securities to use its best efforts to find purchasers for all Series 3 VRDP Shares properly tendered pursuant to a Tender.
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2.
Remarketing
Schedule.
(a) In connection with any attempted Remarketing, all tendered Series 3
VRDP Shares shall be remarketed at the Purchase Price of such Series 3 VRDP Shares. The calculation of the Purchase Price of the Series 3 VRDP Shares that are remarketed or purchased by the Liquidity Provider shall be made by the Remarketing Agent
in advance of such Remarketing or purchase and, together with the details of the aggregate number and Purchase Price of remarketed Series 3 VRDP Shares and the aggregate number and Purchase Price of Series 3 VRDP Shares to be purchased by the
Liquidity Provider pursuant to the Purchase Obligation, shall be communicated by the Remarketing Agent to the Fund, the Liquidity Provider and the Tender and Paying Agent by email transmission or facsimile transmission by 2:00 p.m., New York City
time, on the Business Day immediately preceding the Purchase Date, as described below. The proceeds of any sale of any remarketed Series 3 VRDP Shares by the Remarketing Agent relating to tendered Series 3 VRDP Shares shall be used for the purchase
of the remarketed Series 3 VRDP Shares at the Purchase Price, and the terms of the sale will provide for the wire transfer of such Purchase Price by the Remarketing Agent to be received by the Tender and Paying Agent no later than 11:00 a.m., New
York City time, on the related Purchase Date for payment to the Agent Member of the Beneficial Owner, in the case of an Optional Tender, or Holder, in the case of a Mandatory Tender, tendering Series 3 VRDP Shares for sale through the Securities
Depository in immediately available funds against delivery of the tendered Series 3 VRDP Shares to the Tender and Paying Agent through the Securities Depository, the delivery of such Series 3 VRDP Shares to the Tender and Paying Agent through the
Securities Depository no later than 2:00 p.m., New York City time, on the Purchase Date, and the re-delivery of such Series 3 VRDP Shares by means of FREE delivery through the Securities Depository to the Remarketing Agent for delivery
to the purchasers Agent Member through the Securities Depository by 3:00 p.m., New York City time, on the relevant Purchase Date.
(b) By 2:00 p.m., New York City time, on the Business Day immediately preceding each Purchase
Date, the Remarketing Agent shall deliver a notice to the Tender and Paying Agent and the Liquidity Provider (a Remarketing Notice), by email transmission or facsimile transmission, that sets forth the number of Series 3 VRDP Shares, if
any, that it successfully remarketed for purchase on such Purchase Date and the aggregate Purchase Price of such sold Series 3 VRDP Shares and the number of Series 3 VRDP Shares, if any, not successfully remarketed for purchase on such Purchase Date
and the aggregate Purchase Price of such unsold Series 3 VRDP Shares to be paid by the Liquidity Provider. If the Remarketing Notice states that the Remarketing Agent has not successfully remarketed all of the Series 3 VRDP Shares to be purchased on
such Purchase Date, the Tender and Paying Agent will promptly, and in any event not later than 4:00 p.m., New York City time, on such Business Day, deliver by Electronic Means to the Liquidity Provider (with a copy to the Fund) a Preliminary Notice
of Purchase that, subject to delivery of the Final Notice of Purchase on the Purchase Date described below, provides for the purchase by the Liquidity Provider of the number of such Series 3 VRDP Shares that the Remarketing Agent stated in the
Remarketing Notice as not having been successfully remarketed, including the aggregate Purchase Price of such Series 3 VRDP Shares, as calculated by the Remarketing Agent. If the Remarketing Notice states that the Remarketing Agent has not
successfully remarketed all of the Series 3 VRDP Shares to be purchased on such Purchase Date (or if remarketing proceeds for any tendered Series 3 VRDP Shares have not been received for any reason by the Tender and Paying Agent by 11:00 a.m., New
York City time, on the Purchase Date), the Tender and Paying Agent will deliver by Electronic Means to the Liquidity Provider (with a copy to the Fund) by 12:00 noon, New York City time, on such Purchase Date a Final Notice of Purchase that states
the number of Series 3 VRDP Shares required to be purchased by the Liquidity Provider. For purposes of the Final Notice of Purchase, any tendered Series 3 VRDP Shares for which remarketing proceeds have not been received for any reason by the Tender
and Paying Agent by 11:00 a.m., New York City time, on the Purchase Date, shall be treated as not having been successfully remarketed and shall be required to be purchased by the Liquidity Provider. The payment obligation of the Liquidity Provider
shall equal the Purchase Price of the Series 3 VRDP Shares, stated in the Final Notice of Purchase delivered to the Liquidity Provider, as being required to be purchased by the Liquidity Provider.
A-44
(c) The Liquidity Provider shall, no later than
2:00 p.m., New York City time, on a Purchase Date for any Series 3 VRDP Shares, wire transfer the aggregate Purchase Price of all Series 3 VRDP Shares in respect of which Final Notices of Purchase have been delivered to it for purchase of Series 3
VRDP Shares on such date, as follows: (i) in the case of a Final Notice of Purchase delivered by the Tender and Paying Agent, by wire transfer, in immediately available funds, to the account of the Tender and Paying Agent specified by the
Tender and Paying Agent in any such Final Notice of Purchase; and (ii) in the case of a Final Notice of Purchase delivered by a Beneficial Owner or its Agent Member, in the case of an Optional Tender, or by a Holder, in the case of a Mandatory
Tender, in the event there is no Tender and Paying Agent or for any reason the Tender and Paying Agent does not perform its obligations under the VRDP Purchase Agreement and the Liquidity Provider has received a Remarketing Notice that such Series 3
VRDP Shares have not been the subject of an agreement of sale in a Remarketing and has received written notice from the Fund that there is no Tender and Paying Agent or that the Tender and Paying Agent does not intend to perform its obligations
under the VRDP Purchase Agreement, by payment against delivery of the Series 3 VRDP Shares that are the subject of any such Final Notice of Purchase, through means of the Securities Depository in the case of Series 3 VRDP Shares in the form of
global securities.
(d) Upon receipt by the Tender and Paying Agent from the Beneficial
Owner or its Agent Member, in the case of an Optional Tender, or from the Holder, in the case of a Mandatory Tender, of tendered Series 3 VRDP Shares and the payment by the Tender and Paying Agent to such Beneficial Owner or its Agent Member, or
such Holder as the case may be, of the Purchase Price therefor on the applicable Purchase Date, the Tender and Paying Agent shall deliver to the Liquidity Provider, by means of FREE delivery through the system of the Securities
Depository, Series 3 VRDP Shares in satisfaction of the Liquidity Providers Purchase Obligation on such Purchase Date. Any funds paid by the Liquidity Provider and held in the account of the Tender and Paying Agent for the payment of the
Purchase Price shall be held in trust for the benefit of the Liquidity Provider until the Series 3 VRDP Shares are delivered by the tendering Beneficial Owners or their Agent Members, in the case of an Optional Tender, or by the tendering Holder, in
the case of a Mandatory Tender, against payment therefor or returned to the Liquidity Provider. Any funds paid by the Remarketing Agent and held in an account of the Tender and Paying Agent for the payment of the Purchase Price in connection with a
Remarketing shall be held in trust for the benefit of the Remarketing Agent on account of purchasers purchasing in a Remarketing until the Series 3 VRDP Shares are delivered by the tendering Beneficial Owners or their Agent Members, in the case of
an Optional Tender, or by the tendering Holders, in the case of a Mandatory Tender, against payment therefor, or returned to the Remarketing Agent on account of purchasers purchasing in a Remarketing. Upon receipt of Series 3 VRDP Shares from the
tendering Beneficial Owners or their Agent Members, in the case of an Optional Tender, or from the tendering Holders, in the case of a Mandatory Tender, by the Tender and Paying Agent, the Tender and Paying Agent shall pay, subject to receipt of the
Purchase Price by the Tender and Paying Agent in the form of remarketing proceeds from the Remarketing Agent, with respect to Series 3 VRDP Shares remarketed by the Remarketing Agent, or in the form of payment pursuant to the VRDP Purchase Agreement
from the Liquidity Provider, with respect to Series 3 VRDP Shares subject to purchase pursuant to the Purchase Obligation, the Purchase Price for such Series 3 VRDP Shares to such tendering Beneficial Owner, Agent Member or Holder, as the case may
be. In accordance with and subject to the foregoing, the Tender and Paying Agent shall effect any such payment on the applicable Purchase Date.
(e) Except as otherwise expressly provided for herein, the purchase and delivery of tendered
Series 3 VRDP Shares in the form of global securities and their Remarketing will be accomplished in accordance with the applicable procedures of the Securities Depository.
(f) The Remarketing Agent and the Tender and Paying Agent each shall use commercially
reasonable efforts to meet the timing requirements set forth above. At any time that no Purchase Obligation is in effect (or with respect to a remarketing of Series 3 VRDP Shares held by the Liquidity Provider as to which any then-effective Purchase
Obligation by a successor liquidity provider is inapplicable pursuant to the terms of the VRDP Fee Agreement), any Series 3 VRDP Shares unsold in a Remarketing shall be returned to the tendering Beneficial Owners or their Agent Members, or the
tendering Holders, as the case may be, by the Tender and
A-45
Paying Agent. The Remarketing Agent may, in its sole discretion, modify the settlement procedures set forth above with respect to any Remarketing upon ten (10) days prior written
notice to the Fund, the Liquidity Provider and the Tender and Paying Agent, provided any such modification does not adversely affect the Holders, the Beneficial Owners, the Tender and Paying Agent, the Liquidity Provider or the Fund. The Remarketing
Agent may sell Series 3 VRDP Shares for its own account outside of a Remarketing at a price other than the Purchase Price.
(g) In connection with the allocation of Series 3 VRDP tendered for Remarketing by the
Liquidity Provider and any other Holder or Beneficial Owner of shares of Series 3 VRDP in any Remarketing, the Remarketing Agent shall allocate those shares of Series 3 VRDP previously acquired by the Liquidity Provider pursuant to its Purchase
Obligation first to any purchasers in a Remarketing (such allocation coming first from those shares of Series 3 VRDP acquired earliest by the Liquidity Provider).
3.
Determination of Applicable Rate.
(a) The Applicable Rate shall be determined by the Remarketing Agent on and as of each Rate
Determination Date as the lowest rate under then-existing market conditions that in the Remarketing Agents sole judgment would result in the Series 3 VRDP Shares on the first day of the Subsequent Rate Period next succeeding the Rate
Determination Date having a market value equal to the Liquidation Preference thereof (plus accumulated but unpaid dividends thereon, whether or not earned or declared). Such determination shall be conclusive and binding upon the interested parties.
The Applicable Rate shall not exceed the Maximum Rate.
(b) The Remarketing Agent shall
establish the Applicable Rate by 5:00 p.m., New York City time, on each Rate Determination Date to the nearest one-thousandth (0.001) of one percent per annum for the Subsequent Rate Period. The Applicable Rate shall be in effect from and including
the first day following such Rate Determination Date to and including the following Rate Determination Date. The Remarketing Agent shall make the Applicable Rate available after 5:00 p.m., New York City time, on the Rate Determination Date by email
transmission or facsimile transmission to the Fund, the Tender and Paying Agent and the Liquidity Provider and post the Applicable Rate on Bloomberg.
(c) In the event that the Remarketing Agent establishes the Maximum Rate as the Applicable
Rate for a Subsequent Rate Period, the Remarketing Agent shall notify the Fund and the Tender and Paying Agent. The Fund will require in the Tender and Paying Agent Agreement that the Tender and Paying Agent will notify the Liquidity Provider and
the Holders of Series 3 VRDP Shares by first class mail, postage prepaid (in the case of physical shares), or Electronic Means (in the case of Series 3 VRDP Shares in the form of global securities) that the Applicable Rate for the Subsequent Rate
Period is the Maximum Rate.
(d) In the event the Remarketing Agent does not or is unable
to determine the Applicable Rate, or if there is no Remarketing Agent, the Applicable Rate shall be the Maximum Rate.
(e) In the event of a Failed Remarketing Condition, the Applicable Rate as of the close of
business on the day the Failed Remarketing Condition first occurs will be adjusted to the Maximum Rate (with the Applicable Spread subject to adjustment as set forth in the definition of Applicable Spread) and the Maximum Rate will continue to be
the Applicable Rate (i) until the first day of the next succeeding Subsequent Rate Period after a Failed Remarketing Condition no longer exists in the case of a Minimum Rate Period or a Special Rate Period of 28 Rate Period Days or fewer, and
(ii) until the first day of the next succeeding Dividend Period after the Failed Remarketing Condition no longer exists in the case of a Special Rate Period of greater than 28 Rate Period Days.
4.
Failed Remarketing Condition.
In the event of a Failed
Remarketing Condition, pursuant to the Tender and Paying Agent Agreement, the Tender and Paying Agent shall promptly provide notice of a Failed Remarketing Condition, but in any event within two (2) Business Days of receipt by the Tender and
Paying
A-46
Agent of notice from the Fund of the occurrence of such Failed Remarketing Condition, by Electronic Means (or by first class mail, postage prepaid, in the case where the Series 3 VRDP Shares are
in physical form) to the Holders (with a copy to the Fund).
5.
Purchase of Series 3 VRDP Shares by Remarketing Agent.
The Remarketing Agent in its sole discretion may purchase for its own account Series 3 VRDP Shares in a Remarketing; however, the Remarketing Agent shall not
be obligated to purchase any Series 3 VRDP Shares that would otherwise remain unsold in a Remarketing. None of the Fund, the Tender and Paying Agent or any Remarketing Agent shall be obligated in any case to provide funds to make payment to a
Beneficial Owner or its Agent Member upon such Beneficial Owners tender of its Series 3 VRDP Shares in a Remarketing unless, in each case, such Series 3 VRDP Shares were acquired for the account of the Fund, the Tender and Paying Agent or the
Remarketing Agent.
6.
Notification of Allocations.
Whenever the Fund intends to include any net capital gains or ordinary income taxable for regular federal and Pennsylvania personal income tax purposes in any dividend on Series 3 VRDP Shares, the Fund may notify the Remarketing Agent and Tender and
Paying Agent of the amount to be so included (i) not later than 14 calendar days preceding the first Rate Determination Date on which the Applicable Rate for such dividend is to be established, and (ii) for any successive Rate
Determination Date on which the Applicable Rate for such dividend is to be established, not later than the close of business on the immediately preceding Rate Determination Date. Whenever such notice is received from the Fund, the Tender and Paying
Agent will notify each Holder and the Remarketing Agent will notify each potential Beneficial Owner or its Agent Member. With respect to a Rate Period for which such advance notice was given and whose dividends are comprised partly of such ordinary
income or capital gains and partly of exempt-interest income, the different types of income will be paid in the same relative proportions for each day during the Rate Period. The Fund may also include such ordinary income or capital gains in a
dividend on shares of Series 3 VRDP without giving advance notice thereof if it increases the dividends by an additional amount calculated as if such income was a Taxable Allocation and the additional amount was a Gross-up Payment, provided the Fund
will notify the Tender and Paying Agent of the additional amounts to be included in such dividend at least five Business Days prior to the applicable Dividend Payment Date.
7.
Transfers.
(a) Unless otherwise permitted by the Fund, a Beneficial Owner or Holder may sell, transfer or
otherwise dispose of Series 3 VRDP Shares only in whole shares and only pursuant to a Remarketing in accordance with the remarketing procedures set forth in Part II of this Statement,
provided
,
however
, that (a) a sale, transfer
or other disposition of Series 3 VRDP Shares from a Beneficial Owner who holds shares through an Agent Member to another Beneficial Owner who holds shares through the same Agent Member shall be permitted, and (b) in the case of all transfers
other than pursuant to Remarketings, the Agent Member (or other Person, if permitted by the Fund) to whom such transfer is made shall advise the Remarketing Agent. The Fund has not registered the Series 3 VRDP Shares under the Securities Act.
Accordingly, the Series 3 VRDP Shares are subject to restrictions on transferability and resale and may only be purchased by and sold to qualified institutional buyers (as defined in Rule 144A under the Securities Act or any successor
provision) in accordance with Rule 144A under the Securities Act or any successor provision or any exemption from registration available and otherwise in accordance with the legend set forth on the face of the Series 3 VRDP Shares.
(b) The Investment Adviser, affiliated persons of the Investment Adviser (as defined in
Section 2(a)(3) of the 1940 Act) (other than the Fund, in the case of a purchase of Series 3 VRDP Shares which are to be cancelled within 10 days of purchase by the Fund), and Persons over which the Investment Adviser, or affiliated persons of
the Investment Adviser (as defined in Section 2(a)(3) of the 1940 Act), exercise discretionary investment or voting authority (other than the Fund, in the case of a purchase of Series 3 VRDP Shares which are to be cancelled within 10 days of
purchase by the Fund), are not permitted to purchase Series 3 VRDP Shares without the prior written consent of the Liquidity Provider, and any such purchases without such consent shall be void ab initio;
provided
,
however
, that the
Fund shall give prompt notice to Beneficial Owners
A-47
by Electronic Means upon any of the foregoing Persons, singly or in the aggregate, acquiring a beneficial interest in 20% or more of the Series 3 VRDP Shares;
provided
,
further
,
that, without regard to the preceding requirements, purchases of Series 3 VRDP Shares may be made by broker-dealers that are affiliated persons of the Investment Adviser in riskless principal transactions with respect to such purchases of Series 3
VRDP Shares.
(c) If at any time the Fund is not furnishing information to the SEC
pursuant to Section 13 or 15(d) of the Exchange Act, in order to preserve the exemption for resales and transfers under Rule 144A, the Fund shall furnish, or cause to be furnished, to holders of Series 3 VRDP Shares and prospective purchasers
of Series 3 VRDP Shares, upon request, information with respect to the Fund satisfying the requirements of subsection (d)(4) of Rule 144A.
8.
Global Certificate.
Prior to the commencement of a Voting Period, (i) all of the shares of Series 3 VRDP outstanding from time to time shall be represented
by one or more global certificates registered in the name of the Securities Depository or its nominee and (ii) no registration of transfer of shares of Series 3 VRDP shall be made on the books of the Fund to any Person other than the Securities
Depository or its nominee.
A-48
IN WITNESS WHEREOF, Nuveen Pennsylvania Investment Quality Municipal Fund has caused these
presents to be signed as of [
] in its name and on its behalf by its Chief Administrative Officer and attested by its Assistant Vice President and Assistant Secretary. The Declaration is on file with
the Secretary of State of the Commonwealth of Massachusetts, and the said officers of the Fund have executed this Statement as officers and not individually, and the obligations and rights set forth in this Statement are not binding upon any such
officers, or the trustees of the Fund or shareholders of the Fund, individually, but are binding only upon the assets and property of the Fund.
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NUVEEN PENNSYLVANIA INVESTMENT QUALITY MUNICIPAL FUND
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By:
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Name:
Title:
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A-49
APPENDIX BFORM OF PURCHASE AGREEMENT
VARIABLE RATE DEMAND PREFERRED SHARES (VRDP) PURCHASE AGREEMENT
dated as of
[
]
between
THE BANK OF NEW YORK MELLON,
as Tender and Paying Agent
and
ROYAL BANK OF
CANADA,
as Liquidity Provider
Nuveen Pennsylvania Investment Quality Municipal Fund (NQP)
Series 3 Variable Rate Demand Preferred Shares (VRDP)
(Relating to the issuance of Series 3 Variable Rate Demand Preferred Shares by the above-named fund in
exchange for the outstanding Series 2 Variable Rate Demand Preferred Shares of
Nuveen Pennsylvania Premium Income Municipal Fund 2 (NPY))
(NQP Series 3)
B-1
TABLE OF CONTENTS
B-2
B-3
VARIABLE RATE DEMAND PREFERRED SHARES (VRDP)
PURCHASE AGREEMENT
VARIABLE RATE DEMAND PREFERRED SHARES (VRDP) PURCHASE AGREEMENT
, dated as of [
],
between THE BANK OF NEW YORK MELLON, a New York banking corporation, as tender and paying agent (including its successors and assigns in such capacity, the
Tender and Paying Agent
) and ROYAL BANK OF CANADA, as liquidity
provider (including its successors and assigns, the
Liquidity Provider
), acting through its WFC, New York, Branch.
WHEREAS
, Nuveen Pennsylvania Investment Quality Municipal Fund, a closed-end investment company organized as a Massachusetts business
trust (the
Fund
), has authorized the issuance to Holders (as defined below) of its Variable Rate Demand Preferred Shares (VRDP), as set forth on Schedule I hereto, which are subject to this Agreement (the
VRDP Shares
);
WHEREAS
, the Fund wishes to enhance the liquidity of the VRDP Shares by
providing for the right of Holders and Beneficial Owners (as defined below) to sell pursuant to the Statement (as defined below) and the obligation by the Liquidity Provider to purchase VRDP Shares pursuant to the Purchase Obligation (as
defined below);
WHEREAS
, pursuant to the terms of the Tender and Paying Agent Agreement (as defined below), the Fund has retained
the Tender and Paying Agent to perform certain duties with respect to the VRDP Shares, including entering into and performing its duties under this Agreement (as defined below);
WHEREAS
, the original issuance and sale of the VRDP Shares by the Fund is conditioned upon, and subject to, the Purchase Obligation
being in effect with respect to the VRDP Shares; and
WHEREAS
, the Statement provides that the Fund for the benefit of the Holders
and Beneficial Owners of VRDP Shares shall (i) maintain an Agreement providing a Purchase Obligation on an ongoing basis to the extent that the Fund can do so on a commercially reasonable basis, and (ii) provide Holders and Beneficial
Owners with advance notice of any termination of the Purchase Obligation;
NOW, THEREFORE
, in consideration of the respective
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
The following terms, as used herein, have the
following meanings:
Acquired Fund
means Nuveen Pennsylvania Premium Income Municipal Fund 2, a closed-end
investment company organized as a Massachusetts business trust.
Agent Member
means a Person with an account at
the Securities Depository that holds one or more VRDP Shares through the Securities Depository, directly or indirectly, for a Beneficial Owner and that will be authorized and instructed, directly or indirectly, by a Beneficial Owner to disclose
information to the Remarketing Agent and the Tender and Paying Agent with respect to such Beneficial Owner.
Agreement
means this Variable Rate Demand Preferred Shares (VRDP) Purchase Agreement, as the same may be amended,
restated, supplemented or otherwise modified from time to time in accordance with the terms hereof.
B-4
Alternate VRDP Purchase Agreement
means any agreement with a successor
Liquidity Provider replacing this Agreement (or any replacement herefor) upon its termination in accordance with its terms and containing a Purchase Obligation substantially identical to the Purchase Obligation herein, as determined by the Fund.
Available Commitment
as of any day means, with respect to the VRDP Shares, the sum of the aggregate Liquidation
Preference of the VRDP Shares then Outstanding plus all accumulated but unpaid dividends, whether or not earned or declared.
Beneficial Owner
, means a Person in whose name VRDP Shares are recorded as beneficial owner of such VRDP Shares by
the Securities Depository, an Agent Member or other securities intermediary on the records of such Securities Depository, Agent Member or securities intermediary, as the case may be, or such Persons subrogee, including the Liquidity Provider
to the extent it is at any time the Beneficial Owner of VRDP Shares (irrespective of any assignment or transfer by the Liquidity Provider of its voting rights).
Business Day
means a day (a) other than a day on which commercial banks in The City of New York, New York
are required or authorized by law or executive order to close and (b) on which the New York Stock Exchange is not closed.
Declaration
means the declaration of trust of the Fund, and all amendments thereto, as filed with the Secretary of
State of the Commonwealth of Massachusetts.
Deposit Securities
means, as of any date, any United States
dollar-denominated security or other investment of a type described below that either (i) is a demand obligation payable to the holder thereof on any Business Day or (ii) has a maturity date, mandatory redemption date or mandatory payment
date, on its face or at the option of the holder, preceding the relevant payment date in respect of which such security or other investment has been deposited or set aside as a Deposit Security:
(1) cash or any cash equivalent;
(2) any U.S. Government Security;
(3) any Municipal Obligation that has a credit rating from at least one NRSRO that is the
highest applicable rating generally ascribed by such NRSRO to Municipal Obligations with substantially similar terms as of the date of the Statement (or such ratings future equivalent), including (A) any such Municipal Obligation that has
been pre-refunded by the issuer thereof with the proceeds of such refunding having been irrevocably deposited in trust or escrow for the repayment thereof and (B) any such fixed or variable rate Municipal Obligation that qualifies as an
eligible security under Rule 2a-7 under the 1940 Act;
(4) any investment in any money
market fund registered under the 1940 Act that qualifies under Rule 2a-7 under the 1940 Act, or similar investment vehicle described in Rule 12d1-1(b)(2) under the 1940 Act, that invests principally in Municipal Obligations or U.S. Government
Securities or any combination thereof; or
(5) any letter of credit from a bank or other
financial institution that has a credit rating from at least one NRSRO that is the highest applicable rating generally ascribed by such NRSRO to bank deposits or short-term debt of similar banks or other financial institutions as of the date of the
Statement (or such ratings future equivalent).
Dividend Payment Date
except as otherwise provided in the
Statement, means the date that is the first Business Day of each calendar month on which dividends on VRDP Shares are paid to Holders.
Effective Date
means the date of execution of this Agreement.
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Effective Leverage Ratio
has the meaning set forth in the VRDP Fee
Agreement.
Effective Leverage Ratio Cure Period
has the meaning set forth in the VRDP Fee Agreement.
Electronic Means
means email transmission, facsimile transmission or other similar electronic means of communication
providing evidence of transmission (but excluding online communications systems covered by a separate agreement) acceptable to the sending party and the receiving party, in any case if operative as between any two parties, or, if not operative, by
telephone (promptly confirmed by any other method set forth in this definition), which, in the case of notices to the Tender and Paying Agent, shall be sent by such means as set forth in Section 7.02 of the Tender and Paying Agent Agreement or
as specified in the related notice.
Exchange Act
means the U.S. Securities Exchange Act of 1934, as amended.
Extraordinary Corporate Event
means, as to the Liquidity Provider, (i) the consolidation, amalgamation
with, or merger with or into, or the transfer of all or substantially all of the Liquidity Providers assets to, another entity or (ii) the dissolution, for any reason, of the Liquidity Provider other than in connection with the
consolidation, amalgamation with, or merger with or into another entity or the transfer of all or substantially all of the Liquidity Providers assets;
provided
,
however
, that with respect to (i) above, an Extraordinary
Corporate Event does not include any of the listed occurrences where (x) the surviving entity, or transferee of all or substantially all of the Liquidity Providers assets, (a) assumes all of the obligations of the Liquidity Provider
(including by operation of law) under the terms of this Agreement and (b) has short-term debt ratings in one of the two highest rating categories from the Requisite NRSROs or, if applicable, such other short-term debt ratings as may be required
for the VRDP Shares to satisfy the eligibility criteria under Rule 2a-7 under the 1940 Act and (y) the Liquidity Provider has provided notice in writing to the Fund confirming the information described in (x) at least 10 days prior to the
scheduled date of the applicable listed occurrence in (i) above.
Failed Remarketing Condition
means a
Failed Remarketing ConditionPurchased VRDP Shares or a Failed Remarketing ConditionUnpurchased VRDP Shares.
Failed Remarketing ConditionPurchased VRDP Shares
means the Liquidity Provider acquires and continues to be
the beneficial owner for federal income tax purposes of any VRDP Shares in connection with purchases made pursuant to the Purchase Obligation (whether as a result of an unsuccessful Remarketing or a Mandatory Purchase) on any Purchase Date including
VRDP Shares the Liquidity Provider continues to be the beneficial owner of for federal income tax purposes after the expiration or termination of the VRDP Purchase Agreement.
Failed Remarketing ConditionPurchased VRDP Shares Redemption
means redemption by the Fund, at a Redemption
Price equal to $100,000 per share plus accumulated but unpaid dividends thereon (whether or not earned or declared) to, but excluding, the date fixed by the Board of Trustees for redemption, of VRDP Shares that the Liquidity Provider shall have
acquired pursuant to the Purchase Obligation and continued to be the beneficial owner of for federal income tax purposes for a period of six months during which such VRDP Shares cannot be successfully remarketed (i.e., a Failed Remarketing
ConditionPurchased VRDP Shares shall have occurred and be continuing for such period of time with respect to such VRDP Shares), determined by the Fund on a first-in, first-out basis, in accordance with and subject to the provisions of the VRDP
Fee Agreement and the Statement.
Failed Remarketing ConditionUnpurchased VRDP Shares
means that a
Beneficial Owner (other than the Liquidity Provider or its affiliates) continues to hold VRDP Shares, that were subject to a valid Tender, after any Purchase Date as a result of the failure by the Liquidity Provider for any reason to purchase such
VRDP Shares pursuant to the Purchase Obligation (whether as a result of an unsuccessful Remarketing or a Mandatory Purchase) (Unpurchased VRDP Shares), until such time as all Outstanding Unpurchased VRDP Shares are
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(i) successfully Remarketed, (ii) purchased by the Liquidity Provider pursuant to the Purchase Obligation, or (iii) if not successfully Remarketed or purchased by the Liquidity
Provider pursuant to the Purchase Obligation, the subject of a validly tendered Notice of Revocation (or any combination of the foregoing); and any Unpurchased VRDP Shares shall be deemed tendered for Remarketing until the earliest to occur of the
foregoing events (i), (ii) or (iii) with respect to such Unpurchased VRDP Shares.
Final Notice of
Purchase
means, in connection with an Optional Tender or a Mandatory Tender, a Notice of Purchase delivered by the Tender and Paying Agent to the Liquidity Provider (or directly to the Liquidity Provider by Beneficial Owners or their
Agent Members, in the case of an Optional Tender, or Holders, in the case of a Mandatory Tender, if there is no Tender and Paying Agent or for any reason the Tender and Paying Agent does not perform its obligations) on the Purchase Date indicating
the number of VRDP Shares to be purchased on such date pursuant to the Purchase Obligation, or, in connection with a Mandatory Purchase, the Mandatory Purchase Notice delivered by the Fund or the Tender and Paying Agent on behalf of the Fund.
Fitch
means Fitch Ratings, Inc., a Delaware corporation, and its successors.
Fund
has the meaning set forth in the preamble to this Agreement.
Fund Insolvency Event
means that the Fund becomes a debtor under Title 11 of the United States Bankruptcy Code
or becomes subject to insolvency or liquidation proceedings under any United States federal or state, or any other law.
Global VRDP Shares
means the VRDP Shares issued in book-entry form, deposited with the Tender and Paying Agent on
behalf of the Securities Depository and registered in the name of a nominee of the Securities Depository.
Holder
means a Person in whose name a VRDP Share is registered in the registration books of the Fund maintained by
the Tender and Paying Agent.
The word
including
means including without limitation.
Information Memorandum
means the proxy statement of the Fund and the Acquired Fund, dated [
], and the information memorandum attached thereto, as amended, revised or supplemented from time to time, including in connection with any Remarketing, if applicable, or offering of additional VRDP
Shares, if applicable.
Investment Adviser
means Nuveen Fund Advisors, LLC, or any successor company or entity.
Liquidation Preference
with respect to a given number of VRDP Shares, means $100,000 times that number.
Liquidity Provider Ratings Event
means the Liquidity Provider shall fail to maintain at any time short-term debt
ratings in one of the two highest ratings categories from the Requisite NRSROs or such other short-term debt ratings, if any, as may be required for the VRDP Shares to satisfy the eligibility criteria under Rule 2a-7 under the 1940 Act.
Liquidity Provider Ratings Event Termination Date
means the date established by the Tender and Paying Agent, acting
upon instructions of the Fund pursuant to the Tender and Paying Agent Agreement, for termination of this Agreement upon the occurrence of a Liquidity Provider Ratings Event, which date shall be not less than 16 days nor more than 30 days following
such Liquidity Provider Ratings Event.
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Mandatory Purchase
means the mandatory purchase of Outstanding VRDP
Shares by the Liquidity Provider pursuant to this Agreement in connection with a Mandatory Purchase Event.
Mandatory Purchase
Date
means the Purchase Date for a Mandatory Purchase in accordance with the Statement and this Agreement.
Mandatory Purchase Event
means (i) in connection with the termination of this Agreement due to its expiration
as of a Scheduled Termination Date, by the fifteenth day prior to any such Scheduled Termination Date, (a) the Liquidity Provider shall not have agreed to an extension or further extension of the Scheduled Termination Date to a date not earlier
than 180 days from the Scheduled Termination Date of this Agreement then in effect, and (b) the Fund shall not have obtained and delivered to the Tender and Paying Agent an Alternate VRDP Purchase Agreement with a termination date not earlier
than 180 days from the Scheduled Termination Date of this Agreement, or (ii) in connection with the termination of this Agreement due to a Liquidity Provider Ratings Event or Related Party Termination Event, by the fifteenth day prior to the
Liquidity Provider Ratings Event Termination Date or Related Party Termination Date, as the case may be, the Fund shall not have obtained and delivered to the Tender and Paying Agent an Alternate VRDP Purchase Agreement with a termination date not
earlier than 180 days from the Liquidity Provider Ratings Event Termination Date or Related Party Termination Date, as the case may be, of this Agreement. The Mandatory Purchase Event shall be deemed to occur on such fifteenth day prior to any
Scheduled Termination Date, Liquidity Provider Ratings Event Termination Date or Related Party Termination Date, as the case may be.
Mandatory Purchase Notice
means, in connection with the Mandatory Purchase of VRDP Shares, a notice substantially in
the form attached to this Agreement as Exhibit B, delivered by the Fund or the Tender and Paying Agent on behalf of the Fund to the Holders and the Liquidity Provider specifying a Mandatory Purchase Date.
Mandatory Tender
, with respect to a Mandatory Tender Event, means the mandatory tender of all VRDP Shares by Holders
for Remarketing or, in the event (i) no Remarketing occurs on or before the Purchase Date or (ii) pursuant to an attempted Remarketing, VRDP Shares remain unsold and the Remarketing Agent does not purchase for its own account the unsold
VRDP Shares tendered to the Tender and Paying Agent for Remarketing (
provided
, that the Remarketing Agent may seek to sell such VRDP Shares in a subsequent Remarketing prior to the Purchase Date), for purchase by the Liquidity Provider at the
Purchase Price pursuant to Section 1 of Part II of the Statement and this Agreement.
Mandatory Tender
Event
means (a) each failure by the Fund to make a scheduled payment of dividends on any VRDP Shares on a Dividend Payment Date; (b) the occurrence of a Liquidity Provider Ratings Event (which shall constitute a single
Mandatory Tender Event upon the occurrence of such Liquidity Provider Ratings Event, whether or not continuing and whether or not such Liquidity Provider Ratings Event also results in a Mandatory Purchase Event;
provided
that, a subsequent
Liquidity Provider Ratings Event, following restoration of the short-term debt ratings to the requisite level, shall constitute a new Mandatory Tender Event); (c) with the prior written consent of the Liquidity Provider with respect to its
classification as a Mandatory Tender Event, each failure by the Fund to pay the Liquidity Provider the applicable fee due in advance under the terms of the VRDP Fee Agreement by seven Business Days prior to the beginning of the month to which such
payment relates; (d) the eighth day prior to the scheduled date of the occurrence of an Extraordinary Corporate Event; (e) the Fund shall have obtained and delivered to the Tender and Paying Agent an Alternate VRDP Purchase Agreement by
the fifteenth day prior to the Scheduled Termination Date, Liquidity Provider Ratings Event Termination Date or Related Party Termination Date, as the case may be, of this Agreement being replaced; (f) the occurrence of an Optional Early
Replacement Event; (g) the Fund shall have provided a Notice of Proposed Special Rate Period in accordance with the Statement; or (h) in the event of a breach by the Fund of its Effective Leverage Ratio covenant with the Liquidity Provider
in the VRDP Fee Agreement and the failure to cure such breach within 60 days from the date of such breach (which 60-day period would include the Effective Leverage Ratio Cure Period), to the extent that the Liquidity Provider (in its sole
discretion) thereafter provides
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written notice to the Fund that the failure to timely cure such breach constitutes a Mandatory Tender Event (subject to the Fund curing such breach prior to the delivery date of such notice from
the Liquidity Provider).
Mandatory Tender Notice
means, in connection with the Mandatory Tender of VRDP Shares,
a notice, delivered by the Fund or the Tender and Paying Agent on behalf of the Fund to the Holders and the Liquidity Provider specifying a Mandatory Tender Event and Purchase Date, substantially in the form attached to the Remarketing Agreement as
Annex II.
Moodys
means Moodys Investors Service, Inc., a Delaware corporation, and its successors.
Municipal Obligations
means municipal securities as described in the Information Memorandum.
1940 Act
means the Investment Company Act of 1940, as amended.
Notice of Purchase
means, as the context requires, a Preliminary Notice of Purchase or a Final Notice of Purchase,
in each case, substantially in the form of Exhibit A hereto.
Notice of Redemption
means any notice with respect
to the redemption of VRDP Shares pursuant to the Statement.
Notice of Revocation
means, in connection with the
revocation by a Beneficial Owner or its Agent Member of its Notice of Tender, a notice, substantially in the form attached to this Agreement as Exhibit D and the Tender and Paying Agent Agreement as Exhibit C, delivered by a Beneficial Owner or
its Agent Member to the Tender and Paying Agent indicating an intention to revoke the tender of some or all of the VRDP Shares for sale on a Purchase Date pursuant to the Statement.
Notice of Tender
means, in connection with an Optional Tender, a notice, substantially in the form attached to this
Agreement as Exhibit C and the Tender and Paying Agent Agreement as Exhibit A, delivered by a Beneficial Owner or its Agent Member to the Tender and Paying Agent indicating an intention to tender VRDP Shares for sale on a Purchase Date pursuant to
the Statement.
NRSRO
means a nationally recognized statistical rating organization within the
meaning of Section 3(a)(62) of the Exchange Act, that is not an affiliated person (as defined in Section 2(a)(3) of the 1940 Act) of the Fund or the Liquidity Provider, including, at the date hereof, Moodys, S&P
and Fitch.
Optional Early Replacement Event
means the Fund shall have obtained and delivered to the Tender and
Paying Agent an Alternate VRDP Purchase Agreement and provided notice thereof (which notice also designates an Optional Early Termination Date) to Holders and the Liquidity Provider in accordance with the Tender and Paying Agent Agreement given at
any time prior to the 30th calendar day preceding the then-prevailing Scheduled Termination Date. The date of the occurrence of the Optional Early Replacement Event shall be the date of such notice.
Optional Early Termination Date
means the date established by the Tender and Paying Agent, acting upon instructions
of the Fund pursuant to the Tender and Paying Agent Agreement, for termination of this Agreement upon the occurrence of an Optional Early Replacement Event, which date shall be not less than 16 days nor more than 30 days following such Optional
Early Replacement Event.
Optional Tender
means any tender of VRDP Shares by a Beneficial Owner or its Agent
Member to the Tender and Paying Agent, other than a Mandatory Tender, for Remarketing or, in the event (i) no Remarketing occurs on or before the Purchase Date, or (ii) pursuant to an attempted Remarketing, VRDP Shares remain unsold and
the Remarketing Agent does not purchase for its own account the unsold VRDP Shares tendered to the Tender and Paying Agent for Remarketing (
provided
that the Remarketing Agent may seek to sell
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such VRDP Shares in a subsequent Remarketing prior to the Purchase Date), for purchase by the Liquidity Provider pursuant to Section 1 of Part II of the Statement and this Agreement.
Outstanding
means, as of any date with respect to VRDP Shares, the number of VRDP Shares theretofore issued by the
Fund except, without duplication, (i) any VRDP Shares theretofore cancelled or delivered to the Tender and Paying Agent for cancellation or redemption by the Fund, (ii) any VRDP Shares with respect to which the Fund has given a Notice of
Redemption and irrevocably deposited with the Tender and Paying Agent sufficient Deposit Securities to redeem such VRDP Shares, pursuant to Section 10 of Part I of the Statement, (iii) any VRDP Shares as to which the Fund shall be a
Beneficial Owner, and (iv) any VRDP Shares represented by any certificate in lieu of which a new certificate has been executed and delivered by the Fund;
provided
,
however
, with respect to clause (ii), any such VRDP Share will be
deemed to be Outstanding for purposes of this Agreement until redeemed by the Fund.
Person
means and includes
an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.
Preliminary Notice of Purchase
means a Notice of Purchase delivered by the Tender and Paying Agent to the Liquidity
Provider (or directly to the Liquidity Provider by Beneficial Owners or their Agent Members if there is no Tender and Paying Agent or for any reason the Tender and Paying Agent does not perform its obligations) on the Business Day immediately
preceding a Purchase Date indicating the number of VRDP Shares to be purchased on the Purchase Date pursuant to the Purchase Obligation.
Purchase Date
, with respect to any purchase of VRDP Shares, means (i) in connection with an Optional Tender,
the date specified in a Notice of Tender, which date shall be no earlier than the seventh day (or, if such day is not a Business Day, the next succeeding Business Day) following delivery to the Tender and Paying Agent of the Notice of Tender,
(ii) in connection with a Mandatory Tender, the date specified in the Mandatory Tender Notice (or, if such day is not a Business Day, the next succeeding Business Day), subject to the immediately succeeding sentence below, or (iii) in
connection with a Mandatory Purchase, the Mandatory Purchase Date specified in the Mandatory Purchase Notice (or, if such day is not a Business Day, the next succeeding Business Day). The Purchase Date in respect of a Mandatory Tender Event will be
not later than seven days following the date a Mandatory Tender Notice is sent to Holders by Electronic Means;
provided
, that: (A) the Purchase Date in connection with the failure of the Fund to pay the applicable fee to the Liquidity
Provider may not be later than the last Business Day of the month such payment was due; (B) the Purchase Date in connection with the occurrence of an Extraordinary Corporate Event may not be later than the Business Day immediately preceding the
occurrence of the Extraordinary Corporate Event (and, if no earlier Purchase Date is specified in a Mandatory Tender Notice with respect to such Extraordinary Corporate Event, the Business Day immediately preceding the occurrence of the
Extraordinary Corporate Event will be deemed to be the Purchase Date irrespective of the failure to have given or sent a Mandatory Tender Notice); (C) the Purchase Date in connection with the Fund obtaining an Alternate VRDP Purchase Agreement
may not be later than the Business Day immediately preceding the termination of this Agreement; and (D) the Purchase Date in connection with a Notice of Proposed Special Rate Period may not be later than the first day of such proposed Special
Rate Period.
Purchase Obligation
means the unconditional and irrevocable obligation of the Liquidity Provider
during the term and pursuant to the terms of this Agreement to purchase Outstanding VRDP Shares on any Purchase Date at the Purchase Price from Beneficial Owners, in the case of any Optional Tender, and Holders, in the case of any Mandatory Tender,
in each case following delivery of a Final Notice of Purchase with respect to such VRDP Shares, and Holders, in the case of any Mandatory Purchase.
Purchase Price
means an amount equal to the Liquidation Preference of any VRDP Shares to be purchased on a Purchase
Date,
plus
any accumulated but unpaid dividends thereon (whether or not earned or declared), if any, to but excluding, the relevant Purchase Date.
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Purchased VRDP Shares
means all VRDP Shares purchased by the Liquidity
Provider pursuant to Article II of this Agreement, so long as such VRDP Shares are owned by the Liquidity Provider.
Related Documents
means the Declaration, the Statement, the VRDP Shares, the By-laws, the Remarketing Agreement, the
VRDP Fee Agreement and the Tender and Paying Agent Agreement.
Related Party
means a related party for purposes
of Section 267(b) or Section 707(b) of the Code, as such provisions may be amended from time to time.
Related Party
Termination Date
means the effective date of the Related Party Termination Event.
Related Party Termination
Event
means termination of this Agreement by its terms as of the Related Party Termination Date in the event of the Liquidity Provider becoming a Related Party of the Fund other than through the acquisition of VRDP Shares pursuant to
the terms of this Agreement.
Remarketing
means the remarketing of VRDP Shares by the Remarketing Agent on
behalf of the Beneficial Owners thereof pursuant to an Optional Tender or on behalf of the Holders thereof pursuant to a Mandatory Tender, as provided in the Remarketing Agreement and the Statement.
Remarketing Agent
means, with respect to the VRDP Shares, the Person or Persons designated as Remarketing Agent for
the VRDP Shares with the prior written consent of the Liquidity Provider (which consent shall not be unreasonably withheld), initially as set forth in Schedule I hereto, and its or their permitted successors and assigns. The Liquidity
Providers execution of this Agreement shall constitute its consent to the designation of the Remarketing Agent set forth in Schedule I.
Remarketing Agreement
means the Remarketing Agreement, with respect to the VRDP Shares, dated [
], by and among the Fund, the Investment Adviser and the Remarketing Agent, as amended, modified or supplemented from time to time, or any similar agreement with a successor Remarketing Agent.
Remarketing Notice
means the notice to be provided by the Remarketing Agent to the Tender and Paying Agent and the
Liquidity Provider by 2:00 p.m., New York City time, on the Business Day preceding the Purchase Date regarding the number of VRDP Shares that it has successfully and unsuccessfully remarketed for purchase on the Purchase Date.
Requisite NRSROs
means (i) any two NRSROs that have issued a rating with respect to a security or
class of debt obligations of an issuer; or (ii) if only one NRSRO has issued a rating with respect to such security or class of debt obligations of an issuer at the time a purchaser Acquires (as such term is defined in Rule 2a-7 under the 1940
Act) the security, that NRSRO.
S&P
means Standard & Poors Ratings Services, a
Standard & Poors Financial Services LLC business, and its successors.
Scheduled Termination Date
means [
], [2014] or any succeeding date to which the term of this Agreement is extended pursuant to Section 2.03.
SEC
means the Securities and Exchange Commission.
Securities Depository
means The Depository Trust Company, New York, New York, and any substitute for or successor to
such securities depository that shall maintain a book-entry system with respect to the VRDP Shares.
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Special Rate Period
with respect to the VRDP Shares, has the meaning
specified in paragraph (a) of Section 4 of Part I of the Statement.
Statement
means the Statement
Establishing and Fixing the Rights and Preferences of the VRDP Shares.
Tender
means either an Optional Tender
or a Mandatory Tender.
Tender and Paying Agent
means The Bank of New York Mellon, or with the prior written
consent of the Liquidity Provider (which consent shall not be unreasonably withheld), any successor Person, which has entered into an agreement with the Fund to act in such capacity as the Funds tender agent, transfer agent, registrar,
dividend disbursing agent, paying agent and redemption price disbursing agent and calculation agent in connection with the payment of regularly scheduled dividends with respect to VRDP Shares.
Tender and Paying Agent Agreement
means the Tender and Paying Agent Agreement, with respect to the VRDP Shares,
entered into as of [
], between the Fund and the Tender and Paying Agent, as amended, modified or supplemented from time to time, or any similar agreement with a successor Tender and Paying Agent.
Termination Event
means a termination of this Agreement (a) on a Scheduled Termination Date, as such date
may be extended pursuant to the terms hereof, (b) following written notice provided by the Tender and Paying Agent pursuant to Section 7.06(b) hereof following the occurrence of a Liquidity Provider Ratings Event at any time during the
term hereof, (c) on an Optional Early Termination Date or (d) on a Related Party Termination Date.
U.S. Government
Securities
means direct obligations of the United States or of its agencies or instrumentalities that are entitled to the full faith and credit of the United States and that, other than United States Treasury Bills, provide for the
periodic payment of interest and the full payment of principal at maturity or call for redemption.
VRDP Fee
Agreement
means the Variable Rate Demand Preferred Shares (VRDP) Fee Agreement, with respect to the VRDP Shares, dated as of [
], between the Fund and the Liquidity Provider, as
amended, modified or supplemented from time to time, or any similar agreement with a successor Liquidity Provider.
VRDP
Shares
has the meaning set forth in the preamble to this Agreement.
written
or
in
writing
means any form of written communication, including communication by means of telex, telecopier or electronic mail.
SECTION 1.02. Incorporation of Certain Definitions by
Reference.
Each capitalized term used herein and not otherwise defined herein has the meaning provided therefor (including by
incorporation by reference) in the Statement.
ARTICLE II
PURCHASE OBLIGATION
SECTION 2.01. Commitment to Purchase VRDP Shares.
(a) The Liquidity Provider agrees, commencing on the Effective Date of this
Agreement, to purchase at the Purchase Price any Outstanding VRDP Shares that are properly tendered in accordance with the Statement and this Agreement, including, without limitation to any other provision of this Agreement, on the
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Purchase Date for a Mandatory Tender in connection with the Fund obtaining an Alternate VRDP Purchase Agreement and the Purchase Date for a Mandatory Purchase Event. The Liquidity Provider agrees
that in no event shall amounts paid by it in respect of the Purchase Price be paid from funds or property of the Fund, including, without limitation, any funds derived from funds that the Fund may have on deposit with the Liquidity Provider. The
obligation of the Liquidity Provider to purchase VRDP Shares pursuant to this Agreement shall run to the benefit of those beneficiaries identified in Section 7.10 and shall be unconditional and irrevocable in accordance with the provisions
hereof, without regard to, without limitation, any failure of the representations, warranties, agreements or performance of the Tender and Paying Agent set forth herein or of the Fund set forth in the VRDP Fee Agreement or the termination of the
obligations of the Remarketing Agent under Section 10 of the Remarketing Agreement.
(b) The obligation of the Liquidity Provider hereunder to purchase VRDP Shares of any Holder
or Beneficial Owner on any Purchase Date shall be unconditional upon delivery to the Liquidity Provider of a written Final Notice of Purchase from the Tender and Paying Agent by Electronic Means or, if there is no Tender and Paying Agent or for any
reason the Tender and Paying Agent does not perform its obligations hereunder, any Holder or Beneficial Owner, with respect to an election by one or more Beneficial Owners to submit such VRDP Shares for purchase by the Liquidity Provider;
provided
that, in the case of a Mandatory Purchase, the Final Notice of Purchase shall automatically be deemed given upon the Mandatory Purchase Notice being delivered to the Liquidity Provider in accordance herewith.
(c) In the case of an Optional Tender or a Mandatory Tender, the Liquidity Provider shall be
obligated to purchase only those VRDP Shares subject to a Final Notice of Purchase. In the case of a Mandatory Purchase, the Liquidity Provider shall be obligated to purchase all Outstanding VRDP Shares.
SECTION 2.02. Method of Purchasing.
(a) Pursuant to an Optional Tender, Beneficial Owners may elect to tender their VRDP Shares
(in denominations of $100,000 and integral multiples thereof) for purchase at the Purchase Price on the Purchase Date designated in the Notice of Tender (or if such day is not a Business Day, on the next succeeding Business Day). Each Notice of
Tender will be irrevocable (except as described below) and effective upon receipt and shall:
(i) be delivered by a Beneficial Owner,
directly or through its Agent Member, by email transmission (or if email transmission shall be unavailable, by facsimile transmission), to the Tender and Paying Agent not later than 2:00 p.m., New York City time, on any Business Day;
(ii) state the series and the aggregate number
of VRDP Shares to be purchased, the CUSIP number of the VRDP Shares to be purchased and the Purchase Date and be in substantially the form of and contain such other information specified in Exhibit C to this Agreement; and
(iii) state that the tendering Beneficial
Owner acknowledges that such Beneficial Owner is required to deliver the VRDP Shares that are the subject of a Notice of Tender (that has not been duly revoked as described below) on or before 2:00 p.m., New York City time, on the Purchase Date.
(b) Upon receipt of a Notice of Tender, the Tender and Paying Agent will provide a copy
to the Liquidity Provider and the Remarketing Agent as promptly as practicable by Electronic Means, but no later than 4:00 p.m., New York City time, on the date of receipt or deemed receipt. Any Notice of Tender that is delivered to the Tender and
Paying Agent by a Beneficial Owner or its Agent Member after 2:00 p.m., New York City time, will be deemed to have been received by the Tender and Paying Agent on the next succeeding Business Day, and the Purchase Date will be adjusted such that the
Purchase Date will be the Business Day next succeeding the date specified as the Purchase Date in the Notice of Tender. The Tender and Paying Agents determination as to whether a Notice of Tender has been properly tendered will be conclusive
and binding on a Beneficial Owner and its Agent Member.
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(c) VRDP Shares are subject to Mandatory Tender
upon the occurrence of a Mandatory Tender Event.
(i) Promptly following the occurrence of a
Mandatory Tender Event, and in any event within three (3) Business Days thereafter, the Fund, or the Tender and Paying Agent at the direction of the Fund (
provided
, that the Tender and Paying Agent may require up to two (2) Business
Days prior notification by Electronic Means by the Fund), shall provide a Mandatory Tender Notice by Electronic Means to Holders, the Remarketing Agent and the Liquidity Provider, specifying a Purchase Date for all Outstanding VRDP Shares. Any
notice given in respect of a Mandatory Tender under the Statement shall be conclusively presumed to have been duly given, whether or not the Holders receive such notice.
(ii) To the extent permitted by law and under
applicable confidentiality restrictions, the Liquidity Provider shall provide (a) written notice of an Extraordinary Corporate Event and (b) the written notice referred to in clause (y) in the definition of an Extraordinary Corporate
Event, to the Fund at least 10 days prior to the scheduled date of the occurrence of an Extraordinary Corporate Event or 10 days prior to the applicable listed occurrence in clause (i) of such definition, respectively.
(iii) Upon the occurrence of a Mandatory
Tender Event, all Outstanding VRDP Shares automatically will be subject to Mandatory Tender and delivered to the Tender and Paying Agent for purchase on the designated Purchase Date by purchasers in the Remarketing in the event of a successful
Remarketing or otherwise by the Liquidity Provider, including any VRDP Shares previously tendered pursuant to an Optional Tender for which the Purchase Date has not yet occurred. In the event that VRDP Shares are issued in certificated form and a
Holder of VRDP Shares fails to deliver such VRDP Shares to which a Mandatory Tender relates on or prior to the Purchase Date, the Holder of such VRDP Shares will not be entitled to any payment (including any accumulated but unpaid dividends thereon,
whether or not earned or declared) other than the Purchase Price of such undelivered VRDP Shares as of the scheduled Purchase Date. Any such undelivered VRDP Shares will be deemed to be delivered to the Tender and Paying Agent, and the Tender and
Paying Agent will place stop-transfer orders against the undelivered VRDP Shares. Any moneys held by the Tender and Paying Agent for the purchase of undelivered VRDP Shares shall be held in a separate account by the Tender and Paying Agent, will not
be invested, and shall be held for the exclusive benefit of the Holder of such undelivered VRDP Shares. The undelivered VRDP Shares shall be deemed to be no longer Outstanding (except as to entitlement to payment of the Purchase Price), and the Fund
will issue to the purchaser replacement VRDP Share certificates in lieu of such undelivered VRDP Shares.
(d) A Beneficial Owner or its Agent Member that delivered a Notice of Tender in connection
with an Optional Tender may deliver in writing by email transmission (or if email transmission shall be unavailable, by facsimile transmission) to the Tender and Paying Agent, not later than 10:00 a.m., New York City time, on or prior to the
Business Day immediately preceding the Purchase Date, a notice to the effect that such Beneficial Owner wishes to revoke its election to tender some or all of the VRDP Shares that were specified in such Notice of Tender to be purchased (a
Notice of Revocation). Any Notice of Revocation delivered to the Tender and Paying Agent shall be promptly delivered by Electronic Means by the Tender and Paying Agent to the Liquidity Provider and the Remarketing Agent by 12:00 noon,
New York City time, on the Business Day immediately preceding the relevant Purchase Date. The Remarketing Agent (following receipt of such Notice of Revocation) shall notify the Tender and Paying Agent and the Liquidity Provider of the number of
VRDP Shares specified in such Notice of Revocation that are subject to an agreement of sale pursuant to a Remarketing by email transmission or facsimile transmission not later than 2:00 p.m., New York City time, on the Business Day immediately
preceding the Purchase Date. The Tender and Paying Agent will deliver such notification to the Beneficial Owner or its Agent Member promptly following receipt from the Remarketing Agent, and in any event by 4:00 p.m., New York City time, on the
Business Day immediately preceding the Purchase Date. Any such Notice of Revocation will be effective (without further action on the part of the Beneficial Owner or its Agent Member) as a revocation of the Optional Tender of the number of VRDP
Shares specified therein as being sought to be revoked, but (except as set forth below) only if and to the extent that the Remarketing Agent has not
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entered into an agreement to sell such VRDP Shares. A Notice of Revocation will be effective as to the number of VRDP Shares specified therein as having been revoked less the number of such VRDP
Shares in respect of which the Remarketing Agent has so notified the Tender and Paying Agent and the Liquidity Provider that it has entered into an agreement of sale. Notwithstanding the foregoing, tendered VRDP Shares, if any, that remain unsold on
the related Purchase Date will be allocated by the Remarketing Agent to each Notice of Revocation received in respect of VRDP Shares tendered for purchase on such Purchase Date and not already satisfied in the chronological order in which each such
Notice of Revocation was received by the Tender and Paying Agent, and each such Notice of Revocation will be effective only to the extent of such allocation and availability of unsold VRDP Shares.
(e) Pursuant to the Statement, the Fund has agreed in the VRDP Fee Agreement to use its best
efforts at all times to engage a Remarketing Agent that is a nationally recognized securities dealer with expertise in remarketing variable-rate securities whose appointment has been consented to in writing by the Liquidity Provider (which consent
shall not be unreasonably withheld) to use its best efforts to find purchasers for all VRDP Shares properly tendered pursuant to a Tender. All such VRDP Shares shall be remarketed at the Purchase Price of such VRDP Shares.
(f) In connection with any attempted Remarketing, all tendered VRDP Shares will be remarketed
at the Purchase Price of such VRDP Shares. The calculation of the Purchase Price of the VRDP Shares that are remarketed or purchased by the Liquidity Provider will be made by the Remarketing Agent in advance of such Remarketing or purchase and,
together with the details of the aggregate number and Purchase Price of remarketed VRDP Shares and the aggregate number and Purchase Price of VRDP Shares to be purchased by the Liquidity Provider pursuant to the Purchase Obligation, will be
communicated by the Remarketing Agent to the Fund, the Liquidity Provider and the Tender and Paying Agent by email transmission or facsimile transmission by 2:00 p.m., New York City time, on the Business Day immediately preceding the Purchase Date,
as described below. The proceeds of any sale of any remarketed VRDP Shares by the Remarketing Agent relating to tendered VRDP Shares will be used for the purchase of the remarketed VRDP Shares at the Purchase Price, and the terms of the sale will
provide for the wire transfer of such Purchase Price by the Remarketing Agent to be received by the Tender and Paying Agent no later than 11:00 a.m., New York City time, on the related Purchase Date for payment to the Agent Member of the Beneficial
Owner, in the case of an Optional Tender, or Holder, in the case of a Mandatory Tender, tendering VRDP Shares for sale through the Securities Depository in immediately available funds against delivery of the tendered VRDP Shares to the Tender and
Paying Agent through the Securities Depository, the delivery of such VRDP Shares to the Tender and Paying Agent through the Securities Depository no later than 2:00 p.m., New York City time, on the Purchase Date, and the re-delivery of such VRDP
Shares by means of FREE delivery through the Securities Depository to the Remarketing Agent for delivery to the purchasers Agent Member through the Securities Depository by 3:00 p.m., New York City time, on the relevant
Purchase Date.
(g) By 2:00 p.m., New York City time, on the Business Day immediately
preceding each Purchase Date, the Remarketing Agent shall deliver a notice to the Tender and Paying Agent and the Liquidity Provider (a Remarketing Notice), by email transmission or facsimile transmission, that sets forth the number of
VRDP Shares, if any, that it successfully remarketed for purchase on such Purchase Date and the aggregate Purchase Price of such sold VRDP Shares and the number of VRDP Shares, if any, not successfully remarketed for purchase on such Purchase Date
and the aggregate Purchase Price of such unsold VRDP Shares to be paid by the Liquidity Provider. If the Remarketing Notice states that the Remarketing Agent has not successfully remarketed all of the VRDP Shares to be purchased on such Purchase
Date, the Tender and Paying Agent shall promptly, and in any event not later than 4:00 p.m., New York City time, on such Business Day, deliver by Electronic Means to the Liquidity Provider (with a copy to the Fund) a Preliminary Notice of Purchase
that, subject to delivery of the Final Notice of Purchase on the Purchase Date described below, provides for the purchase by the Liquidity Provider of the number of such VRDP Shares that the Remarketing Agent stated in the Remarketing Notice as not
having been successfully remarketed, including the aggregate Purchase Price of such VRDP Shares, as calculated by the Remarketing Agent. If the Remarketing Notice states that the Remarketing
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Agent has not successfully remarketed all of the VRDP Shares to be purchased on such Purchase Date (or if remarketing proceeds for any tendered VRDP Shares have not been received for any reason
by the Tender and Paying Agent by 11:00 a.m., New York City time, on the Purchase Date), the Tender and Paying Agent shall deliver by Electronic Means to the Liquidity Provider (with a copy to the Fund) by 12:00 noon, New York City time, on such
Purchase Date a Final Notice of Purchase that states the number of VRDP Shares required to be purchased by the Liquidity Provider. For purposes of the Final Notice of Purchase, any tendered VRDP Shares for which remarketing proceeds have not been
received for any reason by the Tender and Paying Agent by 11:00 a.m., New York City time, on the Purchase Date, shall be treated as not having been successfully remarketed and shall be required to be purchased by the Liquidity Provider. The
payment obligation of the Liquidity Provider shall equal the Purchase Price of the VRDP Shares, stated in the Final Notice of Purchase delivered to the Liquidity Provider, as being required to be purchased by the Liquidity Provider.
(h) The Liquidity Provider shall, no later than 2:00 p.m., New York City time, on a Purchase
Date for any VRDP Shares, wire transfer the aggregate Purchase Price of all VRDP Shares in respect of which Final Notices of Purchase have been delivered to it for purchase of VRDP Shares on such date, as follows: (i) in the case of a Final
Notice of Purchase delivered by the Tender and Paying Agent, by wire transfer, in immediately available funds, to the account of the Tender and Paying Agent specified by the Tender and Paying Agent in any such Final Notice of Purchase; and
(ii) in the case of a Final Notice of Purchase delivered by a Beneficial Owner or its Agent Member, in the case of an Optional Tender, or by a Holder, in the case of a Mandatory Tender, in the event there is no Tender and Paying Agent or for
any reason the Tender and Paying Agent does not perform its obligations under this Agreement and the Liquidity Provider has received a Remarketing Notice that such VRDP Shares have not been the subject of an agreement of sale in a Remarketing and
has received written notice from the Fund that there is no Tender and Paying Agent or that the Tender and Paying Agent does not intend to perform its obligations hereunder, by payment against delivery of the VRDP Shares that are the subject of any
such Final Notice of Purchase, through means of the Securities Depository in the case of Global VRDP Shares. The Fund is required pursuant to the Statement, in the event there is no Tender and Paying Agent or for any reason the Tender and Paying
Agent does not, or in the reasonable judgment by the Fund will not, perform its obligations under the VRDP Purchase Agreement, to (i) upon becoming aware thereof, promptly notify the Liquidity Provider, the Remarketing Agent and Holders by
Electronic Means of such event, and (ii) so long as such event is continuing, use its best efforts to direct and request the Remarketing Agent to forward, concurrently with the delivery thereof to the Liquidity Provider or as promptly as
practicable thereafter, any Remarketing Notice to each Beneficial Owner or Holder tendering VRDP Shares that are the subject of such notice.
(i) Upon receipt by the Tender and Paying Agent from the Beneficial Owner or its Agent Member,
in the case of an Optional Tender, or from the Holder, in the case of a Mandatory Tender, of tendered VRDP Shares and the payment by the Tender and Paying Agent to such Beneficial Owner or its Agent Member, or such Holder as the case may be, of the
Purchase Price therefor on the applicable Purchase Date, the Tender and Paying Agent shall deliver to the Liquidity Provider, by means of FREE delivery through the system of the Securities Depository, VRDP Shares in satisfaction of the
Liquidity Providers Purchase Obligation on such Purchase Date. Any funds paid by the Liquidity Provider and held in the account of the Tender and Paying Agent for the payment of the Purchase Price shall be held in trust for the benefit of the
Liquidity Provider until the VRDP Shares are delivered by the tendering Beneficial Owners or their Agent Members, in the case of an Optional Tender, and by the tendering Holder, in the case of a Mandatory Tender, against payment therefor or returned
to the Liquidity Provider. Any funds paid by the Remarketing Agent and held in an account of the Tender and Paying Agent for the payment of the Purchase Price in connection with a Remarketing shall be held in trust for the benefit of the Remarketing
Agent on account of purchasers purchasing in a Remarketing until the VRDP Shares are delivered by the tendering Beneficial Owners or their Agent Members, in the case of an Optional Tender, or by the tendering Holders, in the case of a Mandatory
Tender, against payment therefor, or returned to the Remarketing Agent on account of purchasers purchasing in a Remarketing. Upon receipt of VRDP Shares from the tendering Beneficial Owners or their Agent Members, in the case of an Optional Tender,
or from the tendering Holders, in the case of a Mandatory Tender, by the Tender and Paying Agent, the Tender
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and Paying Agent shall pay, subject to receipt of the Purchase Price by the Tender and Paying Agent in the form of remarketing proceeds from the Remarketing Agent, with respect to VRDP Shares
remarketed by the Remarketing Agent, or in the form of payment pursuant to the VRDP Purchase Agreement from the Liquidity Provider, with respect to VRDP Shares subject to purchase pursuant to the Purchase Obligation, the Purchase Price for such VRDP
Shares to such tendering Beneficial Owner, Agent Member or Holder, as the case may be. In accordance with and subject to the foregoing, the Tender and Paying Agent shall effect any such payment on the applicable Purchase Date.
(j) Except as otherwise expressly provided for herein, the purchase and delivery of tendered
Global VRDP Shares and their Remarketing will be accomplished in accordance with the applicable procedures of the Securities Depository.
(k) In the event of a Failed Remarketing Condition, of which the Tender and Paying Agent,
pursuant to the Tender and Paying Agent Agreement, has received notice by Electronic Means, the Tender and Paying Agent will promptly provide notice of such Failed Remarketing Condition, by Electronic Means, to the Fund and Holders.
(l) At any time that no Purchase Obligation is in effect (or with respect to a remarketing of
VRDP Shares held by the Liquidity Provider as to which any then-effective Purchase Obligation by a successor liquidity provider is inapplicable as provided in the VRDP Fee Agreement), any VRDP Shares unsold in a Remarketing shall be returned to the
tendering Beneficial Owners or their Agent Members, or the tendering Holders, as the case may be, by the Tender and Paying Agent. For purposes of the parenthetical in the preceding sentence, the Purchase Obligation of a successor liquidity provider
shall be treated as inapplicable to VRDP Shares held by the Liquidity Provider unless and until either the Fund or the Liquidity Provider shall have given the Tender and Paying Agent written notice that the VRDP Fee Agreement has been amended to
make it applicable.
(m) VRDP Shares are subject to Mandatory Purchase by the Liquidity
Provider upon the occurrence of a Mandatory Purchase Event. Promptly following the occurrence of a Mandatory Purchase Event, and in any event within three (3) Business Days thereafter, the Fund, or the Tender and Paying Agent at the direction
of the Fund (
provided
, that the Tender and Paying Agent may require up to two (2) Business Days prior notification by Electronic Means by the Fund), shall provide a Mandatory Purchase Notice by Electronic Means to Holders and the
Liquidity Provider, specifying a Mandatory Purchase Date for all Outstanding VRDP Shares. The Mandatory Purchase Date shall not be later than seven days following the date a Mandatory Purchase Notice is sent to Holders by Electronic Means, and in
any event shall be not later than the Business Day immediately preceding the termination of this Agreement. Any notice given in respect of a Mandatory Purchase under the Statement shall be conclusively presumed to have been duly given, whether or
not the Holders receive such notice. Upon the occurrence of a Mandatory Purchase Event, all Outstanding VRDP Shares automatically shall be subject to Mandatory Purchase by the Liquidity Provider at the Purchase Price on the Mandatory Purchase Date,
including any VRDP Shares tendered pursuant to an Optional Tender or Mandatory Tender for which the Purchase Date has not yet occurred. In the event that VRDP Shares are issued in certificated form and a Holder fails to deliver such VRDP Shares to
which a Mandatory Purchase relates, on or prior to the Mandatory Purchase Date, the Holder of such VRDP Shares will not be entitled to any payment (including any accumulated but unpaid dividends thereon, whether or not earned or declared) other than
the Purchase Price of such undelivered VRDP Shares as of the scheduled Purchase Date. Any such undelivered VRDP Shares will be deemed to be delivered to the Tender and Paying Agent, and the Tender and Paying Agent will place stop-transfer orders
against the undelivered VRDP Shares. Any moneys held by the Tender and Paying Agent for the purchase of undelivered VRDP Shares shall be held in a separate account, shall not be invested, and shall be held for the exclusive benefit of the Holder of
such undelivered VRDP Shares. The undelivered VRDP Shares shall be deemed to be no longer Outstanding (except as to entitlement to payment of the Purchase Price), and the Fund will issue to the purchaser replacement VRDP Share certificates in lieu
of such undelivered VRDP Shares.
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(n) The Liquidity Provider shall not have any
responsibility for, or incur any liability in respect of, any losses, claims, damages, liabilities or expenses (including reasonable fees and expenses of counsel) (Losses) relating to any act by the Tender and Paying Agent, or any
failure to act or to perform any of its obligations, other than Losses arising out of the bad faith, gross negligence or willful misconduct of the Liquidity Provider.
(o) VRDP Shares purchased by the Liquidity Provider pursuant to this Section 2.02 shall
be delivered to the Liquidity Provider or its nominee as specified by the Liquidity Provider.
(p) If there is no Tender and Paying Agent or for any reason the Tender and Paying Agent does
not perform any of its foregoing obligations hereunder on behalf of any Beneficial Owner or Holder, such Beneficial Owner or its Agent Member or Holder may perform any such obligations in place of the Tender and Paying Agent (if any) with respect to
the VRDP Shares of such Beneficial Owner or Holder and payments shall be made to the account(s) specified by such Beneficial Owners or Holders.
(q) In connection with any Special Rate Period designated pursuant to Section 4 of the
Statement, the Fund, without the vote or consent of any Holder of VRDP Shares but with the prior written consent of the Liquidity Provider, in the Notice of Proposed Special Rate Period relating to the VRDP Shares, as delivered to the Remarketing
Agent and the Liquidity Provider, may provide for provisions relating solely to such Special Rate Period that differ from those provided in the Statement, including with respect to the Purchase Obligation, optional tender provisions, mandatory
tender provisions, mandatory purchase provisions, the dividend rate setting provisions (including as to the Maximum Rate), and, if the dividend may be determined by reference to an index, formula or other method, the manner in which it will be
determined, Special Redemption Provisions or other redemption provisions (other than Section 10(b)(i)(A) of the Statement) and modified or new definitions as specified in the Notice of Proposed Special Rate Period for such Special Rate Period;
provided that such provisions do not affect the parity ranking of the VRDP Shares relative to any other series of Preferred Shares of the Fund then outstanding with respect to dividends or distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund. Any such Special Rate Period, and establishment of any such provisions applicable during such Special Rate Period, must be preceded by a Mandatory Tender as provided in this Agreement.
SECTION 2.03. Extension of Scheduled Termination Date.
Under the VRDP Fee Agreement, the Fund shall have the right, exercisable not more than 120 days nor less than 90 days prior
to the Scheduled Termination Date, to request that the Liquidity Provider extend the term of such Scheduled Termination Date for an additional period, which request may be conditioned upon terms and conditions that are different from the terms and
conditions of this Agreement and the VRDP Fee Agreement then in effect. Under the VRDP Fee Agreement, the Fund will acknowledge and agree that the Liquidity Provider may grant or deny any request for extension of the Scheduled Termination Date in
its sole and absolute discretion.
SECTION
2.04. Reduction of Available Commitment.
As of the opening of business on the day
following the Liquidity Providers receipt of written notice (which the Tender and Paying Agent will provide within two (2) Business Days of receipt of notice from the Fund) of any redemption or other repurchase of VRDP Shares consummated
by the Fund, the Available Commitment shall automatically be reduced by the amount applicable to the VRDP Shares so redeemed or otherwise repurchased; and the Available Commitment in respect of such VRDP Shares shall be extinguished and shall not
thereafter be revived, except with the prior written consent of the Liquidity Provider.
SECTION
2.05. Claw-Back Provision.
In the event that any dividends or redemption proceeds
paid by the Fund on Outstanding VRDP Shares prior to the occurrence of a Fund Insolvency Event are required to be, and are, paid over to the bankruptcy estate
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of the Fund pursuant to a final, non-appealable judgment of a court of competent jurisdiction arising out of a Fund Insolvency Event, any Beneficial Owner (or former Beneficial Owner) of VRDP
Shares that has paid over to the bankruptcy estate of the Fund pursuant to such judgment any dividends or redemption proceeds previously received from the Fund may demand reimbursement from the Liquidity Provider of any amounts so paid. The
Liquidity Provider agrees to make such reimbursement payment within three Business Days of receipt of any such demand for payment made in writing and accompanied by evidence reasonably satisfactory to the Liquidity Provider, of payment made to the
bankruptcy estate of the Fund by or on behalf of the demanding party. In connection with any reimbursement payment by the Liquidity Provider, the Beneficial Owner (or former Beneficial Owner) of VRDP Shares shall be deemed to have transferred,
assigned and conveyed to the Liquidity Provider the right to receive from the Fund and the bankruptcy estate of the Fund any such dividends or redemption proceeds in exchange for the reimbursement payment by the Liquidity Provider, and the
Beneficial Owner (or former Beneficial Owner) shall execute, acknowledge and deliver such further conveyances, assignments and other documents as the Liquidity Provider may reasonably request and are reasonably necessary in order to effectuate such
assignment. The provisions of this Section 2.05 shall survive any expiration or termination of this Agreement, in respect of any dividends or redemption proceeds paid by the Fund on Outstanding VRDP Shares during the term of this Agreement, and
shall be in addition to any other obligation of the Liquidity Provider under this Agreement.
ARTICLE
III
REPRESENTATIONS AND WARRANTIES OF THE TENDER AND PAYING AGENT
The representations and warranties set out in this Article III are given hereunder by the Tender and Paying Agent on the date hereof only
and are not repeated on any subsequent date.
SECTION
3.01. Existence; Binding Effect.
The Tender and Paying Agent represents and
warrants to the Liquidity Provider that (i) the Tender and Paying Agent is duly organized and is validly existing as a banking corporation under the laws of the State of New York, (ii) it has the corporate power to enter into and perform
its obligations under this Agreement and each Related Document to which it is a party and (iii) this Agreement constitutes the legal, valid and binding obligation of the Tender and Paying Agent except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws related to or affecting the rights of creditors generally from time to time in effect and by general principles of equity.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LIQUIDITY PROVIDER
The representations and warranties set out in this Article IV are given hereunder by the Liquidity Provider on the date hereof only and
are not repeated on any subsequent date.
SECTION
4.01. Existence.
The Liquidity Provider is a Canadian chartered bank duly
established and validly existing under the Bank Act (Canada) and duly licensed to operate its New York branch located at Three World Financial Center, 200 Vesey Street, New York, New York (the WFC, New York, Branch) under License
No. 80072, issued by the Comptroller of the Currency of the United States of America. The Liquidity Provider has all requisite power and authority to execute and deliver, and to perform its obligations under this Agreement, including, without
limitation, the Purchase Obligation, and to do so acting through the WFC, New York, Branch.
SECTION
4.02. Authorization; Contravention.
The execution, delivery and performance by the
Liquidity Provider of this Agreement, including, without limitation, the Purchase Obligation, are within the Liquidity Providers powers, have been duly
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authorized by all necessary action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not violate or contravene, or constitute a default
under, any provision of applicable law, charter, ordinance or regulation or of any material agreement, judgment, injunction, order, decree or other instrument binding upon the Liquidity Provider or result in the creation or imposition of any lien or
encumbrance on any asset of the Liquidity Provider, except for violations, contraventions or defaults, or the creation or imposition of liens which would not have a material adverse effect on the Purchase Obligation.
SECTION 4.03. Binding Effect.
This Agreement, including, without limitation, the Purchase Obligation, constitutes a valid and binding agreement of the Liquidity Provider,
enforceable in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors rights generally and (ii) the availability of equitable remedies may be
limited by equitable principles of general applicability, it being understood that the enforceability of indemnification provisions may be subject to limitations imposed under applicable securities laws.
SECTION 4.04. Financial Information.
The consolidated balance sheets and the related consolidated statements of income, comprehensive income, changes in equity and cash flows set
forth in the Liquidity Providers Annual Report to Shareholders for the fiscal year ended [October 31, 2013], and the auditors report with respect thereto, copies of which have heretofore been furnished to the Fund, present fairly, in all
material respects, the balance sheet of the Liquidity Provider and its subsidiaries as at [October 31, 2013, October 31, 2012 and October 31, 2011], and their financial performance and cash flows for the years ended [October 31, 2013
and October 31, 2012] in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. The audits of these statements were conducted in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Since [October 31, 2013], no transaction or event has occurred and no change has occurred in the condition (financial or otherwise) or operations
of the Liquidity Provider that would materially and adversely affect its ability to perform its obligations under this Agreement, including, without limitation, the Purchase Obligation.
SECTION 4.05. Litigation.
Except as disclosed in the Information Memorandum or in a schedule delivered to the Fund prior to the date hereof, no action, suit, proceeding
or investigation is pending or (to the best knowledge of the Liquidity Provider) overtly threatened in writing against the Liquidity Provider in any court or before any governmental authority in any way contesting or, if decided adversely, would
affect the validity of this Agreement, including, without limitation, the Purchase Obligation.
SECTION 4.06. Consents.
All consents, licenses, approvals, validations and authorizations of, and registrations, validations or declarations by or with, any court or
any regulatory, supervisory or governmental agency, bureau or agency required to be obtained in connection with the performance of the Liquidity Provider under this Agreement or the execution, delivery by, or the validity or enforceability against,
the Liquidity Provider of this Agreement and the other Related Documents to which the Liquidity Provider is a party have been obtained and are in full force and effect. If and to the extent that the Purchase Obligation is determined to be a
security for purposes of the Securities Act of 1933, as amended (the Securities Act), the Purchase Obligation is exempt from registration under Section 3(a)(2) of the Securities Act.
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SECTION
4.07. Ranking.
Subject to the rights of any holder of any security interest in any
property of the Liquidity Provider that the Liquidity Provider is permitted to create under Section 419(1) of the Bank Act, the obligations of the Liquidity Provider under this Agreement in the case of the insolvency of the Liquidity Provider
rank pari passu with the payment of the deposit liabilities of the Liquidity Provider and all other liabilities of the Liquidity Provider (except the liabilities referred to in Section 369(1)(d) and (e) of the Bank Act which rank
subordinate to the deposit liabilities and those other liabilities), except that:
(a) pursuant to Section 369(1)(a) of the Bank Act, the payment of any amount due to Her
Majesty in Right of Canada, in trust or otherwise, except indebtedness evidenced by subordinated indebtedness, shall be a first charge on the assets of the Liquidity Provider;
(b) pursuant to Section 369(1)(b) of the Bank Act, the payment of any amount due to her
Majesty in Right of a Province of Canada, in trust or otherwise, except indebtedness evidenced by subordinated indebtedness, shall be a second charge on the assets of the Liquidity Provider; and
(c) pursuant to Section 31(2) of the Canadian Payments Act, where a bankruptcy order is
made against the Liquidity Provider or a winding-up order is made in respect of the Liquidity Provider the items set out in clauses (i) and (ii) below shall be paid from the estate of the Liquidity Provider, in priority to any other claim
against the estate of the Liquidity Provider, in the following order:
(i) unpaid cheques or orders that had been drawn
on the Liquidity Provider and certified by the Liquidity Provider prior to the making of the bankruptcy order or winding-up order; and
(ii) unpaid priority payment instructions (as such term is defined in the Canadian Payments Act) drawn on the Liquidity
Provider and issued prior to the making of the bankruptcy order or winding-up order.
SECTION
4.08. 1940 Act Status.
The Liquidity Provider is not required to register as an
investment company, within the meaning of the 1940 Act and the rules and regulations of the SEC thereunder.
ARTICLE V
DUTIES OF THE TENDER AND PAYING AGENT
SECTION 5.01. Duties and Responsibilities.
(a) The Tender and Paying Agent is acting solely as agent for the Fund hereunder and owes no
duties, fiduciary or otherwise, to any other Person by reason of this Agreement, other than to the Liquidity Provider as and to the extent expressly provided for herein.
(b) The Tender and Paying Agent undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement and no implied covenants or obligations shall be read into this Agreement against the Tender and Paying Agent.
(c) In the absence of gross negligence (and with respect to the handling of funds, in the
absence of negligence), willful misconduct or bad faith on its part, the Tender and Paying Agent shall not be liable for any action taken, suffered or omitted or for any error of judgment made by it in the performance of its duties under this
Agreement. The Tender and Paying Agent shall not be liable for any error of judgment made in good faith unless and to the extent resulting from its own gross negligence (and with respect to the handling of funds, its own negligence).
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SECTION
5.02. Rights of the Tender and Paying Agent.
(a) The Tender and Paying Agent shall not incur liability for following the instructions
herein contained or expressly provided for, or written instructions authorized hereby. The Tender and Paying Agent may conclusively rely and shall be fully protected in acting or refraining from acting upon any communication authorized hereby and
upon any written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or document, in the absence of gross negligence, believed by it to be genuine. The Tender and Paying Agent shall not
be liable for acting upon any telephone communication authorized hereby which the Tender and Paying Agent believes in the absence of gross negligence to have been given by the Fund, a Holder, a Beneficial Owner, an Agent Member, the Liquidity
Provider or the Remarketing Agent. The Tender and Paying Agent may record telephone communications with the Fund, the Liquidity Provider and the Remarketing Agent in connection with its duties hereunder.
(b) The Tender and Paying Agent may consult with counsel of its choice and the advice or
opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Tender and Paying Agent shall not be required to advance, expend or risk its own funds
or otherwise incur or become exposed to financial liability in the performance of its duties hereunder.
(d) The Tender and Paying Agent may perform its duties and its rights hereunder either
directly or by or through agents or attorneys.
(e) Anything in this Agreement to the
contrary notwithstanding, in no event shall the Tender and Paying Agent be liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Tender and Paying Agent
has been advised of the likelihood of such loss or damage and regardless of the form of action.
(f) The Tender and Paying Agent shall not be obligated to take any legal action hereunder that
might, in its judgment, involve any expenses or liability, unless it has been furnished with indemnity reasonably satisfactory to it.
(g) The Tender and Paying Agent shall not be responsible or liable for any failure or delay in
the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; flood; terrorism; wars and other
military disturbances; sabotage; epidemics; riots; interruptions; loss or malfunction of utilities, computer (hardware or software) or communication services; accidents; labor disputes; acts of civil or military authority and governmental action.
The Tender and Paying Agent shall use commercially reasonable efforts to commence performance of its obligations during any of the foregoing circumstances.
(h) The Tender and Paying Agent makes no representation as to, and shall have no liability
with respect to, the correctness of the recitals in, or the validity (with respect to parties other than the Tender and Paying Agent), accuracy or adequacy of this Agreement (including any schedules hereto), any VRDP Shares, the Statement, the VRDP
Securities Placement Agreement, any offering material used in connection with the offer and sale of any VRDP Shares or any other agreement or instrument executed in connection with the transactions contemplated herein or in any thereof.
(i) The permissive right of the Tender and Paying Agent under this Agreement to take or omit
to take any action shall not be construed as a duty.
(j) The Tender and Paying Agent may
request that the Liquidity Provider deliver a certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions
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pursuant to this Agreement, which certificate may be signed by any person authorized to sign such a certificate, including any person specified as so authorized in any such certificate previously
delivered and not superseded.
(k) Unless otherwise mutually agreed between the Liquidity
Provider and the Tender and Paying Agent, the Tender and Paying Agent shall have no duty to invest any funds deposited with it at any time pursuant to this Agreement and shall be under no duty or obligation to pay any interest or earnings on or with
respect to amounts held or deposited hereunder. In the event the Liquidity Provider and the Tender and Paying Agent shall otherwise agree, any interest or earnings on or with respect to any amount held or deposited hereunder shall be remitted to the
Fund in accordance with such agreement. The Tender and Paying Agent shall be under no duty or obligation to collateralize or pledge any security therefor, or to segregate any amounts hereunder except as may be required by law;
provided
,
however
, that the Tender and Paying Agent shall hold any Purchase Price received from the Liquidity Provider in a separate account in trust for the benefit of the Liquidity Provider pending delivery of such Purchase Price to a Holder or
Beneficial Owner or its Agent Member in payment of any VRDP Shares that are the subject of a Tender or Mandatory Purchase.
(l) The Tender and Paying Agent, in its individual or any other capacity, may become the owner
or pledgee of VRDP Shares with the same rights it would have if it were not Tender and Paying Agent.
(m) Nothing contained herein shall be construed to require the Tender and Paying Agent to
advance its own funds to any Holder if sufficient funds have not been deposited with the Tender and Paying Agent by the Fund for the purpose of making payments hereunder.
(n) The Tender and Paying Agent shall have no duty to examine and shall not be charged with
knowledge of the contents of any report, information or document delivered to it hereunder. The Tender and Paying Agent shall have no duty to determine the occurrence or continuance of any event or events that constitute a Liquidity Provider Ratings
Event, Mandatory Tender Event, Mandatory Purchase Event or Failed Remarketing Condition or to determine whether any agreement satisfies the requirements of an Alternate VRDP Purchase Agreement.
(o) The Tender and Paying Agent has no obligation under the terms of this Agreement or
otherwise to enforce any rights or exercise any remedies that may be available to any Holder or Beneficial Owner or other Person that arise out of or relate to this Agreement or otherwise.
SECTION 5.03. Tender and Paying Agents Disclaimer.
The Tender and Paying Agent makes no representation as to the validity (except with respect to itself) or adequacy of this
Agreement or any VRDP Shares issued or to be issued.
SECTION
5.04. Concerning the Securities Depository.
(a) None of the Liquidity Provider or the Tender and Paying Agent shall have any responsibility
or obligation to any Beneficial Owner in a Global VRDP Share, an Agent Member or other Person with respect to the accuracy of the records of the Securities Depository or its nominee or of any Agent Member, with respect to any ownership interest in
the Global VRDP Shares or with respect to the delivery to any Agent Member, Beneficial Owner or other Person (other than the Securities Depository) of any notice (including any Notice of Redemption) or the payment of any amount, under or with
respect to such VRDP Shares. All notices and communications to be given to the Holders and all payments to be made to Holders under this Agreement or the Related Documents shall be given or made only to or upon the order of the registered holders
(which shall be the Securities Depository or its nominee in the case of Global VRDP Shares). The rights of Beneficial Owners in the Global VRDP Shares shall be exercised only through the Securities Depository subject to the applicable procedures of
the Securities Depository. The Liquidity Provider and the Tender and Paying Agent shall be entitled to rely and shall be fully protected in acting upon information furnished by the Securities Depository
B-23
with respect to its members, participants and any beneficial owners. The Fund and the Tender and Paying Agent shall be entitled to deal with the Securities Depository, and any nominee thereof
that is the registered holder of any Global VRDP Shares for all purposes of this Agreement or the Related Documents relating to such Global VRDP Shares (including the payment of dividends, redemption price, if any, and additional amounts, if any,
and the giving of instructions or directions by or to the owner or holder of a beneficial ownership interest in such Global VRDP Shares), as the sole holder of such Global VRDP Shares and shall have no obligations to the Beneficial Owners thereof.
None of the Liquidity Provider or the Tender and Paying Agent shall have any responsibility or liability for any acts or omissions of the Securities Depository with respect to such Global VRDP Shares, for the records of the Securities Depository,
including records in respect of beneficial ownership interests in respect of any such Global VRDP Shares, for any transactions between the Securities Depository and any Agent Member or between or among the Securities Depository, any such Agent
Member and/or any holder or owner of a beneficial interest in such Global VRDP Shares, or for any transfers of beneficial interests in any such Global VRDP Shares.
(b) The Tender and Paying Agent shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under the Related Documents or this Agreement or under applicable law with respect to any transfer of any interest in any VRDP Share (including any transfers between or among Agent
Members or Beneficial Owners of interests in any Global VRDP Shares), other than to require delivery of such certificates, other documentation or evidence, if any, as are expressly required by, and to do so if and when expressly required by the
terms of this Agreement, and to examine the same to determine substantial compliance as to form with the express requirements hereof.
ARTICLE VI
COVENANTS OF THE LIQUIDITY PROVIDER
The Liquidity Provider agrees that, so long as there is any Purchase Obligation hereunder or any amount payable hereunder or under any VRDP
Shares remains outstanding:
SECTION 6.01. Fund
Insolvency Event.
The Liquidity Provider agrees to perform all of its obligations hereunder, including the obligation to purchase
the VRDP Shares in accordance with Article II herein, notwithstanding a Fund Insolvency Event.
SECTION 6.02. Waiver.
In the event of a termination of this Agreement as a result of a Termination Event, the Liquidity Provider agrees to waive its right with
respect to Purchased VRDP Shares to exercise the Purchase Obligation provided by any subsequent Liquidity Provider;
provided
,
however
, that any Purchased VRDP Shares that are subsequently sold by the Liquidity Provider in a successful
Remarketing shall at the time of such sale and thereafter have the full benefit of the Purchase Obligation of any subsequent Liquidity Provider; and,
provided
,
further
, that any Purchase Obligation of a subsequent Liquidity Provider
with respect to the Purchased VRDP Shares shall be on parity with the Purchase Obligation of such Liquidity Provider with respect to all other Outstanding VRDP Shares.
SECTION 6.03. Notice of Extraordinary Corporate Event.
To the extent permitted by law and under applicable confidentiality restrictions, the Liquidity Provider shall provide
(a) written notice of an Extraordinary Corporate Event and (b) the written notice referred to in clause (y) in the definition of an Extraordinary Corporate Event, to the Fund at least 10 days prior to the scheduled date of the
occurrence of an Extraordinary Corporate Event or 10 days prior to the scheduled date of the applicable listed occurrence in clause (i) of such definition, respectively.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Replacement of the Tender and Paying Agent.
Any resignation or removal of the Tender and Paying Agent shall be effective only upon a replacement Tender and Paying Agent
entering into a replacement of this Agreement with the Liquidity Provider.
SECTION
7.02. Notices.
All notices, requests and other communications to the Liquidity
Provider shall be in writing (including telecopy, electronic mail or similar writing), except in the case of notices and other communications permitted to be given by telephone, and shall be given to such party at its address or telecopy number or
email address set forth below or to such other Person and/or such other address or telecopy number or email address as such party may hereafter specify for the purpose by notice to the other party. All notices, requests, demands and communications
to be delivered to the Tender and Paying Agent shall be sent by Electronic Means to the attention of the Tender and Paying Agent at the office of the Tender and Paying Agent as set forth below or to such other Persons and/or such other addresses,
telecopy numbers or email addresses as such party may hereafter specify for the purpose of notice to the other party. Each such notice, request or other communication shall be effective (i) if given by mail, upon receipt, or (ii) if given
by any other means, when delivered at the address specified in this Section. The notice address for each party is specified below:
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(a)
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if to the Liquidity Provider:
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Royal Bank of Canada
Global Loans Administration
WFC Branch
Three World Financial Center
200 Vesey Street
New York, NY 10281-8098
Ashish Jawa/Khai Duong
Tel: (416) 955-6714/6678
Fax: (212) 428-2372
Email: ashish.jawa@rbc.com/khai.duong@rbc.com
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(b)
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if to the Tender and Paying Agent:
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The Bank of New York Mellon
Corporate Trust Division
Dealing and Trading Group
101 Barclay Street
Floor 7W
New York, New York 10286
Mike Diep
Vice President
Tel:
(212) 815-2834
Fax:
(212) 815-2830
Email: mike.diep@bnymellon.com
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Christina Sotiriou
Vice President
Tel:
(212) 815-2888
Fax:
(212) 815-2830
Email: christina.sotiriou@bnymellon.com
Wire Instructions:
The Bank of New York Mellon
New York New York
[ABA# 021000018
G/L/A# 111-565
For Further Credit to Account #280557]
Ref: mm/dd/yy and Event (e.g.: Purchase Date or Mandatory Tender)
Attn: Mike Diep, Tel:
(212) 815-2834
Any payments required to be made by either party to the other, or any VRDP Shares required to be delivered by the Tender and Paying Agent to
the Liquidity Provider, unless otherwise provided in a Related Document, shall be made in immediately available funds or delivered, by wire transfer, to the account of the applicable party listed under Wire Instructions.
SECTION 7.03. No Waivers.
(a) The rights of the Liquidity Provider hereunder are separate from and in addition to any
rights that the Liquidity Provider, as a holder of any VRDP Share, may have under the terms of such VRDP Share or any Related Document or otherwise.
(b) No failure or delay by the Liquidity Provider in exercising any right, power or privilege
hereunder or under the VRDP Shares shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No failure or delay by the
Liquidity Provider in exercising any right, power or privilege under or in respect of the VRDP Shares or any other Related Document shall affect the rights, powers or privileges of the Liquidity Provider hereunder or shall operate as a limitation or
waiver thereof. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 7.04. Amendments and Waivers.
Any provision of this Agreement may be amended or waived with the consent of the Fund if, but only if, such amendment or waiver is in writing
and is signed by the Tender and Paying Agent and the Liquidity Provider;
provided
, that no amendment or waiver that affects any preference, right or power of the VRDP Shares or the Holders thereof shall be made except as permitted under the
Declaration and the Statement, and agreed to by the Fund. The provision of Section 7.10 relating to the third-party beneficiary rights of Holders and Beneficial Owners may be amended only with the prior written consent of Holders of 100% of the
Outstanding VRDP Shares.
SECTION 7.05. Successors and
Assigns.
The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Neither party hereto may assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the other party and the Fund. Any assignment without such prior
written consent shall be void. The obligations of the Liquidity Provider to purchase VRDP Shares pursuant to this Agreement shall run to the benefit of those beneficiaries identified in
B-26
Section 7.10 and the Purchase Obligation evidenced hereby shall not be transferable except in connection with a transfer of VRDP Shares or any beneficial interest therein, whereupon the
Purchase Obligation shall automatically run to the benefit of the transferee.
SECTION
7.06. Term of this Agreement.
(a) Subject to subsections (b) and (c) below, this Agreement shall terminate on
the later of (i) the earlier of (x) the Scheduled Termination Date (as such date may be extended in accordance with Section 2.03 hereof) and (y) the reduction of the Available Commitment of the Liquidity Provider to zero; and
(ii) the date of payment of all sums payable by the Liquidity Provider pursuant to this Agreement.
(b) Notwithstanding the foregoing, (i) the Tender and Paying Agent, acting upon
instructions of the Fund, may terminate this Agreement prior to the Scheduled Termination Date (as such date may be extended in accordance with Section 2.03 hereof) in accordance with this Section 7.06(b) as of the Liquidity Provider
Ratings Event Termination Date specified by notice in writing to the Liquidity Provider following the occurrence of a Liquidity Provider Ratings Event or (ii) this Agreement shall terminate prior to the Scheduled Termination Date (as such date
may be extended in accordance with Section 2.03 hereof) as of a Related Party Termination Date upon the occurrence of a Related Party Termination Event or as of an Optional Early Termination Date upon the occurrence of an Optional Early
Replacement Event.
(c) No expiration or termination of this Agreement shall be effective,
so long as VRDP Shares are Outstanding, until the completion of a Mandatory Purchase in respect thereof, if then required under the Statement, including the purchase by the Liquidity Provider of any VRDP Shares required to be purchased by
it as a result thereof pursuant to this Agreement.
SECTION
7.07. New York Law.
This Agreement shall be construed in accordance with and
governed by the law of the State of New York, without regard to conflicts of law principles that would require the application of the law of another jurisdiction.
THE PARTIES HERETO HEREBY SUBMIT TO THE
NON-EXCLUSIVE
JURISDICTION OF THE FEDERAL AND NEW YORK STATE
COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS AGREEMENT OR ANY MATTERS CONTEMPLATED HEREBY.
SECTION 7.08. Waiver.
Each of the Tender and Paying Agent, the Liquidity Provider and each third party beneficiary of this Agreement hereby waives trial by jury in
any action, proceeding or counterclaim brought by any of the parties hereto or such third party beneficiaries hereof against the other on any matters whatsoever arising out of or in any way connected with this Agreement.
SECTION 7.09. Counterparts.
This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Agreement may be delivered by the exchange of signed signature pages by facsimile transmission or by e-mail with a .pdf copy attached, and any printed or copied version of any signature page so delivered shall
have the same force and effect as an originally signed version of such signature page.
B-27
SECTION
7.10. Beneficiaries.
This Agreement is not intended and shall not be construed to
confer upon any Person other than the parties hereto and their successors and permitted assigns any rights or remedies hereunder, except that the agreement of the Liquidity Provider to purchase VRDP Shares in accordance with the terms and conditions
of this Agreement is made for the benefit of the Holders and Beneficial Owners from time to time of the VRDP Shares and shall be directly enforceable by the Holders or Beneficial Owners against the Liquidity Provider.
SECTION 7.11. Entire Agreement.
This Agreement shall constitute the entire agreement and understanding between the parties hereto with respect to the matters set forth herein
and shall supersede any and all prior agreements and understandings relating to the subject matter hereof.
SECTION 7.12. Regulatory Matters.
Each party hereto acknowledges and agrees
that it shall not be a condition precedent to the Purchase Obligation that any seller of VRDP Shares demonstrate or account for any loss.
SECTION 7.13. Sovereign Immunity.
THE LIQUIDITY PROVIDER IRREVOCABLY WAIVES ANY IMMUNITY TO JURISDICTION TO WHICH IT MAY OTHERWISE BE ENTITLED (INCLUDING SOVEREIGN IMMUNITY,
IMMUNITY TO PRE-JUDGMENT ATTACHMENT, POST-JUDGMENT ATTACHMENT AND EXECUTION) IN ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST IT ARISING OUT OF OR BASED ON THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY THAT IS INSTITUTED IN ANY FEDERAL OR
NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK OR IN ANY COMPETENT COURT IN CANADA. THE LIQUIDITY PROVIDER EXPRESSLY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN RESPECT OF ANY SUCH ACTION, AND WAIVES ANY OTHER REQUIREMENTS OF OR
OBJECTIONS TO PERSONAL JURISDICTION WITH RESPECT THERETO.
SECTION
7.14. Severability.
If any clause, provision or section hereof shall be ruled
invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof.
SECTION 7.15. Articles and Section Headings.
The Articles and Section headings and the Table of Contents herein are for convenience of reference only, and shall not
affect the construction, or limit or otherwise affect the meaning hereof.
SECTION
7.16. Nonpetition CovenantLiquidity Provider.
Notwithstanding any prior
termination of this Agreement, Royal Bank of Canada, solely in its capacity as Liquidity Provider, hereby covenants and agrees that it shall not, prior to the date which is one year and one day after the redemption and the payment in full of
the VRDP Shares and all accumulated dividends, petition or otherwise invoke the process of any court or government authority for the purpose of commencing a case against the Fund under any federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Fund or any substantial part of the property of the Fund;
provided
,
however
, that nothing in this provision shall preclude,
or be deemed to stop,
B-28
the Liquidity Provider from taking any action prior to the expiration of the aforementioned one year and one day period in (x) any case or proceeding voluntarily filed or commenced by the
Fund, (y) any involuntary insolvency proceeding filed or commenced against the Fund by a Person other than the Liquidity Provider, or (z) with respect to its rights or preferences as a Beneficial Owner or Holder of VRDP Shares.
SECTION 7.17. Nonpetition CovenantTender and Paying
Agent.
Notwithstanding any prior termination of this Agreement, The Bank of New York Mellon, solely in its capacity as Tender and
Paying Agent, hereby covenants and agrees that it shall not, prior to the date which is one year and one day after the redemption and the payment in full of the VRDP Shares and all accumulated dividends, petition or otherwise invoke process of
any court or government authority for the purpose of commencing a case against, the Fund under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Fund or any substantial part of the property of the Fund;
provided
,
however
, that nothing in this provision shall preclude, or be deemed to stop, the Tender and Paying Agent from taking any action prior to the
expiration of the aforementioned one year and one day period (x) in any case or proceeding voluntarily filed or commenced by the Fund, (y) in any involuntary insolvency proceeding filed or commenced against the Fund by a Person other than
the Tender and Paying Agent, or (z)
with respect to its rights or preferences as a Beneficial Owner or Holder of VRDP Shares.
SECTION
7.18. Judgment Currency.
(a) The
Liquidity Provider agrees, to the fullest extent that it may effectively do so under applicable law, that if for the purpose of obtaining or enforcing judgment against the Liquidity Provider in any court it is or becomes necessary to convert the sum
due in respect of this Agreement, including the Purchase Obligation, in the currency required hereby (the Required Currency) into a currency in which a judgment will be rendered (the Judgment Currency), the conversion shall
be made at the rate of exchange at which, in accordance with normal banking procedures, the Tender and Paying Agent could purchase in The City of New York, the Required Currency with the Judgment Currency on the Business Day immediately
preceding:
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(i)
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the date of actual payment of the amount due, in the case of any proceeding in the courts of the Province of Ontario or in the courts of any other jurisdiction that will give effect to such conversion being made on such
date; or
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(ii)
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the date on which the final unappealable judgment is given, in the case of any proceeding in the courts of any other jurisdiction (the date as of which such conversion is made pursuant to this clause being hereinafter
in this Section 7.18 referred to as the Judgment Conversion Date).
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(b) If, in the case of any proceeding in the court of any jurisdiction referred to in clause
(ii) of this Section 7.18, there is a change in the rate of exchange between the Judgment Currency and the Required Currency prevailing between the Judgment Conversion Date and the date of actual payment of the amount due, the Liquidity
Provider shall pay such additional amount (if any, but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will
produce the amount of Required Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial order at the rate of exchange prevailing on the Judgment Conversion Date; provided, that if the
amount paid in the Judgment Currency when converted at such rate would exceed the amount due in the Required Currency, the excess shall be returned to the Liquidity Provider.
(c) The Liquidity Provider also agrees, to the fullest extent that it may effectively do so
under applicable law, that its obligations under this Agreement, including the Purchase Obligation, to make payments
B-29
in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment, in any currency other than the Required Currency, except to the
extent that such tender or recovery shall result in the effective receipt by the payee of the full amount of the Required Currency expressed to be payable in respect of such payments or adjudged to be due in such judgment, (ii) shall be
enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such effective receipt shall fall short of the full amount of the Required Currency so expressed to be
payable or adjudged to be due and (iii) shall not be affected by judgment being obtained for any other sums due under this Agreement, including the Purchase Obligation.
[Signature page follows]
B-30
IN WITNESS WHEREOF
, the parties hereto have caused this Agreement to be duly executed by
their respective authorized representatives as of the day and year first above written.
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THE BANK OF NEW YORK MELLON,
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as Tender and Paying Agent
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By:
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Name:
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Title:
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ROYAL BANK OF CANADA
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By:
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Name:
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Title:
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Signature Page to VRDP Purchase Agreement (NQP)
SCHEDULE I
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Description of VRDP Shares:
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1,050 Nuveen Pennsylvania Investment Quality Municipal Fund Series 3 Variable Rate Demand Preferred Shares (VRDP), or such other number of shares of such Series as may be Outstanding from time to time
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Initial Remarketing Agent:
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RBC Capital Markets, LLC
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I-1
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To be completed by Tender and Paying Agent only
Check applicable box:
¨
This is a Preliminary Notice
of Purchase
¨
This is a Final Notice of Purchase
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EXHIBIT A
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NOTICE OF PURCHASE
[
Date
]
ROYAL BANK OF CANADA
Global Loans Administration
WFC Branch
Three World Financial Center
200 Vesey Street
New York, NY 10281
NUVEEN PENNSYLVANIA INVESTMENT QUALITY
MUNICIPAL FUND
333 West Wacker Drive
Chicago, Illinois
60606
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Re:
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Nuveen Pennsylvania Investment Quality Municipal Fund Series 3 Variable Rate Demand Preferred Shares (VRDP Shares)
|
Dear Ladies and Gentlemen:
Reference is made
to the Variable Rate Demand Preferred Shares (VRDP) Purchase Agreement, dated as of [
] (as heretofore amended, modified or supplemented, the Agreement), between THE BANK OF NEW YORK
MELLON, as the Tender and Paying Agent, and ROYAL BANK OF CANADA, as the Liquidity Provider. Capitalized terms used herein shall have the meanings given to them in or by reference to the Agreement.
Pursuant to Section 2.01(b) of the Agreement, the undersigned [Tender and Paying Agent] [Beneficial Owner] [Agent Member of a Beneficial
Owner] [Holder] hereby notifies you of [number] VRDP Shares (CUSIP [
]) to be purchased by you today (the Purchase Date) pursuant to Section 2.02 of the Agreement. The aggregate
Purchase Price of such VRDP Shares is
dollars ($
). Of such aggregate Purchase Price,
dollars ($
) comprises the aggregate liquidation preference of such VRDP Shares and
dollars ($
) comprises accumulated but unpaid dividends on such VRDP Shares to and
including the Purchase Date.
Ex. A-1
The Purchase Price should be provided in immediately available funds to:
[Insert Appropriate Wire Instructions for the Tender and Paying Agent]
[If there is no Tender and Paying Agent or the Tender and Paying Agent does not perform its obligations:]
[Insert Appropriate Wire Instructions]
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Very truly yours,
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THE BANK OF NEW YORK MELLON,
as
Tender and Paying Agent
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By:
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Name:
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Title:
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[To be executed only if there is no Tender and Paying Agent or the Tender and Paying Agent does not perform its obligations]
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In the case of a Beneficial Owner:
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By:
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Name:
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Title:
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[
Address of Beneficial Owner
]
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[To be executed only if there is no Tender and Paying Agent or the Tender and Paying Agent does not perform its obligations]
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In the case of an Agent Member of a Beneficial Owner:
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By:
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Name:
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Title:
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[
Address of Agent Member of a Beneficial Owner
]
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[To be executed only if there is no Tender and Paying Agent or the Tender and Paying Agent does not perform its obligations]
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Ex. A-2
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In the case of a Holder:
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By:
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Name:
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Title:
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[
Address of Holder
]
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Ex. A-3
EXHIBIT B
NUVEEN PENNSYLVANIA INVESTMENT QUALITY MUNICIPAL FUND (THE FUND)
SERIES 3 VARIABLE RATE DEMAND PREFERRED SHARES (VRDP SHARES)
CUSIP NO. [
]*
MANDATORY PURCHASE NOTICE SERIES 3
In accordance with the Funds Statement Establishing and Fixing the Rights and Preferences of Series 3 Variable Rate Demand
Preferred Shares effective [
] (the Statement), the Fund hereby notifies Holders and the Liquidity Provider of the Mandatory Purchase of the Outstanding VRDP Shares for purchase by the
Liquidity Provider on the Mandatory Purchase Date specified below due to the occurrence of the following Mandatory Purchase Event:
The
termination of the VRDP Purchase Agreement prior to or on a Scheduled Termination Date where:
(i) at least 15 days prior to any such
termination, the Liquidity Provider has not agreed to an extension or further extension of the Scheduled Termination Date to a date not earlier than 180 days from the Scheduled Termination Date of the VRDP Purchase Agreement being replaced;
(ii) at least 15 days prior to such termination, the Fund has not obtained and delivered to the Tender and Paying Agent an Alternate
VRDP Purchase Agreement with a termination date not earlier than 180 days from the Scheduled Termination Date of the VRDP Purchase Agreement being replaced; or
(iii) by the fifteenth day prior to a Liquidity Provider Ratings Event Termination Date or Related Party Termination Date, as the case may
be, the Fund has not obtained and delivered to the Tender and Paying Agent an Alternate VRDP Purchase Agreement with a termination date not earlier than 180 days from the Liquidity Provider Ratings Event Termination Date or Related Party Termination
Date, as the case may be, of the VRDP Purchase Agreement being replaced.
The Mandatory Purchase Date for purchase of all Outstanding VRDP
Shares by the Liquidity Provider will be
, 20
.
All Outstanding VRDP Shares will be automatically subject to Mandatory Purchase by the Liquidity Provider at the Purchase Price on the
Mandatory Purchase Date, including any VRDP Shares tendered pursuant to an Optional Tender or Mandatory Tender for which the Purchase Date has not yet occurred.
In the event that VRDP Shares are issued in certificated form and a Holder fails to deliver any VRDP Shares to which the Mandatory Purchase
relates, on or prior to the Mandatory Purchase Date, the Holder and Beneficial Owner(s) of such VRDP Shares will not be entitled to any payment (including any accumulated but unpaid dividends thereon, whether or not earned or declared) other than
the Purchase Price of such undelivered VRDP Shares as of the scheduled Purchase Date. Any such undelivered VRDP Shares will be deemed to be delivered to the Tender and Paying Agent, and the Tender and Paying Agent will place stop-transfer orders
against the undelivered VRDP Shares. Any monies held by the Tender and Paying Agent for the purchase of
* NOTE: Neither the Fund nor the Tender and
Paying Agent shall be responsible for the selection or use of the CUSIP Numbers selected, nor is any representation made as to its correctness indicated in any notice or as printed on any VRDP Share certificate. It is included solely as a
convenience to VRDP Shareholders.
Ex. B-1
undelivered VRDP Shares shall be held in a separate account, shall not be invested, and shall be held for the exclusive benefit of the Holder of such undelivered VRDP Shares. The undelivered VRDP
Shares shall be deemed to be no longer Outstanding (except as to entitlement to payment of the Purchase Price), and the Fund will issue to the purchaser replacement VRDP Share certificates.
The Final Notice of Purchase to the Liquidity Provider will automatically be deemed given upon the delivery of this Mandatory Purchase Notice
to the Liquidity Provider as provided in the VRDP Purchase Agreement.
The Mandatory Purchase Notice shall be conclusively presumed to
have been duly given, whether or not the Holders receive this notice.
Terms used herein and not otherwise defined shall have the meanings
given to such terms in the Statement.
Dated:
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NUVEEN PENNSYLVANIA INVESTMENT QUALITY MUNICIPAL FUND
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By:
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Name:
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Title:
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Ex. B-2
EXHIBIT C
NUVEEN PENNSYLVANIA INVESTMENT QUALITY MUNICIPAL FUND (THE FUND)
SERIES 3 VARIABLE RATE DEMAND PREFERRED SHARES (VRDP SHARES)
NOTICE OF TENDER
Note: The
substance of this notice must be given by the Beneficial Owner or its Agent Member to The Bank of New York Mellon, as Tender and Paying Agent (the Tender and Paying Agent), appointed under the Tender and Paying Agent Agreement, dated as
of [
], between Nuveen Pennsylvania Investment Quality Municipal Fund and the Tender and Paying Agent, in the manner provided in Schedule 1 hereto by email transmission (or if email transmission
shall be unavailable, by facsimile transmission) at or prior to 2:00 p.m., New York City time, on any Business Day. Any Notice of Tender delivered after 2:00 p.m., New York City time, will be deemed to have been received by the Tender and Paying
Agent on the next succeeding Business Day and the Purchase Date specified in this Notice of Tender will be adjusted such that the Purchase Date shall be the next succeeding Business Day following the Purchase Date specified in this Notice of Tender.
The determination of the Tender and Paying Agent as to whether a Notice of Tender has been properly delivered shall be conclusive and binding upon the Beneficial Owner and its Agent Member.
TO: THE BANK OF NEW YORK MELLON, as Tender and Paying Agent
1. In accordance with the Funds Statement Establishing and Fixing the Rights and
Preferences of Series 3 Variable Rate Demand Preferred Shares effective [
] (the Statement), the undersigned,
, [Beneficial Owner] [Agent Member of the Beneficial Owner] of the following VRDP Shares:
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VRDP Shares Series
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CUSIP Number
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Number of VRDP Shares to be Purchased
1
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3
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[
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hereby notifies you of the election by the Beneficial Owner of the referenced VRDP Shares to tender such VRDP Shares for
purchase in the amount set forth above on the Purchase Date specified below, which is a Business Day and a date on which such VRDP Shares are subject to Optional Tender for purchase pursuant to a notice given on the date hereof. Such Purchase Date
shall be on any day not less than seven days (or, if such day is not a Business Day, on the next succeeding Business Day) after delivery of this Notice of Tender.
Purchase Date:
The name and DTC Participant No. of the Agent Member tendering on behalf of the Beneficial Owner is:
Name of Agent Member:
DTC Participant No. of Agent Member:
Name of Beneficial Owner:
Beneficial Owners account number:
1
VRDP Shares may be tendered only in denominations of $100,000 and integral multiples thereof.
Ex. C-1
The person to contact at the Beneficial Owner or its Agent Member and the related contact information are as
follows:
Name:
Telephone No:
Email address:
The Beneficial Owner or its Agent Member acknowledges and agrees that the Person or Persons to whom or to whose order the Purchase Price of the tendered
VRDP Shares is to be paid is/are the same as identified above.
2. The undersigned
acknowledges the obligation of the tendering Beneficial Owner to deliver the VRDP Shares that are the subject of this Notice of Tender (that has not been duly revoked in accordance with the procedures referenced in Item 5 below) on or before
2:00 p.m., New York City time on the Purchase Date, and, in accordance with such obligation, the undersigned hereby undertakes to deliver or to cause to be delivered the VRDP Shares being sold [directly] or [through an Agent Member] to the Tender
and Paying Agent, through the funds against delivery procedures of the Securities Depository, no later than 2:00 p.m., New York City time, on the Purchase Date. The undersigned hereby also assigns and transfers and directs the Securities
Depository or its nominee or the Tender and Paying Agent to transfer the tendered VRDP Shares to the purchaser in accordance with the procedures described in Part II of the Statement, and otherwise according to the Securities Depositorys
procedures, in exchange for the payment of the Purchase Price thereof on the Purchase Date.
3. The undersigned confirms its agreement that it hereby transfers to the purchaser of the
VRDP Shares tendered pursuant to this Notice of Tender the right to receive from the Fund any dividends declared and unpaid for each day prior to the purchaser becoming the Beneficial Owner of the VRDP Shares in exchange for payment of the Purchase
Price for such VRDP Share by the purchaser.
4. The undersigned hereby represents and
warrants for the benefit of the Tender and Paying Agent, the Remarketing Agent, the Liquidity Provider and the Fund that the undersigned has full power and authority to tender, exchange, assign and transfer the VRDP Shares to be tendered hereby, and
that the transferee will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim, when the same are tendered.
5. The undersigned acknowledges that this Notice of Tender is irrevocable and effective upon
the receipt by the Tender and Paying Agent, except that a Notice of Revocation to tender any or all of the VRDP Shares specified in this Notice of Tender may be delivered by email transmission (or if email transmission shall be unavailable, by
facsimile transmission) to the Tender and Paying Agent, not later than 10:00 a.m., New York City time, on or prior to the Business Day immediately preceding the Purchase Date;
provided
, that the revocation will be effective only to the extent
set forth in the Statement.
6. Terms used herein and not otherwise defined shall have the
meanings given to such terms in the Statement.
Dated:
[Complete applicable signature block below.]
Ex. C-2
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Print name of Beneficial Owner
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By:
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Name:
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Title:
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[OR]
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Print name of Agent Member
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By:
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Name:
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Title:
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Ex. C-3
SCHEDULE 1
NOTICE OF TENDER DELIVERY INFORMATION FOR THE TENDER AND PAYING AGENT
This Notice of Tender must be delivered by the Beneficial Owner or its Agent Member to The Bank of New York Mellon (the Tender and Paying
Agent) by email transmission at the email address listed below or such other email address as the Tender and Paying Agent shall designate, (or if email transmission shall be unavailable, by facsimile transmission to the fax number listed below
or such other fax number as the Tender and Paying Agent shall designate) at or prior to 2:00 p.m., New York City time, on any Business Day. If this Notice of Tender is delivered after 2:00 p.m., New York City time, it will be deemed to have been
received by the Tender and Paying Agent on the next succeeding Business Day, and the Purchase Date will be adjusted such that the Purchase Date will be the Business Day next succeeding the date specified as the Purchase Date in this Notice of
Tender:
The Bank of New York Mellon
Corporate Trust Division
Dealing and Trading Group
101
Barclay Street
Floor 7W
New York, New York 10286
Email: NuveenTenders@bnymellon.com
Fax: (212) 815-2830 (only if email transmission is unavailable)
This Notice of Tender shall not be deemed to be delivered unless and until the Tender and Paying Agent actually receives it by the above-described means.
Ex. C-4
EXHIBIT D
NUVEEN PENNSYLVANIA INVESTMENT QUALITY MUNICIPAL FUND (THE FUND) SERIES 3 VARIABLE RATE DEMAND PREFERRED SHARES (VRDP
SHARES)
NOTICE OF REVOCATION
Note:
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The substance of this notice must be given to The Bank of New York Mellon (the Tender and Paying Agent), in the manner provided in Schedule 1 hereto by email transmission (or if email transmission shall be
unavailable, by facsimile transmission), at or prior to 10:00 a.m., New York City time, on or prior to the Business Day immediately preceding the Purchase Date.
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1. In accordance with the Funds Statement Establishing and Fixing the Rights and
Preferences of Series 3 Variable Rate Demand Preferred Shares effective [
] (the Statement), the undersigned [Beneficial Owner] or [Agent Member of the Beneficial Owner] delivered to the
Tender and Paying Agent on
,
a Notice of
Tender (the Notice of Tender) in connection with an Optional Tender relating to the following VRDP Shares:
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VRDP Shares Series
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CUSIP Number
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Number of VRDP Shares to be Purchased
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3
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[
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and specifying the following additional information applicable to such Optional Tender and Notice of Tender:
Purchase Date:
The name and DTC Participant No. of the Agent Member tendering on behalf of itself or the Beneficial Owner is:
Name of Agent Member
DTC Participant No. of Agent Member:
Beneficial Owners account number:
The person to contact at the Beneficial Owner or its Agent Member and the related contact information are as follows:
Name:
Telephone No:
Email address:
Ex. D-1
2. The undersigned,
, [Beneficial Owner] [Agent Member of the Beneficial Owner] hereby requests revocation of the following number of VRDP Shares that were the
subject of the Notice of Tender:
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VRDP Shares Series
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CUSIP Number
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Number of VRDP Shares hereby requested to be
Revoked*
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3
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[
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3. The undersigned hereby acknowledges that this Notice of
Revocation shall only be effective as a revocation of the Optional Tender of such number of VRDP Shares that are the subject of the Notice of Tender if all of the following conditions are met:
(i) the Remarketing Agent has not entered into an agreement to sell such VRDP Shares; and
(ii) this Notice of Revocation is received by the Tender and Paying Agent by email transmission (or if email transmission shall be
unavailable, by facsimile transmission) not later than 10:00 a.m., New York City time, on the Business Day immediately preceding the Purchase Date.
4. The undersigned hereby acknowledges that this Notice of Revocation is irrevocable.
5. The undersigned acknowledges that this Notice of Revocation shall be effective to revoke the
number of VRDP Shares requested to be revoked hereby only if and to the extent that the Remarketing Agent has so determined the effectiveness of such revocation with respect to such number of VRDP Shares (as evidenced by the Remarketing Agent below)
and, to the extent not so effective, the Beneficial Owner (or its Agent Member on its behalf) continues to be obligated to tender such VRDP Shares for purchase for Optional Tender pursuant to and in accordance with the terms and conditions of the
Notice of Tender.
6. Terms used herein and not otherwise defined shall have the meanings
given to such terms in the Statement.
Dated:
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[Complete applicable signature block below.]
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Print name of Beneficial Owner
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By:
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Name:
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Title:
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[OR]
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Print name of Agent Member
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By:
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Name:
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Title:
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* VRDP Shares may be tendered only in denominations of $100,000 and integral multiples thereof.
Ex. D-2
Extent to which this Notice of Revocation is Effective
The undersigned Remarketing Agent has determined in accordance with the Remarketing procedures set forth in the Statement that the foregoing Notice of
Revocation is effective for the following number of VRDP Shares that are the subject of the Notice of Tender:
VRDP Shares.
RBC Capital Markets, LLC
Date:
Ex. D-3
SCHEDULE 1
NOTICE OF REVOCATION DELIVERY INFORMATION FOR THE TENDER AND PAYING AGENT
This Notice of Revocation must be delivered by the Beneficial Owner or its Agent Member to The Bank of New York Mellon (the Tender and
Paying Agent) by email transmission at the email address listed below or such other email address as the Tender and Paying Agent shall designate, (or if email transmission shall be unavailable, by facsimile transmission to the fax number
listed below or such other fax number as the Tender and Paying Agent shall designate) at or prior to 10:00 a.m., New York City time, on the Business Day immediately preceding the Purchase Date:
The Bank of New York Mellon
Corporate Trust Division
Dealing and Trading Group
101
Barclay Street
Floor 7W
New York, New York 10286
Email: NuveenTenders@bnymellon.com
Fax: (212) 815-2830 (only if email transmission is unavailable)
Ex. D-4
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.
NPY-XX13
[FORM OF PROXY]
EVERY SHAREHOLDERS VOTE IS IMPORTANT
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EASY VOTING OPTIONS:
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VOTE ON THE INTERNET
Log on to:
www.proxy-direct.com
or scan the QR code
Follow the on-screen instructions
available 24 hours
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VOTE BY PHONE
Call
1-800-337-3503
Follow the recorded instructions
available 24 hours
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VOTE BY MAIL
Vote, sign and date this Proxy Card
and
return in the
postage-paid envelope
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VOTE IN PERSON
Attend Shareholder Meeting
333 West Wacker Dr.
Chicago, IL 60606
On November 22, 2013
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Please detach at perforation before mailing.
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NUVEEN PENNSYLVANIA PREMIUM INCOME MUNICIPAL FUND 2
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 22, 2013
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PROXY
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PREFERRED SHARES