AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 2007
1933 ACT FILE NO. 333-144483
1940 ACT FILE NO. 811-22058
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 1
[ ] POST-EFFECTIVE AMENDMENT NO.
AND
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] AMENDMENT NO. 6
NUVEEN TAX-ADVANTAGED DIVIDEND GROWTH FUND
Exact Name of Registrant as Specified in Declaration of Trust
333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(800) 257-8787
Registrant's Telephone Number, including Area Code
KEVIN J. MCCARTHY
VICE PRESIDENT AND SECRETARY
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
COPIES OF COMMUNICATIONS TO:
JOHN T. BLATCHFORD ERIC F. FESS SARAH E. COGAN
MARK L. WINGET CHAPMAN AND CUTLER LLP SIMPSON THACHER & BARTLETT LLP
VEDDER, PRICE, KAUFMAN & 111 W. MONROE 425 LEXINGTON AVENUE
KAMMHOLZ, P.C. CHICAGO, IL 60603 NEW YORK, NY 10017
222 N. LASALLE STREET
CHICAGO, IL 60601
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement
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If any of the securities being registered on this form are offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate
box)
[ ] when declared effective pursuant to section 8(c)
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
=============================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING BEING PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED UNIT PRICE(1) FEE(2)
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FundPreferred Shares, $0.01 par
value.............................. 1,440 Shares $25,000 $36,000,000 $1,105.20
=============================================================================================
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $30.70 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRATION
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATES AS THE SECURITIES EXCHANGE COMMISSION, ACTING PURSUANT
TO SAID SECTION 8(A), MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 6, 2007
PROSPECTUS
(NUVEEN INVESTMENTS LOGO)
$36,000,000
NUVEEN TAX-ADVANTAGED DIVIDEND GROWTH FUND
FUNDPREFERRED(TM) SHARES
1,440 SHARES, SERIES T
LIQUIDATION PREFERENCE $25,000 PER SHARE
------------
Investment Objective. Nuveen Tax-Advantaged Dividend Growth Fund (the
"Fund") is a recently organized, diversified, closed-end management investment
company. The Fund's investment objective is to provide an attractive level of
distributions and capital appreciation. In pursuing its investment objective,
the Fund seeks to reduce and defer potential federal income tax liabilities
incurred by the holders of its common shares in connection with their investment
in the Fund. The Fund seeks to achieve its investment objective by investing in
dividend-paying equity securities consisting primarily of common stocks of mid-
to large-cap companies that have attractive dividend income and the potential
for future dividend growth and capital appreciation. The Fund also will invest
in preferred and other fixed income securities.
Portfolio Contents. Under normal market circumstances, the Fund will
invest at least 80% of its managed assets in securities that are eligible to pay
tax-advantaged dividends. Under normal market circumstances, the Fund will
invest in dividend-paying equity securities consisting primarily of common
stocks of mid- to large-cap companies that have attractive dividend income and
the potential for future dividend growth and capital appreciation and, to a
lesser extent, preferred stocks of mid- to large-cap companies. The Fund also
may invest in other preferred securities including trust preferred securities,
convertible preferreds and real estate investment trust preferreds, each of
which may pay fully taxable dividends, and other fixed income securities. In
addition, to seek to enhance the Fund's risk-adjusted returns, the Fund, to a
limited extent, will write (sell) index call options on various equity market
indices. The Fund expects to invest more than 25% of its managed assets in
equity securities of companies principally engaged in the financial services
sector and to a lesser extent in other economic sectors, such as the utilities
and energy sectors, that historically have provided higher dividend yields than
companies in other sectors or industries.
Advisers and Subadvisers. Nuveen Asset Management, the Fund's investment
adviser, will be responsible for determining the Fund's overall investment
strategy and its implementation, including allocating the portion of the Fund's
managed assets to be invested among dividend-paying equity securities, preferred
securities and other fixed income securities. Santa Barbara Asset Management,
LLC and NWQ Investment Management Company, LLC will be the Fund's subadvisers.
Santa Barbara Asset Management, LLC will manage the Fund's managed assets
allocated to dividend-paying equity securities. NWQ Investment Management
Company, LLC will manage the Fund's Managed Assets allocated to preferred
securities and other fixed income securities. Nuveen Asset Management also will
be responsible for the writing of index call options on various equity market
indices.
The Fund's principal office is located at 333 West Wacker Drive, Chicago,
Illinois 60606, and its telephone number is (312) 917-7900. Investors are
advised to read this prospectus, which sets forth concisely the information
about the Fund that a prospective investor ought to know before investing, and
retain it for future reference. A statement of additional information
dated , 2007 containing additional information regarding the Fund has
been filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference in its entirety into this prospectus. You may request
a free copy of the statement of additional information, the table of contents of
which is on page 60 of this prospectus, by calling 1-800-257-8787 or by writing
to the Fund. The Fund's annual and semi-annual reports are also available on its
website at www.nuveen.com, which also provides a link to the SEC's website, as
described below, where the Fund's statement of additional information can be
obtained. You can review and copy documents the Fund has filed at the SEC's
Public Reference Room in Washington, D.C. Call 1-202-551-8090 for information.
The SEC charges a fee for copies. You can get the same information free from the
SEC's EDGAR database on the Internet (http://www.sec.gov). You may also e-mail
requests for these documents to publicinfo@sec.gov or make a request in writing
to the SEC's Public Reference Section, Washington, D.C. 20549-0213.
(Continued on following page)
------------
INVESTING IN FUNDPREFERRED SHARES INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 23.
Neither the securities and exchange commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------
PER SHARE TOTAL
--------- -----
Public Offering Price $25,000
Sales Load
Proceeds, before expenses, to the Fund(1)
-------
(1) Total expenses of issuance and distribution, excluding sales load, are
estimated to be $ 200,000.
The underwriters expect to deliver the FundPreferred Shares in book-entry
form, through the facilities of the Depository Trust Company on or
about , 2007.
Citi A.G. Edwards Nuveen Investments, LLC
------------
, 2007
The Fund is offering 1,440 shares of Series T FundPreferred shares. The
shares are referred to in this Prospectus as "FundPreferred shares." The
FundPreferred shares have a liquidation preference of $25,000 per share, plus
any accumulated, but unpaid dividends, if any. The FundPreferred shares also
have priority over the Fund's common shares as to distribution of assets as
described in this Prospectus. The dividend rate for the initial dividend rate
period will be % for the FundPreferred shares. The initial rate period is
from the date of issuance through , 2007 for the FundPreferred shares.
For subsequent rate periods, FundPreferred shares pay dividends based on a rate
set at auction, usually held every seven (7) days. Prospective purchasers should
carefully review the auction procedures described in the Prospectus and should
note: (1) a buy order (called a "bid order") or sell order is a commitment to
buy or sell FundPreferred shares based on the results of an auction; (2)
auctions will be conducted by telephone, electronically or in writing; and (3)
purchases and sales will be settled on the next business day after the auction.
FundPreferred shares will not be listed on an exchange. You may only buy or sell
FundPreferred shares through an order placed at an auction with or through a
broker-dealer that has entered into an agreement with the auction agent and the
Fund, or in a secondary market maintained by certain broker-dealers. These
broker-dealers are not required to maintain this market, and it may not provide
you with liquidity.
The FundPreferred shares do not represent a deposit or obligation of, and
are not guaranteed or endorsed by, any bank or other insured depository
institution, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
You should rely only on the information contained or incorporated by
reference in this prospectus. The fund has not authorized anyone to provide you
with different information. The fund is not making an offer of these securities
in any state where the offer is not permitted.
------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................................................... 1
Financial Highlights.................................................. 11
The Fund.............................................................. 12
Use of Proceeds....................................................... 12
Capitalization........................................................ 12
Portfolio Composition................................................. 13
The Fund's Investments................................................ 13
Use of Leverage....................................................... 23
Risk Factors.......................................................... 23
Management of the Fund................................................ 30
Description of FundPreferred Shares................................... 33
The Auction........................................................... 45
Description of Borrowings............................................. 50
Description of Common Shares.......................................... 51
Certain Provisions in the Declaration of Trust and By-Laws............ 51
Repurchase of Fund Shares; Conversion to Open-End Fund................ 52
Federal Income Tax Matters............................................ 53
Custodian, Transfer Agent, Auction Agent, Dividend Disbursing Agent
and Redemption Agent................................................ 56
Underwriting.......................................................... 57
Legal Opinions........................................................ 58
Available Information................................................. 58
Table of Contents for the Statement of Additional Information......... 59
i
PROSPECTUS SUMMARY
This is only a summary. You should review the more detailed information
contained elsewhere in this Prospectus and in the Statement of Additional
Information (the "SAI"), including the Fund's Statement Establishing and Fixing
the Rights and Preferences of FundPreferred Shares (the "Statement"), attached
as Appendix A to the SAI, to understand the offering fully. Capitalized terms
used but not defined in this Prospectus shall have the meanings given to such
terms in the Statement.
THE FUND................. Nuveen Tax-Advantaged Dividend Growth Fund (the
"Fund") is a recently organized, diversified,
closed-end management investment company. The
Fund's common shares, $0.01 par value, are traded
on the New York Stock Exchange (the "Exchange")
under the symbol "JTD." See "Description of
Common Shares." As of August 31, 2007, the Fund
had 14,855,240 common shares outstanding and net
assets applicable to common shares of
$282,879,284.
THE OFFERING............. The Fund is offering 1,440 shares of
FundPreferred shares Series T at a purchase price
of $25,000 per share. FundPreferred shares are
being offered by the underwriters listed under
"Underwriting."
INVESTMENT OBJECTIVES AND
POLICIES............... The Fund's investment objective is to provide an
attractive level of distributions and capital
appreciation. The Fund's distributions are
comprised of dividends that qualify for favorable
federal income taxation at rates applicable to
long-term capital gains when earned by individual
investors (such dividends referred to as "tax-
advantaged dividends"), as well as other sources
of tax-advantaged distributions. The Fund's
investment objective and certain investment
policies are considered fundamental and may not
be changed without shareholder approval. The Fund
cannot assure you that it will attain its
investment objective. See "The Fund's
Investments" and "Risk Factors."
The Fund seeks to achieve its investment
objective by investing in dividend-paying equity
securities consisting primarily of common stocks
of mid-to large-cap companies that have
attractive dividend income and the potential for
future dividend growth and capital appreciation
and, to a lesser extent, preferred stocks of mid-
to large-cap companies ("dividend-paying equity
securities"). Mid-cap companies are those with
market capitalizations in the range of $1 billion
to $4.5 billion. Large-cap companies are
considered to be those with market
capitalizations in excess of $4 billion.
Preferred stocks are preferred securities that
are eligible to pay tax-advantaged dividends. The
Fund also will invest in other preferred
securities, which may include trust preferred
securities, convertible preferreds and real
estate investment trust ("REIT") preferreds, each
of which may pay fully taxable dividends
(collectively with preferred stocks, "Preferred
Securities") and other fixed income securities.
Under normal market circumstances, the Fund will
invest at least 80% of its Managed Assets (as
defined on page 4 of this Prospectus) in
securities that are eligible to pay tax-
advantaged dividends. The Fund, to a limited
extent, will write (sell) call options on various
equity market indices.
In pursuing its investment objective, the Fund
seeks to achieve attractive after-tax common
share returns in part by reducing and deferring
the potential federal income tax liabilities
incurred by the holders of its common shares
("Common Shareholders") in connection with their
investment in the Fund.
1
THE DIVIDEND GROWTH EQUITY STRATEGY. Under
normal market circumstances, the Fund will invest
primarily in an equity portfolio of dividend-
paying equity securities (the "Dividend Growth
Equity Strategy"). Santa Barbara Asset
Management, LLC ("Santa Barbara") will manage the
Fund's Dividend Growth Equity Strategy.
Initially, it is anticipated that 75% of the
Fund's Managed Assets will be allocated to Santa
Barbara's Dividend Growth Equity Strategy.
Santa Barbara's investment process begins by
identifying a universe of approximately 1,000
companies currently paying dividends on their
equity securities. The investment universe, which
includes both domestic and non-U.S. companies, is
generally restricted to companies with a current
market capitalization above $3 billion. Santa
Barbara then removes companies that do not pay
tax-advantaged dividends, including REITs and
limited partnerships, resulting in approximately
900 companies. Santa Barbara then applies
quantitative screens to identify high dividend-
paying companies, by sector and industry,
resulting in approximately 250 companies.
Additional screens are then applied to identify
companies with high dividend growth rates. From
the remaining pool of approximately 100
companies, Santa Barbara applies a "bottom-up"
fundamental analysis to evaluate the prospects
for sustainable dividend growth and capital
appreciation in the future. In selecting
companies for potential investment, Santa Barbara
evaluates certain factors, including, among
others: a sound business model; strong overall
financial position; earnings growth; return on
equity; quality of management; potential for
dividend growth; market valuation; and the
commitment to return cash to shareholders.
Following an assessment and ranking process,
Santa Barbara constructs a diversified portfolio,
which generally may consist of 30 to 60 holdings
with broad sector and industrial representation.
INCOME-ORIENTED STRATEGY. The Fund also may
invest in Preferred Securities and other fixed
income securities (the "Income-Oriented
Strategy"). NWQ Investment Management Company,
LLC ("NWQ") will manage the Fund's Income-
Oriented Strategy. The Fund's investment in
Preferred Securities may consist of both fixed
and floating rate securities and may include
Preferred Securities and other fixed income
securities that are rated below investment grade
or that are unrated but judged to be of
comparable quality. Generally, NWQ will focus the
Fund's investments made under the Income-Oriented
Strategy on investments in preferred stocks.
Initially, it is anticipated that 25% of the
Fund's Managed Assets will be allocated to NWQ's
Income-Oriented Strategy.
OTHER INVESTMENT TECHNIQUES, INCLUDING
OPTIONS. The Fund also may employ a variety of
other investment techniques for the purposes of
managing risk, hedging, creating investment
exposure, and generating current income and
gains. Each of the Fund's advisers may utilize
these investment techniques. These investment
techniques include the use of derivative
instruments, such as call options, total return
and interest rate swaps, futures and forward
contracts, and the investment in exchange traded
funds ("ETFs"), other closed-end funds, warrants,
REITs and convertible securities. See the SAI for
further information on these investments.
2
The Fund, to a limited extent, will write (sell)
call options on various equity market indices.
Nuveen Asset Management ("NAM") will be
responsible for the writing of call options. NAM
believes that the strategy of writing index call
options with respect to a portion of the equity
securities held pursuant to the Dividend Growth
Equity Strategy can provide, in flat or down
markets, the potential for current gains, which
may meaningfully reduce the volatility of the
Fund's returns and enhance the Fund's risk-
adjusted returns relative to the returns of
various equity market indices over extended
periods of time. Further, NAM believes that
selling index call options can help achieve
potential tax efficiencies because exchange
listed options on equity indices generally
qualify as "section 1256 contracts" under the
Internal Revenue Code of 1986, as amended (the
"Code"), on which capital gains and losses are
generally treated as 60% long-term and 40% short-
term, regardless of the holding period. The Fund
expects to write call options primarily on the
S&P 500(R) Index and other broad-based indices,
but may from time to time, if NAM deems
conditions appropriate, write call options on a
variety of other equity market indices or on
custom baskets of individual securities. The Fund
may also write call options on select market
sectors to reduce the Fund's effective exposure
to certain sectors, such as financial services,
utilities or energy. Initially, the Fund expects
to write call options on equity market indices or
securities having an underlying value equal to
approximately 25% of the Fund's Managed Assets.
The Fund will not write call options on more than
35% of its Managed Assets. Over time, the Fund
may vary the extent of its use of call options
opportunistically in response to Fund performance
and prevailing market conditions, consistent with
its investment objective.
The Fund is not sponsored, endorsed, sold or
promoted by any index sponsor and no index
sponsor is making any representation regarding
the advisability of investing in the Fund.
OTHER PORTFOLIO CHARACTERISTICS AND
INFORMATION. Under normal circumstances:
- the Fund will invest at least 80% of its
Managed Assets in securities that are
eligible to pay tax-advantaged dividends;
- the Fund expects to be fully invested (at
least 95% of its Managed Assets) in the
Dividend Growth Equity Strategy and the
Income-Oriented Strategy;
- the Fund expects to invest more than 25% of
its Managed Assets in equity securities of
companies principally engaged in the
financial services sector and to a lesser
extent in other economic sectors, such as the
utilities and energy sectors, that
historically have provided higher dividend
yields than companies in other sectors or
industries;
- the Fund may invest up to 50% of its Managed
Assets in securities of non-U.S. issuers that
are U.S. dollar denominated or that are
converted into American Depository Receipts
("ADRs") or other types of dollar-denominated
depositary receipts immediately after
purchase; and
3
- the Fund may invest in securities that are
rated investment grade or that are unrated
but judged to be of comparable quality.
Investment grade quality securities are those
securities that, at the time of investment,
are (i) rated by at least one nationally
recognized statistical rating organization
("NRSRO") within the four highest grades
(BBB- or Baa3 or better by Standard & Poor's
Corporation, a division of The McGraw-Hill
Companies ("S&P"), Moody's Investors Service,
Inc. ("Moody's") or Fitch Ratings ("Fitch")),
or (ii) unrated but judged to be of
comparable quality by NWQ. The Fund may
invest up to 25% of its Managed Assets in
securities that are rated below investment
grade, commonly referred to as "junk bonds."
During temporary defensive periods or in order to
keep the Fund's cash fully invested, including
the period during which the net proceeds of the
offering of common shares are being invested, the
Fund may invest in short-term high quality fixed
income securities. As such, the Fund may not be
able to achieve its investment objective during
those periods. For a more complete discussion of
the Fund's portfolio composition, see "The Fund's
Investments."
The Fund's assets, including assets attributable
to the principal amount of any borrowing, issuing
commercial paper or notes (collectively,
"Borrowings") and any offering of preferred
shares of beneficial interest
("FundPreferred(TM)" shares) that may be
outstanding, are called "Managed Assets."
TAX-ADVANTAGED DISTRIBUTIONS. The Fund will
seek to manage its investments such that, under
normal circumstances, substantially all (at least
90%) of its distributions will be tax-advantaged,
enabling individual investors who meet holding
period and other requirements to benefit from
favorable tax treatment. Tax-advantaged
distributions include: (i) distributions of
qualified dividend income (referred to as tax-
advantaged dividends in this Prospectus); (ii)
distributions of long-term capital gains
(including long-term capital gains retained by
the Fund that are deemed distributed for tax
purposes); and (iii) distributions representing a
return of capital. Under current federal income
tax law, tax-advantaged dividends received by
individual shareholders who meet holding period
and other requirements are taxed at long-term
capital gain rates, which currently reach a
maximum of 15%.
The Fund seeks to maximize the percentage of its
tax-advantaged distributions by investing
primarily in equity securities that pay tax-
advantaged dividends. Tax-advantaged dividends
generally include dividends on common stock and
preferred stocks from domestic corporations and
dividends from non-U.S. corporations that meet
certain criteria. The Fund generally can preserve
the tax treatment of tax-advantaged dividends it
receives by distributing them to individual
shareholders who meet holding period and other
requirements. The Fund also may invest a portion
of its Managed Assets in Preferred Securities and
other fixed income securities that generate fully
taxable ordinary income, but expects that, under
normal market circumstances, expenses incurred by
the Fund will offset a large portion of the
Fund's fully taxable ordinary income and net
short-term capital gains, so that in most years
substantially all (at least 90%) of the Fund's
distributions will qualify as tax-advantaged. In
addition, as described more fully under
4
"Tax-Efficient Investing," in managing the Fund's
investment portfolio and operations, NAM intends
to utilize a variety of methods in an effort to
reduce and defer the federal income taxes
incurred by investors in connection with their
investment in the Fund.
For Fund dividends otherwise eligible to be
treated as tax-advantaged to be taxable at long-
term capital gain rates, an individual investor
must hold his or her shares for more than 60 days
during the 121-day period beginning 60 days
before the ex-dividend date (90 days during the
181-day period beginning 90 days before the ex-
dividend date in the case of certain preferred
shares). Under current federal income tax law,
tax-advantaged dividends received by individual
investors who meet holding period and other
requirements are taxed at long-term capital gain
rates, which currently reach a maximum of 15%.
The provisions of the Code applicable to tax-
advantaged dividends are effective through 2010.
Thereafter, higher tax rates will apply unless
further legislative action is taken by Congress.
Although the Fund seeks to reduce and defer
potential income tax liabilities incurred by
investors in connection with their investment in
the Fund, there can be no assurance that the Fund
will be successful in this regard. See "Federal
Income Tax Matters."
INVESTMENT ADVISER AND
SUBADVISER............. NAM will be the Fund's investment adviser,
responsible for determining the Fund's overall
investment strategy and its implementation,
including allocating the portion of the Fund's
Managed Assets to be invested in the Dividend
Growth Equity Strategy and the Income-Oriented
Strategy. NAM also will be responsible for the
writing of call options.
Santa Barbara will manage the Fund's Managed
Assets allocated to the Dividend Growth Equity
Strategy and NWQ will manage the Fund's Managed
Assets allocated to the Income-Oriented Strategy.
Santa Barbara and NWQ will sometimes individually
be referred to as a "Subadviser" and collectively
be referred to as the "Subadvisers." NAM, Santa
Barbara and NWQ will sometimes individually be
referred to as an "Adviser" and collectively be
referred to as the "Advisers."
NAM, a registered investment adviser, is a wholly
owned subsidiary of Nuveen Investments, Inc.
("Nuveen Investments"). Founded in 1898, Nuveen
Investments and its affiliates had approximately
$172 billion of assets under management as of
June 30, 2007. According to Thomson Wealth
Management, Nuveen is the leading sponsor of
closed-end funds as measured by the number of
funds (119) and the amount of fund assets under
management (approximately $53.4 billion) as of
June 30, 2007. NAM had approximately $88 billion
in assets under management as of June 30, 2007.
On June 20, 2007, Nuveen Investments announced
that it had entered into a definitive Agreement
and Plan of Merger to be acquired by investors
led by Madison Dearborn Partners, LLC. See
"Management of the Fund -- Investment Adviser and
Subadvisers."
5
Santa Barbara, a registered investment adviser,
is a wholly owned subsidiary of Nuveen. Founded
in 1987, Santa Barbara had approximately $5
billion in assets under management as of June 30,
2007. Santa Barbara specializes in fundamental,
bottom-up research to select growth companies.
Santa Barbara also serves as subadviser to one
open-end mutual fund, the Nuveen Santa Barbara
Dividend Growth Fund, that employs a similar
strategy used by the Fund in the Dividend Growth
Equity Strategy.
NWQ, a registered investment adviser, is a
subsidiary of Nuveen. Nuveen owns a controlling
interest of NWQ and key management owns a non-
controlling minority interest. NWQ and its
predecessors have provided investment advisory
operations since 1982. NWQ had approximately
$38.6 billion in assets under management as of
June 30, 2007. NWQ specializes in the management
of value-oriented equity portfolios across all
capitalization ranges, including portfolios
investing in preferred stock and Preferred
Securities.
The Fund will pay NAM an annual management fee,
payable monthly, in a maximum amount equal to
1.00% of the Fund's average daily Managed Assets
(as previously defined, Managed Assets include
assets attributable to the principal amount of
any Borrowings and any FundPreferred shares that
may be outstanding). This maximum fee is equal to
the sum of a "fund-level fee" and a "complex-
level fee." The fund-level fee is a maximum of
0.80% of the Fund's average total daily Managed
Assets, with lower fee levels for assets that
exceed $500 million. NAM will pay a portion of
that fee to each of the Subadvisers based on each
Subadviser's allocated portion of Managed Assets.
The complex-level fee is a maximum of 0.20% of
the Fund's daily Managed Assets based on the
daily Managed Assets of all Nuveen-branded
closed-end and open-end registered investment
companies organized in the U.S., with lower fee
levels for complex-level assets that exceed $55
billion. Based on complex-level assets of
approximately $73.5 billion as of June 30, 2007,
the complex-level fee would be 0.1828% of Managed
Assets and the total fee to NAM would be 0.9828%
of Managed Assets (assuming Managed Assets of
$500 million or less). For more information on
fees and expenses, including fees attributable to
common shares, see "Management of the Fund."
USE OF LEVERAGE.......... The Fund intends to use financial leverage,
including issuing the FundPreferred shares, for
investment purposes. The Fund currently
anticipates its use of leverage will represent up
to approximately 33% of its Managed Assets. In
addition to the issuance of FundPreferred shares,
the Fund intends to make further use of financial
leverage through borrowing, including the
issuance of commercial paper or notes. Throughout
this Prospectus, commercial paper, notes or other
borrowings sometimes may be collectively referred
to as "Borrowings." Initially, the Fund intends
that Borrowings will represent 20 to 25% of
Managed Assets. Any Borrowings will have
seniority over the FundPreferred shares. Payments
to holders of FundPreferred shares in liquidation
or otherwise will be subject to the prior payment
of all outstanding indebtedness, including
Borrowings.
6
RISK FACTORS SUMMARY..... Risk is inherent in all investing. Therefore,
before investing in the Fund you should consider
certain risks carefully. The primary risks of
investing in FundPreferred shares are:
- if an auction fails you may not be able to
sell some or all of your shares;
- because of the nature of the market for
FundPreferred shares, you may receive less
than the price you paid for your shares if
you sell them outside of the auction;
- a rating agency could downgrade FundPreferred
shares, which could affect liquidity;
- the Fund may be forced to redeem your shares
to meet regulatory or rating agency
requirements or may voluntarily redeem your
shares in certain circumstances;
- in extraordinary circumstances the Fund may
not earn sufficient income from its
investments to pay dividends;
- any Borrowings may constitute a substantial
lien and burden on the FundPreferred shares
by reason of their prior claim against the
income of the Fund and against the net assets
of the Fund in liquidation; and
- if the Fund leverages through Borrowings, the
Fund may not be permitted to declare
dividends or other distributions with respect
to the FundPreferred shares or purchase
FundPreferred shares unless at the time
thereof the Fund meets certain asset coverage
requirements and the payment of principal and
interest on any such Borrowings is not in
default.
In addition to risks associated with investing in
FundPreferred shares, an investor in the
FundPreferred shares will also be subject to the
general risks associated with the Fund's
investment policies. For additional general risks
of investing in FundPreferred shares and general
risks of the Fund, see "Risk Factors."
TRADING MARKET........... FundPreferred shares are not listed on an
exchange. Instead, you may buy or sell
FundPreferred shares at an auction that normally
is held every seven (7) days by submitting orders
to a broker-dealer that has entered into an
agreement with the auction agent and the Fund (a
"Broker-Dealer"), or to a broker-dealer that has
entered into a separate agreement with a Broker-
Dealer. In addition to the auctions, Broker-
Dealers and other broker-dealers may maintain a
secondary trading market in FundPreferred shares
outside of auctions, but may discontinue this
activity at any time. There is no assurance that
a secondary market will be established, or, if
established, will provide shareholders with
liquidity or that the trading price in any
secondary market would be $25,000 per share or
$25,000 per share plus accumulated dividends. You
may transfer shares outside of auctions only to
or through a Broker-Dealer, or a broker-dealer
that has entered into a separate agreement with a
Broker-Dealer.
The first auction date for the FundPreferred
shares will be , 2007 and each
subsequent auction will normally be held on a
Tuesday. The first auction date for the Series T
of FundPreferred shares will be the Business Day
before the dividend payment date for the initial
dividend period for each Series of FundPreferred
shares.
7
The start date for subsequent rate periods
normally will be the Business Day following the
auction date unless the then-current rate period
is a special rate period, or the day that
normally would be the auction date or the first
day of the subsequent rate period is not a
Business Day.
DIVIDENDS AND RATE
PERIODS................ The table below shows the dividend rate for the
initial rate period of the FundPreferred shares
offered in this Prospectus. For subsequent rate
periods, FundPreferred shares will pay dividends
based on a rate set at auctions, normally held
every seven (7) days. In most instances,
dividends are also paid every seven (7) days, on
the day following the end of the rate period. See
"Description of FundPreferred Shares -- Dividends
and Dividend Periods -- Determination of Dividend
Rate" and "The Auction."
The table below also shows the date from which
dividends on the FundPreferred shares will
accumulate at the initial rate, the dividend
payment date for the initial rate period and the
day on which dividends will normally be paid. If
dividends are payable on a Monday or Friday and
that day is not a Business Day, then your
dividends will generally be paid on the first
Business Day that falls after that day. If
dividends are payable on a Tuesday, Wednesday or
Thursday and that day is not a Business Day, then
your dividends generally will be paid on the
first Business Day prior to that day.
Finally, the table below shows the number of days
of the initial dividend period for the
FundPreferred shares. Subsequent rate periods
generally will be seven (7) days. The dividend
payment date for special rate periods of other
than seven (7) days will be set out in the notice
designating a special dividend period. See
"Description of FundPreferred Shares -- Dividends
and Dividend Periods -- Determination of Dividend
Rate."
PAYMENT SUBSEQUENT NUMBER OF
INITIAL DATE OF DATE FOR INITIAL DIVIDEND DAYS OF
DIVIDEND ACCUMULATION AT DIVIDEND PAYMENT INITIAL
SERIES RATE INITIAL RATE* PERIOD* DAY DIVIDEND PERIOD
------ -------- --------------- ---------------- ---------- ---------------
T % Wednesday
-------
* All dates are 2007.
DETERMINATION OF MAXIMUM
APPLICABLE RATES....... Except during a dividend default period, the
applicable rate for any dividend period for
FundPreferred shares will not be more than the
maximum rate. The maximum rate will be the higher
of the applicable percentage of the reference
rate or the applicable spread plus the reference
rate. The reference rate is the applicable LIBOR
Rate (for a dividend period of fewer than 365
days) or the applicable Treasury Rate Index (for
a dividend period of 365 days or more). The
applicable percentage or applicable spread as so
determined is further subject to upward but not
downward adjustment in the discretion of the
Board of Trustees after consultation with the
Broker-Dealers. There is no minimum rate in
respect of any dividend period. See "Description
of FundPreferred Shares -- Dividends and Dividend
Periods -- Determination of Dividend Rate."
8
RATINGS.................. It is a condition of the Underwriters' obligation
to purchase the FundPreferred shares that shares
of each Series of FundPreferred receive a rating
of "AAA" from S&P and "Aaa" from Moody's.
RESTRICTIONS ON DIVIDEND,
REDEMPTION AND OTHER
PAYMENTS............... If the Fund issues any Borrowings that constitute
senior securities representing indebtedness (as
defined in the Investment Company Act of 1940, as
amended (the "1940 Act")), the Fund would not be
permitted, under the 1940 Act, to declare any
dividend on FundPreferred shares unless, after
giving effect to such dividend, asset coverage
with respect to such Borrowings that constitute
senior securities representing indebtedness, if
any, is at least 200%. In addition, the Fund
would not be permitted to declare any other
distribution on or purchase or redeem
FundPreferred shares unless, after giving effect
to such distribution, purchase or redemption,
asset coverage with respect to such Borrowings
that constitute senior securities representing
indebtedness, if any, is at least 300%. Dividends
or other distributions on, or redemptions or
purchases of, FundPreferred shares would also be
prohibited at any time that an event of default
under any Borrowings has occurred and is
continuing. See "Description of FundPreferred
Shares -- Restrictions on Dividend, Redemption
and Other Payments."
ASSET MAINTENANCE........ The Fund must maintain the FundPreferred Shares
Basic Maintenance Amount as of each Valuation
Date. The Fund also must maintain asset coverage
for the FundPreferred shares on a non-discounted
basis of at least 200% as of the last business
day of each month. See "Description of
FundPreferred Shares -- Asset Maintenance."
The guidelines for calculating whether the
FundPreferred Shares Basic Maintenance Amount has
been satisfied have been established by S&P and
Moody's in connection with the Fund's receipt
from S&P and Moody's of the "AAA" and "Aaa"
Credit Ratings, respectively, with respect to the
FundPreferred shares on their Date of Original
Issue.
The Fund estimates that on the Date of Original
Issue, the 1940 Act FundPreferred Shares Asset
Coverage, based on the composition of its
portfolio as of August 31, 2007, and after giving
effect to the issuance of the FundPreferred
shares offered hereby ($36,000,000) and the
deduction of sales loads and estimated offering
expenses for such FundPreferred shares
($560,000), will be 884%.
In addition, there may be additional asset
coverage requirements imposed in connection with
any Borrowings. See "Description of Borrowings."
REDEMPTION............... Although the Fund will not ordinarily redeem
FundPreferred shares, it may be required to
redeem shares if, for example, the Fund does not
exceed the minimum 1940 Act asset coverage ratio
or in order to correct a failure to comply with
rating agency guidelines in a timely manner. The
Fund may voluntarily redeem FundPreferred shares
in certain circumstances. See "Description of
FundPreferred Shares -- Redemption."
LIQUIDATION PREFERENCE... The liquidation preference of the shares of each
Series of FundPreferred shares will be $25,000
per share plus accumulated but unpaid dividends,
if any, thereon. See "Description of
FundPreferred Shares -- Liquidation Rights."
9
VOTING RIGHTS............ Except as otherwise indicated, holders of
FundPreferred shares have one vote per share and
vote together with holders of common shares as a
single class.
In connection with the election of the Board of
Trustees, the holders of outstanding preferred
shares of beneficial interest ("preferred
shares"), including FundPreferred shares, as a
class, shall be entitled to elect two trustees of
the Fund. The holders of outstanding shares of
common shares and preferred shares, including
FundPreferred shares, voting together, shall
elect the remainder. However, upon the Fund's
failure to pay dividends on the preferred shares
in an amount equal to two full years of
dividends, the holders of preferred shares have
the right to elect, as a class, the smallest
number of additional Trustees as shall be
necessary to assure that a majority of the
Trustees has been elected by the holders of
preferred shares. The terms of the additional
Trustees shall end when the Fund pays or provides
for all accumulated and unpaid dividends. See
"Description of FundPreferred Shares -- Voting
Rights."
FEDERAL INCOME TAXES..... Distributions with respect to the FundPreferred
shares will generally be subject to U.S. federal
income taxation. The Fund anticipates that a
portion of its portfolio income will qualify for
the 70% dividends received deduction available to
corporate shareholders (the "dividends received
deduction") or for treatment as "qualified
dividend income" (referred to as "tax-advantaged
dividends" in this Prospectus) that is generally
subject to reduced rates of federal income
taxation for individual and other noncorporate
shareholders. The Internal Revenue Service
("IRS") currently requires that a regulated
investment company, which has two or more classes
of stock, allocate to each such class
proportionate amounts of each type of its income
(such as ordinary income and net capital gain)
based upon the percentage of total dividends
distributed to each class for the tax year.
Accordingly, the Fund intends each year to
allocate ordinary income dividends, capital gain
distributions, dividends qualifying for the
"dividends received deduction" and "qualified
dividend income" between its common shares and
FundPreferred shares in proportion to the total
dividends paid to each class during or with
respect to such tax year. See "Federal Income Tax
Matters."
10
FINANCIAL HIGHLIGHTS
Information contained in the table below under the headings "Per Share
Operating Performance" and "Ratios/Supplemental Data" shows the unaudited
operating performance of the Fund's common shares from the commencement of the
Fund's operations on June 26, 2007 through both June 30, 2007 and August 31,
2007. Since the Fund commenced operations on June 26, 2007, the table covers
approximately one week of operations and approximately two months of operations,
respectively, during which a substantial portion of the Fund's assets were held
in cash pending investment in securities that meet the Fund's investment
objectives and policies. Accordingly, the information presented may not provide
a meaningful picture of the Fund's operating performance.
JUNE 26, 2007- JUNE 26, 2007-
JUNE 30, 2007 AUGUST 31, 2007
-------------- ---------------
(UNAUDITED) (UNAUDITED)
PER SHARE OPERATING PERFORMANCE:
Common share net asset value, beginning of
period........................................ $ 19.10 $ 19.10
-------- --------
Net investment income(a)...................... --** .10
Net gain (loss) on securities (realized and
unrealized)................................. -- (.12)
-------- --------
Total from investment operations............ -- (.02)
Offering costs (including fund structuring
fees)......................................... (.04) (.04)
-------- --------
Common share net asset value, end of period...... $ 19.06 $ 19.04
======== ========
Per share market value, end of period............ $ 20.00 $ 17.40
Total return on common share net asset value(b).. (.21)% (.31)%
Total investment return on market value(b)....... .00% (13.00)%
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shares, end of
period (in thousands)......................... $271,729 $282,879
Ratios of expenses to average net assets
applicable to common shares before custody fee
credits....................................... 1.23%* 1.12%*
Ratios of net investment income to average net
assets applicable to common shares before
custody fee credits........................... .80%* 2.91%*
Ratios of expenses to average net assets
applicable to common shares after custody fee
credits....................................... 1.23%* 1.11%*
Ratios of net investment income to average net
assets applicable to common shares after
custody fee credits........................... .80%* 2.91%*
Portfolio turnover rate.......................... 0% 47%
-------
* Annualized.
** Per share net investment income rounds to less than $.01 per share.
(a) Per share net investment income is calculated using the average daily
shares method.
(b) Total return on market value is the combination of changes in the market
price per share and the effect of reinvested dividend income and
reinvested capital gains distributions, if any, at the average price paid
per share at the time of reinvestment. The last dividend declared in the
period, which is typically paid on the first business day of the
following month, is assumed to be reinvested at the ending market price.
The actual reinvestment for the last dividend declared in the period
takes place over several days, and in some instances may not be based on
the market price, so the actual reinvestment price may be different from
the price used in the calculation. Total returns are not annualized.
Total return on common share net asset value is the combination of
changes in common share net asset value, reinvested dividend income at
net asset value and reinvested capital gains distributions at net asset
value, if any. The last dividend declared in the period, which is
typically paid on the first business day of the following month, is
assumed to be reinvested at the ending net asset value. The actual
reinvestment price for the last dividend declared in the period may often
be based on the Fund's market price (and not its net asset value), and
therefore may be different from the price used in the calculation. Total
returns are not annualized.
11
THE FUND
The Fund is a recently organized, diversified, closed-end management
investment company registered under the 1940 Act. The Fund was organized as a
Massachusetts business trust on February 22, 2007, pursuant to the Declaration,
which is governed by the laws of The Commonwealth of Massachusetts. On June 26,
2007, the Fund issued an aggregate of 14,250,000 common shares, pursuant to the
initial public offering thereof. On August 14, 2007, the Fund issued an
additional 600,000 common shares pursuant to the exercise by the underwriters of
the Fund's Common Share offering of their over-allotment option. The Fund's
common shares are listed on the Exchange under the symbol "JTD." The Fund's
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 Fund's outstanding shares as
of August 31, 2007.
AMOUNT HELD
AMOUNT BY THE FUND OR AMOUNT
TITLE OF CLASS AUTHORIZED FOR ITS ACCOUNT OUTSTANDING
-------------- ---------- --------------- -----------
Common..................................... Unlimited 0 14,855,240
FundPreferred Shares....................... Unlimited 0 0
Series T................................. Unlimited 0 0
USE OF PROCEEDS
The net proceeds of the offering of FundPreferred shares will be
approximately $35,440,000 after payment of the sales load and estimated offering
costs. The Fund will invest the net proceeds of the offering in accordance with
the Fund's investment objectives and policies as described under "The Fund's
Investments" as soon as practicable. It is presently anticipated that the Fund
will be able to invest substantially all of the net proceeds in securities that
meet the Fund's investment objectives and policies within approximately one to
two months after the completion of the offering. Pending such investment, it is
anticipated that the proceeds will be invested in short-term or long-term
securities issued by the U.S. government or its agencies or instrumentalities or
in high quality, short-term money market instruments.
CAPITALIZATION
The following table sets forth the capitalization of the Fund as of August
31, 2007, and as adjusted to give effect to the issuance of the FundPreferred
shares offered hereby.
ACTUAL AS ADJUSTED
------------ ------------
(UNAUDITED) (UNAUDITED)
FUNDPREFERRED SHARES:
FundPreferred shares, $25,000 stated value per share,
at liquidation value; unlimited shares authorized
(no shares issued and 1,440 shares issued, as
adjusted, respectively)............................ $ -- $ 36,000,000
============ ============
COMMON SHAREHOLDERS' EQUITY:
Common shares, $.01 par value per share; unlimited
shares authorized, 14,855,240 shares outstanding*.. $ 148,552 $ 148,552
Paid-in surplus**..................................... 282,992,532 282,432,532
Undistributed net investment income................... 1,435,336 1,435,336
------------ ------------
Accumulated net realized gain (loss) from investments
and derivative transactions........................ (198,772) (198,772)
Net unrealized appreciation (depreciation) of
investments and derivative transactions............ (1,498,364) (1,498,364)
Net assets applicable to common shares................ $282,879,284 $282,319,284
============ ============
-------
* None of these outstanding shares are held by or for the account of the
Fund.
** As adjusted, paid-in surplus reflects a reduction for the sales load and
estimated offering costs of the FundPreferred shares' issuance ($560,000).
12
PORTFOLIO COMPOSITION
As of August 31, 2007, approximately 89% of the market value of the Fund's
portfolio was invested in securities that meet the Fund's investment objectives
and policies and approximately 11% of the market value of the Fund's portfolio
was invested in short-term investments.
THE FUND'S INVESTMENTS
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to provide an attractive level of
distributions and capital appreciation. In pursuing its investment objective,
the Fund seeks to achieve attractive after-tax Common Share returns in part by
reducing and deferring the potential federal income tax liabilities incurred by
the Common Shareholders in connection with their investment in the Fund. The
Fund seeks to achieve its investment objective by investing primarily in
dividend-paying equity securities. The Fund also will invest in Preferred
Securities and other fixed income securities. Under normal market circumstances,
the Fund will invest at least 80% of its Managed Assets in securities that are
eligible to pay tax-advantaged dividends. In addition, the Fund, to a limited
extent, will write (sell) call options on various equity market indices. There
can be no assurance that the Fund's investment objective will be achieved.
THE DIVIDEND GROWTH EQUITY STRATEGY AND THE INCOME-ORIENTED STRATEGY
Under normal market circumstances, the Fund will invest primarily in the
Dividend Growth Equity Strategy, consisting of dividend-paying equity securities
(primarily common stocks). Initially, it is anticipated that 75% of the Fund's
Managed Assets will be allocated to the Dividend Growth Equity Strategy.
The Fund also may invest in the Income-Oriented Strategy, consisting of
Preferred Securities and other fixed income securities. Preferred Securities may
include investments in preferred stocks and trust preferred securities,
convertible preferreds and REIT preferreds, each of which may pay fully taxable
dividends. The Fund's investment in Preferred Securities and other fixed income
securities may consist of both fixed and floating rate securities and may
include securities that are rated below investment grade or that are unrated but
judged to be of comparable quality. Generally, NWQ will focus the Fund's
investments made under the Income-Oriented Strategy on investments in preferred
stocks. Initially, it is anticipated that 25% of the Fund's Managed Assets will
be allocated to the Income-Oriented Strategy.
Under normal market circumstances, the Fund expects to be fully invested
(at least 95% of its Managed Assets) in the Dividend Growth Equity Strategy and
the Income-Oriented Strategy.
OTHER INVESTMENT TECHNIQUES, INCLUDING OPTIONS
The Fund may also employ a variety of other investment techniques for the
purposes of managing risk, hedging, creating investment exposure, and generating
current income and gains. Each of the Advisers may utilize these investment
techniques. These investment techniques include the use of derivative
instruments, such as call options, total return and interest rate swaps, futures
and forward contracts, and the investment in ETFs, other closed end funds,
warrants, REITs and convertible securities. See the SAI for further information
on these investments.
The Fund, to a limited extent, will write (sell) call options on various
equity market indices. NAM will be responsible for the writing of call options.
NAM believes that the strategy of writing index options with respect to a
portion of the equity securities held pursuant to the Dividend Growth Equity
Strategy can provide, in flat or down markets, the potential for current gains,
which may meaningfully reduce the volatility of the Fund's returns and enhance
the Fund's risk-adjusted returns relative to the returns of various equity
market indices over extended periods of time. Further, NAM believes that selling
index call options can help achieve potential tax efficiencies because exchange
listed options on equity indices generally qualify as "section 1256 contracts"
under the Code, on which capital gains and losses are generally treated as 60%
long-term and 40% short-term, regardless of the holding period. The Fund expects
to write call options primarily on the S&P 500(R) Index and other broad-based
indices, but may from time to time, if NAM deems conditions appropriate, write
call options on a variety of other equity market
13
indices or on custom baskets of individual securities. The Fund may also write
call options on select market sectors to reduce the Fund's effective exposure to
certain sectors, such as financial services, utilities or energy. Initially, the
Fund expects to write call options on equity market indices or securities having
an underlying value equal to approximately 25% of the Fund's Managed Assets. The
Fund will not write call options on more than 35% of its Managed Assets. On up
to 5% of the Fund's Managed Assets, the Fund may also buy and sell combinations
of call options, put options and futures contracts in both the listed and over-
the-counter ("OTC") markets. Stocks eligible for either a custom basket or
single stock option include domestic and non-U.S. stocks. The Fund may employ
index options, custom basket options and single stock options.
Over time, the Fund, within the limits referenced above, may vary the
extent of its use of call options opportunistically in response to Fund
performance and prevailing market conditions, consistent with its investment
objective. For example, NAM may reduce the level of call options sold, seeking
to increase the Fund's capital appreciation potential from its equity securities
and thus enhance potential total returns. Alternatively, NAM may increase the
level of call options sold, seeking to reduce potential volatility of the Fund's
total returns and enhance its risk-adjusted performance. Such variations in the
extent of the use of call options may occur, but are not limited to, when the
Fund has experienced a significant increase in its net asset value, above the
original offering price, and/or its net investment income since inception. There
can be no assurance that the Fund's strategy of writing call options, including
potential variation in the extent to which call options are sold, will be
successful.
OTHER PORTFOLIO CHARACTERISTICS AND INFORMATION
Under normal market circumstances:
- the Fund will invest at least 80% of its Managed Assets in securities
that are eligible to pay tax-advantaged dividends;
- the Fund expects to be fully invested (at least 95% of its Managed
Assets) in the Dividend Growth Equity Strategy and the Income-Oriented
Strategy;
- the Fund expects to invest more than 25% of its Managed Assets in equity
securities of companies principally engaged in the financial services
sector and, to a lesser extent, in other economic sectors, such as the
utilities and energy sectors, that historically have provided higher
dividend yields than companies in other sectors or industries;
- the Fund may invest up to 50% of its Managed Assets in securities of non-
U.S. issuers that are U.S. dollar denominated or that are converted into
ADRs or other types of dollar denominated depository receipts immediately
after purchase;
- the Fund may invest in securities that are rated investment grade or that
are unrated but judged to be of comparable quality. Investment grade
quality securities are those securities that, at the time of investment,
are (i) rated by at least one of the NRSROs within the four highest
grades (BBB- or Baa3 or better by S&P, Moody's or Fitch) or (ii) unrated
but judged to be of comparable quality by NWQ. The Fund may invest up to
25% of its Managed Assets in securities that are rated below investment
grade. Securities of below investment grade quality are commonly referred
to as "junk bonds" and are regarded as having predominately speculative
characteristics with respect to capacity to pay interest and repay
principal. See "Risk Factors -- General Risks of Investing in the
Fund -- Below Investment Grade Risk." See Appendix B in the SAI for a
description of security ratings; and
- in addition to using financial leverage by incurring Borrowings and
issuing FundPreferred shares, the Fund may borrow on a line of credit up
to approximately 3% of its Managed Assets for cash management purposes
for periods of up to 60 days.
The Fund's policies noted above are not considered to be fundamental by the
Fund and can be changed without a vote of shareholders. However, the Fund's
policy that it will invest at least 80% of its Managed Assets in securities that
are eligible to pay tax-advantaged dividends may only be changed by the Fund's
Board of Trustees following the provision of 60 days' prior written notice to
shareholders.
14
During temporary defensive periods or in order to keep the Fund's cash
fully invested, including the period during which the net proceeds of the
offering of common shares and FundPreferred shares are being invested, the Fund
may invest in short-term high quality fixed income securities. As such, the Fund
may not be able to achieve its investment objective during those periods.
The Fund cannot change its investment objective without the approval of the
holders of a "majority of the outstanding" common shares and FundPreferred
shares voting together as a single class, and of the holders of a "majority of
the outstanding" FundPreferred 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. See "Description of FundPreferred
Shares -- Voting Rights" for additional information with respect to the voting
rights of holders of FundPreferred shares.
OVERALL FUND MANAGEMENT
NAM is the Fund's investment adviser, responsible for the Fund's overall
investment strategy and its implementation, including allocating the portion of
the Fund's Managed Assets to be invested in the Dividend Growth Equity Strategy
and the Income-Oriented Strategy. NAM also will be responsible for the writing
of call options. NAM will oversee each Subadviser in its management of its
designated portion of the Fund's portfolio. This oversight will include ongoing
evaluation of each Subadviser's investment performance, quality of investment
process and personnel, compliance with Fund and regulatory guidelines, trade
allocation and execution, and other factors.
NAM believes that investor interest in higher dividend-paying stocks has
significantly increased as a result of the enactment of federal income tax
changes providing for reduced federal income tax rates (15%) for tax-advantaged
dividends earned by individual investors. The tax law changes and increased
investment interest has prompted many companies in recent years to place greater
emphasis on dividend policy and to increase dividend payouts. NAM believes these
circumstances indicate a growing investment opportunity for active, tax-
efficient portfolio strategies that focus upon providing tax-advantaged
dividends and seeking long-term capital appreciation through a low turnover
approach.
SUBADVISER INVESTMENT PHILOSOPHY AND PROCESS
SANTA BARBARA
Investment Philosophy. Santa Barbara believes that common equity share
prices are largely driven by market expectations for total returns over an
extended period. Santa Barbara also believes that sustainable dividend growth
and capital appreciation potential are important to the market's expectations
for the future total return potential of a company's stock. Higher return and
share price expectations may be further reinforced if future dividend payouts
are further increased over the longer term. Santa Barbara also believes that the
market values of a select portfolio of common stocks indicating the potential
for sustained dividend growth are characteristically less volatile over economic
and equity market cycles. Higher dividends offer the potential for more
consistent returns and serve to cushion market valuations in a downturn, which
may augment potential total returns over the longer term.
Premised upon this framework, Santa Barbara's dividend growth strategy
seeks to focus upon the common stocks of high dividend-paying companies and to
systematically apply fundamental analysis to identify those companies
demonstrating the potential for higher levels of sustainable growth in earnings
and dividend payouts. Santa Barbara believes that a portfolio constructed upon
these premises offers investors the opportunity to consistently achieve
attractive levels of tax-advantaged distributions and capital appreciation over
the longer term in excess of its benchmark, the S&P 500(R) Index, with moderated
volatility. The approach to company selection anticipates extended investment
holding periods and low turnover, which Santa Barbara believes enhances its
strategy's tax efficiency and serves the goal of minimizing and deferring the
federal taxes that may be paid by investors.
Investment Process. Santa Barbara's investment process begins by
identifying a universe of approximately 1,000 companies currently paying
dividends on their equity securities. The investment universe, which includes
15
both domestic and non-U.S. companies, is generally restricted to companies with
a current market capitalization above $3 billion. Santa Barbara then removes
companies that do not pay tax-advantaged dividends, including REITs and limited
partnerships, resulting in approximately 900 companies. Santa Barbara then
applies quantitative screens to identify high dividend-paying companies, by
sector and industry, resulting in approximately 250 companies. Additional
screens are then applied to identify companies with high dividend growth rates.
From the remaining pool of approximately 100 companies, Santa Barbara applies a
"bottom-up" fundamental analysis to evaluate the prospects for sustainable
dividend growth and capital appreciation in the future. In selecting companies
for potential investment, Santa Barbara evaluates certain factors, including,
among others: a sound business model; strong overall financial position;
earnings growth; return on equity; quality of management; potential for dividend
growth; market valuation; and the commitment to return cash to shareholders.
Following an assessment and ranking process, Santa Barbara constructs a
diversified portfolio, which generally may consist of 30 to 60 holdings with
broad sector and industrial representation. Since dividend focused strategies
can exhibit value-like characteristics and result in greater effective exposure
to certain high yielding sectors (such as financial services, utilities and
energy), Santa Barbara uses its best efforts to balance its investments by
issuer and sector and to add capital appreciation potential with improved
portfolio diversification.
NWQ
Investment Philosophy. NWQ's investment philosophy with respect to the
Income-Oriented Strategy involves disciplined bottom-up research that attempts
to identify undervalued companies possessing:
- attractive valuation and fundamentals;
- favorable risk/reward and downside protection;
- catalysts or inflection points leading to an improvement in profitability
or recognition of value.
Investment Process. NWQ selects Preferred Securities and other fixed income
securities for the Fund through bottom-up fundamental research focusing on both
fundamental valuation and qualitative measures. NWQ looks for undervalued
companies where a catalyst exists to recognize value or improve a company's
profitability. A catalyst may include a management change, industry
consolidation, a company restructuring or a change in a company's fundamentals.
The investment process seeks to add value through active management and thorough
research aimed at selecting companies that possess opportunities
underappreciated or misperceived by the market. NWQ applies a sell discipline
emphasizing elimination or reduction of positions that no longer possess
favorable risk/reward characteristics, attractive valuations or catalysts. NWQ
performs an objective analysis and review of any portfolio holding that has
incurred a material decline in price, but does not apply a mechanical sell
discipline.
TAX-EFFICIENT INVESTING
In pursuing its investment objective, the Fund intends to achieve
attractive after-tax Common Share returns in part by reducing and deferring the
potential federal income taxes incurred by Common Shareholders in connection
with their investment in the Fund.
In managing the Fund's investment portfolio and operations, NAM intends to
use a variety of methods in an effort to reduce and defer federal income taxes
incurred by Common Shareholders in connection with their investment in the Fund.
The methods include: (i) investing primarily (at least 80% of Managed Assets) in
dividend-paying equity securities that qualify for federal income taxation at
rates applicable to long-term capital gains while satisfying the holding period
and other requirements for favorable tax treatment; (ii) managing the Fund's
investments with a low turnover approach and managing the sale of appreciated
stock in order to minimize the Fund's net realized short-term capital gains in
excess of net realized long-term capital losses; (See "The Fund's
Investments -- Subadviser Investment Philosophy and Process -- Santa Barbara");
(iii) selling index call options that qualify for treatment as "section 1256
contracts" under the Code on which capital gains and losses are generally
treated as 60% long- term and 40% short- term, regardless of the holding period;
(iv) limiting the overlap between the Fund's equity holdings (and any subset
thereof) and each index on which it has outstanding options positions to less
than 70% on an ongoing basis so that the Fund's equity holdings and index
options holdings are not subject to
16
the "straddle rules;" and (v) managing the cost of leverage and other expenses
to increase the tax efficiency of the Fund's distributions.
Although the Fund seeks to reduce and defer potential federal income tax
liabilities incurred by shareholders in connection with their investment in the
Fund, there can be no assurance that the Fund will be successful in this regard.
The Fund seeks to maximize the percentage of its tax-advantaged
distributions to Common Shareholders by investing primarily in equity securities
that pay tax-advantaged dividends. When distributed to shareholders, such tax-
advantaged dividends will be passed through to individual shareholders who meet
holding period and other requirements with respect to their Fund shares. The
Fund also may invest a portion of its Managed Assets in Preferred Securities and
other fixed income securities that may generate fully taxable ordinary income,
but expects that, under normal circumstances, expenses incurred by the Fund will
offset a large portion of the Fund's fully taxable ordinary income and net
short-term capital gains. If the Fund's expenses completely offset its fully
taxable ordinary income and net short-term capital gains, substantially all (at
least 90%) of the Fund's distributions to shareholders will qualify as tax-
advantaged dividends, provided certain holding period and other requirements are
satisfied. There can be no assurance that the Fund will be successful in this
regard.
Tax-advantaged dividends generally include dividends on common stock and
preferred stock from domestic corporations and dividends from non-U.S.
corporations that meet certain criteria. The Fund will seek to manage its
investments and expenses so that at least a vast majority of its distributions
will qualify as tax-advantaged dividends, enabling individual investors who meet
holding period and other requirements to benefit from this favorable tax
treatment. The Fund generally can pass the tax treatment of tax-advantaged
dividends it receives through to shareholders. For the Fund to receive tax-
advantaged dividends, the Fund must hold stock paying an otherwise tax-
advantaged dividend more than 60 days during the 121-day period beginning 60
days before the ex-dividend date (or more than 90 days during the associated
181-day period in the case of certain Preferred Securities).
Taxes are a major influence on the net after-tax returns that investors
receive on their taxable investments. There are five components of the returns
of a regulated investment company that predominately invests in equities, each
of which is treated differently for federal income tax purposes: (i) unrealized
price appreciation; (ii) distributions of tax-advantaged dividends; (iii)
distributions of other investment income; (iv) distributions of net realized
short-term capital gains; and (v) distributions of net-realized long-term
capital gains. Generally, return from unrealized price appreciation is not
taxable until the shareholder sells his or her shares. Under current federal
income tax law, distributions of tax-advantaged dividends and long-term capital
gains received by individual shareholders are taxed at long-term capital gain
rates, which currently reach a maximum of 15% (provided, in the case of tax-
advantaged dividends, certain holding period requirements are satisfied).
Generally, return of capital distributions are not taxable and instead reduce a
shareholder's basis in his or her shares. For individual taxpayers,
distributions of net investment income other than tax-advantaged dividends and
distributions of net realized short-term gains (generally, gains on investments
held for one year or less) are taxed as ordinary income, at rates as high as
35%. Returns derived from price appreciation of securities remaining in the
Fund's portfolio (i.e., unrealized capital gains) are untaxed until the
shareholder sells his or her shares. As described above, the Fund seeks to
achieve favorable after-tax returns in part by reducing the taxes incurred by
shareholders in connection with the Fund's net investment income and net
realized gains.
In order for otherwise tax-advantaged dividends from the Fund received by
individual shareholders to be taxable at long-term capital gain rates, the
shareholder must hold his or her shares for more than 60 days during the 121-day
period beginning 60 days before the ex-dividend date (90 days during the
associated 181-day period in the case of certain preferred shares). The Fund's
investment program and the tax treatment of Fund distributions may be affected
by IRS interpretations of the Code and future changes in tax laws and
regulations, including changes resulting from the "sunset" provisions that
currently apply to the favorable tax treatment of tax-advantaged dividends that
would have the effect of repealing such favored treatment and reimposing the
higher tax rates applicable to ordinary income unless further legislative action
is taken. The provisions of the Code applicable to tax-advantaged dividends are
effective through 2010. Thereafter, higher tax rates will apply unless further
legislative action is taken by Congress.
See "Federal Income Tax Matters" for more information.
17
PORTFOLIO COMPOSITION AND OTHER INFORMATION
The Fund's portfolio will be composed principally of the following
investments. More detailed information about the Fund's portfolio investments
are contained in the SAI.
Common Stocks. As part of the Fund's Dividend Growth Equity Strategy, the
Fund will invest in dividend-paying equity securities consisting primarily of
common stocks of mid- to large-cap companies that have attractive dividend
income and the potential for future dividend growth and capital appreciation.
Common stocks generally represent an ownership interest in an issuer, without
preference over any other class of securities, including such issuer's fixed
income securities and senior equity securities. Dividend payments generally are
not guaranteed and so may be discontinued by the issuer at its discretion or
because of the issuer's inability to satisfy its liabilities. Further, an
issuer's history of paying dividends does not guarantee that it will continue to
pay dividends in the future. In addition to dividends, under certain
circumstances the Fund may benefit from capital appreciation of an issuer's
common stock.
Although common stocks historically have generated higher average returns
than fixed income securities, common stocks also have experienced significantly
more volatility in those returns. An adverse event, such as an unfavorable
earnings report, may depress the value of a particular common stock held by the
Fund. Also, prices of common stocks are sensitive to general movements in the
stock market. A drop in the stock market may depress the prices of common stocks
held by the Fund or to which it has exposure.
Preferred Securities. As part of the Fund's Income-Oriented Strategy, the
Fund will invest in a portfolio of Preferred Securities and other fixed income
securities. Generally, NWQ will focus the Fund's investments made under the
Income-Oriented Strategy on investments in preferred stocks. The Fund's
investment in Preferred Securities may consist of both fixed and floating rate
securities. Preferred Securities, like common stocks, represent an equity
ownership in an issuer. Generally, Preferred Securities have a priority of claim
over common stocks in dividend payments and upon liquidation of the issuer.
Unlike common stocks, Preferred Securities do not usually have voting rights.
Preferred Securities in some instances are convertible into common stock.
Although they are equity securities, Preferred Securities have certain
characteristics of both fixed income securities and common stock. They are fixed
income-like in that their promised income is contractually fixed. They are
common stock-like in that they do not have rights to precipitate bankruptcy
proceedings or collection activities in the event of missed payments.
Furthermore, they have many of the key characteristics of equity due to their
subordinated position in an issuer's capital structure and because their quality
and value are heavily dependent on the profitability of the issuer rather than
on any legal claims to specific assets or cash flows.
In order to be payable, dividends on Preferred Securities must be declared
by the issuer's board of directors. In addition, distributions on Preferred
Securities may be subject to deferral and thus may not be automatically payable.
Income payments on some Preferred Securities are cumulative, causing dividends
and distributions to accrue even if not declared by the board of directors or
otherwise made payable. Other Preferred Securities are non-cumulative, meaning
that skipped dividends and distributions do not continue to accrue. There is no
assurance that dividends on Preferred Securities in which the Fund invests will
be declared or otherwise made payable. The Fund may invest in non-cumulative
Preferred Securities, although the Subadvisers would consider, among other
factors, their non-cumulative nature in making any decision to purchase or sell
such securities.
Preferred Securities in which the Fund may invest include floating rate
securities. Floating rate securities will pay dividends (to the extent declared)
at rates that will readjust periodically (generally expected to be quarterly).
These securities typically will pay a dividend at a per annum rate equal to the
rate paid on three-month U.S. dollar deposits in Europe, which is commonly
referred to as LIBOR, plus a specified spread, which is expected to differ
depending on the issuer and the market for the issuer's floating rate securities
at the time of their issuance.
Shares of Preferred Securities have a liquidation value that generally
equals their original purchase price at the date of issuance. The market values
of Preferred Securities may be affected by favorable and unfavorable changes
impacting the issuers' industries or sectors. They may also be affected by
actual and anticipated changes or ambiguities in the tax status of the security
and by actual and anticipated changes or ambiguities in tax laws, such as
changes in corporate and individual income tax rates or the characterization of
dividends as tax-advantaged.
18
Because the claim on an issuer's earnings represented by Preferred
Securities may become disproportionately large when interest rates fall below
the rate payable on the securities or for other reasons, the issuer may redeem
Preferred Securities, generally after an initial period of call protection in
which the stock is not redeemable. Thus, in declining interest rate environments
in particular, the Fund's holdings of higher dividend-paying Preferred
Securities may be reduced and the Fund may be unable to acquire securities
paying comparable rates with the redemption proceeds.
Below Investment Grade Securities. The Fund may invest up to 25% of its
Managed Assets in securities that are rated below investment grade. Securities
rated below investment grade are judged to have speculative elements. The
ratings of Moody's, S&P and the other rating agencies represent their opinions
as to the quality of the obligations that they undertake to rate. Ratings are
relative and subjective and, although ratings may be useful in evaluating the
safety of interest and principal payments, they do not evaluate the market value
risk of such obligations. Although these ratings may be an initial criterion for
selection of portfolio investments, the Subadvisers also will independently
evaluate these securities and the ability of the issuers of such securities to
pay interest and principal. To the extent that the Fund invests in lower grade
securities that have not been rated by a rating agency, the Fund's ability to
achieve its investment objective will be more dependent on the Subadvisers'
credit analysis than would be the case when the Fund invests in rated
securities. See Appendix B in the SAI for a description of security ratings.
Non-U.S. Securities. The Fund will invest in securities of non-U.S.
issuers that are U.S. dollar denominated or that are converted into ADRs or
other types of dollar denominated depositary receipts immediately after
purchase. The Fund may invest in any region of the world.
Financial Services Company Securities. Although the Fund does not intend
to invest more than 25% of its Managed Assets in any single industry within the
financial services sector, the Fund expects to invest more than 25% of its
Managed Assets in securities issued by companies "principally engaged" in the
financial services sector. A company is "principally engaged" in the financial
services sector if it owns financial services-related assets that constitute at
least 50% of its revenues from providing financial services. Companies in the
financial services sector include commercial banks, industrial banks, savings
institutions, finance companies, diversified financial services companies,
investment banking firms, securities brokerage houses, investment advisory
companies, leasing companies, insurance companies and companies providing
similar services.
Call Options. The Fund, to a limited extent, will write (sell) call
options on various equity market indices. The Fund will write call options
primarily on the S&P 500(R) Index and other broad-based indices, but may from
time to time, if NAM deems conditions appropriate, write call options on a
variety of other equity indices or custom baskets of individual securities. The
Fund may also write call options on select market sectors to reduce the Fund's
effective exposure to certain sectors, such as financial services, utilities or
energy. Initially, the Fund expects to write call options on equity market
indices or securities having an underlying value equal to approximately 25% of
the Fund's Managed Assets. The Fund will not write call options on more than 35%
of its Managed Assets. Generally, the Fund expects to sell index call options
that are exchange listed and that are "European style" meaning that the options
only may be exercised on the expiration date of the call option. Options on an
index differ from options on individual securities because (i) the exercise of
an index call option requires cash payment and does not involve the actual
purchase of securities, (ii) the holder of an index call option has the right to
receive cash upon exercise of the option if the level of the index upon which
the option is based is greater than exercise price of the option and (iii) index
call options reflect price fluctuations in a group of securities or segments of
the securities market rather than price fluctuations in a single security.
As the seller of an index call option, the Fund creates the potential for a
liability to the extent the index underlying the call option appreciates to a
level above the strike price. Generally, the Fund intends to sell index call
options that are near or "at-the-money" (i.e., the exercise price generally will
be within a close range above or below the current level of the cash value of
the index), although they also may be sold "in-the-money" (i.e., the exercise
price is below the current level of the cash value of the index) or "out-of-the-
money" (i.e., the exercise price is above the current level of the cash value of
the index). The Fund, in effect, sells the potential appreciation in the value
of the portion of the dividend-paying equity securities held pursuant to the
Dividend Growth Equity Strategy subject to call options in exchange for the
premium. If, at expiration, the purchaser exercises the index call option sold
by the
19
Fund, the Fund will pay the purchaser the difference between the cash value of
the index and the exercise price of the index call option. By selling call
options on less than the full value of the Dividend Growth Equity Strategy, the
Fund retains any capital appreciation on the portion of the dividend-paying
equity securities held pursuant to the Dividend Growth Equity Strategy not
effectively subject to the call options.
The premium, the exercise price and the market value of the index
underlying the call option at expiration or contract termination determine the
gain or loss realized by the Fund as the seller of the index call option.
Convertible Securities. Convertible securities are bonds, debentures,
notes, preferred securities or other securities that may be converted or
exchanged (by the holder or the issuer) into shares of the underlying common
stock (or cash or securities of equivalent value) at a stated exchange ratio or
predetermined price (the "conversion price"). Convertible securities have
general characteristics similar to both fixed income securities and common
stocks. The interest paid on convertible securities may be fixed or floating
rate. Although to a lesser extent than with fixed income securities, the market
value of convertible securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stocks and,
therefore, will also react to the variations in the general market for common
stocks. Depending upon the relationship of the conversion price to the market
value of the underlying common stock, a convertible security may trade more like
a common stock than a fixed income instrument.
REITs. REITs are companies that own and manage real estate, including
apartment buildings, offices, shopping centers, industrial buildings and hotels.
By investing in REITs, the Fund may gain exposure to the real estate market with
greater liquidity and diversification than through direct ownership of property,
which can be costly and require ongoing management and maintenance, and which
can be difficult to convert into cash when needed. Generally, dividends paid by
REITs will be fully taxable as ordinary income.
Corporate Debt Instruments. Corporate debt instruments generally are used
by corporations to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest and normally must repay the amount borrowed
on or before maturity.
Commercial Paper. Commercial paper represents short-term unsecured
promissory notes issued in bearer form by corporations such as banks or bank
holding companies and finance companies. The rate of return on commercial paper
may be linked or indexed to the level of exchange rates between the U.S. dollar
and a foreign currency or currencies.
Exchange-Traded Funds (ETFs). The Fund may invest in ETFs, which are
investment companies that aim to track or replicate a desired index, such as a
sector, market or global segment. ETFs are passively managed and their shares
are traded on a national exchange or The NASDAQ Stock Market, Inc. ("NASDAQ").
ETFs do not sell individual shares directly to investors and only issue their
shares in large blocks known as "creation units." The investor purchasing a
creation unit may sell the individual shares on a secondary market. Therefore,
the liquidity of ETFs depends on the adequacy of the secondary market. There can
be no assurance that an ETF's investment objective will be achieved, as ETFs
based on an index may not replicate and maintain exactly the composition and
relative weightings of securities in the index. ETFs are subject to the risks of
investing in the underlying securities. The Fund, as a holder of the securities
of the ETF, will bear its pro rata portion of the ETF's expenses, including
advisory fees. These expenses are in addition to the direct expenses of the
Fund's own operations. See also "-- Other Investment Companies."
Futures and Forward Contracts. 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 security or
index 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 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 OTC
transactions.
Interest Rate and Total Return Swaps. The Fund may invest in interest rate
and total return swaps. The Fund will enter into swap agreements only with
counterparties that meet certain standards of creditworthiness. In an
20
interest rate swap, the Fund and another party typically exchange their
respective commitments to pay each other floating for fixed rates of interest at
a floating rate referenced to local short-term interest rates and a fixed rate
referenced to U.S. interest rates. In a total return swap, the Fund exchanges
with another party their respective commitments to pay or receive the total
return of an underlying asset and a floating local short-term interest rate.
The Fund usually will enter into interest rate swaps and total return swaps
on a net basis (i.e., the two payment streams are netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments). The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued on a
daily basis, and an amount of cash or liquid securities having an aggregate net
asset value at least equal to the accrued excess will be segregated by the Fund.
If a swap transaction is entered into on other than a net basis, the full amount
of the Fund's obligations will be accrued on a daily basis, and the full amount
of the Fund's obligations will be segregated by the Fund.
Warrants. A warrant is a certificate that gives the holder of the warrant
the right to buy, at a specified time or specified times, from the issuer of the
warrant, the common stock of the issuer at a specified price.
Depositary Receipts -- ADRs, EDRs, and GDRs. The Fund may purchase
depositary receipts such as ADRs, European Depositary Receipts ("EDRs") and
Global Depositary Receipts ("GDRs"). ADRs, EDRs and GDRs are certificates
evidencing ownership of shares of foreign issuers and are alternatives to
purchasing directly the underlying foreign securities in their national markets
and currencies.
Mortgage-Backed Securities. The Fund may invest in mortgage-backed
securities, which represent direct or indirect participations in, or are secured
by and payable from, pools of mortgage loans. They may be issued or guaranteed
by a U.S. Government agency or instrumentality, though not necessarily backed by
the full faith and credit of the U.S., or may be issued by private issuers.
Private issuers are generally originators of and investors in mortgage loans and
include savings associations, mortgage banks, commercial banks, investment
banks, and special purpose entities. Private mortgage-backed securities may be
supported by U.S. Government agency mortgage-backed securities or some form of
non-governmental credit enhancement.
Mortgage-backed securities may have either fixed or adjustable interest
rates. Tax or regulatory changes may adversely affect the mortgage-backed
securities market. In addition, changes in the market's perception of the issuer
may affect the value of mortgage-backed securities. The rate of return on
mortgage-backed securities may be affected by prepayments of principal on the
underlying loans, which generally increase as market interest rates decline; as
a result, when interest rates decline, holders of these securities normally do
not benefit from appreciation in market value to the same extent as holders of
other non-callable debt securities.
U.S. Government Debt Securities. U.S. Government securities are debt
securities issued and/or guaranteed as to principal and interest by the U.S.
Government that are supported by the full faith and credit of the U.S. These
securities include U.S. Treasury bills, notes and bonds and securities of the
Government National Mortgage Association and the Federal Housing Administration.
U.S. Government agency securities include debt securities issued and/or
guaranteed as to principal and interest by U.S. Government agencies, U.S.
Government-sponsored enterprises and U.S. Government instrumentalities that are
not direct obligations of the U.S. These securities may not be backed by the
full faith and credit of the U.S. U.S. Government-sponsored Enterprises and
instrumentalities are not agencies of the U.S. Government. Government sponsored
enterprises are private corporations sponsored by the Federal government, such
as the Federal National Mortgage Association or the Federal Home Loan Mortgage
Association. Securities issued by these entities are not generally supported by
the full faith and credit of the U.S. Because the U.S. Government is not
obligated to provide support to its instrumentalities, the Fund will invest in
obligations issued by these instrumentalities only where the Fund is satisfied
that the credit risk with respect to the issuers is minimal.
Repurchase Agreements. The Fund may enter into repurchase agreements (the
purchase of a security coupled with an agreement to resell that security at a
higher price) with respect to its permitted investments. The Fund's repurchase
agreements will provide that the value of the collateral underlying the
repurchase agreement will always be at least equal to the repurchase price,
including any accrued interest earned on the agreement, and will be marked-to-
market daily.
21
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 interest and/or principal payments that may be
made on a structured product may vary widely, depending on 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.
Illiquid Securities. The Fund may invest in securities and other
instruments that, at the time of investment, are illiquid (i.e., securities that
are not readily marketable). For this purpose, illiquid securities may include,
but are not limited to, restricted securities (securities the disposition of
which is restricted under the federal securities laws), securities that may only
be resold pursuant to Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act"), that are deemed to be illiquid, and certain repurchase
agreements. The assets used to cover OTC derivatives used by the Fund will be
considered illiquid until the OTC derivatives are sold to qualified dealers who
agree that the Fund may repurchase them at a maximum price to be calculated by a
formula set forth in an agreement. The "cover" for an OTC derivative subject to
this procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the
derivative.
When-Issued and Delayed Delivery Transactions. The Fund may buy and sell
securities on a when-issued or delayed delivery basis, making payment or taking
delivery at a later date, normally within 15 to 45 days of the trade date. This
type of transaction may involve an element of risk because no interest accrues
on the securities prior to settlement and, because securities are subject to
market fluctuations, the value of the securities at time of delivery may be less
(or more) than their cost. A separate account of the Fund will be established
with its custodian consisting of cash equivalents or liquid securities having a
market value at all times at least equal to the amount of any delayed payment
commitment.
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 ETFs) that invest primarily in 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 companies)
that invest primarily in 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 pooled investment vehicles either during periods when it has
large amounts of uninvested cash, such as the period shortly after the Fund
receives the proceeds of the offering of its common shares or Borrowings and/or
FundPreferred shares, or during periods when there is a shortage of attractive
securities of the types in which the Fund may invest in directly available in
the market. As an investor in an investment company, the Fund will bear its
ratable share of that investment company's expenses, and would remain subject to
payment of the Fund's 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 Advisers will
take expenses into account when evaluating the investment merits of an
investment in the investment company relative to available securities of the
types in which the Fund may invest directly. In addition, the securities of
other investment companies also may be leveraged and therefore will be subject
to the same leverage risks described herein. As described in the section
entitled "Risk Factors -- Risks of Investing in FundPreferred Shares -- Leverage
Risk," the net asset value and market value of leveraged shares will be more
volatile and the yield to shareholders will tend to fluctuate more than the
yield generated by unleveraged shares.
Portfolio Turnover. The Fund may engage in portfolio trading when
considered appropriate, but short-term trading will not be used as the primary
means of achieving the Fund's investment objective. Although the Fund cannot
accurately predict its annual portfolio turnover rate, it is not expected to
exceed 20% to 25% under normal circumstances. However, there are no limits on
the rate of portfolio turnover, and investments may be sold without regard to
length of time held when, in a Subadviser's opinion, investment considerations
warrant such action. A higher portfolio turnover rate results in correspondingly
greater brokerage commissions and other transactional expenses that are borne by
the Fund. 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. See "Federal Income Tax
Matters."
22
USE OF LEVERAGE
The Fund intends to use financial leverage, including issuing the
FundPreferred shares, for investment purposes. The Fund currently anticipates
its use of leverage will represent up to approximately 33% of its Managed
Assets. In addition to the issuance of FundPreferred shares, the Fund intends to
make further use of financial leverage through Borrowings, including the
issuance of commercial paper or notes. Initially, the Fund intends that
Borrowings will represent 20 to 25% of Managed Assets. Any Borrowings will have
seniority over the FundPreferred shares. Payments to holders of FundPreferred
shares in liquidation or otherwise will be subject to the prior payment of all
outstanding indebtedness, including Borrowings.
RISK FACTORS
The Fund is a diversified, closed-end management investment company
designed primarily as a long-term investment and not as a trading vehicle. The
Fund is not intended to be a complete investment program and, due to the
uncertainty inherent in all investments, there can be no assurance that the Fund
will achieve its investment objectives. Risk is inherent in all investing,
including the risk that you may receive little or no return on your investment
or even that you may lose part or all of your investment. Therefore, before
investing you should consider carefully the following risks that you assume when
you invest in FundPreferred shares.
RISKS OF INVESTING IN FUNDPREFERRED SHARES
Interest Rate Risk. The Fund issues FundPreferred shares, which pay
dividends based on short-term interest rates. If short-term interest rates rise,
dividend rates on the FundPreferred shares may rise so that the amount of
dividends payable to holders of FundPreferred shares exceeds the income from the
Fund's portfolio securities. While the Fund intends to manage this risk through
its portfolio investments in Preferred Securities and other adjustable rate
securities there is no guarantee these strategies will be implemented or will be
successful in reducing or eliminating this interest rate risk. In addition,
rising market interest rates could negatively impact the value of the Fund's
investment portfolio, reducing the amount of assets serving as asset coverage
for the FundPreferred shares.
Auction Risk. You may not be able to sell your FundPreferred shares at an
auction if the auction fails; that is, if there are more FundPreferred shares
offered for sale than there are buyers for those shares. Also, if you place hold
orders (orders to retain FundPreferred shares) at an auction only at a specified
rate, and that bid rate exceeds the rate set at the auction, you will not retain
your FundPreferred shares. Finally, if you buy shares or elect to retain shares
without specifying a rate below which you would not wish to continue to hold
those shares, and the auction sets a below-market rate, you may receive a lower
rate of return on your shares than the market rate. See "Description of
FundPreferred Shares" and "The Auction -- Auction Procedures."
Secondary Market Risk. A secondary market may not exist. To the extent
that a secondary market does exist, and you try to sell your FundPreferred
shares between auctions, you may not be able to sell any or all of your shares,
or you may not be able to sell them for $25,000 per share or $25,000 per share
plus accumulated dividends. If the Fund has designated a special dividend period
(a rate period other than seven (7) days), changes in interest rates could
affect the price you would receive if you sold your shares in the secondary
market. Broker-Dealers that maintain a secondary trading market for
FundPreferred shares are not required to maintain this market, and the Fund is
not required to redeem shares either if an auction or an attempted secondary
market sale fails because of a lack of buyers. FundPreferred shares are not
registered on a stock exchange or the Nasdaq stock market. If you sell your
FundPreferred shares to a broker-dealer between auctions, you may receive less
than the price you paid for them, especially when market interest rates have
risen since the last auction. In addition, recent clarifications to U.S.
generally accepted accounting principals relating to the treatment of auction
rate securities, including FundPreferred shares, could negatively impact the
buying of such securities by certain potential purchasers.
Ratings and Asset Coverage Risk. While S&P and Moody's assign ratings of
"AAA" and "Aaa," respectively, to FundPreferred shares, the ratings do not
eliminate or necessarily mitigate the risks of investing in FundPreferred
shares. A rating agency could downgrade FundPreferred shares, which may make
your shares less liquid at an auction or in the secondary market, though
probably with higher resulting dividend rates. If a rating agency downgrades the
rating assigned to FundPreferred shares, the Fund will alter its portfolio or
redeem FundPreferred
23
shares. The Fund may voluntarily redeem FundPreferred shares under certain
circumstances. See "Description of FundPreferred Shares -- Asset Maintenance"
for a description of the asset maintenance tests the Fund must meet.
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 your
FundPreferred shares investment or the income from that investment will be worth
less in the future. As inflation occurs, the real value of the FundPreferred
shares and distributions declines. In an inflationary period, however, it is
expected that, through the auction process, the FundPreferred shares' dividend
rates would increase, tending to offset this risk. For additional general risks
that inflation may pose to investors in the Fund see "Risk Factors -- General
Risks of Investing in the Fund -- Inflation Risk."
Decline in Net Asset Value Risk. A material decline in the Fund's net
asset value may impair the Fund's ability to maintain required levels of asset
coverage. For a description of risks affecting the Fund, please see "-- General
Risks of Investing in the Fund" below.
Payment Restrictions. The Fund is prohibited from declaring, paying or
making any dividends or distributions on FundPreferred shares unless it
satisfies certain conditions. See "Description of FundPreferred
Shares -- Restrictions on Dividend, Redemption and Other Payments." The Fund is
also prohibited from declaring, paying or making any dividends or distributions
on common shares unless it satisfies certain conditions. These prohibitions on
the payment of dividends or distributions might impair the Fund's ability to
maintain its qualification as a regulated investment company for federal income
tax purposes. While the Fund intends to redeem FundPreferred shares if necessary
to comply with the asset coverage requirements, there can be no assurance that
such redemptions can be effected in time to permit the Fund to distribute its
income as required to maintain its qualification as a regulated investment
company under the Code. See "Federal Income Tax Matters -- Federal Income Tax
Treatment of the Fund."
Leverage Risk. The Fund uses financial leverage in an amount currently
anticipated to represent up to approximately 33% of its Managed Assets. In
addition to issuing FundPreferred shares, the Fund intends to make further use
of financial leverage through Borrowings, including the issuance of commercial
paper or notes. Initially, the Fund intends that Borrowings will represent 20 to
25% of Managed Assets. In addition, the Fund may also borrow funds (a) in
connection with a loan made by a bank or other party that is privately arranged
and not intended to be publicly distributed or (b) in an amount equal to up to
5% of its total assets for temporary purposes only.
If the Fund issues any senior securities representing indebtedness (as
defined in the 1940 Act) under the requirements of the 1940 Act, the value of
the Fund's total assets, less all liabilities and indebtedness of the Fund not
represented by such senior securities, must be at least equal, immediately after
any such senior securities representing indebtedness, to 300% of the aggregate
value of such senior securities. Upon the issuance of FundPreferred shares, the
value of the Fund's total assets, less all liabilities and indebtedness of the
Fund not represented by senior securities must be at least equal, immediately
after the issuance of the FundPreferred shares, to 200% of the aggregate value
of any senior securities and the FundPreferred shares.
In addition, restrictions may be imposed on certain investment practices in
which the Fund may otherwise engage. Any lender with respect to Borrowings by
the Fund may require additional asset coverage and portfolio composition
provisions as well as restrictions on the Fund's investment practices.
The money borrowed pursuant to any Borrowings may constitute a substantial
lien and burden on the FundPreferred shares by reason of their prior claim
against the income of the Fund and against the net assets of the Fund in
liquidation. The Fund may not be permitted to declare dividends or other
distributions, including with respect to FundPreferred shares, or purchase or
redeem shares, including FundPreferred shares, unless (i) at the time thereof
the Fund meets certain asset coverage requirements and (ii) there is no event of
default under any Borrowings that is continuing. See "Description of
FundPreferred Shares -- Restrictions on Dividend, Redemption and Other
Payments." In the event of a default under any Borrowings, the lenders may have
the right to cause a liquidation of the collateral (i.e., sell portfolio
securities) and if any such default is not cured, the lenders may be able to
control the liquidation as well.
24
The Fund reserves the right at any time, if it believes that market
conditions are appropriate, to increase its level of debt or other senior
securities to maintain or increase the Fund's current level of leverage to the
extent permitted by the 1940 Act and existing agreements between the Fund and
third parties.
Because the fee paid to the Advisers will be calculated on the basis of
Managed Assets, the fee will be higher when leverage is utilized, giving the
Advisers an incentive to utilize leverage.
Conflicts of Broker-Dealers Participating in Auctions. A Broker-Dealer may
submit orders in auctions for its own account. Any Broker-Dealer submitting an
order for its own account in any auction will have an advantage over other
bidders in that it would have knowledge of other orders placed through it in
that auction (but it would not have knowledge of orders submitted by other
Broker-Dealers). As a result of the Broker-Dealer bidding, the auction clearing
rate may be higher or lower than the rate that would have prevailed if the
Broker-Dealer had not bid. A Broker-Dealer may also bid in order to prevent what
would otherwise be a failed action, or an auction clearing at a rate that the
Broker-Dealer believes does not reflect the market for such securities at the
time of the action. Broker-Dealers may, but are not obligated to, advise holders
of the FundPreferred shares that the rate that will apply in an "all hold"
auction is often a lower rate than would apply if holders submit bids, and such
advice, if given, may facilitate the submission of bids by existing holders that
would avoid the occurrence of an "all hold" auction. A Broker-Dealer may, but is
not obligated to, encourage additional or revised investor bidding in order to
prevent an "all-hold" auction.
GENERAL RISKS OF INVESTING IN THE FUND
Limited Operating History. The Fund is a recently organized, diversified,
closed-end management investment company with a limited operating history.
Common Stock Risk. Under normal circumstances, the Fund will allocate its
Managed Assets primarily to the Dividend Growth Equity Strategy consisting of
dividend-paying equity securities that include common stocks. Common stocks
generally represent an ownership interest in an issuer, without preference over
any other class of securities, including such issuer's fixed income securities
and senior equity securities. Although common stocks historically have generated
higher average returns than fixed income securities, common stocks also have
experienced significantly more volatility in those returns. An adverse event,
such as an unfavorable earnings report, may depress the value of a particular
common stock held by the Fund. Also, prices of common stocks are sensitive to
general movements in the stock market and a drop in the stock market may depress
the prices of common stocks held by the Fund or to which it has exposure.
Tax Risk. The tax treatment and characterization of the Fund's
distributions may vary from time to time because of the varied nature of the
Fund's investments. The ultimate tax characterization of the Fund's
distributions made in a calendar year may not finally be determined until after
the end of that calendar year. In addition, there is a possibility that the Fund
may make total distributions during a calendar year in an amount that exceeds
the Fund's net investment income and net realized capital gains for that
calendar year. For example, because of the nature of the Fund's investments, the
Fund may distribute net short-term capital gains early in the calendar year, but
incur net short-term capital losses later in the year, thereby offsetting the
short-term net capital gains for which distributions have already been made by
the Fund. In such a situation, the amount by which the Fund's total
distributions exceed net investment income and net realized capital gains would
generally be treated as a tax-free return of capital up to the amount of the
shareholder's tax basis in his shares, with any amounts exceeding such basis
treated as gain from the sale of his shares. While a portion of the Fund's
distributions may be classified as tax-advantaged dividends, enabling individual
investors who meet holding period and other requirements to receive the benefit
of favorable tax treatment, there can be no assurance as to the percentage of
the Fund's distributions that will be tax-advantaged dividends.
The Fund's investment program and the tax treatment of Fund distributions
may be affected by IRS interpretations of the Code and Treasury Regulations
promulgated thereunder and future changes in tax laws and regulations, including
changes resulting from the "sunset" provisions that currently apply to the
favorable tax treatment of tax-advantaged dividends that would have the effect
of repealing such favored treatment and reimposing higher tax rates applicable
to ordinary income unless further legislative action is taken. The provisions of
the Code applicable to tax-advantaged dividends are effective through 2010.
Thereafter, higher tax rates will
25
apply unless further legislative action is taken by Congress. There can be no
assurances that after 2010 such tax-advantaged dividends will be available to
the Fund and its shareholders.
In addition, in order for otherwise tax-advantaged dividends from the Fund
received by individual shareholders to be taxable at long-term capital gain
rates, a shareholder must hold his or her shares for more than 60 days during
the 121-day period beginning 60 days before the ex-dividend date (or 90 days
during the associated 181-day period in the case of certain preferred shares).
Failure by a shareholder to satisfy the holding period requirements will cause
Fund distributions that otherwise would qualify as tax-advantaged dividends to
be taxable to the shareholder at ordinary income rates.
Non-U.S. Securities Risk. The Fund will invest in securities of non-U.S.
issuers that are U.S. dollar denominated or that are converted into ADRs or
other types of dollar denominated depositary receipts immediately after
purchase. Investments in securities of non-U.S. issuers involve special risks
not presented by investments in securities of U.S. issuers, including the
following: (i) less publicly available information about non-U.S. issuers or
markets due to less rigorous disclosure or accounting standards or regulatory
practices; (ii) many non-U.S. markets are smaller, less liquid and more
volatile, meaning that in a changing market, an Adviser may not be able to sell
the Fund's portfolio securities at times, in amounts and at prices it considers
reasonable; (iii) potential adverse effects of fluctuations in currency exchange
rates or controls on the value of the Fund's investments; (iv) the economies of
non-U.S. countries may grow at slower rates than expected or may experience a
downturn or recession; (v) the impact of economic, political, social or
diplomatic events; (vi) possible seizure, expropriation or nationalization of
the company or its assets; (vii) certain non-U.S. countries may impose
restrictions on the ability of non-U.S. issuers to make payments of principal
and/or interest to investors located outside the U.S., due to blockage of
foreign currency exchanges or otherwise; and (viii) withholding and other non-
U.S. taxes may decrease the Fund's return. These risks are more pronounced to
the extent that the Fund invests a significant amount of its assets in companies
located in one region.
Economies and social and political climates in individual countries may
differ unfavorably from the U.S. Non-U.S. economies may have less favorable
rates of gross domestic product growth, rates of inflation, currency valuation,
capital reinvestment, resource self-sufficiency and balance of payments
positions. Many countries have experienced substantial, and in some cases
extremely high, rates of inflation for many years. Unanticipated economic,
political and social developments may also affect the values of the Fund's
investments and the availability to the Fund of additional investments in such
countries. In addition, risks of investments in emerging market countries, which
may be considered speculative, are usually much greater.
Preferred Securities Risk. Preferred Securities involve credit risk, which
is the risk that a Preferred Security will decline in price or fail to make
dividend payments when due because the issuer of the security experiences a
decline in its financial status. In addition to credit risk, investments in
Preferred Securities involve certain other risks. Certain Preferred Securities
contain provisions that allow an issuer under certain circumstances to skip
distributions (in the case of "non-cumulative" preferred securities) or defer
distributions (in the case of "cumulative" preferred securities). If the Fund
owns a Preferred Security that is deferring its distributions, the Fund may be
required to report income for tax purposes while it is not receiving income from
that security. In certain varying circumstances, an issuer may redeem its
Preferred Securities prior to a specified date in the event of certain tax or
legal changes or at the issuer's call. In the event of a redemption, the Fund
may not be able to reinvest the proceeds at comparable rates of return.
Preferred Securities typically do not provide any voting rights, except in cases
when dividends are in arrears for a specified number of periods. Preferred
Securities are subordinated to bonds and other fixed income instruments in a
company's capital structure in terms of priority to corporate income and
liquidation payments, and therefore will be subject to greater credit risk than
those fixed income instruments.
Concentration Risk. The Fund expects to invest more than 25% of its
Managed Assets in equity securities of companies principally engaged in the
financial services sector. This policy makes the Fund more susceptible to
adverse economic or regulatory occurrences affecting that sector.
A company is "principally engaged" in the financial services sector if it
owns financial services-related assets that constitute at least 50% of its
revenues from providing financial services. Companies in the financial services
sector include commercial banks, industrial banks, savings institutions, finance
companies, diversified financial services companies, investment banking firms,
securities brokerage houses, investment advisory companies,
26
leasing companies, insurance companies and companies providing similar services.
Concentration of investments in the financial services sector includes the
following risks:
- regulatory actions -- financial services companies may suffer a setback
if regulators change the rules under which they operate;
- changes in interest rates -- unstable interest rates can have a
disproportionate effect on the financial services sector;
- concentration of loans -- financial services companies whose securities
the Fund may purchase may themselves have concentrated portfolios, such
as a high level of loans to real estate developers, which makes them
vulnerable to economic conditions that effect that sector; and
- competition -- financial services companies have been effected by
increased competition, which could adversely effect the profitability or
viability of such companies.
Interest Rate Risk. Interest rate risk is the risk that fixed income
securities, such as certain Preferred Securities, will decline in value because
of increases in market interest rates. When market interest rates rise, the
market value of such securities generally will fall.
During periods of declining interest rates, the issuer of certain types of
securities may exercise its option to prepay principal earlier than scheduled,
forcing the Fund to reinvest in lower yielding securities. This is known as call
or prepayment risk. Fixed income securities frequently have call features that
allow the issuer to repurchase the security prior to its stated maturity. An
issuer may redeem an obligation if the issuer can refinance the debt at a lower
cost due to declining interest rates or an improvement in the credit standing of
the issuer. During periods of rising interest rates, the average life of certain
types of securities may be extended because of lower than expected principal
payments. This may lock in a below market interest rate, increase the security's
duration and reduce the value of the security. This is known as extension risk.
The Fund may utilize certain strategies, including taking positions in futures
or interest rate swaps, for the purpose of reducing the interest rate
sensitivity of the Fund's investments in fixed income securities, such as
preferred securities, and decreasing the Fund's exposure to interest rate risk.
The Fund is not required to hedge its exposure to interest rate risk and may
choose not to do so. In addition, there is no assurance that any attempts by the
Fund to reduce interest rate risk will be successful.
Below Investment Grade Risk. The Fund may invest up to 25% of its Managed
Assets in securities that are rated below investment grade. Investments in
securities of below investment grade quality, commonly referred to as "junk
bonds," may involve a substantial risk of loss. Investments in securities of
below investment grade quality are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal when due and therefore
involve a greater risk of default or decline in market value due to adverse
economic and issuer-specific developments. Investments in securities of below
investment grade quality display increased price sensitivity to changing
interest rates and to a deteriorating economic environment. The market values
for fixed income investments in securities of below investment grade quality
tend to be more volatile and such investments tend to be less liquid than
investment grade securities.
Call Option Risk. As the seller of call options on various equity market
indices, the Fund creates the potential for a liability to the extent the index
or the basket of securities underlying a call option appreciates to a level
above the strike price. Therefore, the Fund may not fully participate in any
appreciation of the dividend-paying common stocks held pursuant to the Dividend
Growth Equity Strategy as would the Fund if it did not write index call options
or call options on baskets of securities. As a result, the Fund's performance
may be lower than the actual aggregate performance of the Dividend Growth Equity
Strategy. In addition, the Fund will continue to bear the risk of declines in
the value of the dividend paying equity securities that serve as collateral for
the written options. The extent of the Fund's exposure to call option risk will
vary depending on the degree to which index call options or call options on
baskets of securities are written. In addition, the value of any index call
options or call options on baskets of securities written by the Fund, which will
be priced daily, will be affected by, among other things, changes in the value
of the index or baskets of securities underlying the options and the remaining
time to the options' expiration. Moreover, the returns of the Dividend Growth
Equity Strategy may be less than the returns of the index underlying the index
call options or the returns of the baskets of securities underlying the call
options on securities written by the Fund, and thus may not serve to hedge
completely the Fund's liabilities under such options. The extent of the
27
Fund's call option writing activity will depend on market conditions and an
ongoing assessment by NAM of the attractiveness (from a risk/reward standpoint)
of writing call options.
The Fund generally will write index call options in exchange-traded
transactions, but may write options sold in OTC transactions. The value of call
options traded on exchanges can be adversely affected if the market for the
options becomes less liquid or smaller. Exchanges may suspend trading of options
in volatile markets, which may also adversely affect a counterparty's
willingness to enter into OTC transactions. If trading is suspended, the Fund
may be unable to write options at times that may be desirable or advantageous
for the Fund to do so. Trading suspensions may limit the Fund's ability to
achieve its investment objective. To the extent call options are sold in OTC
transactions, the Fund will be exposed to the risk that counterparties to these
transactions, for whatever reason, will be unable to meet their obligations
under the arrangements, which generally will be equal to the amount, if any, by
which the Fund's positions are "in-the-money." The Fund may have contractual
remedies pursuant to an option contract, but there is no guarantee that the Fund
would be successful in pursuing them. The Fund thus assumes the risk that it
will be delayed or prevented from obtaining payments that it is owed by a
defaulting counterparty. NAM may not be able to negotiate OTC options on custom
baskets at times and at prices suitable to the Fund.
Because the Fund intends to write index call options and call options on
baskets of securities, the Fund may incur certain fees and expenses that are not
applicable to (and not reflected in the performance of) a portfolio consisting
solely of dividend-paying equity securities, Preferred Securities and other
fixed income securities, such as, among others, the transaction costs associated
with writing the call options. Additionally, because writing index call options
or call options on baskets of securities creates the potential for a liability
to the extent the index or baskets of securities underlying the call options
written by the Fund appreciate to a level above the strike price, an investment
in the Fund is not the same as an investment linked to an index, the securities
underlying the index or the securities underlying the baskets of securities.
NAM may not be successful in writing call options. As a result of the
foregoing considerations, writing index call options may not enhance risk-
adjusted returns or offset Dividend Growth Equity Strategy losses, if any.
Line of Credit Risk. The Fund also may borrow up to approximately 3% of
its Managed Assets from banks pursuant to a line of credit for cash management
purposes for periods of up to 60 days. In addition to the risks of Borrowings
described under "-- Risks of Investing in FundPreferred Shares -- Leverage
Risk," the costs associated with such Borrowings may reduce the Fund's returns.
Mid-Cap Company Risk. The Fund may invest in companies whose market
capitalization is considered middle-sized or "mid-cap." Mid-cap companies often
are newer or less established companies than larger capitalization companies.
Investments in mid-cap companies carry additional risks because earnings of
these companies tend to be less predictable; they often have limited product
lines, markets, distribution channels or financial resources; and the management
of such companies may be dependent upon one or a few key people. The market
movements of equity securities of mid-cap companies may be more abrupt or
erratic than the market movements of equity securities of larger, more
established companies or the stock market in general. Historically, mid-cap
companies have sometimes gone through extended periods when they did not perform
as well as larger companies. In addition, equity securities of mid-cap companies
generally are less liquid than those of larger companies. This means that the
Fund could have greater difficulty selling such securities at the time and price
that the Fund would like.
Illiquid Securities Risk. The Fund may invest in securities and other
instruments that, at the time of investment, are illiquid. Illiquid securities
are securities that are not readily marketable and may include some restricted
securities, which are securities that may not be resold to the public without an
effective registration statement under the Securities Act or, if they are
unregistered, may be sold only in a privately negotiated transaction or pursuant
to an exemption from registration. Illiquid securities involve the risk that the
securities will not be able to be sold at the time desired by the Fund or at
prices approximating the value at which the Fund is carrying the securities on
its books.
Derivatives Risk. The Fund's use of derivatives, such as call options,
total return and interest rate swaps, futures and forward contracts, involves
risks different from, and possibly greater than, the risks associated with
investing directly in the investments underlying the derivatives. Whether the
Fund's use of derivatives is successful
28
will depend on, among other things, if the Advisers correctly forecast market
movements, changes in non-U.S. exchange and interest rates, and other factors.
If the Advisers incorrectly forecast these and other factors, the Fund could
underperform. Utilization of derivatives contracts also involves the risk of
imperfect correlation in movements in the values of these derivatives and
movements in the value of the underlying securities. In addition, any increase
or decrease in the value of the derivatives contracts may not be sufficient to
generate returns in excess of the transaction costs to the Fund of entering into
the transactions. The derivatives market is largely unregulated. It is possible
that developments in the derivatives market, including potential government
regulation, could adversely affect the Fund's ability to terminate existing
contracts or to realize amounts to be received under such contracts.
Convertible Security Risk. Convertible securities generally offer lower
interest or dividend yields than non-convertible fixed-income securities of
similar credit quality because of the potential for capital appreciation. The
market values of convertible securities tend to decline as interest rates
increase and, conversely, to increase as interest rates decline. However, a
convertible security's market value also tends to reflect the market price of
the common stock of the issuing company, particularly when the stock price is
greater than the convertible security's conversion price. The conversion price
is defined as the predetermined price or exchange ratio at which the convertible
security can be converted or exchanged for the underlying common stock. As the
market price of the underlying common stock declines below the conversion price,
the price of the convertible security tends to be increasingly influenced more
by the yield of the convertible security than by the market price of the
underlying common stock.
Market Disruption Risk. Certain events have a disruptive effect on the
securities markets, such as terrorist attacks (including the terrorist attacks
in the U.S. on September 11, 2001), war and other geopolitical events. The Fund
cannot predict the effects of similar events in the future on the U.S. economy.
Inflation Risk. Inflation risk is the risk that the value of assets or
income from investment will be worth less in the future as inflation decreases
the value of money.
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
defaults more likely, which may result in a decline in the value of the Fund's
portfolio.
Certain Affiliations. Certain broker-dealers may be considered to be
affiliated persons of the Fund, NAM, Santa Barbara and NWQ, and/or Nuveen.
Absent an exemption from the Securities and Exchange Commission or other
regulatory relief, the Fund is generally precluded from effecting certain
principal transactions with affiliated brokers, and its ability to purchase
securities being underwritten by an affiliated broker or a syndicate including
an affiliated broker, or to utilize affiliated brokers for agency transactions,
is subject to restrictions. This could limit the Fund's ability to engage in
securities transactions and take advantage of market opportunities. See also
"Management of the Fund -- Investment Adviser and Subadvisers."
New Types of Securities. New types of securities that pay tax-advantaged
dividends, including Preferred Securities having features other than those
described herein, may be offered in the future. The Fund reserves the right to
invest in these securities if the Subadviser responsible for the investment
believes that doing so would be consistent with the Fund's investment objective
and policies. Because the market for these instruments would be new, the Fund
may have difficulty disposing of them at a suitable price and time. In addition
to limited liquidity, these instruments may present other risks, such as high
price volatility.
Anti-Takeover Provisions. The Declaration and By-laws 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. See "Certain Provisions in the
Declaration of Trust and By-Laws."
29
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Board of Trustees is responsible for the management of the Fund,
including supervision of the duties performed by the Advisers. The names and
business addresses of the trustees and officers of the Fund and their principal
occupations and other affiliations during the past five years are set forth
under "Management of the Fund" in the SAI.
INVESTMENT ADVISER AND SUBADVISERS
NAM will be responsible for the Fund's overall investment strategy and its
implementation, including allocating the portion of the Fund's Managed Assets to
be invested in the Dividend Growth Equity Strategy and the Income-Oriented
Strategy. NAM also will be responsible for the writing of call options. NAM also
is responsible for the selection of the Subadvisers and ongoing monitoring of
the Subadvisers, managing the Fund's business affairs and providing certain
clerical, bookkeeping and other administrative services.
NAM, 333 West Wacker Drive, Chicago, Illinois 60606, a registered
investment adviser, is a wholly owned subsidiary of Nuveen Investments. Founded
in 1898, Nuveen Investments and its affiliates had approximately $172 billion of
assets under management as of June 30, 2007. Nuveen Investments is a publicly-
traded company. NAM had approximately $88 billion in assets under management as
of June 30, 2007. At such time as the Fund receives an exemptive order
permitting it to do so, or as otherwise permitted by the 1940 Act or the rules
thereunder, the Fund may, without obtaining approval of the shareholders, retain
an unaffiliated subadviser to perform some or all of the portfolio management
functions on the Fund's behalf.
Rob A. Guttschow, CFA, has been a Managing Director and Derivative Overlay
Manager at NAM since May 2004. Mr. Guttschow received his B.S. and his M.B.A.
from the University of Illinois at Urbana/Champaign and is a member of the CFA
Society of Chicago. He is responsible for developing and implementing
derivatives-based hedging strategies for NAM. Prior to joining NAM, Mr.
Guttschow was a Managing Director and Senior Portfolio Manager at Lotsoff
Capital Management ("LCM"). While at LCM, Mr. Guttschow managed a variety of
taxable fixed income portfolios and enhanced equity index products totaling $1.5
billion. He has served as a member of the TRIAD group for the CFA Society of
Chicago.
John A. Gambla, CFA, FRM, has been a Vice President, Senior Quantitative
Portfolio Manager at NAM, since February 2007, responsible for designing and
managing equity and alternative investment portfolios. Mr. Gambla received his
B.A. and his B.S. from the University of Illinois at Urbana/Champaign. He
received his M.B.A. from the University of Chicago and is a member of the CFA
Society of Chicago. Prior to his current position, Mr. Gambla was a Senior
Trader and Quantitative Specialist for NAM (since 2003), and a portfolio manager
for Nuveen's closed-end fund managed account. Mr. Gambla joined Nuveen in 1992
as an Assistant Portfolio Manager.
On June 20, 2007, Nuveen Investments announced that it had entered into a
definitive Agreement and Plan of Merger ("Merger Agreement") to be acquired by
investors led by Madison Dearborn Partners, LLC. Madison Dearborn Partners, LLC
is a private equity investment firm based in Chicago, Illinois. The merger is
expected to be completed by the end of the year, subject to customary
conditions, including obtaining the approval of Nuveen Investments' stockholders
and obtaining necessary fund and client consents sufficient to satisfy the terms
of the Merger Agreement. There can be no assurance that the merger described
above will be consummated as contemplated or that shareholder approval will be
obtained.
The consummation of the merger will be deemed to be an "assignment" (as
defined in the 1940 Act) of the investment management agreement between the Fund
and NAM and the investment sub-advisory agreements between NAM and each of Santa
Barbara and NWQ, and will result in the automatic termination of each agreement.
The Board of Trustees of the Fund has approved a new investment management
agreement with NAM and investment sub-advisory agreements with each of Santa
Barbara and NWQ. The new agreements are expected to be presented to the Fund's
shareholders for approval at a shareholders' meeting scheduled for October 12,
2007 and, if approved by shareholders, would take effect upon consummation of
the merger or such later time as shareholder
30
approval is obtained. The record date for the shareholders' meeting is August 1,
2007 and as a result, holders of the FundPreferred shares will not be entitled
to vote on the approval of these agreements.
The investors led by Madison Dearborn Partners, LLC include an affiliate of
Merrill Lynch. Upon consummation of the merger, it is anticipated that Merrill
Lynch will be an indirect "affiliated person" (as that term is defined in the
1940 Act) of the Fund. As a result, the Fund would then generally be prohibited
from entering into principal transactions with Merrill Lynch and certain of its
affiliates. NAM does not believe that any such prohibition or limitation would
have a materially adverse effect on the Fund's ability to pursue its investment
objective and policies.
SANTA BARBARA
Santa Barbara, 200 E. Carrillo Street, Santa Barbara, California 93101, is
the Fund's subadviser responsible for managing the Fund's Dividend Growth Equity
Strategy, subject to the oversight of NAM and the Fund's Board of Trustees.
Santa Barbara, a registered investment adviser, is a wholly owned
subsidiary of Nuveen. Founded in 1987, Santa Barbara had approximately $5
billion in assets under management as of June 30, 2007. Nuveen Investments
purchased Santa Barbara in October 2005. Santa Barbara is organized as a
Delaware member-managed limited liability company, with Nuveen Investments as
its sole managing member. Prior to its acquisition by Nuveen Investments, Santa
Barbara was owned by the principals of the firm. Santa Barbara specializes in
fundamental, bottom-up research to select growth companies. Santa Barbara also
serves as subadviser to one open-end mutual fund, the Nuveen Santa Barbara
Dividend Growth Fund (NSBAX), that employs a similar strategy used by the Fund
in the Dividend Growth Equity Strategy.
James Boothe, CFA, joined Santa Barbara in 2002 as a Portfolio Manager. His
investment management career began in 1978. His prior affiliations include: USAA
Investment Management Co., San Juan Asset Management, Bradford & Marzec, and
Farmers Insurance Group. He earned a BBA in Finance from Kent State University
and an MBA from Loyola Marymount University.
NWQ
NWQ, 2049 Century Park East, 4th Floor, Los Angeles, California, 90067, is
the Fund's Subadviser responsible for managing the portion of the Fund's Managed
Assets allocated to the Income-Oriented Strategy, subject to the oversight of
NAM and the Fund's Board of Trustees. NWQ is a subsidiary of Nuveen. Nuveen owns
a controlling interest of NWQ and key management owns a non-controlling minority
interest. NWQ specializes in the management of value-oriented equity portfolios
across all capitalization ranges. NWQ, a registered investment adviser, and its
predecessors commenced operations in 1982 and had approximately $38.6 billion in
assets under management as of June 30, 2007.
Michael Carne, CFA, is a Managing Director and Portfolio Manager at NWQ.
Prior to joining NWQ in 2002, Mr. Carne managed institutional and private client
fixed income and balanced portfolios for over ten years. During this time, he
held assignments as Director of Global Fixed Income at ING Aeltus, as Chief
Investment Officer of a Phoenix Home Life affiliate and was a principal in
Carne, O'Brient, Ferry & Roth, LLC, and Standard Asset Management. At NWQ, he is
head of taxable fixed income and preferred securities portfolio management. Mr.
Carne graduated from the University of Massachusetts with a BBA degree in
Finance and received his MBA from Harvard University.
Additional information about the portfolio managers' compensation, other
accounts managed by them and other information is provided in the SAI. The SAI
is available free of charge by calling (800) 257-8787 or by visiting Nuveen's
website at www.nuveen.com.
31
INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an investment management agreement between NAM and the Fund,
the Fund has agreed to pay an annual management fee for the services and
facilities provided by NAM, payable on a monthly basis, based on the sum of a
fund-level fee and a complex-level fee, as described below, according to the
following schedule:
FUND-LEVEL FEE. The fund-level fee shall be applied according to the
following schedule:
FUND-LEVEL
FUND-LEVEL AVERAGE DAILY MANAGED ASSETS FEE RATE
--------------------------------------- ----------
Up to $500 million............................................ 0.8000%
$500 million to $1 billion.................................... 0.7750%
$1 billion to $1.5 billion.................................... 0.7500%
$1.5 billion to $2 billion.................................... 0.7250%
$2 billion and over........................................... 0.7000%
COMPLEX-LEVEL FEE. The complex-level fee shall be applied according to the
following schedule:
EFFECTIVE
RATE AT
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL(1) BREAKPOINT LEVEL
--------------------------------------- ----------------
$55 billion................................................ 0.2000%
$56 billion................................................ 0.1996%
$57 billion................................................ 0.1989%
$60 billion................................................ 0.1961%
$63 billion................................................ 0.1931%
$66 billion................................................ 0.1900%
$71 billion................................................ 0.1851%
$76 billion................................................ 0.1806%
$80 billion................................................ 0.1773%
$91 billion................................................ 0.1691%
$125 billion............................................... 0.1599%
$200 billion............................................... 0.1505%
$250 billion............................................... 0.1469%
$300 billion............................................... 0.1445%
-------
(1) Complex-level Managed Assets are the aggregate Managed Assets of all
Nuveen-branded closed-end and open-end registered investment companies
organized in the U.S., including assets attributable to the issuance of
preferred stock or the issuance of borrowings by the Nuveen Funds.
Complex-level Managed Assets were approximately $73.5 billion as of June
30, 2007.
32
In addition to NAM's management fee, the Fund pays all other costs and
expenses of its operations, including compensation of its trustees (other than
those affiliated with NAM), custodian, transfer agency and dividend disbursing
expenses, legal fees, expenses of independent registered accounting firm,
expenses of repurchasing shares, expenses associated with any Borrowings,
expenses of issuing any FundPreferred 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 distributions to shareholders.
The basis for the Board of Trustee's initial approval of the Fund's
investment management agreement and the investment subadvisory agreements will
be provided in the Fund's initial shareholder report. The basis for subsequent
continuations of the Fund's investment management agreement and the subadvisory
agreements will be provided in annual or semi-annual reports to shareholders for
the periods during which such continuations occur.
SANTA BARBARA SUBADVISORY FEE. Pursuant to an investment subadvisory
agreement between NAM and Santa Barbara, Santa Barbara will receive from NAM a
management fee based on the Fund's daily Managed Assets managed by Santa
Barbara, payable on a monthly basis:
MANAGEMENT
AVERAGE DAILY MANAGED ASSETS FEE RATE
---------------------------- ----------
Up to $125 million............................................ 0.4000%
$125 million to $250 million.................................. 0.3875%
$250 million to $500 million.................................. 0.3750%
$500 million to $1 billion.................................... 0.3625%
$1 billion to $2 billion...................................... 0.3500%
Over $2 billion............................................... 0.3250%
NWQ SUBADVISORY FEE. Pursuant to an investment subadvisory agreement
between NAM and NWQ, NWQ will receive from NAM a management fee based on the
Fund's daily Managed Assets managed by NWQ, payable on a monthly basis, equal to
0.3250% of the Fund's average daily Managed Assets.
DESCRIPTION OF FUNDPREFERRED SHARES
The following is a brief description of the terms of FundPreferred shares.
This description does not purport to be complete and is subject to and qualified
in its entirety by reference to the more detailed description of FundPreferred
shares in the Fund's Statement, a form of which is attached as Appendix A to the
SAI. Capitalized terms not otherwise defined in the Prospectus shall have the
same meaning as defined in the Statement.
The Fund's Declaration of Trust authorizes the issuance of an unlimited
number of preferred shares, par value $0.01 per share, in one or more classes or
series, with rights as determined by the Board of Trustees without the approval
of Common Shareholders. The Statement currently authorizes the issuance of
FundPreferred shares Series T. The FundPreferred shares have a liquidation
preference of $25,000 per share, plus all accumulated but unpaid dividends
(whether or not earned or declared) to the date of final distribution. The
FundPreferred shares when issued and sold through this offering (i) will be
fully paid and, subject to matters discussed in "Certain Provisions in the
Declaration of Trust and By-Laws," non-assessable, (ii) will not be convertible
into common shares or other capital stock of the Fund, (iii) will have no
preemptive rights, and (iv) will not be subject to any sinking fund. The
FundPreferred shares will be subject to optional and mandatory redemption as
described below under "-- Redemption."
Holders of FundPreferred shares will not receive certificates representing
their ownership interest in such shares. DTC will initially act as Securities
Depository for the Agent Members with respect to the FundPreferred shares.
In addition to serving as the Auction Agent in connection with the Auction
Procedures described below, the Auction Agent will act as the transfer agent,
registrar, and paying agent for the FundPreferred shares. Furthermore, the
Auction Agent will send notices to holders of FundPreferred shares of any
meeting at which holders of
33
FundPreferred shares have the right to vote. See "-- Voting Rights" below.
However, the Auction Agent generally will serve merely as the agent of the Fund,
acting in accordance with the Fund's instructions.
Except in an Auction, the Fund will have the right (to the extent permitted
by applicable law) to purchase or otherwise acquire any share of FundPreferred
shares, so long as the Fund is current in the payment of dividends on the
FundPreferred shares and on any other capital shares of the Fund ranking on a
parity with the FundPreferred shares with respect to the payment of dividends or
upon liquidation.
DIVIDENDS AND DIVIDEND PERIODS
General. Holders of FundPreferred shares will be entitled to receive,
when, as and if declared by the Board of Trustees, out of funds legally
available therefor, cumulative cash dividends on their shares, at the Applicable
Rate determined as set forth below under "-- Determination of Dividend Rate,"
payable on the respective dates set forth below. Dividends so declared and
payable shall be paid to the extent permitted under Massachusetts law and the
Declaration of Trust, and to the extent available and in preference to and
priority over any dividend declared and payable on the common shares.
On the Business Day next preceding each Dividend Payment Date, the Fund is
required to deposit with the Paying Agent sufficient funds for the payment of
dividends. The Fund does not intend to establish any reserves for the payment of
dividends.
All moneys paid to the Paying Agent for the payment of dividends shall be
held in trust for the payment of such dividends to the Holders. Each dividend
will be paid by the Paying Agent to the Holders as their names appear on the
share ledger or share records of the Fund, which Holder is expected to be the
nominee of the Securities Depository. The Securities Depository will credit the
accounts of the Agent Members of the beneficial owners in accordance with the
Securities Depository's normal procedures. The Securities Depository's current
procedures provide for it to distribute dividends in same-day funds to Agent
Members who are in turn expected to distribute such dividends to the persons for
whom they are acting as agents. The Agent Member of a beneficial owner will be
responsible for holding or disbursing such payments on the applicable Dividend
Payment Date to such beneficial owner in accordance with the instructions of
such beneficial owner.
Dividends in arrears for any past Dividend Period may be declared and paid
at any time, without reference to any regular Dividend Payment Date, to the
Holders as their names appear on the share ledger or share records of the Fund
on such date, not exceeding 15 days preceding the payment date thereof, as may
be fixed by the Board of Trustees. Any dividend payment shall first be credited
against the earliest accumulated but unpaid dividends. No interest will be
payable in respect of any dividend payment or payments which may be in arrears.
See "-- Default Period" below.
The amount of dividends per share payable (if declared) on each Dividend
Payment Date of each Dividend Period of less than one year (or in respect of
dividends on another date in connection with a redemption during such Dividend
Period) shall be computed by multiplying the Applicable Rate (or the Default
Rate) for such Dividend Period (or a portion thereof) by a fraction, the
numerator of which will be the number of days in such Dividend Period (or
portion thereof) that such share was outstanding and for which the Applicable
Rate or the Default Rate was applicable and the denominator of which will be
365, multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest cent. During any Dividend Period of one year or more,
the amount of dividends per share payable on any Dividend Payment Date (or in
respect of dividends on another date in connection with a redemption during such
Dividend Period) shall be computed as described in the preceding sentence,
except that it will be determined on the basis of a year consisting of twelve 30
day months.
Determination of Dividend Rate. The dividend rate for the initial Dividend
Period (i.e., the period from and including the Date of Original Issue to and
including the initial Auction Date) and the initial Auction Date are set forth
on the inside cover page of the Prospectus. For each subsequent Dividend Period,
subject to certain exceptions, the dividend rate will be the Applicable Rate
that the Auction Agent advises the Fund has resulted from an Auction.
The initial Dividend Period for the FundPreferred shares shall be
days. Dividend Periods after the initial Dividend Period shall either be
Standard Dividend Periods or, subject to certain conditions and with notice to
Holders, Special Dividend Periods.
34
A Special Dividend Period will not be effective unless Sufficient Clearing
Bids exist at the Auction in respect of such Special Dividend Period (that is,
in general, the number of shares subject to Buy Orders by Potential Holders is
at least equal to the number of shares subject to Sell Orders by Existing
Holders).
Dividends will accumulate at the Applicable Rate from the Date of Original
Issue and shall be payable on each Dividend Payment Date thereafter. For
Dividend Periods of less than 30 days, Dividend Payment Dates shall occur on the
first Business Day following such Dividend Period and, if greater than 30 days,
then on a monthly basis on the first Business Day of each month within such
Dividend Period and on the Business Day following the last day of such Dividend
Period. Dividends will be paid through the Securities Depository on each
Dividend Payment Date.
Except during a Default Period as described below, the Applicable Rate
resulting from an Auction will not be greater than the Maximum Rate. The Maximum
Rate will be the higher of the Applicable Percentage of the Reference Rate, or
the Applicable Spread plus the Reference Rate. The Reference Rate will be the
applicable LIBOR Rate (as defined below) (for a Dividend Period of fewer than
365 days) or the Treasury Index Rate (as defined below) (for a Dividend Period
of 365 days or more). The Applicable Percentage and Applicable Spread for any
Standard Dividend Period will generally be determined based on the credit
ratings assigned to the FundPreferred shares by S&P and Moody's on the Auction
Date for such period. If S&P and/or Moody's shall not make such rating
available, the rate shall be determined by reference to equivalent ratings
issued by any Other Rating Agency.
S&P CREDIT RATING MOODY'S CREDIT RATING APPLICABLE PERCENTAGE APPLICABLE SPREAD
----------------- --------------------- --------------------- -----------------
AAA Aaa 125% 125 bps
The "LIBOR Rate" is the applicable London Inter-Bank Offered Rate for
deposits in U.S. dollars for the period most closely approximating the
applicable Dividend Period for a Series of FundPreferred shares.
The "Treasury Index Rate" is the average yield to maturity for certain U.S.
Treasury securities having substantially the same length to maturity as the
applicable dividend period for a Series of FundPreferred shares.
Assuming the Fund maintains an AAA/Aaa rating on the FundPreferred shares,
the practical effect of the different methods used to calculate the Maximum Rate
is shown in the table below:
MAXIMUM APPLICABLE METHOD USED TO
RATE USING THE MAXIMUM APPLICABLE DETERMINE THE
APPLICABLE RATE USING THE MAXIMUM APPLICABLE
REFERENCE RATE PERCENTAGE APPLICABLE SPREAD RATE
-------------- ------------------ ------------------ ------------------
1%............................. 1.25% 2.25% Spread
2%............................. 2.50% 3.25% Spread
3%............................. 3.75% 4.25% Spread
4%............................. 5.00% 5.25% Spread
5%............................. 6.25% 6.25% Either
6%............................. 7.50% 7.25% Percentage
The Board of Trustees may amend the Maximum Rate to increase the percentage
amount by which the Reference Rate described above is multiplied, or to increase
the spread added to the Reference Rate, to determine the Maximum Rate shown
without the consent of the holders of FundPreferred shares, including each
Series, or any shareholder of the Fund, but only with confirmation from each
Rating Agency then rating the FundPreferred shares that such action will not
impair such agency's then-current rating of the FundPreferred shares, and after
consultation with the Broker-Dealers, provided that immediately following any
such increase the Fund could meet the FundPreferred Shares Basic Maintenance
Amount test discussed below under "-- Asset Maintenance."
The Maximum Rate for the FundPreferred shares will apply automatically
following an Auction for such shares in which Sufficient Clearing Bids have not
been made (other than because all shares of FundPreferred shares were subject to
Submitted Hold Orders) or following the failure to hold an Auction for any
reason on the Auction Date scheduled to occur (except for circumstances in which
the Dividend Rate is the Default Rate, as described below).
35
The All Hold Rate will apply automatically following an Auction in which
all of the outstanding shares are subject to (or are deemed to be subject to)
Submitted Hold Orders. The All Hold Rate is 80% of the applicable Reference
Rate.
Prior to each Auction, Broker-Dealers will notify Holders of the term of
the next succeeding Dividend Period as soon as practicable after the Broker-
Dealers have been so advised by the Fund. After each Auction, Broker-Dealers
will advise Holders of the Applicable Rate for the next succeeding Dividend
Period and of the Auction Date of the next succeeding Auction.
Notification of Dividend Period. The Fund will designate the duration of
Dividend Periods of the FundPreferred shares; provided, however, that no such
designation is necessary for a Standard Dividend Period and that any designation
of a Special Dividend Period shall be effective only if (i) notice thereof shall
have been given as provided herein, (ii) any failure to pay in the timely manner
to the Auction Agent the full amount of any dividend on, or the redemption price
of, the FundPreferred shares shall have been cured as set forth under
"-- Default Period," (iii) Sufficient Clearing Bids shall have existed in an
Auction held on the Auction Date immediately preceding the first day of such
proposed Special Dividend Period, (iv) if the Fund shall have mailed a notice of
redemption with respect to any shares, as described under "-- Redemption" below,
the Redemption Price with respect to such shares shall have been deposited with
the Paying Agent, and (v) the Fund has confirmed that, as of the Auction Date
next preceding the first day of such Special Dividend Period, it satisfies the
FundPreferred Shares Basic Maintenance Amount (as defined below) and has
consulted with the Broker-Dealers and has provided notice and otherwise complied
with any Rating Agency Guidelines.
If the Fund proposes to designate any Special Dividend Period, not fewer
than seven (7) (or two (2) Business Days in the event the duration of the
Dividend Period prior to such Special Dividend Period is fewer than eight (8)
days) nor more than 30 days prior to the first day of such Special Dividend
Period, notice shall be (i) made by press release and (ii) communicated by the
Fund by telephonic or other means to the Auction Agent and confirmed in writing
promptly thereafter. Each such notice shall state (A) that the Fund proposes to
exercise its option to designate a succeeding Special Dividend Period,
specifying the first and last days thereof and (B) that the Fund will, by 3:00
p.m. New York City time, on the second Business Day next preceding the first day
of such Special Dividend Period, notify the Auction Agent, who will promptly
notify the Broker-Dealers, of either (x) its determination, subject to certain
conditions, to proceed with such Special Dividend Period, subject to the terms
of any Specific Redemption Provisions, or (y) its determination not to proceed
with such Special Dividend Period in which latter event the succeeding Dividend
Period shall be a Standard Dividend Period.
No later than 3:00 p.m., New York City time, on the second Business Day
next preceding the first day of any proposed Special Dividend Period, the Fund
shall deliver to the Auction Agent, who will promptly deliver to the Broker-
Dealers and Existing Holders, either:
(i) a notice stating (A) that the Fund has determined to designate the
next succeeding Dividend Period as a Special Dividend Period, specifying
the first and last days thereof and (B) the terms of any Specific
Redemption Provisions; or
(ii) a notice stating that the Fund has determined not to exercise its
option to designate a Special Dividend Period.
If the Fund fails to deliver either such notice with respect to any
designation of any proposed Special Dividend Period to the Auction Agent or is
unable to make the required confirmation described above by 3:00 p.m., New York
City time, on the second Business Day next preceding the first day of such
proposed Special Dividend Period, the Fund shall be deemed to have delivered a
notice to the Auction Agent with respect to such Dividend Period to the effect
set forth in clause (ii) above, thereby resulting in a Standard Dividend Period.
Default Period. Subject to cure provisions, a "Default Period" with
respect to a particular Series will commence on any date the Fund fails to
deposit irrevocably in trust in same-day funds, with the Paying Agent by 12:00
noon, New York City time, (A) the full amount of any declared dividend on that
Series payable on the Dividend Payment Date (a "Dividend Default") or (B) the
full amount of any redemption price (the "Redemption Price") payable on the date
fixed for redemption (the "Redemption Date") (a "Redemption Default") and
together with a Dividend Default, hereinafter referred to as "Default"). Subject
to cure provisions, a Default Period with respect to a Dividend Default or a
Redemption Default shall end on the Business Day on which, by 12:00 noon,
36
New York City time, all unpaid dividends and any unpaid Redemption Price shall
have been deposited irrevocably in trust in same-day funds with the Paying
Agent. In the case of a Dividend Default, the Applicable Rate for each Dividend
Period commencing during a Default Period will be equal to the Default Rate, and
each subsequent Dividend Period commencing after the beginning of a Default
Period shall be a Standard Dividend Period; provided, however, that the
commencement of a Default Period will not by itself cause the commencement of a
new Dividend Period. No Auction shall be held during a Default Period with
respect to a Dividend Default applicable to that Series of FundPreferred shares.
No Default Period with respect to a Dividend Default or Redemption Default shall
be deemed to commence if the amount of any dividend or any Redemption Price due
(if such default is not solely due to the willful failure of the Fund) is
deposited irrevocably in trust, in same-day funds with the Paying Agent by 12:00
noon, New York City time within three Business Days after the applicable
Dividend Payment Date or Redemption Date, together with an amount equal to the
Default Rate applied to the amount of such non-payment based on the actual
number of days comprising such period divided by 365 for each series. The
Default Rate shall be equal to the Reference Rate multiplied by three (3).
Subject to the foregoing, and any requirements of Massachusetts law, to the
extent that the Fund's investment company taxable income for any taxable year
(determined without regard to the deduction for dividends paid by the Fund)
exceeds any current or accumulated dividends on the FundPreferred shares, the
Fund intends to distribute such excess investment company taxable income to the
holders of the common shares. The term "investment company taxable income," as
it is defined in the Code, includes interest, dividends, net short-term capital
gains and other income received or accrued less the advisory fee, bank custodian
charges, taxes (except capital gains taxes) and other expenses properly
chargeable against income, but generally does not include net capital gain
(defined as the excess of net long-term capital gains over net short-term
capital losses and capital loss carryovers from prior periods), dividends paid
in shares of stock, transfer taxes, brokerage or other capital charges or
distributions designated as a return of capital. The Fund also intends to
distribute any realized net capital gain annually to the holders of the common
shares (subject to the prior rights of the holders of the FundPreferred shares)
subject to the foregoing and any requirements of Massachusetts law. Each year,
the Fund will allocate ordinary income dividends, capital gain distributions,
dividends qualifying for the corporate "dividends received deduction" and
"qualified dividend income," between its common shares and FundPreferred shares
in proportion to the total dividends paid to each class during or with respect
to such year. See "Federal Income Tax Matters -- Federal Income Tax Treatment of
Holders of FundPreferred Shares."
RESTRICTIONS ON DIVIDEND, REDEMPTION AND OTHER PAYMENTS
Under the 1940 Act, the Fund may not (i) declare any dividend with respect
to the FundPreferred shares if, at the time of such declaration (and after
giving effect thereto), asset coverage with respect to any Borrowings of the
Fund that are senior securities representing indebtedness (as defined in the
1940 Act), would be less than 200% (or such other percentage as may in the
future be specified in or under the 1940 Act as the minimum asset coverage for
senior securities representing indebtedness of a closed-end investment company
as a condition of declaring dividends on its preferred shares) or (ii) declare
any other distribution on the FundPreferred shares or purchase or redeem
FundPreferred shares if at the time of the declaration (and after giving effect
thereto), asset coverage with respect to such Borrowings that are senior
securities representing indebtedness would be less than 300% (or such higher
percentage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities representing indebtedness of a
closed-end investment company as a condition of declaring distributions,
purchases or redemptions of its shares of beneficial interest). "Senior
securities representing indebtedness" generally means any bond, debenture, note
or similar obligation or instrument constituting a security (other than shares
of beneficial interest) and evidencing indebtedness and could include the Fund's
obligations under any Borrowings. For purposes of determining asset coverage for
senior securities representing indebtedness in connection with the payment of
dividends or other distributions on or purchases or redemptions of stock, the
term "senior security" does not include any promissory note or other evidence of
indebtedness issued in consideration of any loan, extension or renewal thereof,
made by a bank or other person and privately arranged, and not intended to be
publicly distributed. The term "senior security" also does not include any such
promissory note or other evidence of indebtedness in any case where such a loan
is for temporary purposes only and in an amount not exceeding 5% of the value of
the total assets of the Fund at the time when the loan is made; a loan is
presumed under the 1940 Act to be for temporary purposes if it is repaid within
60 days and is not extended or renewed; otherwise it
37
is presumed not to be for temporary purposes. For purposes of determining
whether the 200% and 300% asset coverage requirements described above apply in
connection with dividends or distributions on or purchases or redemptions of
FundPreferred shares, such asset coverages may be calculated on the basis of
values calculated as of a time within 48 hours (not including Sundays or
holidays) next preceding the time of the applicable determination.
In addition, a declaration of a dividend or other distribution on or
purchase or redemption of FundPreferred shares may be prohibited (i) at any time
that an event of default under any Borrowings has occurred and is continuing; or
(ii) after giving effect to such declaration, the Fund would not have eligible
portfolio holdings with an aggregated Discounted Value at least equal to any
asset coverage requirements associated with such Borrowings; or (iii) the Fund
has not redeemed the full amount of Borrowings, if any, required to be redeemed
by any provision for mandatory redemption.
Upon failure to pay dividends for two years or more, the holders of
FundPreferred shares will acquire certain additional voting rights. See
"-- Voting Rights" below. Such rights shall be the exclusive remedy of the
holders of FundPreferred shares upon any failure to pay dividends on the
FundPreferred shares.
For so long as any FundPreferred shares are outstanding, except in
connection with the liquidation of the Fund, or a refinancing of the
FundPreferred shares as provided in the Statement, the Fund will not declare,
pay or set apart for payment any dividend or other distribution (other than a
dividend or distribution paid in shares of, or options, warrants or rights to
subscribe for or purchase, common shares or other shares of beneficial interest,
if any, ranking junior to the FundPreferred shares as to dividends or upon
liquidation) in respect to common shares or any other shares of the Fund ranking
junior to or on parity with the FundPreferred shares as to dividends or upon
liquidation, 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
FundPreferred shares as to dividends and upon liquidation) or any such parity
shares (except by conversion into or exchange for shares of the Fund ranking
junior to or on parity with the FundPreferred shares as to dividends and upon
liquidation), unless (i) there is no event of default under any Borrowings that
is continuing; (ii) immediately after such transaction, the Fund would satisfy
the FundPreferred Shares Basic Maintenance Amount (as defined below) and the
Fund would maintain the 1940 Act FundPreferred Shares Asset Coverage (as defined
below) (see "-- Asset Maintenance"); (iii) immediately after such transaction,
the Fund satisfies the asset coverage requirements, if any, under any
Borrowings; (iv) full cumulative dividends on the FundPreferred shares due on or
prior to the date of the transaction have been declared and paid; (v) the Fund
has redeemed the full number of FundPreferred shares required to be redeemed by
any provision for mandatory redemption contained in the Statement (see
"-- Redemption"); and (vi) the Fund has redeemed the full amount of any
Borrowings required to be redeemed by any provision for mandatory redemption.
REDEMPTION
Optional Redemption. To the extent permitted under the 1940 Act and
Massachusetts law, the Fund at its option may redeem FundPreferred shares having
a Dividend Period of one year or less, in whole or in part, out of funds legally
available therefor, on the Dividend Payment Date upon not less than 15 days and
not more than 40 days prior notice. The optional redemption price per share
shall be $25,000 per share, plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) to the date fixed for
redemption. FundPreferred shares having a Dividend Period of more than one year
are redeemable at the option of the Fund, in whole or in part, out of funds
legally available therefor, prior to the end of the relevant Dividend Period,
subject to any Specific Redemption Provisions, which may include the payment of
redemption premiums to the extent required under any applicable Specific
Redemption Provisions. The Fund shall not effect any optional redemption unless
after giving effect thereto (i) the Fund has available certain 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 FundPreferred shares by
reason of the redemption of FundPreferred shares on such date fixed for the
redemption and (ii) the Fund would satisfy the FundPreferred Shares Basic
Maintenance Amount.
38
The Fund also reserves the right to repurchase FundPreferred shares in
market or other transactions from time to time in accordance with applicable law
and at a price that may be more or less than the liquidation preference of the
FundPreferred shares, but is under no obligation to do so.
Mandatory Redemption. If the Fund fails to maintain, as of any Valuation
Date, Eligible Assets with an aggregate Discounted Value at least equal to the
FundPreferred Shares Basic Maintenance Amount or, as of the last Business Day of
any month, the 1940 Act FundPreferred Shares Asset Coverage, and such failure is
not cured within ten Business Days following such Valuation Date in the case of
a failure to maintain the FundPreferred Shares Basic Maintenance Amount or on
the last Business Day of the following month in the case of a failure to
maintain the 1940 Act FundPreferred Shares Asset Coverage as of such last
Business Day (each an "Asset Coverage Cure Date"), the FundPreferred shares will
be subject to mandatory redemption out of funds legally available therefor. See
"-- Asset Maintenance." The number of FundPreferred shares to be redeemed in
such circumstances will be equal to the lesser of (i) the minimum number of
FundPreferred shares the redemption of which, if deemed to have occurred
immediately prior to the opening of business on the relevant Asset Coverage Cure
Date, would result in the Fund satisfying the FundPreferred Shares Basic
Maintenance Amount or 1940 Act FundPreferred Shares Asset Coverage, as the case
may be, in either case as of the relevant Asset Coverage Cure Date (provided
that, if there is no such minimum number of shares the redemption of which would
have such result, all FundPreferred shares then outstanding will be redeemed),
and (ii) the maximum number of FundPreferred shares that can be redeemed out of
funds expected to be available therefor on the Mandatory Redemption Date (as
defined below) at the Mandatory Redemption Price (as defined below).
The Fund shall allocate the number of shares required to be redeemed to
satisfy the FundPreferred Shares Basic Maintenance Amount or the 1940 Act
FundPreferred Shares Asset Coverage, as the case may be, pro rata among the
Holders of FundPreferred shares in proportion to the number of shares they hold,
by lot or by such other method as the Fund shall deem fair and equitable,
subject to mandatory redemption provisions, if any.
The Fund is required to effect such a mandatory redemption not later than
40 days after the Asset Coverage Cure Date, as the case may be (the "Mandatory
Redemption Date"), except that if the Fund does not have funds legally available
for the redemption of, or is not otherwise legally permitted to redeem, all of
the required number of FundPreferred shares which are subject to mandatory
redemption, or the Fund otherwise is unable to effect such redemption on or
prior to such Mandatory Redemption Date, the Fund will redeem those
FundPreferred shares on the earliest practicable date on which the Fund will
have such funds available, upon notice to record owners of shares of
FundPreferred shares and the Paying Agent. The Fund's ability to make a
mandatory redemption may be limited by the provisions of the 1940 Act or
Massachusetts law.
The redemption price per share in the event of any mandatory redemption
will be $25,000 per share, plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) to the date fixed for redemption,
plus (in the case of a Dividend Period of more than one year) a redemption
premium, if any, determined by the Board of Trustees, in its discretion, after
consultation with the Broker-Dealers and set forth in any applicable Specific
Redemption Provisions (the "Mandatory Redemption Price").
Redemption Procedure. Pursuant to Rule 23c-2 under the 1940 Act, the Fund
will file a notice of its intention to redeem with the SEC so as to provide at
least the minimum notice required by such Rule or any successor provision
(notice currently must be filed with the SEC generally at least 30 days prior to
the redemption date). The Fund shall deliver a notice of redemption to the
Auction Agent containing the information described below one Business Day prior
to the giving of notice to Holders in the case of optional redemptions as
described above and on or prior to the 30th day preceding the Mandatory
Redemption Date in the case of a mandatory redemption as described above. The
Auction Agent will use its reasonable efforts to provide notice to each holder
of FundPreferred shares called for redemption by electronic means not later than
the close of business on the Business Day immediately following the Business Day
on which the Auction Agent determines the shares to be redeemed (or, during a
Default Period with respect to such shares, not later than the close of business
on the Business Day immediately following the day on which the Auction Agent
receives notice of redemption from the Fund). Such notice will be confirmed
promptly in writing not later than the close of business on the third Business
Day preceding the redemption date by providing the notice to each holder of
record of FundPreferred shares called for redemption, the Paying Agent (if
different from the Auction Agent) and the Securities Depository ("Notice of
Redemption").
39
Notice of Redemption will be addressed to the registered owners of the
FundPreferred shares at their addresses appearing on the share records of the
Fund. Such notice will set forth (i) the redemption date, (ii) the number and
identity of FundPreferred shares to be redeemed, (iii) the redemption price
(specifying the amount of accumulated dividends to be included therein), (iv)
that dividends on the shares to be redeemed will cease to accumulate on such
redemption date, and (v) the provision under which redemption shall be made. No
defect in the Notice of Redemption or in the transmittal or mailing thereof will
affect the validity of the redemption proceedings, except as required by
applicable law.
If fewer than all of the shares of a Series of FundPreferred shares are
redeemed on any date, the shares to be redeemed on such date will be selected by
the Fund on a pro rata basis in proportion to the number of shares held by such
holders, by lot or by such other method as is determined by the Fund to be fair
and equitable, subject to the terms of any Specific Redemption Provisions.
FundPreferred shares may be subject to mandatory redemption as described
herein notwithstanding the terms of any Specific Redemption Provisions. The
Auction Agent will give notice to the Securities Depository, whose nominee will
be the record holder of all of the FundPreferred shares, and the Securities
Depository will determine the number of shares to be redeemed from the account
of the Agent Member of each beneficial owner. Each Agent Member will determine
the number of shares to be redeemed from the account of each beneficial owner
for which it acts as agent. An Agent Member may select for redemption shares
from the accounts of some beneficial owners without selecting for redemption any
shares from the accounts of other beneficial owners. Notwithstanding the
foregoing, if neither the Securities Depository nor its nominee is the record
holder of all of the shares, the particular shares to be redeemed shall be
selected by the Fund by lot, on a pro rata basis between each Series or by such
other method as the Fund shall deem fair and equitable, as contemplated above.
If Notice of Redemption has been given, then upon the deposit of funds
sufficient to effect such redemption, dividends on such shares should cease to
accumulate and such shares should be no longer deemed to be outstanding for any
purpose and all rights of the owners of the shares so called for redemption will
cease and terminate, except the right of the owners of such shares to receive
the redemption price, but without any interest or additional amount. The Fund
shall be entitled to receive from the Paying Agent, promptly after the date
fixed for redemption, any cash deposited with the Paying Agent in excess of (i)
the aggregate redemption price of the FundPreferred shares called for redemption
on such date and (ii) such other amounts, if any, to which holders of
FundPreferred shares called for redemption may be entitled. The Fund will be
entitled to receive, from time to time, from the Paying Agent the interest, if
any, earned on such funds deposited with the Paying Agent and the owners of
shares so redeemed will have no claim to any such interest. Any funds so
deposited which are unclaimed two years after such redemption date will be paid,
to the extent permitted by law, by the Paying Agent to the Fund upon its
request. Thereupon, Holders of FundPreferred shares called for redemption may
look only to the Fund for payment.
So long as any FundPreferred shares are held of record by the nominee of
the Securities Depository, the redemption price for such shares will be paid on
the redemption date to the nominee of the Securities Depository. The Securities
Depository's normal procedures provide for it to distribute the amount of the
redemption price to Agent Members who, in turn, are expected to distribute such
funds to the persons for whom they are acting as agent.
Notwithstanding the provisions for redemption described above, no
FundPreferred shares may be redeemed unless all dividends in arrears on the
outstanding FundPreferred shares, and all shares of beneficial interest of the
Fund ranking on parity with the FundPreferred shares with respect to the payment
of dividends or upon liquidation, have been or are being contemporaneously paid
or set aside for payment, except in connection with the liquidation of the Fund
in which case all FundPreferred shares and all shares ranking in a parity with
the FundPreferred shares must receive proportionate amounts and that the
foregoing shall not prevent the purchase or acquisition of all the outstanding
FundPreferred shares 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 FundPreferred shares.
Except for the provisions described above, nothing contained in the
Statement limits any legal right of the Fund to purchase or otherwise acquire
any shares of FundPreferred shares outside of an Auction at any price, whether
higher or lower than the price that would be paid in connection with an optional
or mandatory redemption, so long as, at the time of any such purchase, there is
no arrearage in the payment of dividends on or the mandatory or optional
redemption price with respect to, any shares of FundPreferred shares for which
Notice of Redemption has
40
been given and the Fund is in compliance with the 1940 Act FundPreferred Shares
Asset Coverage and satisfies the FundPreferred Shares Basic Maintenance Amount
after giving effect to such purchase or acquisition on the date thereof. Any
shares which are purchased, redeemed or otherwise acquired by the Fund shall
have no voting rights. If fewer than all the outstanding shares of FundPreferred
shares are redeemed or otherwise acquired by the Fund, the Fund shall give
notice of such transaction to the Auction Agent, in accordance with the
procedures agreed upon by the Board of Trustees.
ASSET MAINTENANCE
The Fund is required to satisfy two separate asset maintenance requirements
in respect of the FundPreferred shares: (i) the Fund must maintain assets in its
portfolio that have a value, discounted in accordance with guidelines set forth
by a Rating Agency, at least equal to the aggregate liquidation preference of
the FundPreferred shares plus specified liabilities, payment obligations and
other amounts; and (ii) the Fund must maintain asset coverage for FundPreferred
shares of at least 200%.
FundPreferred Shares Basic Maintenance Amount. The Fund must maintain, as
of each Valuation Date on which any share of FundPreferred shares is
outstanding, Eligible Assets having an aggregate Discounted Value at least equal
to the FundPreferred Shares Basic Maintenance Amount, which is calculated
separately for each Rating Agency which is then rating the FundPreferred shares
and so requires. If the Fund fails to maintain Eligible Assets having an
aggregated Discounted Value at least equal to the FundPreferred Shares Basic
Maintenance Amount as of any Valuation Date and such failure is not cured on or
before the related Asset Coverage Cure Date, the Fund will be required in
certain circumstances to redeem certain of the shares of FundPreferred shares.
See "-- Redemption -- Mandatory Redemption."
The "FundPreferred Shares Basic Maintenance Amount" as of any Valuation
Date is currently defined in Rating Agency Guidelines as Eligible Assets having
an aggregate Discounted Value equal to or greater than the dollar amount equal
to the sum of:
(A) the product of the number of FundPreferred outstanding on such
date multiplied by $25,000, plus any redemption premium applicable to the
FundPreferred then subject to redemption; (B) the aggregate amount of
dividends that will have accumulated at the respective Applicable Rates to
(but not including) the first respective Dividend Payment Dates for
FundPreferred outstanding that follow such Valuation Date; (C) the
aggregate amount of dividends that would accumulate on shares of each
Series of FundPreferred outstanding from such first respective Dividend
Payment Date therefor through the 45th day after such Valuation Date, at
the Maximum Rate (calculated as if such Valuation Date were the Auction
Date for the Dividend Period commencing on such Dividend Payment Date) for
a Standard Dividend Period of shares of such Series to commence on such
Dividend Payment Date, assuming, solely for purposes of the foregoing, that
if on such Valuation Date the Fund shall have delivered a notice of Special
Dividend Period to the Auction Agent pursuant to Section 4(b) of Part I of
the Statement with respect to shares of such Series, such Maximum Rate
shall be the Maximum Rate for the Special Dividend Period of shares of such
Series to commence on such Dividend Payment Date (except that (1) if such
Valuation Date occurs at a time when a Failure to Deposit (or, in the case
of preferred shares other than FundPreferred, a failure similar to a
Failure to Deposit) has occurred that has not been cured, the dividend for
purposes of calculation would accumulate at the current dividend rate then
applicable to the shares in respect of which such failure has occurred and
(2) for those days during the period described in this subparagraph (C) in
respect of which the Applicable Rate in effect immediately prior to such
Dividend Payment Date will remain in effect (or, in the case of preferred
shares other than FundPreferred, in respect of which the dividend rate or
rates in effect immediately prior to such respective dividend payment dates
will remain in effect), the dividend for purposes of calculation would
accumulate at such Applicable Rate (or other rate or rates, as the case may
be in respect of those days); (D) the amount of anticipated expenses of the
Fund for the 90 days subsequent to such Valuation Date; (E) the amount of
any indebtedness or obligations of the Fund senior in right of payments to
the FundPreferred; and (F) any current liabilities to the extent not
reflected in any of (A) through (E) (including, without limitation, any
payables for portfolio securities purchased as of such Valuation Date and
any liabilities incurred for the purpose of clearing securities
transactions); less the value (i.e., the face value of cash, short-term
municipal obligations and short-term securities that are the direct
obligation of the U.S. government, provided in each case that such
securities
41
mature on or prior to the date upon which any of (A) though (F) became
payable, otherwise the Discounted Value) of any of the Fund's assets
irrevocably deposited by the Fund for the payment of any of (A) through
(F).
If the average Discount Factor of the Fund's aggregate S&P Eligible Assets is
less than 200%, the FundPreferred Shares Basic Maintenance amount for S&P means
the asset coverage, as determined in accordance with Section 18(h) of the 1940
Act, with respect to all outstanding senior securities of the Fund which are
stock, including all outstanding FundPreferred shares (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are stock of a closed-end
investment company as a condition of declaring dividends on its common shares).
See "-- 1940 Act FundPreferred Shares Asset Coverage" below.
Each Rating Agency may amend the definition of "FundPreferred Shares Basic
Maintenance Amount."
The Market Value of the Fund's portfolio securities (used in calculating
the Discounted Value of Eligible Assets) is calculated in the same manner as the
Fund calculates its net asset value. See "Net Asset Value" in the SAI.
Each Rating Agency's Discount Factors, the criteria used to determine
whether the assets held in the Fund's portfolio are Eligible Assets, and the
guidelines for determining the Discounted Value of the Fund's portfolio holdings
for purposes of determining compliance with the FundPreferred Shares Basic
Maintenance Amount are based on Rating Agency Guidelines established by each
Rating Agency in connection with its rating of the FundPreferred shares. The
Discount Factor relating to any asset of the Fund, the FundPreferred Shares
Basic Maintenance Amount, the assets eligible for inclusion in the calculation
of the Discounted Value of the Fund's portfolio and certain definitions and
methods of calculation relating thereto may be changed from time to time by the
applicable Rating Agency, without the approval of the Fund, the Board of
Trustees or the shareholders.
A Rating Agency's guidelines will apply to FundPreferred shares only so
long as such Rating Agency is rating such shares. The Fund will pay certain fees
to S&P, Moody's and any Other Rating Agency which may provide a rating for the
FundPreferred shares for rating FundPreferred shares. The ratings assigned to
FundPreferred shares are not recommendations to buy, sell or hold FundPreferred
shares. Such ratings may be subject to revision or withdrawal by the assigning
rating agent at any time. Any rating of FundPreferred shares should be evaluated
independently of any other rating.
1940 Act FundPreferred Shares Asset Coverage. The Fund is also required to
maintain, with respect to FundPreferred shares, as of the last Business Day on
any month in which any FundPreferred shares is outstanding, asset coverage of at
least 200% (or such other percentage as may in the future be specified in or
under the 1940 Act as the minimum asset coverage for senior securities
representing shares of a closed-end investment company as a condition of
declaring dividends on its common shares) ("1940 Act FundPreferred Shares Asset
Coverage"). If the Fund fails to maintain the 1940 Act FundPreferred Shares
Asset Coverage as of the last Business Day of any month and such failure is not
cured as of the related Asset Coverage Cure Date, the Fund will be required to
redeem certain shares of FundPreferred shares. See " -- Redemption -- Mandatory
Redemption."
The Fund estimates that based on the composition of its portfolio as of
August 31, 2007, assuming the issuance of all FundPreferred shares offered
hereby and giving effect to the deduction of sales load and estimated offering
costs related thereto estimated at $560,000, the 1940 Act FundPreferred Shares
Asset Coverage would be:
Value of Fund assets less liabilities
not representing senior securities
= $318,319,284 = 884%
------------------------------------------------------ ------------ ----
Senior securities representing indebtedness plus $ 36,000,000
aggregate liquidation preference of FundPreferred ------------
shares
Notices. Under the current Rating Agency Guidelines, after the Date of
Original Issue and in certain other circumstances, the Fund is required to
deliver to any Rating Agency which is then rating the FundPreferred shares (i) a
certificate with respect to the calculation of the FundPreferred Shares Basic
Maintenance Amount; (ii) a certificate with respect to the calculation of the
1940 Act FundPreferred Shares Asset Coverage and the value of the portfolio
holdings of the Fund; and (iii) a letter proposed by the Fund's independent
registered public accounting firm regarding the accuracy of such calculations.
42
LIQUIDATION RIGHTS
In the event of a liquidation, dissolution or winding up of the affairs of
the Fund, whether voluntary or involuntary, the holders of each Series of
FundPreferred shares then outstanding and any other shares ranking on a parity
with the FundPreferred shares then outstanding, in preference to the holders of
common shares, will be entitled to payment out of the assets of the Fund, or the
proceeds thereof, available for distribution to shareholders after satisfaction
of claims of creditors of the Fund (including, without limitation, those
resulting from Borrowings), of a liquidation preference in the amount equal to
$25,000 per share of the FundPreferred shares, plus an amount equal to
accumulated dividends (whether or not earned or declared but without interest)
to the date of payment of such preference is made in full or a sum sufficient
for the payment thereof is set apart with the Paying Agent. However, holders of
FundPreferred shares will not be entitled to a premium, if any, to which such
holder would be entitled to receive upon redemption of such FundPreferred
shares. After payment of the full amount of such liquidation distribution, the
owners of the FundPreferred shares will not be entitled to any further
participation in any distribution of assets of the Fund.
If, upon any such liquidation, dissolution or winding up of the affairs of
the Fund, whether voluntary or involuntary, the assets of the Fund available for
distribution among the holders of all outstanding Preferred Shares, including
the FundPreferred shares, shall be insufficient to permit the payment in full to
such holders of the amounts to which they are entitled, then such available
assets shall be distributed among the holders of all outstanding Preferred
Shares, including the FundPreferred shares, ratably in any such distribution of
assets according to the respective amounts which would be payable on all such
shares if all amounts thereon were paid in full. Upon the dissolution,
liquidation or winding up of the affairs of the Fund, whether voluntary or
involuntary, until payment in full is made to the holders of FundPreferred
shares of the liquidation distribution to which they are entitled, no dividend
or other distribution shall be made to the holders of shares of common shares or
any other class of shares of beneficial interest of the Fund ranking junior to
FundPreferred shares upon dissolution, liquidation or winding up and no
purchase, redemption or other acquisition for any consideration by the Fund
shall be made in respect of the shares of common shares or any other class of
shares of beneficial interest of the Fund ranking junior to FundPreferred shares
upon dissolution, liquidation or winding up.
A consolidation, reorganization or merger of the Fund with or into any
other trust or company, or a sale, lease or exchange of all or substantially all
of the assets of the Fund in consideration for the issuance of equity securities
of another trust or company, shall not be deemed to be a liquidation,
dissolution or winding up of the Fund.
VOTING RIGHTS
Except as otherwise indicated in the Declaration, Statement or as otherwise
required by applicable law, holders of FundPreferred shares have one vote per
share and vote together with holders of shares of common shares as a single
class. Under applicable rules of the Exchange, the Fund is currently required to
hold annual meetings of shareholders.
In connection with the election of the Board of Trustees, the holders of
outstanding preferred shares, including each Series of the FundPreferred shares,
represented in person or by proxy at said meeting, shall be entitled, as a
class, to the exclusion of the holders of all other securities and classes of
beneficial interest of the Fund, to elect two Trustees of the Fund. The holders
of outstanding common shares and preferred shares, including each Series of the
FundPreferred shares, voting together as a single class, shall elect the balance
of the Trustees. Notwithstanding the foregoing, if (a) at the close of business
on any Dividend Payment Date accumulated dividends (whether or not earned or
declared) on the preferred shares, including FundPreferred shares, equal to at
least two full years' dividends shall be due and unpaid; or (b) any time holders
of any preferred shares are entitled under the 1940 Act to elect a majority of
the Trustees of the Fund, then the number of members constituting the Board
shall automatically be increased by the smallest number that, when added to the
two Trustees elected exclusively by the holders of preferred shares, including
the FundPreferred shares, as described above, would constitute a majority of the
Board as so increased by such smallest number; and at a special meeting of
shareholders which will be called and held as soon as practicable, and at all
subsequent meetings at which Trustees are to be elected, the holders of
preferred shares, including the FundPreferred shares, voting as a separate
class, will be entitled to elect the smallest number of additional Trustees
that, together with the two Trustees which such holders will be in any event
entitled to elect,
43
constitutes a majority of the total number of Trustees of the Fund as so
increased. The terms of office of the persons who are Trustees at the time of
that election will continue. If the Fund thereafter shall pay, or declare and
set apart for payment, in full all dividends payable on all outstanding
preferred shares, including the FundPreferred shares, for all past Dividend
Periods, or the Voting Period is otherwise terminated, the voting rights stated
in the above sentence shall cease, and the terms of office of all of the
additional Trustees elected by the holders of preferred shares, including the
FundPreferred shares (but not of the Trustees with respect to whose election the
holders of common shares were entitled to vote or the two Trustees the holders
of preferred shares, including the FundPreferred shares, have the right to elect
in any event), will terminate automatically. Any shares of FundPreferred shares
issued after the date hereof shall vote with the FundPreferred shares as a
single class on the matters described above, and the issuance of any other
FundPreferred shares by the Fund may reduce the voting power of the
FundPreferred shares.
The affirmative vote of the holders of a majority of the outstanding
preferred shares, including each Series of the FundPreferred shares, determined
with reference to a "majority of outstanding voting securities" as the term is
defined in Section 2(a)(42) of the 1940 Act, voting as a separate class, is
required to (i) amend, alter or repeal any of the preferences, rights or powers
of such class so as to affect materially and adversely such preferences, rights
or powers; (ii) increase the authorized number of shares of preferred shares;
(iii) create, authorize or issue shares of any class of shares ranking senior to
or on a parity with the preferred shares with respect to the payment of
dividends or the distribution of assets, or any securities convertible into, or
warrants, options or similar rights to purchase, acquire or receive, such shares
of beneficial interest ranking senior to or on parity with the preferred shares
or reclassify any authorized shares of beneficial interest of the Fund into any
shares ranking senior to or on parity with the preferred shares (except that the
Board of Trustees, without the vote or consent of the holders of preferred
shares, may from time to time authorize, create and classify, and the Fund may
from time to time issue shares or Series of preferred shares, including other
Series of FundPreferred shares, ranking on parity with the FundPreferred shares
with respect to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up to the affairs of the Fund, and may
authorize, reclassify and/or issue any additional shares of each Series of
FundPreferred shares, including shares previously purchased or redeemed by the
Fund, subject to continuing compliance by the Fund with 1940 Act FundPreferred
Shares Asset Coverage and FundPreferred Shares Basic Maintenance Amount
requirements); (iv) institute any proceedings to be adjudicated bankrupt or
insolvent, or consent to the institution of bankruptcy or insolvency proceedings
against it, or file a petition seeking or consenting to reorganization or relief
under any applicable federal or state law relating to bankruptcy or insolvency,
or consent to the appointment of a receiver, liquidator, assignee, Trustee,
sequestrator (or other similar official) of the Fund or a substantial part of
its property, or make any assignment for the benefit of creditors, or, except as
may be required by applicable law, admit in writing its inability to pay its
debts generally as they become due or take any corporate action in furtherance
of any such action; (v) create, incur or suffer to exist, or agree to create,
incur or suffer to exist, or consent to cause or permit in the future (upon the
happening of a contingency or otherwise) the creation, incurrence or existence
of any material lien, mortgage, pledge, charge, security interest, security
agreement, conditional sale or trust receipt or other material encumbrance of
any kind upon any of the Fund's assets as a whole, except (A) liens the validity
of which are being contested in good faith by appropriate proceedings, (B) liens
for taxes that are not then due and payable or that can be paid thereafter
without penalty, (C) liens, pledges, charges, security interests, security
agreements or other encumbrances arising in connection with any indebtedness
senior to the FundPreferred shares, or arising in connection with any futures
contracts or options thereon, interest rate swap or cap transactions, forward
rate transactions, put or call options, or other similar transactions, (D)
liens, pledges, charges, security interests, security agreements or other
encumbrances arising in connection with any indebtedness permitted under clause
(vi) below and (E) liens to secure payment for services rendered including,
without limitation, services rendered by the Fund's custodian and the Auction
Agent; or (vi) create, authorize, issue, incur or suffer to exist any
indebtedness for borrowed money or any direct or indirect guarantee of such
indebtedness for borrowed money or any direct or indirect guarantee of such
indebtedness, except the Fund may borrow as may be permitted by the Fund's
investment restrictions; provided, however, that transfers of assets by the Fund
subject to an obligation to repurchase shall not be deemed to be indebtedness
for purposes of this provision to the extent that after any such transaction the
Fund satisfies the FundPreferred Shares Basic Maintenance Amount as of the
immediately preceding Valuation Date.
44
In addition, the affirmative vote of the holders of a majority of the
outstanding preferred shares, including any Series of FundPreferred shares,
voting separately from any other series, determined with reference to a
"majority of outstanding voting securities" as that term is defined in Section
2(a)(42) of the 1940 Act, shall be required with respect to any matter that
materially and adversely affects the rights, preferences, or powers of such
Series in a manner different from that of other Series of classes of the Fund's
shares of beneficial interest. For purposes of the foregoing, no matter shall be
deemed to adversely affect any right, preference or power 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) any restriction on transfer applicable to such
series.
The foregoing voting provisions will not apply with respect to the
FundPreferred shares if, at or prior to the time when a vote is required, such
shares have been (i) redeemed or (ii) called for redemption, and sufficient
funds shall have been deposited in trust to effect such redemption.
The Board of Trustees, without the vote or consent of any holder of
preferred shares, including FundPreferred shares, or any other shareholder of
the Fund, may from time to time adopt, amend, alter or repeal any or all of any
definitions set forth in the Statement or add covenants and other obligations of
the Fund or confirm the applicability of covenants and other obligations set
forth in the Statement in connection with obtaining or maintaining the rating of
any Rating Agency which is then rating the FundPreferred shares and any such
adoption, amendment, alteration or repeal will not be deemed to affect the
preferences, rights or powers of FundPreferred shares or the holders thereof,
provided the Board of Trustees receives written confirmation from such Rating
Agency (such confirmation in no event being required to be obtained from a
particular Rating Agency with respect to definitions or other provisions
relevant only to another Rating Agency's rating) that any such amendment,
alteration or repeal would not adversely affect the rating then assigned by such
Rating Agency.
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 holder of shares of preferred shares, including any
Series of FundPreferred shares, or any other shareholder of the Fund.
A copy of the current Rating Agency Guidelines will be provided to any
holder of FundPreferred shares promptly upon request therefor made by such
holder to the Fund by writing the Fund at 333 West Wacker Dr., Chicago, Illinois
60606.
Also, subject to compliance with applicable law, the Board of Trustees may
amend the definition of Maximum Rate to increase the percentage amount by which
the Reference Rate is multiplied to determine the Maximum Rate shown therein
without the vote or consent of the holders of the preferred shares, including
FundPreferred shares, or any other shareholder of the Fund, and without
receiving any confirmation from any rating agency after consultation with the
Broker-Dealers, provided that immediately following any such increase the Fund
would be in compliance with the FundPreferred Shares Basic Maintenance Amount.
Unless otherwise required by law, holders of FundPreferred shares shall not
have any relative rights or preferences or other special rights other than those
specifically set forth in the Statement. The holders of FundPreferred shares
shall have no rights to cumulative voting. In the event that the Fund fails to
pay any dividends on the FundPreferred shares, the exclusive remedy of the
holders shall be the right to vote for Trustees as discussed above.
THE AUCTION
GENERAL
Auction Agency Agreement. The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
The Bank of New York) which provides, among other things, that the Auction Agent
will follow the Auction Procedures for purposes of determining the Applicable
Rate for each Series of FundPreferred shares so long as the Applicable Rate for
shares of such Series is to be based on the results of an Auction.
45
The Auction Agent may terminate the Auction Agency Agreement upon notice to
the Fund on a date no earlier than 45 days after such notice. If the Auction
Agent should resign, the Fund will use its best efforts to enter into an
agreement with a successor Auction Agent containing substantially the same terms
and conditions as the Auction Agency Agreement. The Fund may remove the Auction
Agent provided that prior to such removal the Fund shall have entered into such
an agreement with a successor Auction Agent.
Broker-Dealer Agreements. Each Auction requires the participation of one
or more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers
selected by the Fund, which provide for the participation of those Broker-
Dealers in Auctions for FundPreferred shares.
The Auction Agent after each Auction for FundPreferred shares will pay to
each Broker-Dealer, from funds provided by the Fund, a service charge at the
annual rate of 1/4 of 1% in the case of any Auction immediately preceding a
Dividend Period of less than one year, or a percentage agreed to by the Fund and
the Broker-Dealers in the case of any Auction immediately preceding a Dividend
Period of one year or longer, of the purchase price of FundPreferred shares
placed by such Broker-Dealer at such Auction. A Broker-Dealer may share a
portion of such service charge with other broker-dealers that submit Orders
through it that are filled in the Auction for the FundPreferred shares.
FundPreferred shares will be placed by a Broker-Dealer if such shares were (a)
the subject of Hold Orders deemed to have been submitted to the Auction Agent by
the Broker-Dealer and were acquired by such Broker-Dealer for its own account or
were acquired by such Broker-Dealer for its customers who are Beneficial Owners
or (b) the subject of an Order submitted by such Broker-Dealer that is (i) a
Submitted Bid of an Existing Holder that resulted in such Existing Holder
continuing to hold such shares as a result of the Auction or (ii) a Submitted
Bid of a Potential Holder that resulted in such Potential Holder purchasing such
shares as a result of the Auction or (iii) a valid Hold Order.
The Fund may request the Auction Agent to terminate one or more Broker-
Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after such termination.
AUCTION PROCEDURES
Prior to the Submission Deadline on each Auction Date for Series of
FundPreferred shares, each customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder
of shares of such Series (a "Beneficial Owner") may submit orders ("Orders")
with respect to shares of such Series to that Broker-Dealer as follows:
- Hold Order -- indicating its desire to hold shares of such Series without
regard to the Applicable Rate for shares of such Series for the next
Dividend Period thereof.
- Bid -- indicating its desire to sell shares of such Series at $25,000 per
share if the Applicable Rate for shares of such Series for the next
Dividend Period thereof is less than the rate specified in such Bid (also
known as a hold-at-a-rate order).
- Sell Order -- indicating its desire to sell shares of such Series at
$25,000 per share without regard to the Applicable Rate for shares of
such Series for the next Dividend Period thereof.
A Beneficial Owner may submit different types of Orders to its Broker-
Dealer with respect to shares of a Series of FundPreferred shares then held by
such Beneficial Owner. A Beneficial Owner of shares of such Series that submits
a Bid with respect to shares of such Series to its Broker-Dealer having a rate
higher than the Maximum Rate for shares of such Series on the Auction Date
therefore will be treated as having submitted a Sell Order with respect to such
shares to its Broker-Dealer. A Beneficial Owner of shares of such Series that
fails to submit an Order with respect to such shares to its Broker-Dealer will
be deemed to have submitted a Hold Order with respect to such shares of such
Series to its Broker-Dealer; provided, however, that if a Beneficial Owner of
shares of such Series fails to submit an Order with respect to shares of such
Series to its Broker-Dealer for an Auction relating to a Dividend Period of more
than 28 Dividend Period Days, such Beneficial Owner will be deemed to have
submitted a Sell Order with respect to such shares to its Broker-Dealer. A Sell
Order shall constitute an irrevocable offer to sell
46
the FundPreferred shares subject thereto. A Beneficial Owner that offers to
become the Beneficial Owner of additional FundPreferred shares is, for purposes
of such offer, a Potential Beneficial Owner as discussed below.
A customer of a Broker-Dealer that is not a Beneficial Owner of a Series of
FundPreferred shares but that wishes to purchase shares of such series, or that
is a Beneficial Owner of shares of such Series that wishes to purchase
additional shares of such Series (in each case, a "Potential Beneficial Owner"),
may submit Bids to its Broker-Dealer in which it offers to purchase shares of
such Series at $25,000 per share if the Applicable Rate for shares of such
Series for the next Dividend Period thereof is not less than the rate specified
in such Bid. A Bid placed by a Potential Beneficial Owner of shares of such
Series specifying a rate higher than the Maximum Rate for shares of such Series
on the Auction Date therefore will not be accepted.
The Broker-Dealers in turn will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves (unless otherwise permitted by the Fund)
as Existing Holders in respect of shares subject to Orders submitted or deemed
submitted to them by Beneficial Owners and as Potential Holders in respect of
shares subject to Orders submitted to them by Potential Beneficial Owners.
However, neither the Fund nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with the foregoing. Any Order placed with the
Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder or a
Potential Holder will be treated in the same manner as an Order placed with a
Broker-Dealer by a Beneficial Owner or Potential Beneficial Owner. Similarly,
any failure by a Broker-Dealer to submit to the Auction Agent an Order in
respect of FundPreferred shares held by it or customers who are Beneficial
Owners will be treated in the same manner as a Beneficial Owner's failure to
submit to its Broker-Dealer an Order in respect of FundPreferred shares held by
it. A Broker-Dealer may also submit Orders to the Auction Agent for its own
account as an Existing Holder or Potential Holder, provided it is not an
affiliate of the Fund.
If Sufficient Clearing Bids for a Series of FundPreferred shares exist
(that is, the number of shares of such Series subject to Bids submitted or
deemed submitted to the Auction Agent by Broker-Dealers as or on behalf of
Potential Holders with rates equal to or lower than the Maximum Rate for shares
of such Series is at least equal to the number of shares of such Series subject
to Sell Orders submitted or deemed submitted to the Auction Agent by Broker-
Dealers as or on behalf of Existing Holders), the Applicable Rate for shares of
such Series for the next succeeding Dividend Period thereof will be the lowest
rate specified in the Submitted Bids which, taking into account such rate and
all lower rates bid by Broker-Dealers as or on behalf of Existing Holders and
Potential Holders, would result in Existing Holders and Potential Holders owning
the shares of such Series available for purchase in the Auction. If Sufficient
Clearing Bids for a Series of FundPreferred shares do not exist, the Applicable
Rate for shares of such Series for the next succeeding Dividend Period thereof
will be the Maximum Rate for shares of such Series on the Auction Date therefor.
In such event, Beneficial Owners of shares of such Series that have submitted or
are deemed to have submitted Sell Orders may not be able to sell in such Auction
all shares of such Series subject to such Sell Orders. If Broker-Dealers submit
or are deemed to have submitted to the Auction Agent Hold Orders with respect to
all Existing Holders of a Series of FundPreferred shares, the Applicable Rate
for shares of such Series for the next succeeding Dividend Period thereof will
be the All Hold Rate.
The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder continuing to hold or selling,
or a Potential Holder purchasing, a number of shares of a Series of
FundPreferred shares that is fewer than the number of shares of such Series
specified in its Order. To the extent the allocation procedures have that
result, Broker-Dealers that have designated themselves as Existing Holders or
Potential Holders in respect of customer Orders will be required to make
appropriate pro rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next Business Day
(also a Dividend Payment Date) after the Auction Date through the Securities
Depository. Purchasers will make payment through their Agent Members in same-day
funds to the Securities Depository against delivery to their respective Agent
Members. The Securities Depository will make payment to the sellers' Agent
Members in accordance with the Securities Depository's normal procedures, which
now provide for payment against delivery by their Agent Members in same-day
funds.
47
CERTAIN CONSIDERATIONS AFFECTING FUNDPREFERRED AUCTIONS
Bidding by Broker-Dealers. Each Broker-Dealer is permitted, but not
obligated, to submit Orders in Auctions for the FundPreferred shares for their
own account either as a bidder or seller. If a Broker-Dealer submits an Order
for its own account, it would have an advantage over other Bidders because such
Broker-Dealer would have knowledge of other Orders placed through such Broker-
Dealer in that Auction and, thus, could determine the rate and size of its Order
so as to increase the likelihood that (i) its Order will be accepted in the
Auction and (ii) the Auction will clear at a particular rate. For this reason,
and because each Broker-Dealer is appointed and paid by the Fund if they own
FundPreferred shares on behalf of Beneficial Owners (including themselves), a
Broker-Dealer's interests in serving as a Broker-Dealer in an Auction may differ
from those of Beneficial Owners and Potential Beneficial Owners who participate
in Auctions. A Broker-Dealer would normally not have knowledge of Orders
submitted to the Auction Agent by any other Broker-Dealer.
Each Broker-Dealer may place bids in auctions for its own account to
acquire securities for its inventory, to prevent an "auction failure" (which
occurs if there is a lack of sufficient clearing bids and results in the
dividend rate being set at the maximum dividend rate) or to prevent an auction
from clearing at a rate that such Broker-Dealer believes does not reflect the
market for FundPreferred shares. Each Broker-Dealer may place one or more Bids
even after obtaining knowledge of some or all of the other Orders submitted
through it. When bidding in an Auction for its own account, each Broker-Dealer
also may Bid inside or outside the range of rates that it posts in its Price
Talk. See "price talk" below.
Each Broker-Dealer may encourage bidding by others in auctions for which it
serves as a broker-dealer. Each Broker-Dealer also may encourage bidding by
others in Auctions, including to prevent auction failure or to prevent an
Auction from clearing at a rate that the Broker-Dealer believes does not reflect
the market for the FundPreferred shares. A Broker-Dealer may encourage such Bids
even after obtaining knowledge of some or all of the other Orders submitted
through it.
Bids by any Broker-Dealer or by those it may encourage to place Bids are
likely to affect (i) the Applicable Rate -- including preventing the Applicable
Rate from being set at the Maximum Rate or otherwise causing Bidders to receive
a lower rate than they might have received had the Broker-Dealer not Bid or not
encouraged others to Bid and (ii) the allocation of the FundPreferred shares
being auctioned including displacing some Bidders who may have their Bids
rejected or receive fewer FundPreferred shares than they would have received if
the Broker-Dealer had not Bid or encouraged others to Bid. A Broker-Dealer is
not obligated to continue to place such Bids or to continue to encourage other
Bidders to do so in any particular Auction to prevent an auction failure or an
Auction for the FundPreferred shares from clearing at a dividend rate such
Broker-Dealer believes does not reflect the market for the FundPreferred shares.
Investors should not assume that any Broker-Dealer will place Bids or encourage
others to do so or that auction failures will not occur. Investors should also
be aware that Bids by a Broker-Dealer or by those it may encourage to place Bids
may cause lower Applicable Rates to occur.
The statements herein regarding bidding by a Broker-Dealer apply only to a
Broker-Dealer's auction desk and any other business units of the Broker-Dealer
that are not separated from the auction desk by an information barrier designed
to limit inappropriate dissemination of bidding information.
In any particular Auction, if all outstanding FundPreferred shares are the
subject to Submitted Hold Orders, the Applicable Rate for the next succeeding
Auction period will be the All Hold Rate (such a situation is called an "all
hold auction"). If a Broker-Dealer holds any FundPreferred shares for its own
account on an Auction Date, it may be a Broker-Dealer's practice to submit a
Sell Order into the Auction with respect to such FundPreferred shares, which
could prevent that Auction from being an all hold auction. Such a Broker-Dealer
may, but is not obligated to, submit Bids for its own account in that same
Auction, as set forth above.
Price Talk. Before the start of an Auction, each Broker-Dealer, in its
discretion, may make available to its customers who are Beneficial Owners and
Potential Beneficial Owners the Broker-Dealer's good faith judgment of the range
of likely clearing dividend rates for the Auction based on market and other
information. This is known as "price talk." Price talk is not a guarantee that
the Applicable Rate established through the Auction will be within the price
talk, and Beneficial Owners and Potential Beneficial Owners are free to use it
or ignore it. A Broker-Dealer occasionally may update and change the price talk
based on changes in the Fund's credit quality or macroeconomic
48
factors that are likely to result in a change in interest rate levels, such as
an announcement by the Federal Reserve Board of a change in the Federal Funds
rate or an announcement by the Bureau of Labor Statistics of unemployment
numbers. Potential Beneficial Owners should confirm with the Broker-Dealer the
manner by which the Broker-Dealer will communicate price talk and any changes to
price talk.
"All-or-Nothing" Bids. Broker-Dealers do not accept "all-or-nothing" Bids
(i.e., Bids whereby the Bidder proposes to reject an allocation smaller than the
entire quantity Bid) or any other type of Bid that allows the Bidder to avoid
auction procedures that require the pro rata allocation of FundPreferred shares
where there are not sufficient Sell Orders to fill all Bids at the Winning Bid
Rate.
No Assurances Regarding Auction Outcomes. Broker-Dealers provide no
assurances as to the outcome of any Auction. Broker-Dealers also do not provide
any assurance that any Bid will be successful, in whole or in part, or that the
Auction will clear at a dividend rate that a Bidder considers acceptable. Bids
may be only partially filled, or not filled at all, and the Applicable Rate on
any FundPreferred shares purchased or retained in the Auction for the
FundPreferred shares may be lower than the market rate for similar investments.
A Broker-Dealer will generally not agree before an Auction to buy
FundPreferred shares from or sell FundPreferred shares to a customer after the
Auction.
Deadlines. Each particular Auction has a formal deadline by which all Bids
must be submitted by a Broker-Dealer to the Auction Agent. This deadline is
called the "Submission Deadline." To provide sufficient time to process and
submit customer Bids to the Auction Agent before the Submission Deadline, each
Broker-Dealer imposes an earlier deadline called the "broker-dealer deadline" by
which Bidders must submit Bids to such Broker-Dealer. The broker-dealer deadline
is subject to change by such Broker-Dealer. Potential Beneficial Owners should
consult with a Broker-Dealer as to its broker-dealer deadline. A Broker-Dealer
may allow for correction of clerical errors after the broker-dealer deadline and
prior to the Submission Deadline. A Broker-Dealer may submit Bids for its own
account at any time until the Submission Deadline. After the Submission Deadline
has passed, any Bid that has been submitted by a Broker-Dealer to the Auction
Agent, either on behalf of a Beneficial Owner or Potential Beneficial Owner or
for the Broker-Dealer's own account, shall become irrevocable, except that the
Auction Agent may allow for the correction of clerical errors after the
Submission Deadline but prior to the announcement of the auction results.
Beneficial Owner's Ability to Resell FundPreferred Shares May Be
Limited. Beneficial Owners will be able to sell all of the FundPreferred shares
that are the subject of their Submitted Sell Orders only if there are Bidders
willing to purchase all of those FundPreferred shares in the Auction. If
Sufficient Clearing Bids have not been made, Beneficial Owners that have
submitted Sell Orders will not be able to sell in the Auction all, and may not
be able to sell any, of the FundPreferred shares subject to such Submitted Sell
Orders. As discussed above (see "Bidding by Broker-Dealers"), a Broker-Dealer
may submit a Bid in an Auction to avoid an auction failure, but it is not
obligated to do so. There may not always be enough Bidders to prevent an auction
failure in the absence of a Broker-Dealer bidding in the Auction for its own
account or encouraging others to Bid. Therefore, auction failures are possible,
especially if the credit quality of the FundPreferred shares were to
deteriorate, if a market disruption were to occur or if, for any reason, each
Broker-Dealer were unable or unwilling to Bid.
Between Auctions, there can be no assurance that a secondary market for the
FundPreferred shares will develop or, if it does develop, that it will provide
Beneficial Owners the ability to resell the FundPreferred shares in the
secondary market on the terms or at the times desired by a Beneficial Owner.
Each Broker-Dealer may, in its own discretion, decide to buy or sell the
FundPreferred shares in the secondary market for its own account to or from
investors at any time and at any price, including at prices equivalent to,
below, or above the liquidation preference for the FundPreferred shares.
However, a Broker-Dealer is not obligated to make a market in the FundPreferred
shares and may discontinue trading in the FundPreferred shares without notice
for any reason at any time. Beneficial Owners who resell between Auctions for
the FundPreferred shares may receive an amount less than liquidation preference,
depending on market conditions.
If a Beneficial Owner purchased a FundPreferred share through a dealer
which is not a Broker-Dealer for the FundPreferred shares, such Beneficial
Owner's ability to sell its FundPreferred shares may be affected by the
continued ability of its dealer to transact trades for the FundPreferred shares
through a Broker-Dealer.
49
The ability to resell the FundPreferred shares (whether during or between
auctions) will depend on various factors affecting the market for the
FundPreferred shares, including news relating to the Fund or the Adviser, the
attractiveness of alternative investments, investor demand for short term
securities, the perceived risk of owning the FundPreferred shares (whether
related to credit, liquidity or any other risk), the tax or accounting treatment
accorded the FundPreferred shares (including U.S. generally accepted accounting
principles as they apply to the accounting treatment of auction rate
securities), reactions of market participants to regulatory actions (such as
those described in "Securities and Exchange Commission Settlements" below) or
press reports, financial reporting cycles and market conditions generally.
Demand for the FundPreferred shares may change without warning, and declines in
demand may be short-lived or continue for longer periods.
Resignation of the Auction Agent or Broker-Dealers Could Impact the Ability
to Hold Auctions. The Auction Agent Agreement provides that the Auction Agent
may resign from its duties as Auction Agent by giving at least 45 days notice to
the Fund and does not require, as a condition to the effectiveness of such
resignation, that a replacement Auction Agent be in place if its fee has not
been paid. Each Broker-Dealer Agreement provides that a Broker-Dealer thereunder
may resign upon 5 days notice, and does not require, as a condition to the
effectiveness of such resignation, that a replacement Broker-Dealer be in place.
For any Auction period during which there is no Auction Agent or Broker-Dealer,
it will not be possible to hold Auctions for the FundPreferred shares, with the
result that the dividend rate on the FundPreferred shares will be determined as
described in the Statement.
Securities and Exchange Commission Settlements. On May 31, 2006, the U.S.
Securities and Exchange Commission (the "SEC") announced that it had settled its
investigation of fifteen firms, including Citigroup Global Markets Inc. and A.G.
Edwards & Sons, Inc. (the "Settling Broker-Dealers"), that participate in the
auction rate securities market, regarding their respective practices and
procedures in this market. The SEC alleged in the settlement that the firms had
managed auctions for auction rate securities in which they participated in ways
that were not adequately disclosed or that did not conform to disclosed auction
procedures. As part of the settlement, the Settling Broker-Dealers agreed to pay
civil penalties. In addition, each Settling Broker-Dealer, without admitting or
denying the SEC's allegations, agreed to provide to customers written
descriptions of its material auction practices and procedures and to implement
procedures reasonably designed to detect and prevent any failures by that
Settling Broker-Dealer to conduct the auction process in accordance with
disclosed procedures. No assurance can be offered as to how the settlement may
affect the market for auction rate securities or the FundPreferred shares.
In addition on January 9, 2007, the SEC announced that it had settled its
investigation of three banks, including The Bank of New York (the "Settling
Auction Agents"), that participate as auction agents in the auction rate
securities market, regarding their respective practices and procedures in this
market. The SEC alleged in the settlement that the Settling Auction Agents
allowed broker-dealers in auctions to submit bids or revise bids after the
submission deadlines and allowed broker-dealers to intervene in auctions in ways
that affected the rates paid on the auction rate securities. As part of the
settlement, the Settling Auction Agents agreed to pay civil penalties. In
addition, each Settling Auction Agent, without admitting or denying the SEC's
allegations, agreed to provide to broker-dealers and issuers written
descriptions of its material auction practices and procedures and to implement
procedures reasonably designed to detect and prevent any failures by that
Settling Auction Agent to conduct the auction process in accordance with
disclosed procedures. No assurance can be offered as to how the settlement may
affect the market for auction rate securities or the FundPreferred shares.
DESCRIPTION OF BORROWINGS
The Declaration of Trust authorizes the Fund, without prior approval of
holders of common and preferred shares, including FundPreferred shares, to
borrow money. In this connection, the Fund may issue notes or other evidence of
indebtedness (including bank borrowings or commercial paper) and may secure any
such Borrowings by mortgaging, pledging or otherwise subjecting as security the
Fund's assets. Initially, the Fund intends that Borrowings will represent 20 to
25% of Managed Assets. In connection with such Borrowings, the Fund may be
required to maintain minimum average balances with the lender or to pay a
commitment or other fee to maintain a line of credit. Any such requirements will
increase the cost of borrowing over the stated interest rate. Any Borrowings
will rank senior to the FundPreferred shares.
50
Limitations. Under the requirements of the 1940 Act, the Fund, immediately
after issuing any Borrowings that are senior securities representing
indebtedness (as defined in the 1940 Act), must have an asset coverage of at
least 300%. With respect to any such Borrowings, asset coverage means the ratio
which the value of the total assets of the Fund, less all liabilities and
indebtedness not represented by senior securities, bears to the aggregate amount
of any such Borrowings that are senior securities representing indebtedness,
issued by the Fund. Certain types of Borrowings may also result in the Fund
being subject to covenants in credit agreements relating to asset coverages or
portfolio composition or otherwise. In addition, the Fund may be subject to
certain restrictions imposed by guidelines of one or more rating agencies which
may issue ratings for commercial paper or notes issued by the Fund. Such
restrictions may be more stringent than those imposed by the 1940 Act.
Distribution Preference. The rights of lenders to the Fund to receive
interest on and repayment of principal of any such Borrowings will be senior to
those of the holders of FundPreferred shares, and the terms of any such
Borrowings may contain provisions which limit certain activities of the Fund,
including the payment of dividends to holders of FundPreferred shares in certain
circumstances.
Voting Rights. The 1940 Act does (in certain circumstances) grant to the
lenders to the Fund certain voting rights in the event of default in the payment
of interest on or repayment of principal. In the event that such provisions
would impair the Fund's status as a regulated investment company under the Code,
the Fund, subject to its ability to liquidate its portfolio, intends to repay
the Borrowings.
The discussion above describes the Board of Trustees' present intention
with respect to a possible offering of Borrowings. If the Board of Trustees
determines to authorize any of the foregoing, the terms may be the same as, or
different from, the terms described above, subject to applicable law and the
Fund's Declaration.
DESCRIPTION OF COMMON SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
common shares, par value $0.01 per share. All common shares have equal rights to
the payment of dividends and the distribution of assets upon liquidation. Common
shares are, when issued, fully paid and, subject to matters discussed in
"Certain Provisions in the Declaration of Trust and By-Laws," non-assessable,
and have no pre-emptive or conversion rights or rights to cumulative voting. At
any time when FundPreferred shares are outstanding, Common Shareholders will not
be entitled to receive any cash distributions from the Fund unless all accrued
dividends on FundPreferred shares have been paid, and unless asset coverage (as
defined in the 1940 Act) with respect to FundPreferred shares would be at least
200% after giving effect to the distributions.
The common shares are listed on the Exchange. The Fund intends to hold
annual meetings of shareholders so long as the common shares are listed on a
national securities exchange and such meetings are required as a condition to
such listing.
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
Declaration 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 Declaration 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 Declaration and By-laws include 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. The By-laws require the Board of Trustees be divided
into three classes with staggered terms. See the SAI under "Management of the
Fund." This provision of the By-laws could delay for up to two years the
replacement of a majority of the Board of Trustees. Holders of FundPreferred
shares, voting as a separate class, are entitled to elect two of the Fund's
trustees. In addition, the Declaration requires a
51
vote by holders of at least two-thirds of the common shares and FundPreferred
shares, voting together as a single class, except as described below, to
authorize (1) a conversion of the Fund from a closed-end to an open-end
investment company, (2) a merger or consolidation of the Fund, or a series or
class of the Fund, with any corporation, association, trust or other
organization or a reorganization of the Fund, or a series or class of the Fund,
(3) a sale, lease or transfer of all or substantially all of the Fund's assets
(other than in the regular course of the Fund's investment activities), (4) in
certain circumstances, a termination of the Fund, or a series or class 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 Declaration or the By-laws, in which case the
affirmative vote of the holders of at least a majority of the Fund's common
shares and FundPreferred shares outstanding at the time, voting together as a
single class, is required; provided, however, that where only a particular class
or series is affected (or, in the case of removing a trustee, when the trustee
has been elected by only one class), only the required vote by the applicable
class or series will be required. Approval of shareholders is not required,
however, for any transaction, whether deemed a merger, consolidation,
reorganization or otherwise whereby the Fund issues shares in connection with
the acquisition of assets (including those subject to liabilities) from any
other investment company or similar entity. In the case of the conversion of the
Fund to an open-end investment company, or in the case of any of the foregoing
transactions constituting a plan of reorganization that adversely affects the
holders of FundPreferred shares, the action in question will also require the
affirmative vote of the holders of at least two-thirds of the FundPreferred
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 Declaration or the By-laws, the
affirmative vote of the holders of at least a majority of the FundPreferred
shares outstanding at the time, voting as a separate class. None of the
foregoing provisions may be amended except by the vote of at least two-thirds of
the common shares and FundPreferred shares, voting together 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 that adversely affects the holders of FundPreferred shares are
higher than those required by the 1940 Act. The Board of Trustees believes that
the provisions of the Declaration relating to such higher votes are in the best
interest of the Fund and its shareholders.
The Declaration provides that the obligations of the Fund are not binding
upon the Fund's 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 Declaration, however, protects a trustee
against any liability to which he 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 office.
Reference should be made to the Declaration and By-laws on file with the
Securities and Exchange Commission for the full text of these provisions.
REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
common shares will trade in the open market at a price that will be a function
of several factors, including dividend levels (which are in turn affected by
expenses), net asset value, dividend stability, relative demand for and supply
of such shares in the market, general market and economic conditions and other
factors. Because shares of closed-end investment companies may frequently trade
at prices lower than net asset value, the Fund's Board of Trustees has currently
determined that, at least annually, it will consider action that might be taken
to reduce or eliminate any material discount from net asset value in respect of
common shares, which may include the repurchase of such shares in the open
market or in private transactions, the making of a tender offer for such shares
at net asset value or the conversion of the Fund to an open-end investment
company. The Fund cannot assure you that its Board of Trustees will decide to
take any of these actions, or that share repurchases or tender offers will
actually reduce market discount.
If the Fund converted to an open-end investment company, it would be
required to redeem all FundPreferred shares then outstanding (requiring in turn
that it liquidate a portion of its investment portfolio), and the common shares
would no longer be listed on the New York Stock Exchange or elsewhere. In
contrast to a closed-end investment company, shareholders of an open-end
investment company may require the company to redeem their
52
shares at any time (except in certain circumstances as authorized by the 1940
Act or the rules thereunder) at their net asset value, less any redemption
charge that is in effect at the time of redemption. See the SAI under
"Repurchase of Fund Shares; Conversion to Open-End Fund" for a discussion of the
voting requirements applicable to the conversion of the Fund to an open-end
investment company.
Before deciding whether to take any action if the common shares trade below
net asset value, the Board of Trustees would consider all relevant factors,
including the extent and duration of the discount, the liquidity of the Fund's
portfolio, the impact of any action that might be taken on the Fund or its
shareholders, and market considerations. Based on these considerations, even if
the Fund's shares should trade at a discount, the Board of Trustees may
determine that, in the interest of the Fund and its shareholders, no action
should be taken. See the SAI under "Repurchase of Fund Shares; Conversion to
Open-End Fund" for a further discussion of possible action to reduce or
eliminate such discount to net asset value.
FEDERAL INCOME TAX MATTERS
The following is intended to be a general summary of the material U.S.
federal income tax consequences of investing in FundPreferred shares. Except as
discussed under "Other Taxation," the discussion generally applies only to
holders of FundPreferred shares who are U.S. holders. You will be a U.S. holder
if you are an individual who is a citizen or resident of the United States, a
U.S. domestic corporation, or any other person that is subject to U.S. federal
income tax on a net income basis in respect of an investment in the
FundPreferred shares. This summary deals only with U.S. holders that hold
FundPreferred shares as capital assets. It does not address considerations that
may be relevant to you if you are an investor that is subject to special tax
rules, such as a financial institution, insurance company, regulated investment
company, real estate investment trust, investor in pass-through entities, U.S.
holder of FundPreferred shares whose "functional currency" is not the United
States dollar, tax-exempt organization, dealer in securities or currencies,
trader in securities or commodities that elects mark to market treatment, person
who holds FundPreferred shares in a qualified tax deferred account such as an
IRA, or person that will hold FundPreferred shares as a position in a
"straddle," "hedge" or as part of a "constructive sale" for federal income tax
purposes. In addition, this discussion does not address the application of the
U.S. federal alternative minimum tax. It is not intended to be a complete
discussion of all such federal income tax consequences, nor does it purport to
deal with all categories of investors. This discussion reflects applicable tax
laws of the United States as of the date of this Prospectus, which tax laws may
change or be subject to new interpretation by the courts or the IRS, possibly
with retroactive effect. INVESTORS ARE THEREFORE ADVISED TO CONSULT WITH THEIR
OWN TAX ADVISORS BEFORE MAKING AN INVESTMENT IN THE FUND.
FEDERAL INCOME TAX TREATMENT OF THE FUND
The Fund intends to qualify for, and to elect to be treated as, a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and intends to qualify under those provisions each year.
As a regulated investment company, the Fund generally will not be subject to
federal income tax on its investment company taxable income (as that term is
defined in the Code, without regard to the deduction for dividends paid) and net
capital gain (i.e., net long-term capital gains in excess of the sum of net
short-term capital losses and capital loss carryovers from prior years), if any,
that it distributes to shareholders. However, the Fund would be subject to
corporate income tax (currently imposed at a maximum effective rate of 35%) on
any undistributed income. The Fund intends to distribute to its shareholders, at
least annually, all or substantially all of its investment company taxable
income and net capital gains.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are also subject to a nondeductible 4% federal
excise tax. To prevent imposition of this tax, during each calendar year the
Fund must distribute, or be deemed to have distributed, an amount at least equal
to the sum of (1) 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) 98% of its capital gains in
excess of its capital losses (adjusted for certain ordinary losses) for the
twelve-month period generally ending on October 31 of the calendar year, and (3)
all such ordinary income and capital gains for previous years that were not
distributed during such years and on which the Fund paid no U.S. federal income
tax. To prevent application of this excise tax, the Fund intends to make
distributions to satisfy the calendar year distribution requirement.
53
If in any taxable year the Fund fails to qualify as a regulated investment
company under the Code, the Fund would be taxed in the same manner as an
ordinary corporation and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. In such event, the
Fund's distributions, to the extent derived from the Fund's current or
accumulated earnings and profits, would generally constitute dividends, which
would generally be eligible for the dividends received deduction available to
corporate shareholders. Furthermore, individual and other noncorporate
shareholders generally would be able to treat such distributions as "qualified
dividend income" eligible for reduced rates of federal income taxation in
taxable years beginning on or before December 31, 2010. In both such cases,
certain holding period and other requirements would need to be satisfied to
obtain the favorable tax treatment.
The Fund's transactions, if any, in forward contracts, options, futures
contracts and hedged investments will be subject to special provisions of the
Code that, among other things, may affect the character of gain and loss
realized by the Fund (i.e., may affect whether gain or loss is ordinary or
capital), accelerate recognition of income to the Fund, defer Fund losses, and
affect whether capital gain and loss is characterized as long-term or short-
term. These rules could therefore affect the character, amount and timing of
distributions to shareholders. These provisions also may require the Fund to
mark-to-market certain types of positions in its portfolio (i.e., treat them as
if they were closed out), which may cause the Fund to recognize income without
receiving cash with which to make distributions in amounts necessary to satisfy
the distribution requirements for avoiding income and excise taxes. The Fund
will monitor its transactions, make the appropriate tax elections, and make the
appropriate entries in its books and records when it acquires any option,
futures contract, forward contract, or hedged investment in order to mitigate
the effect of these rules, prevent disqualification of the Fund as a regulated
investment company, and minimize the imposition of federal income and excise
taxes.
The Fund's transactions, if any, in forward contracts, options, future
contracts and hedged investments may also result in a reduction of the Fund's
holding period for certain of its investments, which may result in dividends
paid on such investments not qualifying for the dividends received deduction or
for treatment as qualified dividend income when distributed by the Fund.
FEDERAL INCOME TAX TREATMENT OF HOLDERS OF FUNDPREFERRED SHARES
Under present law, the Fund is of the opinion that FundPreferred shares
will constitute equity of the Fund, and thus distributions with respect to
FundPreferred shares (other than distributions in redemption of FundPreferred
shares subject to Section 302(b) of the Code) will generally constitute
dividends to the extent of the Fund's current or accumulated earnings and
profits, as calculated for federal income tax purposes. Except in the case of
capital gain dividends and distributions of qualified dividend income, if any,
such dividends generally will be taxable to holders at ordinary income tax
rates. Dividends derived from net capital gain and designated by the Fund as
capital gain dividends will be treated as long-term capital gains in the hands
of holders regardless of the length of time such holders have held their shares.
Distributions in excess of the Fund's earnings and profits, if any, will first
reduce a shareholder's adjusted tax basis in his or her shares and, after the
adjusted tax basis is reduced to zero, will constitute capital gains to a holder
who holds such shares as a capital asset. The IRS currently requires that a
regulated investment company that has two or more classes of stock allocate to
each such class proportionate amounts of each type of its income (such as
ordinary income and capital gains). Accordingly, the Fund intends to designate
dividends made with respect to the common shares and the FundPreferred shares as
consisting of particular types of income (e.g., net capital gain, ordinary
income, dividends qualifying for the dividends received deduction, and qualified
dividend income) in accordance with each class's proportionate share of the
total dividends paid by the Fund during the year. A distribution will be treated
as having been paid on December 31 if it is declared by the Fund in October,
November or December with a record date in such months and is paid by the Fund
in January of the following year. Accordingly, such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared.
Distributions of investment company taxable income that are designated by
the Fund as "qualified dividend income" (which is included in the definition of
"tax-advantaged dividends" in this Prospectus) are taxed to individual and other
noncorporate shareholders at federal income tax rates applicable to long-term
capital gains, which currently reach a maximum rate of 15%. To be eligible for
this reduced rate, FundPreferred shareholders generally must hold their shares
for more than 60 days during the 121-day period beginning 60 days before the ex-
54
dividend date (or, in certain cases, 90 days during the 181-day period beginning
90 days before such date). In order for dividends received by a Fund shareholder
to be treated as qualified dividend income, the Fund must also meet holding
period and other requirements with respect to such dividend paying stocks in its
portfolio. A dividend will not be treated as qualified dividend income at the
Fund level if the dividend is received with respect to any share of stock held
for 60 days or less during the 121-day period beginning on the date which is 60
days before the date on which such share becomes ex-dividend with respect to
such dividend (or, in the case of certain preferred stock, 90 days during the
181-day period beginning 90 days before such date). In addition to the above
holding period requirements, a dividend will not be treated as qualified
dividend income (at either the Fund or shareholder level), (1) to the extent
that the recipient is under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions in substantially
similar or related property, (2) if the recipient elects to have the dividend
income treated as investment income for purposes of the limitation on
deductibility of investment interest, or (3) if the dividend is received from a
foreign corporation that is (a) not eligible for the benefits of a comprehensive
income tax treaty with the United States (with the exception of dividends paid
on stock of a foreign corporation that is readily tradable on an established
securities market in the United States) or (b) a passive foreign investment
company. To the extent the Fund distributes dividends, including capital gain
dividends that are eligible for reduced federal income tax rates, the Fund will
identify the relevant amounts of such dividends in its annual tax information
report to shareholders. Without further legislation, the rate reductions enacted
by the Act will lapse, and the higher previous rates will be reinstated, for
taxable years beginning on or after January 1, 2011.
Corporate holders of FundPreferred shares may be eligible for the dividends
received deduction with respect to certain of the Fund's distributions provided
certain holding period and other requirements are satisfied by both the Fund and
such shareholder. Generally, however, dividends received on stocks of foreign
issuers that are held by the Fund are not eligible for the dividends received
deduction when distributed to Fund shareholders.
SALE OF SHARES
The sale of FundPreferred shares by holders will generally be a taxable
transaction for federal income tax purposes. Holders of FundPreferred shares who
sell such shares will generally recognize gain or loss in an amount equal to the
difference between the net proceeds resulting from the sale and such holder's
adjusted tax basis in the shares sold. If such FundPreferred shares are held as
a capital asset at the time of the sale, the gain or loss will generally be a
capital gain or loss. Similarly, a redemption by the Fund (including a
redemption resulting from liquidation of the Fund), if any, of all the
FundPreferred shares actually and constructively held by a shareholder generally
will give rise to capital gain or loss under Section 302(b) of the Code if the
shareholder does not own (and is not regarded under certain federal income tax
rules of constructive ownership as owning) any common shares in the Fund, and
provided that the redemption proceeds do not represent declared but unpaid
dividends. Other redemptions may also give rise to capital gain or loss, but
certain conditions imposed by Section 302(b) of the Code must be satisfied to
achieve such treatment. Any loss realized upon a taxable disposition of
FundPreferred shares held for six months or less will be treated as a long-term
capital loss to the extent of any distributions of net capital gain received (or
deemed received) with respect to such shares. Any loss realized on a sale or
exchange will be disallowed to the extent that substantially identical shares
are reacquired within a period of 61 days beginning 30 days before and ending 30
days after the disposition of such shares. In such case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
BACKUP WITHHOLDING
The Fund may be required to withhold, for U.S. federal income tax purposes,
a portion of all distributions (including redemption proceeds) payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification number, who fail to make required certifications or who have been
notified by the IRS that they are subject to backup withholding (or if the Fund
has been so notified). Certain corporate and other shareholders specified in the
Code and the regulations thereunder are exempt from backup withholding. Backup
withholding is not an additional tax; any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability provided the
appropriate information is furnished to the IRS.
55
OTHER TAXATION
Non-U.S. shareholders, including shareholders who, with respect to the
United States, are nonresident alien individuals, may be subject to U.S.
withholding tax on certain distributions at a rate of 30% or, provided the Fund
receives certain certifications from such non-U.S. shareholder, such lower rates
as may be prescribed by an applicable treaty. Recently enacted legislation,
however, modifies the tax treatment of certain dividends paid by the Fund to
non-U.S. persons. Effective for taxable years of the Fund beginning before
January 1, 2008, the Fund will generally not be required to withhold tax on any
amounts paid to a non-U.S. person with respect to dividends attributable to
"qualified short-term gain" (i.e., the excess of net short-term capital gain
over net long-term capital loss) designated as such by the Fund and dividends
attributable to certain U.S. source interest income that would not be subject to
federal withholding tax if earned directly by a non-U.S. person, provided such
amounts are properly designated by the Fund.
Investors are advised to consult their own tax advisors with respect to the
application to their own circumstances of the above-described general federal
income taxation rules and with respect to other federal, state, local or foreign
tax consequences to them before making an investment in FundPreferred shares.
CUSTODIAN, TRANSFER AGENT, AUCTION AGENT, DIVIDEND DISBURSING AGENT
AND REDEMPTION AGENT
The custodian of the assets of the Fund is State Street Bank and Trust
Company, One Federal Street, Boston, Massachusetts 02110. The custodian performs
custodial, fund accounting and portfolio accounting services. The Fund's
transfer, shareholder services and dividend paying agent is also State Street
Bank and Trust Company, 250 Royall Street, Canton, Massachusetts 02021. The Bank
of New York is the Auction Agent with respect to the FundPreferred shares and
acts as transfer agent, registrar, dividend disbursing agent and redemption
agent with respect to the FundPreferred shares.
56
UNDERWRITING
Citigroup Global Markets Inc., A.G. Edwards & Sons, Inc. and Nuveen
Investments LLC are acting as representatives of the underwriters. Subject to
the terms and conditions stated in the Fund's underwriting agreement dated the
date of this prospectus, each underwriter named below has agreed to purchase,
and the Fund has agreed to sell to that underwriter, the number of FundPreferred
shares set forth opposite the underwriter's name.
NUMBER OF
UNDERWRITERS FUNDPREFERRED SHARES
------------ --------------------
Citigroup Global Markets Inc. ...........................
A.G. Edwards & Sons, Inc. ...............................
Nuveen Investments, LLC..................................
Total....................................................
The underwriting agreement provides that the obligations of the
underwriters to purchase the FundPreferred shares included in this offering are
subject to approval of legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the FundPreferred shares if they
purchase any of the FundPreferred shares.
The underwriters propose to offer some of the FundPreferred shares directly
to the public at the public offering price set forth on the cover page of this
prospectus and some of the FundPreferred shares to dealers at the public
offering price less a concession not to exceed $ per FundPreferred share.
The sales load the Fund will pay of $ per FundPreferred share is equal
to % of the initial offering price. The underwriters may allow, and dealers may
reallow, a concession not to exceed $ per FundPreferred share on sales to
other dealers. After the initial public offering of the FundPreferred shares to
the public, the underwriters may change the public offering price and other
selling terms. Investors must pay for any FundPreferred shares purchased on or
before , 2007.
The following table shows the sales load that the Fund will pay to the
underwriters in connection with this offering.
PAID BY FUND
------------------------
Per Share............................................ $
Total................................................ $
The Fund and the Advisers have agreed that, for a period of 180 days from
the date of this prospectus, they will not, without the prior written consent of
Citigroup Global Markets Inc., on behalf of the underwriters, dispose of or
hedge any FundPreferred shares or any securities convertible into or
exchangeable for FundPreferred shares. Citigroup Global Markets Inc., in its
sole discretion, may release any of the securities subject to these lock-up
agreements at any time without notice.
The Fund and the Advisers have each agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to make because of
any of those liabilities. Any indemnification by the Fund shall be subject to
the requirements and limitations of Section 17(i) of the Investment Company Act.
Some of the underwriters have performed banking and advisory services for
the Fund and its affiliates from time to time, for which they have received
customary fees and expenses. The underwriters may, from time to time, engage in
transactions with or perform services for the Fund and its affiliates in the
ordinary course of business.
The Fund anticipates that from time to time, the underwriters may act as
brokers or dealers in connection with the execution of the Fund's portfolio
transactions after they have ceased to be underwriters and, subject to certain
restrictions, may act as brokers while they are underwriters.
The Fund anticipates that the underwriters or one of their respective
affiliates may, from time to time, act in auctions as Broker-Dealers and receive
fees as set forth under "The Auction" and in the SAI.
The principal business address of Citigroup Global Markets Inc. is 388
Greenwich Street, New York, New York 10013. The principal business address of
A.G. Edwards & Sons, Inc. is One North Jefferson Avenue, St. Louis,
57
Missouri 63103. Nuveen Investments, LLC, 333 West Wacker Drive, Chicago,
Illinois, 60606, one of the Representatives, is an affiliate of NAM.
LEGAL OPINIONS
Certain legal matters in connection with the FundPreferred shares offered
hereby will be passed upon for the Fund by Vedder, Price, Kaufman & Kammholz,
P.C., Chicago, Illinois, and for the Underwriters by Simpson Thacher & Bartlett
LLP, New York, New York. Vedder, Price, Kaufman & Kammholz, P.C. and Simpson
Thacher & Bartlett LLP may rely as to certain matters of Massachusetts law on
the opinion of Bingham McCutchen LLP, Boston, Massachusetts.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and is required to file reports, proxy
statements and other information with the SEC. These documents can be inspected
and copied for a fee at the SEC's public reference room, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Reports, proxy statements, and other information about
the Fund can be inspected at the offices of the Exchange.
This Prospectus does not contain all of the information in the Fund's
registration statement, including amendments, exhibits, and schedules.
Statements in this Prospectus about the contents of any contract or other
document are not necessarily complete and in each instance reference is made to
the copy of the contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
this reference.
Additional information about the Fund and FundPreferred shares can be found
in the Fund's Registration Statement (including amendments, exhibits, and
schedules) on Form N-2 filed with the SEC. The SEC maintains a web site
(http://www.sec.gov) that contains each Fund's Registration Statement, other
documents incorporated by reference, and other information the Fund has filed
electronically with the SEC, including proxy statements and reports filed under
the Securities Exchange Act of 1934. Additional information may be found on the
Internet at http://www.nuveen.com.
58
TABLE OF CONTENTS
FOR THE STATEMENT OF ADDITIONAL INFORMATION
Investment Objectives.................................................. S-3
Investment Restrictions................................................ S-3
Investment Policies And Techniques..................................... S-5
Hedging Transactions................................................... S-11
Management of the Fund................................................. S-16
Investment Adviser and Subadvisers..................................... S-27
Portfolio Transactions and Brokerage................................... S-33
Net Asset Value........................................................ S-34
Additional Information Concerning Auctions for FundPreferred Shares.... S-35
Repurchase of Fund Shares; Conversion to Open-End Fund................. S-38
Federal Income Tax Matters............................................. S-40
Experts................................................................ S-46
Custodian, Transfer Agent, Auction Agent, Dividend Disbursing Agent and S-46
Redemption Agent.....................................................
Additional Information................................................. S-47
Report of Independent Registered Public Accounting Firm................ F-1
Financial Statements................................................... F-2
Appendix A -- Statement of Preferences................................. A-1
Appendix B -- Ratings of Investment.................................... B-1
59
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$36,000,000
NUVEEN TAX-ADVANTAGED
DIVIDEND GROWTH FUND
FUNDPREFERRED(TM) SHARES
1,440 SHARES, SERIES T
----------
PROSPECTUS
, 2007
----------
CITI
A.G. EDWARDS
NUVEEN INVESTMENTS, LLC
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 6, 2007
NUVEEN TAX-ADVANTAGED DIVIDEND GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
Nuveen Tax-Advantaged Dividend Growth Fund (the "Fund") is a recently
organized, diversified, closed-end management investment company.
This Statement of Additional Information relating to preferred shares of
the Fund ("FundPreferred shares") does not constitute a prospectus, but should
be read in conjunction with the Fund's Prospectus relating thereto dated ____
__, 2007 (the "Prospectus"). This Statement of Additional Information does not
include all information that a prospective investor should consider before
purchasing FundPreferred shares. Investors should obtain and read the Fund's
Prospectus prior to purchasing such shares. A copy of the Fund's Prospectus may
be obtained without charge by calling (800) 257-8787. You may also obtain a copy
of the Fund's Prospectus on the Securities and Exchange Commission's web site
(http://www.sec.gov). Capitalized terms used but not defined in this Statement
of Additional Information have the meanings ascribed to them in the Prospectus.
This Statement of Additional Information is dated ____ __, 2007.
S-1
TABLE OF CONTENTS
PAGE
Investment Objectives......................................................................................... S-3
Investment Restrictions....................................................................................... S-3
Investment Policies And Techniques............................................................................ S-5
Hedging Transactions.......................................................................................... S-11
Management of the Fund........................................................................................ S-16
Investment Adviser and Subadvisers............................................................................ S-27
Portfolio Transactions and Brokerage.......................................................................... S-33
Net Asset Value............................................................................................... S-34
Additional Information Concerning Auctions for FundPreferred Shares........................................... S-35
Repurchase of Fund Shares; Conversion to Open-End Fund........................................................ S-38
Federal Income Tax Matters.................................................................................... S-40
Experts ..................................................................................................... S-46
Custodian, Transfer Agent, Auction Agent, Dividend Disbursing Agent and Redemption Agent...................... S-46
Additional Information........................................................................................ S-47
Report of Independent Registered Public Accounting Firm....................................................... F-1
Financial Statements.......................................................................................... F-2
Appendix A - Statement of Preferences......................................................................... A-1
Appendix B - Ratings of Investment............................................................................ B-1
S-2
INVESTMENT OBJECTIVES
The Fund's investment objective is to provide an attractive level of
distributions and capital appreciation. In pursuing its investment objective,
the Fund seeks to reduce and defer potential federal income tax liabilities
incurred by the holders of its Common Shares in connection with their investment
in the Fund. The Fund seeks to achieve its investment objective by investing in
dividend-paying equity securities consisting primarily of common stocks of mid-
to large-cap companies that have attractive dividend income and the potential
for future dividend growth and capital appreciation. The Fund also will invest
in preferred and other fixed income securities.
In addition, the Fund, to a limited extent, will write (sell) call options
on various equity market indices. There can be no assurance that the Fund's
investment objective will be achieved.
A more complete description of the Fund's investment objective and
policies is set forth in the Fund's Prospectus.
INVESTMENT RESTRICTIONS
Except as described below, the Fund, as a fundamental policy, may not,
without the approval of the holders of a majority of the outstanding common
shares and, if applicable, FundPreferred shares voting together as a single
class, and of the holders of a majority of the outstanding FundPreferred shares
voting as a separate class, if applicable:
(1) Issue senior securities, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), other than (i) preferred shares that
immediately after issuance will have asset coverage of at least 200%, (ii)
indebtedness that immediately after issuance will have asset coverage of at
least 300% or (iii) the borrowings permitted by investment restriction (2) set
forth below;
(2) Borrow money, except as permitted by the 1940 Act and exemptive orders
granted under the 1940 Act;
(3) Act as underwriter of another issuer's securities, except to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), in connection
with the purchase and sale of portfolio securities or acting as an agent or one
of a group of co-agents in originating adjustable rate senior loans;
(4) Invest more than 25% of its total assets in securities of issuers in
any one industry, provided, however, that such limitation shall not apply to
obligations issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities, and provided further that for purposes of this limitation,
the term "issuer" shall not include a lender selling a participation to the Fund
together with any other person interpositioned between such lender and the Fund
with respect to a participation;
(5) Purchase or sell real estate, except that this shall not prevent the
Fund from investing in securities of companies that deal in real estate or are
engaged in the real estate business, including real estate investment trusts,
and securities secured by real estate or interests therein and the Fund may hold
and sell real estate or mortgages on real estate acquired through default,
liquidation or other distributions of an interest in real estate as a result of
the Fund's ownership of such securities;
(6) Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments except that this shall not prevent
the Fund from purchasing or selling
S-3
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 1940 Act and exemptive orders
granted under the 1940 Act; and
(8) With respect to 75% of the value of the Fund's total assets, purchase
any securities (other than obligations issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities), if, as a result, more than
5% of the Fund's total assets would then be invested in securities of a single
issuer or if, as a result, the Fund would hold more than 10% of the outstanding
voting securities of any single issuer.
For the purpose of applying the limitation set forth in subparagraph (8)
above, a governmental issuer shall be deemed the single 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 single 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.
Under the 1940 Act, the Fund may invest only up to 10% of its total assets
in the aggregate in shares of other investment companies and only 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 stockholder in any investment company,
the Fund will bear its ratable share of that investment company's expenses, and
will remain subject to payment of the Fund's management, advisory and
administrative fees with respect to assets so invested. Holders of common shares
("Common Shareholders") 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.
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 of Trustees. The Fund may not:
(1) sell securities short, except that the Fund may make short sales of
securities if, at all times when a short position is open, the Fund owns at
least an equal amount of such securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities of
the same issuer as, and equal in amount to, the securities sold short, 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) purchase securities of open-end or closed-end investment companies
except in compliance with the 1940 Act or any exemptive relief obtained
thereunder.
(3) purchase securities of companies for the purpose of exercising
control.
S-4
The restrictions and other limitations set forth above, except with
respect to the borrowing policy, 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 nationally recognized statistical rating organizations
("NRSROs") that may issue ratings for FundPreferred shares, if any, 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 Nuveen Asset Management ("NAM"), Santa Barbara Asset
Management, LLC ("Santa Barbara") or NWQ Investment Management Company, LLC
("NWQ"), as applicable, from managing the Fund's portfolio in accordance with
the Fund's investment objective and policies.
INVESTMENT POLICIES AND TECHNIQUES
In addition to the investments and securities described in the Fund's
Prospectus section "The Fund's Investments--Portfolio Composition and Other
Information," the Fund may invest in other securities as described below:
Certificates of Deposit. 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 Federal Deposit Insurance Corporation 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.
U.S. Government Debt Securities. The Fund may invest in U.S. Government
debt securities, U.S. local government debt securities and U.S. Government
Agency securities of any maturity, including U.S. Government mortgage-backed
securities. U.S. Government securities are debt securities issued and/or
guaranteed as to principal and interest by the U.S. Government that are
supported by the full faith and credit of the United States. U.S. Government
Agency securities, as used herein, include debt securities issued and/or
guaranteed as to principal and interest by U.S. Government Agencies, U.S.
Government-sponsored enterprises and U.S. Government instrumentalities that are
not direct obligations of the United States. These securities may not be backed
by the full faith and credit of the United States. U.S. Government-sponsored
enterprises and instrumentalities are not agencies of the U.S. Government.
Government sponsored enterprises are private corporations sponsored by the
federal government. U.S. Government agency securities include securities issued
by (a) the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United 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 or the Federal Home Loan
Mortgage Corporation, 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. Securities issued by these entities are generally
not supported by the full faith and credit of the United States. Because the
U.S. Government is not obligated to provide support to its instrumentalities,
the Fund will invest in obligations issued by these instrumentalities only where
the Fund is satisfied that the credit risk with respect to the issuers is
minimal.
S-5
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.
Total Return Swaps. The Fund may invest in total return swaps for hedging
purposes. The Fund will enter into swap agreements only with counterparties that
meet certain standards of creditworthiness.
In a total return swap, the Fund exchanges with another party their
respective commitments to pay or receive the total return of an underlying asset
and a floating LIBOR (London Interbank Offered Rate) rate. The Fund usually will
enter into total return swaps on a net basis (i.e., the two payment streams are
netted out with the Fund receiving or paying, as the case may be, only the net
amount of the two payments). The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis, and an amount of cash or liquid securities having
an aggregate net asset value at least equal to the accrued excess will be
segregated by the Fund.
The use of swaps is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions, including the risk that the counterparty may be unable
to fulfill the transaction. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to the agreements
related to the transaction. If NAM is incorrect in its forecasts of market
values, interest rates and other applicable factors, the investment performance
of the Fund would be unfavorably affected.
Repurchase Agreements. 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 purchase 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. The Fund will only enter into
repurchase agreements with registered securities dealers or domestic banks that,
in NAM's opinion, present minimal credit risk. 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 Fund's repurchase agreements will provide that
the value of the collateral underlying the repurchase agreement will always be
at least equal to the repurchase price, including any accrued interest earned on
the agreement, and will be marked-to-market daily. NAM 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. NAM 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. In the event the value of the collateral declines
below the repurchase price, NAM will demand additional collateral from the
issuer to increase the collateral to at least that of the repurchase price,
including interest. 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.
Illiquid Securities. The Board of Trustees or its delegate has the
ultimate authority to determine which securities are liquid or illiquid. The
Board of Trustees has delegated to NAM the day-to-day determination of the
illiquidity of any security held by the Fund, although it has retained oversight
and ultimate responsibility for such determinations. No definitive liquidity
criteria are used. The Board of
S-6
Trustees has directed NAM when making liquidity determinations to look for such
factors as (i) the nature of the market for a security (including the
institutional private resale market; the frequency of trades and quotes for the
security; the number of dealers willing to purchase or sell the security; the
amount of time normally needed to dispose of the security; and the method of
soliciting offers and the mechanics of transfer), (ii) the terms of certain
securities or other instruments allowing for the disposition to a third party or
the issuer thereof (e.g., certain repurchase obligations and demand instruments)
and (iii) other relevant factors.
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 fair
value as determined in good faith by the Board of Trustees or its delegate.
When-Issued and Delayed Delivery Transactions. The Fund may purchase and
sell securities on a when-issued or delayed delivery basis, making payment or
taking delivery at a later date, normally within 15 to 45 days of the trade
date. On such transactions the payment obligation and the interest rate are
fixed at the time the purchaser 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 Securities
and Exchange Commission to maintain in a separate account liquid assets,
consisting of cash, cash equivalents or liquid securities having a market value
at all times of at least equal to the amount of any delayed payment commitment.
Income generated by any such assets that provide taxable income for U.S. federal
income tax purposes is includable in the taxable income of the Fund. The Fund
may enter into contracts to purchase 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.
Convertible Securities. A convertible security generally entitles the
holder to receive interest paid or accrued until the convertible security
matures or is redeemed, converted or exchanged. Floating rate convertible
securities may specify an interest rate or rates that are conditioned upon
changes to the market price of the underlying common stock. Convertible
securities also may be issued in zero coupon form with an original issue
discount. Convertible securities rank senior to common stock in a corporation's
capital structure and, therefore, generally entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security. Before conversion, convertible
securities have characteristics similar to non-convertible fixed income
securities and can provide for a stable stream of income with generally higher
yields than common stocks. However, convertible securities fall below fixed
income securities of the same issuer in order of preference or priority in the
event of a liquidation, and are typically unrated or rated lower than such fixed
income securities. In addition, contingent payment convertible securities allow
the issuer to claim deductions based on its nonconvertible cost of debt which
generally will result in deductions in excess of the actual cash payments made
on the securities (and accordingly, holders will recognize income in amounts in
excess of the cash payments received). There can be no assurance of current
income because the issuers of the convertible securities may default on their
obligations. The convertible securities in which the Fund may invest may be
below investment grade quality. See "--Below Investment Grade Securities" below.
S-7
Convertible securities generally offer lower interest or dividend yields
than non-convertible securities of similar credit quality because of the
potential for capital appreciation. A convertible security, in addition to
providing current income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from any increases
in the market price of the underlying common stock. The common stock underlying
convertible securities may be issued by a different entity than the issuer of
the convertible securities.
The value of convertible securities is influenced by both the yield of
non-convertible securities of comparable issuers and by the value of the
underlying common stock. The value of a convertible security viewed without
regard to its conversion feature (i.e., strictly on the basis of its yield) is
sometimes referred to as its "investment value." The investment value of the
convertible security typically will fluctuate based on the credit quality of the
issuer and will fluctuate inversely with changes in prevailing interest rates.
However, at the same time, the convertible security will be influenced by its
"conversion value," which is the market value of the underlying common stock
that would be obtained if the convertible security were converted. Conversion
value fluctuates directly with the price of the underlying common stock, and
will therefore be subject to risks relating to the activities of the issuer
and/or general market and economic conditions. Depending upon the relationship
of the conversion price to the market value of the underlying security, a
convertible security may trade more like an equity security than a fixed income
security.
If, because of a low price of the common stock, the conversion value is
substantially below the investment value of the convertible security, the price
of the convertible security is governed principally by its investment value. If
the conversion value of a convertible security increases to a point that
approximates or exceeds its investment value, the value of the security will be
principally influenced by its conversion value. A convertible security will sell
at a premium over its conversion value to the extent investors place value on
the right to acquire the underlying common stock while holding a fixed-income
security.
Mandatory convertible securities are distinguished as a subset of
convertible securities because the conversion is not optional; they may be
called for conversion by the issuer after a particular date and under certain
circumstances (including at a specified price) established upon its issuance. If
a mandatory convertible security is called for conversion, the Fund will be
required to either convert it into the underlying common stock or sell it to a
third party, which may have an adverse effect on the Fund's ability to achieve
its investment objective. The conversion price at maturity (or redemption) is
based solely upon the market price of the underlying common stock, which may be
significantly less than par or the price (above or below par) paid. For these
reasons, the risks associated with the investing in mandatory convertible
securities most closely resemble the risks inherent in common stocks. Mandatory
convertible securities customarily pay a higher coupon yield to compensate for
the potential risk of additional price volatility and loss upon redemption.
Since the correlation of common stock risk increases as the security approaches
its redemption date, there can be no assurance that the higher coupon will
compensate for the potential loss.
Below Investment Grade Securities. Below investment grade quality
securities are sometimes referred to as "high yield" securities or "junk bonds."
Investments in below investment grade securities generally provide greater
income and increased opportunity for capital appreciation than investments in
higher quality securities, but they also typically entail greater price
volatility and principal and income risk, including the possibility of issuer
default and bankruptcy. Below investment grade securities are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Issuers of below investment grade
securities may be highly leveraged and may not have available to them more
traditional methods of
S-8
financing. Securities in the lowest investment grade category also may be
considered to possess some speculative characteristics by certain rating
agencies. In addition, analysis of the creditworthiness of issuers of below
investment grade securities may be more complex than for issuers of higher
quality securities.
Below investment grade securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions than investment
grade securities. A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in high yield security prices
because the advent of a recession could lessen the ability of an issuer to make
principal and interest payments on its fixed income securities. If an issuer of
below investment grade securities defaults, in addition to risking payment of
all or a portion of interest and principal, the Fund may incur additional
expenses to seek recovery. In the case of below investment grade securities
structured as zero coupon or payment-in-kind securities, their market prices
will normally be affected to a greater extent by interest rate changes, and
therefore tend to be more volatile than securities which pay interest currently
and in cash. NWQ seeks to reduce these risks through diversification, credit
analysis and attention to current developments and trends in both the economy
and financial markets.
The secondary market for below investment grade securities may not be as
liquid as the secondary market for more highly rated securities, a factor which
may have an adverse effect on the Fund's ability to dispose of a particular
security. There are fewer dealers in the market for below investment grade
securities than for investment grade obligations. The prices quoted by different
dealers may vary significantly and the spread between the bid and ask price is
generally much larger 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 Fund's net asset value.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of below investment
grade securities, especially in a thinly traded market. When secondary markets
for below investment grade securities are less liquid than the market for
investment grade securities, it may be more difficult to value the securities
because such valuation may require more research, and elements of judgment may
play a greater role in the valuation because there is less reliable, objective
data available. During periods of thin trading in these markets, the spread
between bid and asked prices is likely to increase significantly and the Fund
may have greater difficulty selling its portfolio securities. The Fund will be
more dependent on NWQ's research and analysis when investing in below investment
grade securities. NWQ seeks to minimize the risks of investing in all securities
through in-depth credit analysis and attention to current developments in
interest rates and market conditions.
A general description of the ratings of securities by Moody's, S&P and
Fitch is set forth in Appendix B to this Statement of Additional Information.
The ratings of Moody's, S&P and Fitch represent their opinions as to the quality
of the securities they rate. It should be emphasized, however, that ratings are
general and are not absolute standards of quality. Consequently, in the case of
fixed income securities, certain fixed income securities with the same maturity,
coupon and rating may have different yields while fixed income securities with
the same maturity and coupon with different ratings may have the same yield. For
these reasons, the use of credit ratings as the sole method of evaluating high
yield securities can involve certain risks. For example, credit ratings evaluate
the safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may
S-9
fail to change credit ratings in a timely fashion to reflect events since the
security was last rated. NWQ does not rely solely on credit ratings when
selecting securities for the Fund, and develop their own independent analysis of
issuer credit quality.
The Fund's 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 or NWQ downgrades its assessment of the credit
characteristics of a particular issue. In determining whether to retain or sell
such a security, NWQ may consider such factors as its 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. However, analysis of the creditworthiness of issuers of below
investment grade securities may be more complex than for issuers of higher
quality fixed income securities.
Trust Preferred Securities. Many taxable preferred securities are issued
by trusts or other special purpose entities established by operating companies
and are not a direct obligation of an operating company. At the time a trust or
special purpose entity sells its preferred securities to investors, the trust or
special purpose entity purchases debt of the operating company (with terms
comparable to those of the trust or special purpose entity securities), which
enables the operating company to deduct for tax purposes the interest paid on
the debt held by the trust or special purpose entity. The trust or special
purpose entity is generally required to be treated as transparent for federal
income tax purposes such that the holders of the taxable preferred securities
are treated as owning beneficial interests in the underlying debt of the
operating company. Accordingly, payments on the taxable preferred securities are
treated as interest rather than dividends for federal income tax purposes and,
as such, are not eligible for the dividends received deduction available to
corporate shareholders under Section 243 of the Internal Revenue Code of 1986,
as amended (the "Code") or treatment as tax-advantaged dividends. The trust or
special purpose entity in turn would be a holder of the operating company's debt
and would have priority with respect to the operating company's earnings and
profits over the operating company's common shareholders, but would typically be
subordinated to other classes of the operating company's debt. Typically a
taxable preferred share has a rating that is slightly below that of its
corresponding operating company's senior debt securities.
Structured Notes. The rate of return on structured notes may be determined
by applying a multiplier to the performance or differential performance of the
referenced index(es) or other asset(s). Application of the multiplier involves
leverage that will serve to magnify the potential for gain and the risk of loss.
While structured notes may offer the potential for a favorable rate of return
from time to time, they also entail certain risks. Structured notes may be less
liquid than other fixed income securities, and the price of structured notes may
be more volatile. In some cases, depending on the terms of the embedded index, a
structured note may provide that the principal and/or interest payments may be
adjusted below zero. Structured notes also may involve significant credit risk
and risk of default by the counterparty. Like other sophisticated strategies,
the Fund's use of structured notes may not work as intended. If the value of the
embedded index changes in a manner other than that expected by NWQ, principal
and/or interest payments received on the structured notes may be substantially
less than expected. Also, if NWQ uses structured notes to reduce the duration of
the Fund's portfolio, this may limit the Fund's return when having a longer
duration of the Fund's portfolio, this may limit the Fund's return when having a
longer duration would be beneficial (for instance, when interest rates decline).
Swaptions. The Fund may enter into swaptions in order to enhance the
Fund's total return or for hedging purposes. A swaption is an OTC traded option
that gives the seller the right, but not the obligation, to enter into an
interest rate swap at a set rate on an agreed upon future date. Although the
typical swaption is an option on an interest rate swap, a swaption could be an
option on any type of swap. In return for this flexibility, the purchaser of the
swaption pays a premium determined by taking into account the duration of the
option period, the term and strike rate of the swap and the volatility of
interest
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rates. If interest rates fall, the purchaser of the swaption will let the
swaption expire and transact an interest rate swap at the prevailing market
rate. NAM believes that swaptions confer all the benefits of an interest rate
swap as well as being a useful tool where there is uncertainty of outcome. There
is currently a liquid swaption market on the LIBOR rates of all the world's
major currencies. There are three styles of swaptions: American, in which the
holder is allowed to enter the swap on any day that falls within a range of two
dates; Bermudian, in which the holder is allowed to enter the swap on a sequence
of dates; and European, in which the holder is allowed to enter the swap on one
specified date.
Commercial Paper. Commercial paper may include 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. NAM will consider the financial condition of the corporation (e.g.,
earning power, cash flow, and other liquidity measures) and will continuously
monitor the corporation's ability to meet all of its financial obligations,
because the Fund's 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 paper rated in the highest categories by a NRSRO and that
mature within one year of the date of purchase or carry a variable or floating
rate of interest.
HEDGING TRANSACTIONS
Options on Securities. The Fund may purchase put and call options on
stock, bonds or other securities to hedge against adverse market shifts.
As a holder of a put option, the Fund will have the right to sell the
securities underlying the option and as the holder of a call option, the Fund
will have the right to purchase the securities underlying the option, in each
case at their exercise price at any time during the option period prior to the
option's expiration date. The Fund may choose to exercise the options it holds,
permit them to expire or terminate them prior to their expiration by entering
into closing sale or purchase transactions. In entering into a closing sale or
purchase transaction, the Fund would sell an option of the same series as the
one it has purchased. The ability of the Fund to enter into a closing sale
transaction with respect to options purchased and to enter into a closing
purchase transaction with respect to options sold depends on the existence of a
liquid secondary market.
In purchasing a put option, the Fund will seek to benefit from a decline
in the market price of the underlying security, while in purchasing a call
option, the Fund will seek to benefit from an increase in the market price of
the underlying security. If an option purchased is not sold or exercised when it
has remaining value, or if the market price of the underlying security remains
equal to or greater than the exercise price, in the case of a put, or remains
equal to or below the exercise price, in the case of a call, during the life of
the option, the option will expire worthless. For the purchase of an option to
be profitable, the market price of the underlying security must decline
sufficiently below the exercise price, in the case of a put, and must increase
sufficiently above the exercise price, in the case of a call, to cover the
premium and transaction costs. Because option premiums paid by the Fund are
small in relation to the market value of the instruments underlying the options,
purchasing options can result in amounts of leverage to the Fund. The leverage
caused by trading in options could cause the Fund's net asset value to be
subject to more frequent and wider fluctuation than would be the case if the
Fund did not invest in options.
The Fund will receive a premium when it writes put and call options, which
increases the Fund's return on the underlying security in the event the option
expires unexercised or is closed out at a profit. By writing a call, the Fund
will limit its opportunity to profit from an increase in the market value of the
underlying security above the exercise price of the option for as long as the
Fund's obligation as the seller
S-11
of the option continues. Upon the exercise of a put option written by the Fund,
the Fund may suffer an economic loss equal to the difference between the price
at which the Fund is required to purchase the underlying security and its market
value at the time of the option exercise, less the premium received for writing
the option. Upon the exercise of a call option written by the Fund, the Fund may
suffer an economic loss equal to an amount not less than the excess of the
security's market value at the time of the option exercise over the Fund's
acquisition cost of the security, less the sum of the premium received for
writing the option and the difference, if any, between the call price paid to
the Fund and the Fund's acquisition cost of the security. Thus, in some periods
the Fund might receive less total return and in other periods greater total
return from its hedged positions than it would have received from its underlying
securities unhedged.
Options on Equity Market Indices. The Fund may purchase put and call
options on various equity market indices to hedge against risks of market-wide
price movements affecting its assets. In addition, the Fund may write covered
put and call options on various equity market indices. The advisability of using
equity index options to hedge against the risk of market-wide movements will
depend on the extent of diversification of the Fund's investments and the
sensitivity of its investments to factors influencing the underlying index. The
effectiveness of purchasing or writing equity index options as a hedging
technique will depend upon the extent to which price movements in the Fund's
investments correlate with price movements in the equity index selected. In
addition, successful use by the Fund of options on various equity market indices
will be subject to the ability of the adviser to predict correctly changes in
the relationship of the underlying index to the Fund's portfolio holdings. No
assurance can be given that NAM's judgment in this respect will be correct.
When the Fund writes an option on an equity index, it will establish a
segregated account with its custodian in which the Fund will deposit liquid
securities in an amount equal to the market value of the option, and will
maintain the account while the option is open.
Stock Futures Contracts. The Fund may purchase and sell stock futures as a
hedge against movements in the equity or bond markets. Stock index 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 stock or bond index 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.
For example, if NAM expects general stock market prices to decline, they
might sell a futures contract on a particular stock or bond index. If that index
does in fact decline, the value of some or all of the securities in the Fund's
portfolio may also be expected to decline, but that decrease would be offset in
part by the increase in the value of the Fund's position in such futures
contract. If, on the other hand, NAM expects general stock market prices to
rise, they might purchase a stock index futures contract as a hedge against an
increase in prices of particular securities they want ultimately to purchase. If
in fact the stock index does rise, the price of the particular securities
intended to be purchased may also increase, but that increase would be offset in
part by the increase in the value of the Fund's futures contract resulting from
the increase in the index. The Fund may purchase futures contracts on a stock
index to enable NAM to gain immediate exposure to the underlying securities
market pending the investment in individual securities of the Fund's portfolio.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit initial margin
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual
S-12
obligations have been satisfied. Under certain circumstances, such as periods of
high volatility, the Fund may be required by an exchange to increase the level
of its initial margin payment, and initial margin requirements might be
increased generally in the future by regulatory action.
Subsequent variation margin payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
marking-to-market. Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When a Fund purchases an option on a futures contract, the premium paid
plus transaction costs is all that is at risk. In contrast, when a Fund
purchases or sells a futures contract or writes a call or put option thereon, it
is subject to daily variation margin calls that could be substantial in the
event of adverse price movements. If the Fund has insufficient cash to meet
daily variation margin requirements, it might need to sell securities at a time
when such sales are disadvantageous.
The current view of the staff of the Securities and Exchange Commission is
that the Fund's 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.
The Fund and NAM have claimed, respectively, an exclusion from
registration as a commodity pool operator and as commodity trading advisors
under the Commodity Exchange Act (the "CEA") and, therefore, neither the Fund,
NAM, nor their officers and directors, are subject to the registration
requirements of the CEA or regulation as a commodity pool operator or a
commodity trading advisor under the CEA. The Fund reserves the right to engage
in transactions involving futures and options thereon to the extent allowed by
Commodity Futures Trading Commission ("CFTC") regulations in effect from time to
time and in accordance with the Fund's policies. In addition, certain provisions
of the Code may limit the extent to which the Fund may enter into futures
contracts or engage in options transactions. See "Federal Income Tax Matters."
The potential loss related to the purchase of an option on a futures
contract is limited to the premium paid for the option (plus transaction costs).
With respect to options purchased by the Fund, there are no daily cash
payments made by the Fund to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and that change
would be reflected in the net asset value of the Fund.
Other Futures Contracts and Options on Futures Contracts. The Fund's use
of derivative instruments also may include (i) U.S. Treasury security or U.S.
Government Agency security futures contracts and (ii) options on U.S. Treasury
security or U.S. Government Agency security futures contracts. All such futures
contracts and options thereon must be traded and listed on an exchange. U.S.
Treasury and U.S. Government Agency futures contracts are standardized contracts
for the future delivery of a U.S. Treasury Bond or U.S. Treasury Note or a U.S.
Government Agency security or their equivalent at a future date at a price set
at the time of the contract. An option on a U.S. Treasury or U.S. Government
Agency futures contract, as contrasted with the direct investment in such a
contract, gives the purchaser of the option the right, in return for the premium
paid, to assume a position in a U.S. Treasury or U.S. Government Agency futures
contract at a specified exercise price at any time on or before the expiration
date of the option. Upon exercise of an option, the delivery of the futures
position by the seller of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the seller's future margin
account, which represents the amount by which the market price of the futures
contract exceeds the exercise price of the option on the futures contract.
Risks Associated with Futures Contracts and Options on Futures Contracts.
Futures prices are affected by many factors, such as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument
and the time remaining until expiration of the contract. A purchase or sale of a
S-13
futures contract may result in losses in excess of the amount invested in the
futures contract. While the Fund may enter into futures contracts and options on
futures contracts for hedging purposes, the use of futures contracts and options
on futures contracts might result in a poorer overall performance for the Fund
than if it had not engaged in any such transactions. If, for example, the Fund
had insufficient cash, it might have to sell a portion of its underlying
portfolio of securities in order to meet daily variation margin requirements on
its futures contracts or options on futures contracts at a time when it might be
disadvantageous to do so. There may be an imperfect correlation between the
Fund's portfolio holdings and futures contracts or options on futures contracts
entered into by the Fund, which may prevent the Fund from achieving the intended
hedge or expose the Fund to risk of loss. The degree of imperfection of
correlation depends on circumstances such as: variations in speculative market
demand for futures, futures options and the related securities, including
technical influences in futures and futures options trading and differences
between the securities markets and the securities underlying the standard
contracts available for trading. Futures prices are affected by many factors,
such as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument and the time remaining until the expiration of the
contract. Further, the Fund's use of futures contracts and options on futures
contracts to reduce risk involves costs and will be subject to NAM's ability to
predict correctly changes in interest rate relationships or other factors. A
decision as to whether, when and how to use futures contracts involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected stock price
or interest rate trends. No assurance can be given that NAM's judgment in this
respect will be correct.
The Fund's futures transactions will ordinarily be entered into for
traditional hedging purposes. There is, however, no limit on the amount of the
Fund's assets that can be put at risk through the use of futures contracts and
options thereon and the value of the Fund's futures contracts and options
thereon may equal or exceed 100% of the value of the Fund's total assets.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses. Stock index
futures contracts are not normally subject to such daily price change
limitations.
The Fund may invest in other options. An option is an instrument that
gives the holder of the instrument the right, but not the obligation, to
purchase or sell a predetermined number of specific securities (i.e., preferred
stocks, common stocks or bonds) at a stated price within the expiration period
of the instrument, which is generally less than 12 months from its issuance. If
the right is not exercised after a specified period but prior to the expiration,
the option expires. Both put and call options may be used by the Fund.
The Fund may purchase and sell various other kinds of financial futures
contracts and options thereon. Futures contracts may be based on various debt
securities and securities indices (such as the Municipal Bond Index traded on
the Chicago Board of Trade). Such transactions involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices, which
may exceed the Fund's initial investment in these contracts. The Fund will only
purchase or sell futures contracts or related options in compliance with the
rules of the CFTC. These transactions involve transaction costs. There can be no
assurance that the Fund's use of futures will be advantageous to the Fund.
S-14
Credit-Linked Notes. The Fund may invest in credit-linked notes ("CLN")
for risk management purposes, including diversification. A CLN is a derivative
instrument that is a synthetic obligation between two or more parties where the
payment of principal and/or interest is based on the performance of some
obligation (a reference obligation). In addition to credit risk of the reference
obligation and interest rate risk, the purchaser/seller of the CLN is subject to
counterparty risk.
Interest Rate Transactions. If market conditions are deemed favorable, the
Fund may enter into interest rate swap or cap transactions. Interest rate swaps
involve the Fund's agreement with the swap counterparty to pay a fixed rate
payment in exchange for the counterparty agreeing to pay the Fund a payment at a
variable rate. The payment obligations would be based on the notional amount of
the swap. The Fund may use an interest rate cap, which would require it to pay a
premium to the cap counterparty and would entitle it, to the extent that a
specified variable rate index exceeds a predetermined fixed rate, to receive
from the counterparty payment of the difference based on the notional amount.
The Fund would use interest rate swaps or caps only with the intent to reduce or
eliminate the risk that an increase in short-term interest rates could have on
Common Share net earnings as a result of leverage.
The Fund will usually enter into swaps or caps on a net basis; that is,
the two payment streams will be netted out in a cash settlement on the payment
date or dates specified in the instrument, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. The Fund intends to
maintain in a segregated account with its custodian cash or liquid securities
having a value at least equal to the Fund's net payment obligations under any
swap transaction, marked-to-market daily.
The use of 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 Fund's use of interest rate swaps or caps could
enhance or harm the overall performance on the 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 short-term interest rates are lower than the
Fund's 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 the Fund would have been required to pay had it not entered
into the cap agreement. The Fund will not enter into interest rate swap or cap
transactions in an aggregate notional amount that exceeds the remainder of the
outstanding amount of the Fund's leverage. The Fund will monitor its interest
rate swap and cap transactions with a view to insuring that it remains in
compliance with all applicable tax requirements.
Interest rate swaps and caps do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to interest rate swaps is limited to the net amount of interest payments that
the Fund is contractually obligated to make. If the counterparty defaults, the
Fund would not be able to use the anticipated net receipts under the swap or
cap. Depending on whether the Fund would be entitled to receive net payments
from the counterparty on the swap or cap, which in turn would depend on the
general state of short-term interest rates at that point in time, such a default
could negatively impact the performance of the common shares.
Although this will not guarantee that the counterparty does not default,
the Fund will not enter into an interest rate swap or cap transaction with any
counter-party that NAM believes does not have the financial resources to honor
its obligation under the interest rate swap or cap transaction. Further, NAM
S-15
will continually monitor the financial stability of a counterparty to an
interest rate swap or cap transaction in an effort to proactively protect the
Fund's investments.
In addition, at the time the interest rate swap or cap transaction reaches
its scheduled termination date, there is a risk that the Fund would not be able
to obtain a replacement transaction or that the terms of the replacement would
not be as favorable as on the expiring transaction. If this occurs, it could
have a negative impact on the performance of the Fund's common shares.
The Fund may choose or be required to terminate early all or a portion of
any swap or cap transaction. Such early termination of a swap could result in
termination payment by or to the Fund. An early termination of a cap could
result in a termination payment to the Fund.
Other Hedging Transactions. The Fund may invest in relatively new
instruments without a significant trading history for purposes of hedging the
Fund's portfolio risks. As a result, there can be no assurance that an active
secondary market will develop or continue to exist.
Risks associated with hedging transactions. The Fund may use derivatives
or other instruments for purposes of hedging with respect to the Dividend Growth
Equity Strategy against declining equity markets. There may be an imperfect
correlation between the Dividend Growth Equity Strategy's holdings and such
derivatives, which may prevent the Fund from achieving the intended consequences
of the applicable hedging transaction or expose the Fund to risk of loss.
Further, the Fund's use of derivatives and other instruments to reduce risk
involves costs and will be subject to NAM's ability to predict correctly changes
in the relationships of such hedging instruments to the Dividend Growth Equity
Strategy or other factors. No assurance can be given that NAM's judgment in this
respect will be correct. Consequently, the use of hedging transactions might
result in a poorer overall performance for the Fund, whether or not adjusted for
risk, than if the Fund had not hedged the Dividend Growth Equity Strategy. In
addition, no assurance can be given that the Fund will enter into hedging
transactions at times or under circumstances in which it would be advisable to
do so.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The management of the Fund, including general supervision of the duties
performed for the Fund under the investment management agreement with NAM, is
the responsibility of the Board of Trustees of the Fund. The number of trustees
of the Fund is currently set at eight. None of the trustees who are not
"interested persons" of the Fund has ever been a director or employee of, or
consultant to, Nuveen, NAM or their affiliates. The Board of Trustees is divided
into three classes, Class I, Class II and Class III, with the Class II trustees
serving until the 2008 annual meeting, the Class III trustees serving until the
2009 annual meeting and the Class I trustees serving until the 2010 annual
meeting, in each case until their respective successors are elected and
qualified, as described below. Currently, Timothy R. Schwertfeger, Judith M.
Stockdale and Carole E. Stone are slated in Class I, William C. Hunter and David
J. Kundert are slated in Class II and Robert P. Bremner, Jack B. Evans and
William J. Schneider are slated in Class III. The officers of the Fund serve
annual terms and are elected on an annual basis. The names and business
addresses of the trustees and officers of the Fund, their principal occupations
and other affiliations during the past five years, the number of portfolios each
oversees and other directorships they hold are set forth below.
S-16
NUMBER OF
POSITIONS AND PORTFOLIOS IN
OFFICES WITH THE FUND
FUND, YEAR PRINCIPAL OCCUPATIONS, COMPLEX
FIRST ELECTED OR INCLUDING OTHER DIRECTORSHIPS HELD, OVERSEEN BY
NAME AND ADDRESS BIRTHDATE APPOINTED, CLASS DURING PAST FIVE YEARS TRUSTEE
-------------------------- ----------- ---------------- ----------------------------------- ------------------
TRUSTEE WHO IS AN "INTERESTED PERSON" OF THE FUND:
Timothy R. Schwertfeger* 03/28/49 Chairman of the Director and Chairman (since 1996) 176
333 West Wacker Drive Board and Trustee, and Non-Executive Chairman (since
Chicago, IL 60606 2007 July 1, 2007), formerly, Chief
Class I Executive Officer (1996-June 30,
2007) of Nuveen Investments, Inc.,
Nuveen Asset Management and certain
other subsidiaries of Nuveen
Investments, Inc.; formerly,
Director (1996-2006) of
Institutional Capital Corporation.
-------------
* Mr. Schwertfeger is an "interested person" of the Fund, as defined in the
1940 Act, by reason of being Non-Executive Chairman of Nuveen Investments,
Inc. and having previously served in various other capacities with Nuveen
Investments, Inc. and its subsidiaries.
NUMBER OF
POSITIONS AND PORTFOLIOS IN
OFFICES WITH THE FUND
FUND, YEAR PRINCIPAL OCCUPATIONS, COMPLEX
FIRST ELECTED OR INCLUDING OTHER DIRECTORSHIPS HELD, OVERSEEN BY
NAME AND ADDRESS BIRTHDATE APPOINTED, CLASS DURING PAST FIVE YEARS TRUSTEE
-------------------------- --------- ---------------- ----------------------------------- ------------------
TRUSTEES WHO ARE NOT "INTERESTED PERSONS" OF THE FUND:
Robert P. Bremner 8/22/40 Lead Independent Private Investor and Management 176
333 West Wacker Drive Trustee, 2007 Consultant.
Chicago, IL 60606 Class III
S-17
NUMBER OF
POSITIONS AND PORTFOLIOS IN
OFFICES WITH THE FUND
FUND, YEAR PRINCIPAL OCCUPATIONS, COMPLEX
FIRST ELECTED OR INCLUDING OTHER DIRECTORSHIPS HELD, OVERSEEN BY
NAME AND ADDRESS BIRTHDATE APPOINTED, CLASS DURING PAST FIVE YEARS TRUSTEE
-------------------------- --------- ---------------- ----------------------------------- ------------------
Jack B. Evans 10/22/48 Trustee, 2007 President (since 1996), The 176
333 West Wacker Drive Class III Hall-Perrine Foundation, a private
Chicago, IL 60606 philanthropic corporation; Director
and Vice Chairman, United Fire
Group, a publicly-held company;
Member of the Board of Regents for
the State of Iowa University System;
Director, Gazette Companies; Life
Trustee, Coe College and Iowa College
Foundation; Member of the Advisory
Council of the Department of Finance
in the Tippie College Business,
University of Iowa; formerly, Director
Alliant Energy; formerly, Director,
Federal Reserve Bank of Chicago;
formerly, President and Chief Operating
Officer, SCI Financial Group, Inc., a
regional financial services firm.
William C. Hunter 3/6/48 Trustee, 2007 Dean (since July 2006), Tippie 176
333 West Wacker Drive Class II College of Business, University of
Chicago, IL 60606 Iowa; formerly, Dean and
Distinguished Professor of Finance
(2003-2006), School of Business at
the University of Connecticut;
previously, Senior Vice President
and Director of Research (1995-2003)
at the Federal Reserve Bank of
Chicago; Director (since 1997),
Credit Research Center at Georgetown
University; Director (since 2004) of
Xerox Corporation, a publicly-held
company; Director (May 2005-October
2005) of SS&C Technologies, Inc.
S-18
NUMBER OF
POSITIONS AND PORTFOLIOS IN
OFFICES WITH THE FUND
FUND, YEAR PRINCIPAL OCCUPATIONS, COMPLEX
FIRST ELECTED OR INCLUDING OTHER DIRECTORSHIPS HELD, OVERSEEN BY
NAME AND ADDRESS BIRTHDATE APPOINTED, CLASS DURING PAST FIVE YEARS TRUSTEE
-------------------------- --------- ---------------- ----------------------------------- ------------------
David J. Kundert 10/28/42 Trustee, 2007 Director, Northwestern Mutual Wealth 174
333 West Wacker Drive Class II Management Company; retired (since
Chicago, IL 60606 2004) as Chairman, JPMorgan Fleming
Asset Management; President and CEO,
Banc One Investment Advisors
Corporation; President, One Group
Mutual Funds; prior thereto,
Executive Vice President, Bank One
Corporation; Chairman and CEO, Banc
One Investment Management Group;
Board of Regents, Luther College;
member of the Wisconsin Bar
Association; member of Board of
Directors, Friends of Boerner
Botanical Gardens; member of Board
of Directors, Milwaukee Repertory
Theater.
William J. Schneider 9/24/44 Trustee, 2007 Chairman, formerly, Senior Partner 176
333 West Wacker Drive Class III and Chief Operating Officer (retired
Chicago, IL 60606 since 2004), Miller-Valentine
Partners Ltd., a real estate
investment company; formerly, Vice
President, Miller-Valentine Realty;
Board Member, Chair of the Finance
Committee and Member of the Audit
Committee, Premier Health Partners,
the not-for-profit company of Miami
Valley Hospital; Board Member,
Director, Dayton Development
Coalition; Vice President, Dayton
Philharmonic Orchestra Association;
Board Member, Regional Leaders
Forum, which promotes cooperation on
economic development issues;
formerly, Member, Community Advisory
Board, National City Bank, Dayton,
Ohio and Business Advisory Council,
Cleveland Federal Reserve Bank.
Judith M. Stockdale 12/29/47 Trustee, 2007 Executive Director (since 1994), 176
333 West Wacker Drive Class I Gaylord and Dorothy Donnelley
Chicago, IL 60606 Foundation; prior thereto, Executive
Director (1990-1994), Great Lakes
Protection Fund.
S-19
NUMBER OF
POSITIONS AND PORTFOLIOS IN
OFFICES WITH THE FUND
FUND, YEAR PRINCIPAL OCCUPATIONS, COMPLEX
FIRST ELECTED OR INCLUDING OTHER DIRECTORSHIPS HELD, OVERSEEN BY
NAME AND ADDRESS BIRTHDATE APPOINTED, CLASS DURING PAST FIVE YEARS TRUSTEE
---------------------------- --------- ---------------- ---------------------------------- ----------------
Carole E. Stone 6/28/47 Trustee, 2007 Director, Chicago Board Options 176
333 West Wacker Drive Class I Exchange (since 2006); Chair, New
Chicago, IL 60606 York Racing Association Oversight
Board (since 2005); Commissioner,
New York State Commission on Public
Authority Reform (since 2005);
formerly, Director, New York State
Division of the Budget (2000-2004),
Chair, Public Authorities Control
Board (2000-2004) and Director,
Local Government Assistance
Corporation (2000-2004).
S-20
NUMBER OF
POSITIONS AND PORTFOLIOS IN
OFFICES WITH THE FUND
FUND AND YEAR PRINCIPAL OCCUPATIONS, COMPLEX
FIRST ELECTED OR INCLUDING DIRECTORSHIPS HELD, OVERSEEN BY
NAME AND ADDRESS BIRTHDATE APPOINTED DURING PAST FIVE YEARS OFFICER
---------------------------- --------- ---------------- ---------------------------------- ----------------
OFFICERS OF THE FUND:
Gifford R. Zimmerman 9/9/56 Chief Managing Director (since 2002), 176
333 West Wacker Drive Administrative Assistant Secretary and Associate
Chicago, IL 60606 Officer, 2007 General Counsel, formerly, Vice
President and Assistant General
Counsel of Nuveen Investments, LLC;
Managing Director (since 2002),
Assistant Secretary and Associate
General Counsel, formerly, Vice
President (since 1997), of Nuveen
Asset Management; Managing Director
(since 2004) and Assistant Secretary
(since 1994) of Nuveen Investments,
Inc.; Assistant Secretary (since
2002) of NWQ Investment Management
Company, LLC; Vice President and
Assistant Secretary of Nuveen
Investments Advisers Inc. (since
2002); Managing Director, Associate
General Counsel and Assistant
Secretary (since 2003) of
Rittenhouse Asset Management, Inc.
and Symphony Asset Management LLC;
Assistant Secretary (since 2006) of
Tradewinds Global Investors, LLC and
Santa Barbara Asset Management, LLC;
formerly, Managing Director
(2002-2004), General Counsel
(1998-2004) and Assistant Secretary,
formerly, Vice President of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory Corp.*; CFA
charterholder.
Williams Adams IV 6/9/55 Vice President Executive Vice President, U.S. 119
333 West Wacker Drive (since 2007) Structured Products of Nuveen
Chicago, IL 60606 Investments, LLC, (since 1999), prior
thereto, Managing Director of
Structured Investments.
Julia L. Antonatos 9/22/63 Vice President, Managing Director (since 2005), 176
333 West Wacker Drive 2007 formerly Vice President (since
Chicago, IL 60606 2002); formerly, Assistant Vice
President (since 2000) of Nuveen
Investments, LLC; CFA charterholder.
Cedric H. Antosiewicz 1/11/62 Vice President Managing Director, (since 2004), 119
333 West Wacker Drive (since 2007) previously, Vice President (1993-2004)
Chicago, IL 60606 of Nuveen Investments, LLC.
Michael T. Atkinson 2/3/66 Vice President and Vice President (since 2002) 176
333 West Wacker Drive Assistant of Nuveen Investments, LLC.
Chicago, IL 60606 Secretary, 2007
S-21
NUMBER OF
POSITIONS AND PORTFOLIOS IN
OFFICES WITH THE FUND
FUND AND YEAR PRINCIPAL OCCUPATIONS, COMPLEX
FIRST ELECTED OR INCLUDING DIRECTORSHIPS HELD, OVERSEEN BY
NAME AND ADDRESS BIRTHDATE APPOINTED DURING PAST FIVE YEARS OFFICER
---------------------------- --------- ---------------- ---------------------------------- ----------------
Peter H. D'Arrigo 11/28/67 Vice President and Vice President and Treasurer (since 176
333 West Wacker Drive Treasurer, 2007 1999) of Nuveen Investments, LLC and
Chicago, IL 60606 of Nuveen Investments, Inc.; Vice
President and Treasurer (since 2002)
of Nuveen Asset Management and of
Nuveen Investments Advisers Inc.;
Assistant Treasurer (since 2002) of
NWQ Investment Management Company,
LLC; Vice President and Treasurer
(since 2003) of Nuveen Rittenhouse
Asset Management, Inc.; Treasurer
(since 2003) of Symphony Asset
Management LLC and (since 2006) of
Tradewinds Global Investors, LLC and
Santa Barbara Asset Management, LLC;
formerly, Vice President and
Treasurer (1999-2004) of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory Corp.*; CFA
charterholder.
Lorna C. Ferguson 10/24/45 Vice President, Managing Director (since 2004), 176
333 West Wacker Drive 2007 formerly, Vice President of Nuveen
Chicago, IL 60606 Investments, LLC; Managing Director
(since 2004) formerly, Vice
President (1998-2004) of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory Corp.*;
Managing Director (since 2005) of
Nuveen Asset Management.
S-22
NUMBER OF
POSITIONS AND PORTFOLIOS IN
OFFICES WITH THE FUND
FUND AND YEAR PRINCIPAL OCCUPATIONS, COMPLEX
FIRST ELECTED OR INCLUDING DIRECTORSHIPS HELD, OVERSEEN BY
NAME AND ADDRESS BIRTHDATE APPOINTED DURING PAST FIVE YEARS OFFICER
---------------------------- --------- ---------------- ---------------------------------- ----------------
William M. Fitzgerald 3/2/64 Vice President, Managing Director (since 2002), 176
333 West Wacker Drive 2007 formerly, Vice President of Nuveen
Chicago, IL 60606 Investments, LLC; Managing Director
(since 2001) of Nuveen Asset
Management; Vice President (since
2002) of Nuveen Investments Advisers
Inc.; formerly, Managing Director
(1997-2004) of Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.*; CFA charterholder.
Stephen D. Foy 5/31/54 Vice President and Vice President (since 1993) and 176
333 West Wacker Drive Controller, 2007 Funds Controller (since 1998) of
Chicago, IL 60606 Nuveen Investments, LLC; formerly,
Vice President and Funds Controller
(1998-2004) of Nuveen Investments,
Inc.; Certified Public Accountant.
Walter M. Kelly 2/24/70 Vice President and Assistant Vice President and 176
333 West Wacker Drive Chief Compliance Assistant Secretary of the Nuveen
Chicago, IL 60606 Officer, 2007 Funds (2003-2006); Vice President,
formerly, Assistant Vice President
and Assistant General Counsel (since
2003) of Nuveen Investments, LLC;
Vice President (since 2006) and
Assistant Secretary (since 2003),
formerly, Assistant Vice President
of Nuveen Asset Management;
previously, Associate (2001- 2003)
at the law firm of Vedder, Price
Kaufman & Kammholz, P.C.
David J. Lamb 3/22/63 Vice President, Vice President (since 2000) of 176
333 West Wacker Drive 2007 Nuveen Investments, LLC; Certified
Chicago, IL 60606 Public Accountant.
Tina M. Lazar 8/27/61 Vice President, Vice President (since 1999) of 176
333 West Wacker Drive 2007 Nuveen Investments, LLC.
Chicago, IL 60606
S-23
NUMBER OF
POSITIONS AND PORTFOLIOS IN
OFFICES WITH THE FUND
FUND AND YEAR PRINCIPAL OCCUPATIONS, COMPLEX
FIRST ELECTED OR INCLUDING DIRECTORSHIPS HELD, OVERSEEN BY
NAME AND ADDRESS BIRTHDATE APPOINTED DURING PAST FIVE YEARS OFFICER
---------------------------- --------- ---------------- ---------------------------------- ----------------
Larry W. Martin 7/27/51 Vice President and Vice President, Assistant Secretary 176
333 West Wacker Drive Assistant and Assistant General Counsel of
Chicago, IL 60606 Secretary, 2007 Nuveen Investments, LLC; Vice
President (since 2005) and Assistant
Secretary of Nuveen Investments,
Inc.; Vice President (since 2005)
and Assistant Secretary (since 1997)
of Nuveen Asset Management; Vice
President (since 2000), Assistant
Secretary and Assistant General
Counsel (since 1998) of Rittenhouse
Asset Management, Inc.; Vice
President and Assistant Secretary
(since 2002) of Nuveen Investments
Advisers Inc.; Assistant Secretary
of NWQ Investment Management
Company, LLC (since 2002) and
Symphony Asset Management LLC (since
2003); Assistant Secretary (since
2006) of Tradewinds Global
Investors, LLC; formerly, Vice
President and Assistant Secretary of
Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.*
Kevin J. McCarthy, 3/26/66 Vice President and Vice President and Assistant General 176
333 West Wacker Drive Secretary, 2007 Counsel, Nuveen Investments, LLC
Chicago, IL 60606 (since 2007); Vice President and
Assistant Secretary, Nuveen Asset
Management and Rittenhouse Asset
Management, Inc. (since 2007); Vice
President and Assistant General
Counsel, Nuveen Investments, Inc.
(since 2007); prior thereto,
Partner, Bell, Boyd & Lloyd LLP
(1997-2007).
John V. Miller, 4/10/67 Vice President, Managing Director (since 2007), 176
333 West Wacker Drive 2007 formerly, Vice President
Chicago, IL 60606 (2002-2007), previously, associate
and credit analyst of Nuveen
Investments, LLC; CFA charterholder.
-------------
* Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were
reorganized into Nuveen Asset Management, effective January 1, 2005.
The Board of Trustees has five standing committees: the executive
committee, the audit committee, the nominating and governance committee, the
dividend committee and the compliance, risk management and regulatory oversight
committee. Because the Fund is newly organized, none of the
S-24
committees has met during the Fund's last fiscal year. The executive committee
will meet once prior to the commencement of the Fund's operations.
Robert P. Bremner, Judith M. Stockdale and Timothy R. Schwertfeger, Chair,
serve as members of the executive committee of the Board of Trustees of the
Fund. The executive committee, which meets between regular meetings of the Board
of Trustees, is authorized to exercise all of the powers of the Board of
Trustees.
The audit committee monitors the accounting and reporting policies and
practices of the Fund, the quality and integrity of the financial statements of
the Fund, compliance by the Fund with legal and regulatory requirements and the
independence and performance of the external and internal auditors. The members
of the audit committee are Robert P. Bremner, Jack B. Evans, David J. Kundert,
Chair, and William J. Schneider.
The nominating and governance committee is responsible for Board selection
and tenure; selection and review of committees; and Board education and
operations. In addition, the committee monitors performance of legal counsel and
other service providers; periodically reviews and makes recommendations about
any appropriate changes to trustee compensation; and has the resources and
authority to discharge its responsibilities--including retaining special counsel
and other experts or consultants at the expense of the Fund. In the event of a
vacancy on the Board, the nominating and governance committee receives
suggestions from various sources (including shareholders) as to suitable
candidates. Suggestions should be sent in writing to Lorna Ferguson, Manager of
Board Relations, Nuveen Investments, LLC, 333 West Wacker Drive, Chicago, IL
60606. The nominating and governance committee sets appropriate standards and
requirements for nominations for new trustees and reserves the right to
interview all candidates and to make the final selection of any new trustees.
The members of the nominating and governance committee are Robert P. Bremner,
Chair, Jack B. Evans, William C. Hunter, David J. Kundert, William J. Schneider,
Judith M. Stockdale and Carole E. Stone.
The dividend committee is authorized to declare distributions on the
Fund's shares including, but not limited to, regular and special dividends,
capital gains and ordinary income distributions. The members of the dividend
committee are Timothy R. Schwertfeger, Chair, Jack B. Evans and Judith M.
Stockdale.
The compliance, risk management and regulatory oversight committee is
responsible for the oversight of compliance issues, risk management and other
regulatory matters affecting the Fund that are not otherwise the jurisdiction of
the other board committees. As part of its duties regarding compliance matters,
the committee is responsible for the oversight of the Pricing Procedures of the
Fund and the Valuation Group. The members of the compliance, risk management and
regulatory oversight committee are William J. Schneider, Chair, William C.
Hunter, Judith M. Stockdale and Carole E. Stone.
The independent directors of the Nuveen Fund Board have appointed Robert
P. Bremner as their Lead Director. The role of the Lead Director is one of
coordination and assuring the appropriate, effective and efficient functioning
of the Board and its processes. Specific responsibilities may include organizing
and leading independent director sessions, facilitating and ensuring an
appropriate level of communication among the independent directors, leading the
assessment of the Board's effectiveness and working with Santa Barbara's and
NWQ's staff and outside counsel on Board meeting agendas, Board material and
workshops for directors to ensure that the priorities of the independent
directors are addressed.
S-25
The trustees are trustees of 57 Nuveen open-end funds and 119 closed-end
funds except, David J. Kundert is trustee of 57 Nuveen open-end funds and 117
closed-end funds managed by NAM. None of the independent trustees, nor any of
their immediate family members, has ever been a director, officer, or employee
of, or a consultant to, NAM, Nuveen or their affiliates. In addition, none of
the independent trustees owns beneficially or of record, any security of NAM,
Nuveen, or any person (other than a registered investment company) directly or
indirectly controlling, controlled by or under common control with NAM or
Nuveen.
Class I trustees will serve until the annual meeting of shareholders in
2010; Class II trustees will serve until the annual meeting of shareholders in
2008; and Class III trustees will serve until the annual meeting of shareholders
in 2009. As each trustee's term expires, shareholders will vote to elect
trustees and such trustees shall be elected for a term expiring at the time of
the third succeeding annual meeting subsequent to their election or thereafter.
The staggered board provisions are included in the Fund's by-laws which may be
amended by a majority of the board. These provisions could delay for up to two
years the replacement of a majority of the Board of Trustees. See the Fund's
Prospectus under "Certain Provisions in the Declaration of Trust and By-Laws."
Holders of FundPreferred shares, voting as a separate class, are entitled to
elect two of the Fund's trustees on an annual basis. Holders of FundPreferred
shares will also be entitled to elect a majority of the Fund's trustees under
certain circumstances. See "Description of Shares -- FundPreferred Shares --
Voting Rights."
The following table sets forth the dollar range of equity securities
beneficially owned by each trustee as of December 31, 2006:
AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY TRUSTEE IN FAMILY OF
NAME OF TRUSTEE SECURITIES IN THE FUND INVESTMENT COMPANIES
-------------------------------- ----------------------- ---------------------------
Timothy R. Schwertfeger......... $0 Over $100,000
Robert P. Bremner............... $0 Over $100,000
Jack B. Evans................... $0 Over $100,000
William C. Hunter............... $0 Over $100,000
David J. Kundert................ $0 Over $100,000
William S. Schneider............ $0 Over $100,000
Judith M. Stockdale............. $0 Over $100,000
Carole E. Stone................. $0 $0
-----------------
No trustee who is not an interested person of the Fund owns beneficially
or of record, any security of NAM, Nuveen, Citigroup Global Markets Inc. or any
person (other than a registered investment company) directly or indirectly
controlling, controlled by or under common control with NAM, Nuveen, Santa
Barbara, NWQ or Citigroup Global Markets Inc.
The following table sets forth estimated compensation to be paid by the
Fund projected during the Fund's first full fiscal year after commencement of
operation. The Fund does not have a retirement or pension plan. The officers and
trustees affiliated with Nuveen serve without any compensation from the Fund.
The Fund has a deferred compensation plan (the "Plan") that permits any trustee
who is not an "interested person" of the Fund to elect to defer receipt of all
or a portion of his or her compensation as a trustee. The deferred compensation
of a participating trustee is credited to a book reserve account of the Fund
when the compensation would otherwise have been paid to the trustee. The value
of the trustee's deferral account at any time is equal to the value that the
account would have had if contributions to the account had been invested and
reinvested in shares of one or more of the eligible Nuveen funds. At the time
for commencing distributions from a trustee's deferral account, the trustee may
elect to receive
S-26
distributions in a lump sum or over a period of five years. The Fund will not be
liable for any other fund's obligations to make distributions under the Plan.
ESTIMATED AGGREGATE TOTAL COMPENSATION AMOUNT OF TOTAL
COMPENSATION FROM FROM FUND AND FUND COMPENSATION THAT
NAME OF TRUSTEE FUND(1) COMPLEX(2) HAS BEEN DEFERRED(3)
------------------------------- ------------------- ------------------ ---------------------
Timothy R. Schwertfeger........ $ - $ - -
Robert P. Bremner(4) 618 177,099 24,525
Jack B. Evans.................. 582 180,111 40,798
William C. Hunter.............. 475 146,018 130,075
David J. Kundert............... 516 144,759 128,801
William S. Schneider........... 562 171,879 151,746
Judith M. Stockdale............ 516 148,510 84,773
Carole E. Stone(5)............. 475 - -
-------------
(1) Based on the estimated compensation to be earned by the independent
trustees for the 12-month period ending, representing the Fund's first
full fiscal year, for services to the Fund.
(2) Based on the compensation paid to the trustees for the one year period
ended 12/31/2006 for services to the Nuveen open-end and closed-end funds.
Includes deferred fees. Pursuant to a deferred compensation agreement with
certain of the Funds, deferred amounts are treated as though an equivalent
dollar amount has been invested in shares of one or more eligible Nuveen
funds.
(3) Total deferred fees for the Funds (including the return from the assumed
investment in the eligible Nuveen funds) payable are stated above.
(4) Robert P. Bremner was appointed Lead Director of the Board of Trustees.
The Lead Director receives compensation of $20,000 annually.
(5) Carole E. Stone was appointed to the Board of Trustees of the Nuveen
funds, effective January 1, 2007.
The Fund has no employees. Its officers are compensated by Nuveen
Investments, Inc. ("Nuveen Investments") or its affiliates.
INVESTMENT ADVISER AND SUBADVISERS
NAM, the Fund's investment adviser, is responsible for managing the Fund's
overall strategy and operations and overseeing Santa Barbara's management of the
Fund's Dividend Growth Equity Strategy and NWQ's management of the Fund's Income
Oriented Strategy. NAM also will be responsible for the writing of call options.
In addition, NAM is responsible for managing the Fund's business affairs and
providing certain clerical, bookkeeping and other administrative services to the
Fund. For additional information regarding the management services performed by
NAM and subadvisory services performed by Santa Barbara and NWQ, including
biographies of each the Fund's Portfolio Managers and further information about
the investment management agreement between the Fund and NAM and the investment
subadvisory agreements between NAM and Santa Barbara, and NAM and NWQ, see
"Management of the Fund" in the Fund's Prospectus.
NAM, 333 West Wacker Drive, Chicago, Illinois 60606, a registered
investment adviser, had approximately $88 billion in assets under management as
of June 30, 2007. NAM is a wholly-owned subsidiary of Nuveen Investments.
According to data from Thomson Financial, Nuveen Investments is the leading
sponsor of closed-end funds as measured by number of funds (119) and fund assets
under management (approximately $53.4 billion) as of June 30, 2007. Founded in
1898, Nuveen Investments and its affiliates had approximately $172 billion in
assets under management as of June 30, 2007. Nuveen Investments is a
publicly-traded company.
S-27
Nuveen Investments provides high-quality investment services designed to
help secure the long-term goals of institutions and high net worth investors as
well as the consultants and financial advisors who serve them. Nuveen
Investments markets its growing range of specialized investment solutions under
the high-quality brands of NWQ, Nuveen, Santa Barbara, Tradewinds, Rittenhouse
and Symphony. Nuveen Investments is listed on the New York Stock Exchange and
trades under the symbol "JNC".
On June 20, 2007, Nuveen Investments announced that it had entered
into a definitive Agreement and Plan of Merger ("Merger Agreement") to be
acquired by investors led by Madison Dearborn Partners, LLC. Madison Dearborn
Partners, LLC is a private equity investment firm based in Chicago, Illinois.
The merger is expected to be completed by the end of the year, subject to
customary conditions, including obtaining the approval of Nuveen Investments'
stockholders and obtaining necessary fund and client consents sufficient to
satisfy the terms of the Merger Agreement. There can be no assurance that the
merger described above will be consummated as contemplated or that necessary
Board and shareholder approvals will be obtained.
The consummation of the merger will be deemed to be an "assignment" (as
defined in the 1940 Act) of the investment management agreement between the Fund
and NAM and the investment sub-advisory agreements between NAM and each of Santa
Barbara and NWQ, and will result in the automatic termination of each agreement.
The Board of Trustees of the Fund has approved a new investment management
agreement with NAM and investment sub-advisory agreements with each of Santa
Barbara and NWQ. The new agreements are expected to be presented to the Fund's
shareholders for approval at a shareholders' meeting scheduled for October 12,
2007, and, if approved by shareholders, would take effect upon consummation of
the merger or such later time as shareholders approval is obtained. The record
date for the shareholders' meeting is August 1, 2007 and as a result, holders
of the FundPreferred shares will not be entitled to vote on the approval of
these agreements.
The investors led by Madison Dearborn include an affiliate of Merrill
Lynch. Upon consummation of the merger, it is anticipated that Merrill Lynch
will be an indirect "affiliated person" (as that term is defined in the 1940
Act) of the Fund. As a result, the Fund would then generally be prohibited from
entering into principal transactions with Merrill Lynch and certain of its
affiliates. NAM does not believe that any such prohibition or limitation would
have a materially adverse effect on the Fund's ability to pursue its investment
objective and policies.
Santa Barbara, 200 E. Carrillo Street, Santa Barbara, California 93101, is
the Fund's subadviser responsible for managing the Fund's Dividend Growth Equity
Strategy, subject to the oversight of NAM and the Fund's Board of Trustees.
Santa Barbara, a registered investment adviser, is a wholly owned
subsidiary of Nuveen. Founded in 1987, Santa Barbara had approximately $5
billion in assets under management as of June 30, 2007. Nuveen Investments
purchased Santa Barbara in October 2005. Santa Barbara is organized as a
Delaware member-managed limited liability company, with Nuveen Investments as
its sole managing member. Prior to its acquisition by Nuveen Investments, Santa
Barbara was owned by the principals of the firm. Santa Barbara specializes in
fundamental, bottom-up research to select growth
S-28
companies. Santa Barbara also serves as subadviser to one open-end mutual fund,
the Nuveen Santa Barbara Dividend Growth Fund (NSBAX), that employs a similar
strategy used by the Fund in the Dividend Growth Equity Strategy.
NWQ, 2049 Century Park East, 4th Floor, Los Angeles, California, 90067, is
a Subadviser to the Fund and is responsible for managing the portion of the
Fund's Managed Assets allocated to the Income Oriented Strategy. NWQ specializes
in the management of value-oriented equity portfolios across all capitalization
ranges. NWQ, a registered investment adviser, and its predecessors commenced
operations in 1982 and had approximately $38.6 billion in assets under
management as of June 30, 2007.
NWQ is a subsidiary of Nuveen. Nuveen owns a controlling interest of NWQ
and key management owns a non-controlling minority interest.
Portfolio Managers of the Fund. James Boothe of Santa Barbara will oversee
Santa Barbara's implementation of the Fund's Dividend Growth Equity Strategy.
Michael Carne of NWQ will oversee NWQ's implementation of the Fund's Income
Oriented Strategy. Rob A. Guttschow and John A. Gambla of NAM will oversee NAM's
implementation of the Fund's other investment techniques, including the writing
of call options. NAM, as the Fund's investment adviser, is responsible for
managing the Fund's overall strategy and operations and overseeing Santa
Barbara's implementation of the Dividend Growth Strategy and NWQ's
implementation of the Income Oriented Strategy.
Other Accounts Managed. In addition to managing the Dividend Growth Equity
Strategy, Mr. Boothe is also primarily responsible for the day-to-day portfolio
management of the following accounts. Information is provided as of March 31,
2007 unless otherwise indicated:
TYPE OF ACCOUNT MANAGED NUMBER OF ACCOUNTS ASSETS*
------------------------------------ ------------------ ------------
Registered Investment Company....... 2 $ 2,292,815
Other Pooled Investment............. 0 $ 0
Other Accounts...................... 225 $231,392,348
In addition to managing the Income Oriented Strategy, Mr. Carne is also
primarily responsible for the day-to-day portfolio management of the following
accounts. Information is provided as of March 31, 2007 unless otherwise
indicated:
TYPE OF ACCOUNT MANAGED NUMBER OF ACCOUNTS ASSETS*
------------------------------------ ------------------ ----------------
Registered Investment Company....... 0 $ 0
Other Pooled Investment............. 0 $ 0
Other Accounts...................... 11,652 $ 1,593,548,279
In addition to implementing the Fund's other investment techniques,
including the writing of call options, Mr. Guttschow is also primarily
responsible for the day-to-day portfolio management of the following accounts.
Information is provided as of January 31, 2007 unless otherwise indicated:
TYPE OF ACCOUNT MANAGED NUMBER OF ACCOUNTS ASSETS*
------------------------------------ ------------------ ------------
Registered Investment Company*...... 4 $678,122,980
Other Pooled Investment**........... 1 $ 22,632,924
Other Accounts*..................... 3 $ 500,000
In addition to implementing the Fund's other investment techniques,
including the writing of call options, Mr. Gambla is also primarily responsible
for the day-to-day portfolio management of the following accounts. Information
is provided as of January 31, 2007 unless otherwise indicated:
S-29
TYPE OF ACCOUNT MANAGED NUMBER OF ACCOUNTS ASSETS*
------------------------------------ ------------------ ------------
Registered Investment Company*...... 4 $678,122,980
Other Pooled Investment**........... 1 $ 22,632,924
Other Accounts*..................... 10 $ 750,000
-------------
* None of the assets in these accounts are subject to an advisory fee based
on performance.
** The fees received by NAM for this pooled investment account are
performance based.
Compensation. With respect to NAM, Mr. Guttschow and Mr. Gambla
participate in a highly competitive compensation structure with the purpose of
attracting and retaining the most talented investment professionals and
rewarding them through a total compensation program as determined by NAM's
executive committee. The total compensation program consists of both a base
salary and an annual bonus that can be a multiple of the base salary. Mr.
Guttschow's and Mr. Gambla's performance is formally evaluated annually and
based on a variety of factors. Bonus compensation is primarily a function of
NAM's overall annual profitability and Mr. Guttschow's and Mr. Gambla's
contribution as measured by the overall investment performance of client
portfolios in the strategy each manages relative to the strategy's general
benchmark for one, three and five year periods (as applicable), as well as an
objective review of stock recommendations and the quality of primary research,
and subjective review of Mr. Guttschow's and Mr. Gambla's contributions to
portfolio strategy, teamwork, collaboration and work ethic.
The total compensation package includes the availability of equity-based
awards. NAM is a subsidiary of Nuveen Investments, which has augmented incentive
compensation annually through individual awards of restricted stock and stock
options, as determined through a collaborative process between Nuveen
Investments and NAM's executive committee.
With respect to Santa Barbara, Mr. Boothe participates in a highly
competitive compensation structure with the purpose of attracting and retaining
the most talented investment professionals and rewarding them through a total
compensation program as determined by Santa Barbara's executive committee. The
total compensation consists of both a base salary and any annual bonus that can
be a multiple of the base salary. Mr. Boothe's performance is formally evaluated
annually and based on a variety of factors. Bonus compensation is primarily a
function of Santa Barbara's overall annual profitability and Mr. Boothe's
contribution as measured by the overall investment performance of client
portfolios in the strategies he manages relative the strategy's general
benchmark for one-, three- and five-year periods as well as an objective review
of stock recommendations and the quality of primary research and subjective
review of Mr. Boothe's contributions to portfolio strategy, team work,
collaboration and work ethic.
With respect to NWQ, NWQ's portfolio managers participate in a highly
competitive compensation structure with the purpose of attracting and retaining
the most talented investment professionals and rewarding them through a total
compensation program as determined by the firm's executive committee. The total
compensation program consists of both a base salary and an annual bonus that can
be a multiple of the base salary. A portfolio manager's performance is formally
evaluated annually and based on a variety of factors. Bonus compensation is
primarily a function of the firm's overall annual profitability and the
individual portfolio manager's contribution as measured by the overall
investment performance of client portfolios in the strategy he or she manages
relative to the strategy's general benchmark for one, three and five year
periods (as applicable), as well as an objective review of stock recommendations
and the quality of primary research, and subjective review of the professional's
contributions to portfolio strategy, teamwork, collaboration and work ethic.
The total compensation package for portfolio managers includes an
equity-like incentive for purchase (the value of which is determined by various
factors including the increase in profitability of
S-30
NWQ over time). Additionally, the portfolio managers have been provided
compensation in conjunction with signing long-term employment agreements. NWQ is
a subsidiary of Nuveen Investments, Inc., which has augmented this incentive
compensation annually through individual awards of a stock option pool, as
determined through a collaborative process between Nuveen Investments and the
NWQ executive committee.
Conflicts of Interest. Actual or apparent conflicts of interest may arise
when a portfolio manager has day-to-day management responsibilities with respect
to more than one account. More specifically, a portfolio manager who manages
multiple accounts is presented with the following potential conflicts:
- The management of multiple accounts may result in a portfolio
manager devoting unequal time and attention to the management of
each account. NAM, Santa Barbara and NWQ each seek to manage such
competing interests for the time and attention of portfolio managers
by having portfolio managers focus on a particular investment
discipline. Most accounts managed by a portfolio manager in a
particular investment strategy are managed using the same investment
models.
- If a portfolio manager identifies a limited investment opportunity
that may be suitable for more than one account, an account may not
be able to take full advantage of that opportunity due to an
allocation of filled purchase or sale orders across all eligible
accounts. To deal with these situations, NAM, Santa Barbara and NWQ
each has adopted procedures for allocating portfolio transactions
across multiple accounts.
- With respect to many of its clients' accounts, NAM, Santa Barbara
and NWQ each determines which broker to use to execute transaction
orders, consistent with its duty to seek best execution of the
transaction. However, with respect to certain other accounts, NAM,
Santa Barbara and NWQ each may be limited by the client with respect
to the selection of brokers or may be instructed to direct trades
through a particular broker. In these cases, NAM, Santa Barbara and
NWQ each may place separate, non-simultaneous, transactions for a
Fund and other accounts, which may temporarily affect the market
price of the security or the execution of the transaction, or both,
to the detriment of the Fund or the other accounts.
- The Fund is subject to different regulation than the other pooled
investment vehicles and other accounts managed by the portfolio
manager. As a consequence of this difference in regulatory
requirements, the Fund may not be permitted to engage in all the
investment techniques or transactions or to engage in these
transactions to the same extent as the other accounts managed by the
portfolio manager. Finally, the appearance of a conflict of interest
may arise where NAM, Santa Barbara or NWQ have an incentive, such as
a performance-based management fee, which relates to the management
of some accounts, with respect to which a portfolio manager has
day-to-day management responsibilities.
NAM, Santa Barbara and NWQ each has adopted certain compliance procedures
that are designed to address these types of conflicts common among investment
managers. However, there is no guarantee that such procedures will detect each
and every situation in which a conflict arises.
Beneficial Ownership of Securities. As of the date of this Statement of
Additional Information, none of Mr. Boothe, Mr. Carne, Mr. Guttschow or Mr.
Gambla beneficially own any stock issued by the Fund.
Unless earlier terminated as described below, the Fund's investment
management agreement with NAM and NAM's investment subadvisory agreements with
each of Santa Barbara and NWQ
S-31
(collectively, the "management agreements") will remain in effect until August
1, 2008. The management agreements continue in effect from year to year so long
as such continuation is approved at least annually by (1) the Board of Trustees
or the vote of a majority of the outstanding voting securities of the Fund and
(2) a majority of the trustees who are not interested persons of any party to
the management agreements, cast in person at a meeting called for the purpose of
voting on such approval. The investment management agreement may be terminated
at any time, without penalty, by either the Fund or NAM upon 60 days written
notice, and is automatically terminated in the event of its assignment as
defined in the 1940 Act. The investment subadvisory agreements may be terminated
each at any time, without penalty, by the Fund, NAM, Santa Barbara and NWQ upon
60 days' written notice after the initial term of the agreements, and is
automatically terminated in the event of its assignment as defined in the 1940
Act.
CODE OF ETHICS
The Fund, NAM, Nuveen, Santa Barbara, NWQ and other related entities have
adopted codes of ethics that essentially prohibit certain of their personnel,
including the Fund's portfolio managers, from engaging in personal investments
that compete or interfere with, or attempt to take advantage of a client's,
including the Fund's, anticipated or actual portfolio transactions, and are
designed to assure that the interests of clients, including Fund shareholders,
are placed before the interests of personnel in connection with personal
investment transactions. Text-only versions of the codes of ethics of the Fund,
NAM, Santa Barbara, NWQ and Nuveen can be viewed online or downloaded from the
EDGAR Database on the Securities and Exchange Commission's internet web site at
www.sec.gov. You may also review and copy those documents by visiting the
Securities and Exchange Commission's Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by
calling the Securities and Exchange Commission at 202-942-8090. In addition,
copies of those codes of ethics may be obtained, after mailing the appropriate
duplicating fee, by writing to the Securities and Exchange Commission's Public
Reference Section, 100 F Street, N.E., Washington, DC 20549 or by e-mail request
at publicinfo@sec.gov.
PROXY VOTING PROCEDURES
The Fund is responsible for voting proxies on securities held in its
portfolio. When the Fund receives a proxy, the decision regarding how to vote
such proxy will be made by the Subadviser responsible for the assets to which
the proxy relates in accordance with that Subadviser's proxy voting procedures.
With respect to Santa Barbara, the Fund has granted to Santa Barbara the
authority to vote proxies on its behalf with respect to the assets managed by
Santa Barbara. A senior member of Santa Barbara is responsible for oversight of
the Fund's proxy voting process. Santa Barbara also uses the services of
Institutional Shareholder Services, Inc. ("ISS"). Santa Barbara reviews ISS
recommendations and frequently follows the ISS recommendations. However, on
selected issues, Santa Barbara may not vote in accordance with the ISS
recommendations when it believes that specific ISS recommendations are not in
the best economic interest of the Fund. If Santa Barbara manages the assets of a
company or its pension plan and any of Santa Barbara's clients hold any
securities of that company, Santa Barbara will vote proxies relating to such
company's securities in accordance with the ISS recommendations to avoid any
conflict of interest. If a client requests Santa Barbara to follow specific
voting guidelines or additional guidelines, Santa Barbara will review the
request and inform the client only if Santa Barbara is not able to follow the
client's request.
Santa Barbara has adopted the ISS Proxy Voting Guidelines. While these
guidelines are not intended to be all-inclusive, they do provide guidance on
Santa Barbara's general voting policies.
With respect to NWQ, NWQ's Proxy Voting Committee (the "Committee") is
responsible for supervision of the proxy voting process, including
identification of material conflicts of interest involving NWQ and the proxy
voting process in respect of securities owned on behalf of clients, and
circumstances when NWQ may deviate from its policies and procedures. Unless
otherwise determined by the
S-32
Committee, NWQ will cause proxies to be voted consistent with the
recommendations or guidelines of an independent third party proxy service or
other third party, and in most cases, votes generally in accordance with the
recommendations of ISS on the voting of proxies relating to securities held on
behalf of clients' accounts. Unless otherwise restricted, NWQ's Committee
reserves the right to override the specific recommendations in any situation
where it believes such recommendation is not in its clients best interests.
NWQ's Committee oversees the identification of material conflicts of interest,
and where such matter is covered by the recommendations or guidelines of a third
party proxy service, it shall cause proxies to be voted in accordance with the
applicable recommendation or guidelines, to avoid such conflict. If a material
conflict of interest matter is not covered by the third party service provider
recommendations, NWQ may (i) vote in accordance with the recommendations of an
alternative independent third party or (ii) disclose the conflict to the client,
and with their consent, make the proxy voting determination and document the
basis for such determination.
NWQ generally does not intend to vote proxies associated with the
securities of any issuer if as a result of voting, the issuer restricts such
securities from being transacted for a period (this occurs for issuers in a few
foreign countries), or where the voting would in NWQ's judgment result in some
other financial, legal, regulatory disability or burden to NWQ or the client
(such as imputing control with respect to the issuer). Likewise, the Committee
may determine not to recall securities on loan if negative consequences of such
recall outweigh benefits of voting in the particular instance, or expenses and
inconvenience of such recall outweigh benefits, in NWQ's judgment.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Board of Trustees, Santa Barbara, with
respect to the Dividend Growth Equity Strategy, NWQ, with respect to the Income
Oriented Strategy, and NAM, with respect to the implementation of the Fund's
other investment techniques, including the writing of call options, are
responsible for decisions to purchase and sell securities for the Fund, the
negotiation of the prices to be paid and the allocation of transactions among
various dealer firms. Transactions on stock exchanges involve the payment by the
Fund of brokerage commissions. There generally is no stated commission in the
case of securities traded in the OTC market but the price paid by the Fund
usually includes an undisclosed dealer commission or mark-up. Transactions in
the OTC market can also be placed with broker-dealers who act as agents and
charge brokerage commissions for effecting OTC transactions. The Fund may place
its OTC transactions either directly with principal market makers, or with
broker-dealers if that is consistent with NAM's Santa Barbara's or NWQ's, as
applicable, obligation to obtain best qualitative execution. In certain
instances, the Fund may make purchases of underwritten issues at prices that
include underwriting fees.
Portfolio securities may be purchased directly from an underwriter or in
the OTC market from the principal dealers in such securities, unless it appears
that a better price or execution may be obtained through other means. Portfolio
securities will not be purchased from Nuveen or its affiliates except in
compliance with the 1940 Act.
It is each of Santa Barbara's, NWQ's and NAM's policy to seek the best
execution under the circumstances of each trade. Santa Barbara, NWQ and NAM will
evaluate price as the primary consideration, with the financial condition,
reputation and responsiveness of the dealer considered secondary in determining
best execution. Given the best execution obtainable, it will be each of Santa
Barbara's, NWQ's and NAM's practice to select dealers that, in addition, furnish
research information (primarily credit analyses of issuers and general economic
reports) and statistical and other services to Santa Barbara, NWQ and NAM. It is
not possible to place a dollar value on information and statistical and other
services received from dealers. Since it is only supplementary to NAM's own
research efforts, the receipt of research information is not expected to reduce
significantly each of Santa Barbara's,
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NWQ's and NAM's expenses. While Santa Barbara, NWQ and NAM will be primarily
responsible for the placement of the business of the Fund, each of Santa
Barbara's, NWQ's and NAM's policies and practices in this regard must be
consistent with the foregoing and will, at all times, be subject to review by
the Board of Trustees of the Fund.
Santa Barbara, NWQ and NAM may manage other investment accounts and
investment companies for other clients that may invest in the same types of
securities as the Fund and that may have investment objectives similar to those
of the Fund. Santa Barbara, NWQ and NAM each seek to allocate portfolio
transactions equitably whenever concurrent decisions are made to purchase or
sell assets or securities by the Fund and another advisory account. If an
aggregated order cannot be filled completely, allocations will generally be made
on a pro rata basis. An order may not be allocated on a pro rata basis where,
for example (i) consideration is given to portfolio managers who have been
instrumental in developing or negotiating a particular investment; (ii)
consideration is given to an account with specialized investment policies that
coincide with the particulars of a specific investment; (iii) pro rata
allocation would result in odd-lot or de minimis amounts being allocated to a
portfolio or other client; or (iv) where NAM reasonably determines that
departure from a pro rata allocation is advisable. There may also be instances
where the Fund will not participate at all in a transaction that is allocated
among other accounts. While these allocation procedures could have a detrimental
effect on the price or amount of the securities available to the Fund from time
to time, it is the opinion of the Board of Trustees that the benefits available
from NAM's management outweigh any disadvantage that may arise from NAM's larger
management activities and their need to allocate securities.
NET ASSET VALUE
The Fund will determine the net asset value of its shares daily, as of the
close of regular session trading on the New York Stock Exchange (normally 4:00
p.m. New York time). Net asset value is computed by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
For purposes of determining the net asset value of the Fund, readily
marketable portfolio securities listed on the New York Stock Exchange are
valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, long positions are valued at the last available bid price and short
positions are valued at the last available ask price. If no bid or asked prices
are quoted on such day, then the security is valued by such method as the Board
of Trustees shall determine in good faith to reflect its fair market value.
Readily marketable securities not listed on the New York Stock Exchange but
listed on other domestic exchanges are valued in a like manner. Portfolio
securities traded on more than one securities exchange are valued at the last
sale price on the business day as of which such value is being determined as
reflected on the tape at the close of the exchange representing the principal
market for such securities.
Generally, readily marketable securities traded in the OTC market,
including listed securities whose primary market is believed by an Adviser to be
OTC, are valued at the mean of the current bid and asked prices as reported by
NASDAQ or, in the case of securities not quoted by NASDAQ, the National
Quotation Bureau or such other comparable source as the Board of Trustees deem
appropriate to reflect their fair market value. Long Positions in securities
traded in the OTC market are valued at the last available bid price or yield
equivalent obtained from one or more dealers or pricing services approved by the
Board of Trustees. However, certain fixed income securities may be valued on the
basis of prices provided by a pricing service when such prices are believed by
the Board of Trustees to reflect the fair market value of such securities. The
prices provided by a pricing service take into account institutional
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size trading in similar groups of securities and any developments related to
specific securities. Where securities are traded on more than one exchange and
also OTC, the securities will generally be valued using the quotations the Board
of Trustees believes reflect most closely the value of such securities. In
addition, if it is determined that market prices for a security are unavailable
or inappropriate, the Board of Trustees, or its designee, may determine the fair
value for the security.
When the Fund writes an option, the amount of the premium received is
recorded on the books of the Fund as an asset and an equivalent liability. The
amount of the liability is subsequently valued to reflect the current market
value of the option written, based upon the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last asked price. Options purchased by the Fund are valued at their last sale
price in the case of exchange-traded options or, in the case of options traded
in the OTC market, the last bid price. The value of swaps, including interest
rate swaps, will be determined by obtaining dealer quotations. Other
investments, including futures contracts and related options, are stated at
market value. Obligations with remaining maturities of 60 days or less are
valued at amortized cost unless the Fund believes that this method no longer
produces fair valuations. Repurchase agreements will be valued at cost plus
accrued interest. Generally, trading in mortgage-backed securities, U.S.
Government securities and money market instruments is substantially completed
each day at various times prior to the close of business on the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the Fund's shares are determined at such times.
With respect to fixed income securities, the Fund may use an independent
pricing service to value those fixed income securities at their market value or
at a fair value determined by the independent pricing service. The Fund will use
the fair value method to value fixed income securities if the independent
pricing service is unable to provide a market or fair value for them or if the
market value provided by the independent pricing service is deemed unreliable,
or if events occurring after the close of a securities market and before the
Fund values its Managed Assets would materially affect net asset value.
Securities that are fair valued may be valued at a price higher or lower
than actual market quotations or the value determined by other funds using their
own fair value procedures.
ADDITIONAL INFORMATION CONCERNING AUCTIONS
FOR FUNDPREFERRED SHARES
GENERAL
Auction Agency Agreement. The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
The Bank of New York) which provides, among other things, that the Auction Agent
will follow the Auction Procedures for purposes of determining the Applicable
Rate for each series of FundPreferred shares so long as the Applicable Rate for
shares of such series is to be based on the results of an Auction.
Broker-Dealer Agreements. Each Auction requires the participation of one
or more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers
selected by the Fund, which provide for the participation of those
Broker-Dealers in Auctions for FundPreferred shares. See "--Broker-Dealers"
below.
Securities Depository. The Depository Trust Company ("DTC") will act as
the Securities Depository for the Agent Members with respect to each series of
FundPreferred shares. One certificate
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for all of the shares of each series of FundPreferred shares will be registered
in the name of Cede & Co., as nominee of the securities Depository. Such
certificate will bear a legend to the effect that such certificate is issued
subject to the provisions restricting transfers of FundPreferred shares
contained in the Statement. The Fund will also issue stop-transfer instructions
to the transfer agent for each series of FundPreferred shares. Prior to the
commencement of the right of holders of preferred shares to elect a majority of
the Fund's trustees, as described under "Description of FundPreferred
Shares--Voting Rights" in the Prospectus, Cede & Co. will be the holder of
record of all shares of each series of FundPreferred shares and owners of such
shares will not be entitled to receive certificates representing their ownership
interest in such shares.
DTC, a New York-chartered limited purpose trust company, performs services
for its participants (including the Agent Members), some of whom (and/or their
representatives) own DTC. DTC maintains lists of its participants and will
maintain the positions (ownership interests) held by each such participant (the
"Agent Member") in FundPreferred shares, whether for its own account or as a
nominee for another person.
CONCERNING THE AUCTION AGENT
The Auction Agent is acting as agent for the Fund in connection with
Auctions. In the absence of bad faith or negligence on its part, the Auction
Agent will not be liable for any action taken, suffered, or omitted or for any
error of judgment made by it in the performance of its duties under the Auction
Agency Agreement and will not be liable for any error of judgment made in good
faith unless the Auction Agent will have been negligent in ascertaining the
pertinent facts.
The Auction Agent may rely upon, as evidence of the identities of the
Existing Holders of shares of FundPreferred shares, the Auction Agent's registry
of Existing Holders, the results of Auctions and notices from any Broker-Dealer
(or other Person, if permitted by the Fund) with respect to transfers described
under "The Auction--Secondary Market Trading and Transfer of FundPreferred
Shares" in the Prospectus and notices from the Fund. The Auction Agent is not
required to accept any such notice for an Auction unless it is received by the
Auction Agent by 3:00 p.m., New York City time, on the Business Day preceding
such Auction.
The Auction Agent may terminate the Auction Agency Agreement upon notice
to the Fund on a date no earlier than 45 days after such notice. If the Auction
Agent should resign, the Fund will use its best efforts to enter into an
agreement with a successor Auction Agent containing substantially the same terms
and conditions as the Auction Agency Agreement. The Fund may remove the Auction
Agent provided that prior to such removal the Fund shall have entered into such
an agreement with a successor Auction Agent.
BROKER-DEALERS
The Auction Agent after each Auction for shares of FundPreferred shares
will pay to each Broker-Dealer, from funds provided by the Fund, a service
charge at the annual rate of 1/4 of 1% in the case of any Auction immediately
preceding a Rate Period of less than one year, or a percentage agreed to by the
Fund and the Broker-Dealers in the case of any Auction immediately preceding a
Rate Period of one year or longer, of the purchase price of FundPreferred shares
placed by such Broker-Dealer at such Auction. A Broker-Dealer may share a
portion of such service charge with other broker-dealers that submit Orders
through it that are filled in the Auction for the FundPreferred shares.
FundPreferred shares will be placed by a Broker-Dealer if such shares were (a)
the subject of Hold Orders deemed to have been submitted to the Auction Agent by
the Broker-Dealer and were acquired by such Broker-Dealer for its own account or
were acquired by such Broker-Dealer for its customers who are Beneficial owners
or (b) the subject of an order submitted by such Broker-Dealer that is (i) a
Submitted Bid of an Existing Holder that resulted in such
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Existing Holder continuing to hold such shares as a result of the Auction or
(ii) a Submitted Bid of a Potential Holder that resulted in such Potential
Holder purchasing such shares as a result of the Auction or (iii) a valid Hold
Order.
The Fund may request the Auction Agent to terminate one or more
Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after such termination.
The Broker-Dealer Agreement provides that a Broker-Dealer (other than an
affiliate of the Fund) may submit Orders in Auctions for its own account, unless
the Fund notifies all Broker-Dealers that they may no longer do so, in which
case Broker-Dealers may continue to submit Hold Orders and Sell Orders for their
own accounts. Any Broker-Dealer that is an affiliate of the Fund may submit
orders in Auctions, but only if such Orders are not for its own account. If a
Broker-Dealer submits an order for its own account in any Auction, it might have
an advantage over other Bidders because it would have knowledge of all Orders
submitted by it in that Auction; such Broker-Dealer, however, would not have
knowledge of orders submitted by other Broker-Dealers in that Auction.
S-37
REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
common shares will trade in the open market at a price that will be a function
of several factors, including dividend levels (which are in turn affected by
expenses), net asset value, dividend stability, relative demand for and supply
of such shares in the market, general market and economic conditions and other
factors. Because shares of a closed-end investment company may frequently trade
at prices lower than net asset value, the Fund's Board of Trustees has currently
determined that, at least annually, it will consider action that might be taken
to reduce or eliminate any material discount from net asset value in respect of
common shares, which may include the repurchase of such shares in the open
market or in private transactions, the making of a tender offer for such shares
at net asset value, or the conversion of the Fund to an open-end investment
company. There can be no assurance, however, that the Board of Trustees will
decide to take any of these actions, or that share repurchases or tender offers,
if undertaken, will reduce market discount.
Notwithstanding the foregoing, at any time when the FundPreferred shares
are outstanding, the Fund may not purchase, redeem or otherwise acquire any of
its common shares unless (1) all accrued FundPreferred shares dividends have
been paid and (2) at the time of such purchase, redemption or acquisition, the
net asset value of the Fund's portfolio (determined after deducting the
acquisition price of the common shares) is at least 200% of the liquidation
value of the outstanding FundPreferred shares
S-38
(expected to equal the original purchase price per share plus any accrued and
unpaid dividends thereon). The staff of the Securities and Exchange Commission
currently requires that any tender offer made by a closed-end investment company
for its shares must be at a price equal to the net asset value of such shares on
the close of business on the last day of the tender offer. Any service fees
incurred in connection with any tender offer made by the Fund will be borne by
the Fund and will not reduce the stated consideration to be paid to tendering
shareholders.
Subject to its investment limitations, the Fund may borrow to finance the
repurchase of shares or to make a tender offer. Interest on any Borrowings to
finance share repurchase transactions or the accumulation of cash by the Fund in
anticipation of share repurchases or tenders will reduce the Fund's net income.
Any share repurchase, tender offer or Borrowings that might be approved by the
Board of Trustees would have to comply with the Securities Exchange Act of 1934,
as amended, and the 1940 Act and the rules and regulations thereunder.
Although the decision to take action in response to a discount from net
asset value will be made by the Board of Trustees at the time it considers such
issue, it is the Board's present policy, which may be changed by the Board, not
to authorize repurchases of common shares or a tender offer for such shares if
(1) such transactions, if consummated, would (a) result in the delisting of the
common shares from the New York Stock Exchange or elsewhere or (b) impair the
Fund's status as a regulated investment company under the Code (which would make
the Fund a taxable entity, causing the Fund's income to be taxed at the
corporate level in addition to the taxation of shareholders who receive
dividends from the Fund) or as a registered closed-end investment company under
the 1940 Act; (2) the Fund would not be able to liquidate portfolio securities
in an orderly manner and consistent with the Fund's investment objectives and
policies in order to repurchase shares; or (3) there is, in the Board's
judgment, any (a) material legal action or proceeding instituted or threatened
challenging such transactions or otherwise materially adversely affecting the
Fund, (b) general suspension of or limitation on prices for trading securities
on the New York Stock Exchange or elsewhere, (c) declaration of a banking
moratorium by federal or state authorities or any suspension of payment by
United States or state banks in which the Fund invests, (d) material limitation
affecting the Fund or the issuers of its portfolio securities by federal or
state authorities on the extension of credit by lending institutions or on the
exchange of non-U.S. currency, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States or (f) other event or condition that would have a material adverse
effect (including any adverse tax effect) on the Fund or its shareholders if
shares were repurchased. The Board of Trustees of the Fund may in the future
modify these conditions in light of experience.
Conversion to an open-end investment company would require the approval of
the holders of at least two-thirds of the common shares and FundPreferred shares
outstanding at the time, voting together as a single class, and of the holders
of at least two-thirds of the FundPreferred shares outstanding at the time,
voting as a separate class, provided however, that such separate class vote
shall be a majority vote if the action in question has previously been approved,
adopted or authorized by the affirmative vote of two-thirds of the total number
of trustees fixed in accordance with the Declaration or By-laws. See the Fund's
Prospectus under "Certain Provisions in the Declaration of Trust and By-laws"
for a discussion of voting requirements applicable to conversion of the Fund to
an open-end investment company. If the Fund converted to an open-end investment
company, it would be required to redeem all FundPreferred shares then
outstanding (requiring in turn that it liquidate a portion of its investment
portfolio), and the common shares would no longer be listed on the New York
Stock Exchange or elsewhere. Shareholders of an open-end investment company may
require the company to redeem their shares on any business day (except in
certain circumstances as authorized by or under the 1940 Act or rules
thereunder) at their net asset value, less such redemption charge, if any, as
might be in effect at the time of redemption. In order to avoid maintaining
large cash positions or liquidating favorable investments to meet redemptions,
open-end investment companies typically engage in a continuous offering of their
shares. Open-end investment
S-39
companies are thus subject to periodic asset in-flows and out-flows that can
complicate portfolio management. The Board of Trustees of the Fund may at any
time propose conversion of the Fund to an open-end investment company depending
upon their judgment as to the advisability of such action in light of
circumstances then prevailing.
The repurchase by the Fund of its shares at prices below net asset value
will result in an increase in the net asset value of those shares that remain
outstanding. However, there can be no assurance that share repurchases or
tenders at or below net asset value will result in the Fund's shares trading at
a price equal to their net asset value. Nevertheless, the fact that the Fund's
shares may be the subject of repurchase or tender offers at net asset value from
time to time, or that the Fund may be converted to an open-end company, may
reduce any spread between market price and net asset value that might otherwise
exist.
In addition, a purchase by the Fund of its common shares will decrease the
Fund's total assets, which would likely have the effect of increasing the Fund's
expense ratio. Any purchase by the Fund of its common shares at a time when
FundPreferred shares are outstanding will increase the leverage applicable to
the outstanding common shares then remaining. See the Fund's Prospectus under
"Risk Factors--Risks of Investing in FundPreferred Shares--Leverage Risk."
Before deciding whether to take any action if the common shares trade
below net asset value, the Board of Trustees would consider all relevant
factors, including the extent and duration of the discount, the liquidity of the
Fund's portfolio, the impact of any action that might be taken on the Fund or
its shareholders, and market considerations. Based on these considerations, even
if the Fund's shares should trade at a discount, the Board of Trustees may
determine that, in the interest of the Fund and its shareholders, no action
should be taken.
FEDERAL INCOME TAX MATTERS
The following is intended to be a general summary of the material federal
income tax consequences of investing in FundPreferred shares. It is not intended
to be a complete discussion of all such federal income tax consequences, nor
does it purport to deal with all categories of investors. Except as discussed
under "Other Taxation," the discussion generally applies only to holders of
FundPreferred shares who are U.S. holders. You will be a U.S. holder if you are
an individual who is a citizen or resident of the United States, a U.S. domestic
corporation, or any other person that is subject to U.S. federal income tax on a
net income basis in respect of an investment in the FundPreferred shares. This
summary deals only with U.S. holders that hold FundPreferred shares as capital
assets. It does not address considerations that may be relevant to you if you
are an investor that is subject to special tax rules, such as a financial
institution, insurance company, regulated investment company, real estate
investment trust, investor in pass-through entities, U.S. holder of
FundPreferred shares whose "functional currency" is not the United States
dollar, tax-exempt organization, dealer in securities or currencies, trader in
securities or commodities that elects mark to market treatment, person who holds
FundPreferred shares in a qualified tax deferred account such as an IRA, or
person that will hold FundPreferred shares as a position in a "straddle,"
"hedge" or as part of a "constructive sale" for federal income tax purposes. In
addition, this discussion does not address the application of the U.S. federal
alternative minimum tax.
This summary is based on the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the applicable Treasury Regulations promulgated
thereunder, judicial authority and current administrative rulings, as in effect
on the date of this Statement of Additional Information, all of which may
change. Any change could apply retroactively and could affect the continued
validity of this summary. INVESTORS ARE THEREFORE ADVISED TO CONSULT WITH THEIR
OWN TAX ADVISERS BEFORE MAKING AN INVESTMENT IN THE FUND.
S-40
FEDERAL INCOME TAX TREATMENT OF THE FUND
The Fund intends to qualify, and to elect to be treated, as a regulated
investment company under Subchapter M of the Code, and intends to qualify under
those provisions each year. To qualify as a regulated investment company, the
Fund must, among other things, (a) derive in each taxable year at least 90% of
its gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including but not limited to gain from options,
futures and forward contracts) derived with respect to its business of investing
in such stocks, securities or currencies, and net income derived from an
interest in certain publicly traded partnerships that are treated as
partnerships for U.S. federal income tax purposes and that derive less than 90%
of their gross income from the items described above (each, a "Qualified
Publicly Traded Partnership"); and (b) diversify its holdings so that, at the
end of each quarter of its taxable year, (i) at least 50% of the market value of
the Fund's total assets is represented by cash and cash items, U.S. government
securities, securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater in value than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer and (ii) not more than 25% of the value of its total assets is
invested in the securities (other than U.S. government securities or securities
of other regulated investment companies) of any one issuer, of two or more
issuers controlled by the Fund and engaged in the same, similar or related
trades or businesses, or of one or more Qualified Publicly Traded Partnerships.
As a regulated investment company, in any taxable year with respect to
which the Fund distributes at least 90% of its investment company taxable income
(as that term is defined in the Code, without regard to the deduction for
dividends paid), the Fund (but not its shareholders) generally will be relieved
of U.S. federal income taxes on its investment company taxable income and net
capital gain (i.e., the Fund's net long-term capital gain in excess of the sum
of its net short-term capital loss and capital loss carryovers from prior years)
if any, that it distributes to shareholders. However, the Fund will be subject
to federal income tax (currently imposed at a maximum effective rate of 35%) on
any undistributed investment company taxable income and net capital gain. The
Fund intends to distribute to its shareholders, at least annually, all or
substantially all of its investment company taxable income and net capital gain.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are also subject to a nondeductible 4% federal
excise tax payable by the Fund. To prevent imposition of this tax, the Fund must
distribute, or be deemed to have distributed, during each calendar year an
amount at least equal to the sum of (1) 98% of its ordinary income (not taking
into account any capital gains or losses) for the calendar year, (2) 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for the twelve-month period generally ending on October 31 of the
calendar year, and (3) all such ordinary income and capital gains for previous
years that were not distributed during such years. For this purpose, any income
or gain retained by the Fund that is subject to corporate federal income tax
will be considered to have been distributed by year-end. To prevent application
of this excise tax, the Fund intends to make distributions to satisfy the
calendar year distribution requirement. Compliance with the calendar year
distribution requirement may limit the extent to which the Fund will be able to
retain its net capital gain for investment.
If in any taxable year the Fund fails to qualify as a regulated investment
company under the Code, the Fund will be taxed in the same manner as an ordinary
corporation and distributions to its shareholders will not be deductible by the
Fund in computing its taxable income. In the event of a failure to qualify as a
regulated investment company, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits, will constitute
dividends, which will generally be eligible for the dividends received deduction
available to corporate shareholders under section 243 of the Code (the
"dividends received deduction"). Furthermore, in such event, individual and
other noncorporate shareholders of the Fund would generally be able to treat
such distributions as "qualified dividend
S-41
income" eligible for reduced rates of federal income taxation in taxable years
beginning on or before December 31, 2010.
If the Fund does not meet the asset coverage requirements of the 1940 Act,
the Fund will be required to suspend distributions to the holders of the common
shares and/or the FundPreferred shares until the asset coverage is restored. See
"Description of FundPreferred Shares--Restrictions on Dividend, Redemption and
Other Payments" in the Prospectus. Such a suspension of distributions might
prevent the Fund from distributing 90% of its investment company taxable income
as is required under the Code in order to qualify for tax treatment as a
regulated investment company, and thus cause the Fund to incur an income tax
liability, a non-deductible 4% federal excise tax on its undistributed taxable
income (including gain), or both.
Upon any failure to meet the asset coverage requirements of the 1940 Act,
the Fund intends to repurchase or redeem (to the extent permitted under the 1940
Act) FundPreferred shares in order to maintain or restore the requisite asset
coverage and avoid disqualification as a regulated investment company under the
Code. The determination to repurchase or redeem FundPreferred shares and the
amounts to be repurchased or redeemed, if any, will be made in the sole
discretion of the Fund. However, under certain circumstances, the failure of the
Fund to meet the asset coverage requirements of the 1940 Act will require a
mandatory redemption of FundPreferred shares.
Use of the Fund's cash to repurchase or redeem FundPreferred shares may
adversely affect the Fund's ability to distribute annually at least 90% of its
investment company taxable income, which distribution is required to qualify for
taxation as a regulated investment company. The Fund may also recognize income
in connection with funding repurchases or redemptions of FundPreferred shares,
and such income would be taken into account in determining whether or not the
above-described distribution requirements have been met. Depending on the size
of the Fund's assets relative to its outstanding senior securities, redemption
of FundPreferred shares might restore asset coverage. Payment of distributions
after restoration of asset coverage could requalify (or avoid a disqualification
of) the Fund as a regulated investment company, depending upon the relevant
facts and circumstances.
Since the Fund may invest in securities of non-U.S. issuers, its income
from such securities may be subject to non-U.S. taxes. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Shareholders of the Fund generally will not be entitled to a credit or deduction
with respect to such taxes paid by the Fund.
Under section 988 of the Code, gains or losses attributable to
fluctuations in exchange rates between the time the Fund accrues income or
receivables or expenses or other liabilities denominated in a foreign currency
and the time the Fund actually collects such income or receivables or pays such
liabilities are generally treated as ordinary income or loss. Similarly, gains
or losses on foreign currency forward contracts and the disposition of debt
securities denominated in a foreign currency, to the extent attributable to
fluctuations in exchange rates between the acquisition and disposition dates,
are also generally treated as ordinary income or loss.
The Fund may invest in certain pay-in-kind securities, zero coupon
securities, deferred interest securities or, in general, any other securities
with original issue discount. The Fund must accrue income on such investments
(and investments with market discount if the Fund elects to include market
discount in income currently) for each taxable year, which generally will be
prior to the receipt of the corresponding cash payments. However, the Fund must
distribute, at least annually, all or substantially all of its investment
company taxable income, including such accrued income, to shareholders to avoid
federal income and excise taxes. Therefore, the Fund may have to dispose of
portfolio securities
S-42
under disadvantageous circumstances to generate cash, or may have to leverage
itself by borrowing the cash, to satisfy the distribution requirements of the
Code.
Certain of the Fund's investment practices are subject to special and
complex federal income tax provisions that may, among other things, (i)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (ii) convert tax-advantaged, long-term capital gains and qualified
dividend income into higher taxed short-term capital gain or ordinary income,
(iii) convert an ordinary loss or a deduction into a capital loss (the
deductibility of which is more limited), (iv) cause the Fund to recognize income
or gain without a corresponding receipt of cash, (v) adversely affect the timing
as to when a purchase or sale of stock or securities is deemed to occur, (vi)
adversely alter the characterization of certain complex financial transactions,
and (vii) produce income that will not qualify as good income for purposes of
the 90% annual gross income requirement described above. The Fund will monitor
its transactions and may make certain tax elections in order to mitigate the
effect of these provisions, if possible.
The Fund may invest in preferred securities, convertible securities,
securities that are below investment grade or other types of securities, the
federal income tax treatment of which is uncertain or subject to
recharacterization by the Internal Revenue Service. To the extent the federal
income tax treatment of such securities differs from the tax treatment expected
by the Fund, it could affect the timing or character of income recognized by the
Fund, requiring the Fund to purchase or sell securities, or otherwise change its
portfolio, in order to comply with the tax rules applicable to regulated
investment companies under the Code.
FEDERAL INCOME TAX TREATMENT OF HOLDERS OF FUNDPREFERRED SHARES
Under present law and based in part on the fact that there is no express
or implied agreement between or among a Broker-Dealer or any other party, and
the Fund or any owners of the FundPreferred shares, that the Broker-Dealer or
any other party will guarantee or otherwise arrange to ensure that an owner of
FundPreferred shares will be able to sell his or her shares, the Fund is of the
opinion that the FundPreferred shares will constitute equity of the Fund for
federal income tax purposes, and thus distributions with respect to the
FundPreferred shares (other than distributions in redemption of the
FundPreferred shares subject to section 302(b) of the Code) will generally
constitute dividends to the extent of the Fund's current or accumulated earnings
and profits, as calculated for federal income tax purposes. The following
discussion assumes such treatment will apply.
The Fund's income will consist of investment company taxable income and
may also consist of net capital gain. The character of the Fund's income will
not affect the amount of dividends to which the holders of the FundPreferred
shares are entitled. Holders of the FundPreferred shares are entitled to receive
only the amount of dividends as determined by periodic auctions. For federal
income tax purposes, however, the Internal Revenue Service requires that a
regulated investment company that has two or more classes of shares allocate to
each such class proportionate amounts of each type of its income (such as
ordinary income and net capital gain) for each tax year. Accordingly, the Fund
intends to designate dividends made with respect to the common shares and the
FundPreferred shares as consisting of particular types of income (e.g., net
capital gain, ordinary income, dividends qualifying for the dividends received
deduction, and qualified dividend income) in accordance with each class's
proportionate share of the total dividends paid to both classes for such taxable
year. Thus, if the Fund designates any dividend as a capital gain dividend,
capital gains will be allocated to the FundPreferred shares in proportion to the
FundPreferred shares' proportionate share of the total dividends paid on both
the FundPreferred shares and the common shares during the year. Each holder of
the FundPreferred shares during the year will be notified of the allocation of
income within 60 days after the end of the year. The amount of the net capital
gain realized by the Fund may not be significant, and there is no assurance that
any such gain will be realized by the Fund in any year.
S-43
Distributions of the Fund's investment company taxable income will
generally constitute dividends to the extent of the Fund's current or
accumulated earnings and profits, as calculated for federal income tax purposes.
Except in the case of capital gain dividends and distributions of qualified
dividend income, such dividends would be taxable at ordinary income tax rates. A
significant portion of such distributions are expected to qualify for the
dividends received deduction under section 243 of the Code or the reduced rates
of federal income taxation (i.e., the long-term capital gains rate) for
qualified dividend income currently available to individual and other
noncorporate shareholders under section 1(h)(11) of the Code. Distributions
designated by the Fund as derived from net capital gain, if any, are also
taxable to shareholders at rates applicable to long-term capital gains,
regardless of the length of time the FundPreferred shares have been held by
holders. For taxable years beginning on or before December 31, 2010, the maximum
federal income tax rate applicable to long-term capital gains for individual and
other noncorporate investors has been reduced to 15%. Without further
legislation, this reduced tax rate will lapse, and the previous higher tax rates
will be reinstated, for taxable years beginning on or after January 1, 2011.
Distributions in excess of the Fund's earnings and profits, if any, will first
reduce a shareholder's adjusted tax basis in his or her FundPreferred shares
and, after the adjusted tax basis is reduced to zero, will constitute capital
gains to a holder of FundPreferred shares who holds such shares as a capital
asset. Earnings and profits are treated, for federal income tax purposes, as
first being used to pay distributions on the FundPreferred shares and then, to
the extent remaining, if any, to pay distributions on the common shares.
In order for dividends received by a Fund shareholder to be treated as
qualified dividend income, the Fund must meet holding period and other
requirements with respect to such dividend paying stocks in its portfolio and
the shareholder must meet holding period and other requirements with respect to
such shareholder's Fund's shares. A dividend will not be treated as qualified
dividend income (at either the Fund or shareholder level), (1) if the dividend
is received with respect to any share of stock held for 60 days or less during
the 121 day period beginning on the date which is 60 days before the date on
which such share becomes ex-dividend with respect to such dividend (or, in the
case of certain preferred stock, 90 days during the 181-day period beginning 90
days before such date), (2) to the extent that the recipient is under an
obligation (whether pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property,
(3) if the recipient elects to have the dividend income treated as investment
income for purposes of the limitation on deductibility of investment interest,
or (4) if the dividend is received from a foreign corporation that is (a) not
eligible for the benefits of a comprehensive income tax treaty with the United
States (with the exception of dividends paid on stock of such a foreign
corporation readily tradable on an established securities market in the United
States) or (b) a passive foreign investment company. Dividends received by
corporate shareholders of the Fund are also subject to holding period and other
requirements at the shareholder and Fund levels in order to qualify for the
dividends received deduction. In addition, dividends received by the Fund from
foreign corporations will generally not be eligible for the dividends received
deduction when distributed to corporate shareholders of the Fund.
Although the Fund is required to distribute annually at least 90% of its
investment company taxable income, the Fund is not required to distribute net
capital gain to the shareholders. The Fund may retain and reinvest such gains
and pay federal income taxes on such gains (the "net undistributed capital
gain"). However, it is unclear whether a portion of the net undistributed
capital gain would have to be allocated to the FundPreferred shares for federal
income tax purposes. Until and unless the Fund receives acceptable guidance from
the Internal Revenue Service or an opinion of counsel as to the allocation of
the net undistributed capital gain between the common shares and the
FundPreferred shares, the Fund intends to distribute its net capital gain for
any year during which it has FundPreferred shares outstanding. Such distribution
will affect the tax character, but not the amount, of dividends to which holders
of FundPreferred shares are entitled.
S-44
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December with a record date in such
months, and paid in January of the following year, will be treated as having
been distributed by the Fund and received by the shareholders on December 31 of
the year in which the dividend was declared. In addition, solely for the purpose
of satisfying the 90% distribution requirement and the distribution requirement
for avoiding income taxes, certain distributions made after the close of a
taxable year of the Fund may be "spilled back" and treated as paid during such
taxable year. In such case, shareholders will be treated as having received such
dividends in the taxable year in which the distribution was actually made. The
Internal Revenue Service has ruled privately that dividends paid following the
close of the taxable year that are treated for tax purposes as derived from
income from the prior year will be treated as dividends "paid" in the prior year
for purposes of determining the proportionate share of a particular type of
income for each class. Accordingly, the Fund intends to treat any such dividends
that are paid following the close of a taxable year as "paid" in the prior year
for purposes of determining a class's proportionate share of a particular type
of income. However, the private ruling is not binding on the Internal Revenue
Service, and there can be no assurance that the Internal Revenue Service will
respect such treatment.
The Fund will notify holders of FundPreferred shares of the source and
federal income tax status of all distributions shortly after the close of each
calendar year.
SALE OF SHARES
A holder's sale of FundPreferred shares will generally be a taxable
transaction for federal income tax purposes. Selling holders of such shares will
generally recognize gain or loss in an amount equal to the difference between
the amount received for such shares and their adjusted tax basis in the
FundPreferred shares sold. If such FundPreferred shares are held as a capital
asset at the time of sale, the gain or loss will generally be a capital gain or
loss. Similarly, a redemption (including a redemption by the Fund resulting from
liquidation of the Fund), if any, of all the FundPreferred shares actually and
constructively held by a shareholder generally will give rise to capital gain or
loss under section 302(b) of the Code if the shareholder does not own (and is
not regarded under certain federal income tax law rules of constructive
ownership as owning) any common shares in the Fund and provided that the
redemption proceeds do not represent declared but unpaid dividends. Other
redemptions may also give rise to capital gain or loss, if several conditions
imposed by section 302(b) of the Code are satisfied. Any loss realized on a sale
or exchange will be disallowed to the extent that substantially identical shares
are reacquired within a period of 61 days beginning 30 days before and ending 30
days after the disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized upon a taxable disposition of FundPreferred shares held for six months
or less will be treated as a long-term capital loss to the extent of any
distributions of net capital gain received (or deemed received) with respect to
such shares.
REGULATIONS ON "REPORTABLE TRANSACTIONS"
Treasury Regulations provide that if a shareholder recognizes a loss with
respect to FundPreferred shares of $2 million or more in a single taxable year
(or $4 million or more in any combination of taxable years) for shareholders who
are individuals, S corporations or trusts, or $10 million or more in a single
taxable year (or $20 million or more in any combination of taxable years) for a
corporate shareholder, the shareholder must file with the Internal Revenue
Service a disclosure statement on Form 8886. Direct shareholders of portfolio
securities are in many cases excepted from this reporting requirement, but under
current guidance, shareholders of a regulated investment company are not
excepted. Future guidance may extend the current exception from this reporting
requirement to shareholders of most or all regulated investment companies. The
fact that a loss is reportable under these regulations does not affect the legal
determination of whether the taxpayer's treatment of the loss is
S-45
proper. Shareholders should consult their tax advisors to determine the
applicability of these regulations in light of their particular circumstances.
BACKUP WITHHOLDING
The Fund may be required to withhold for U.S. federal income purposes a
portion of all distributions (including redemption proceeds) payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification number or who fail to make required certifications, or if the
Fund or a shareholder has been notified by the Internal Revenue Service that the
shareholder is subject to backup withholding. Certain corporate and other
shareholders specified in the Code are exempt from such backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may be
credited against such shareholder's U.S. federal income tax liability provided
the appropriate information is furnished to the Internal Revenue Service.
OTHER TAXATION
Non-U.S. shareholders, including shareholders who, with respect to the
United States, are nonresident alien individuals, may be subject to U.S.
withholding tax on certain distributions at a rate of 30% or, provided the Fund
receives certain certifications from such non-U.S. shareholder, such lower rates
as may be prescribed by an applicable treaty. Recently enacted legislation,
however, modifies the tax treatment of certain dividends paid by a Fund to
non-U.S. persons. Effective for taxable years of a Fund beginning before January
1, 2008, a Fund will generally not be required to withhold tax on any amounts
paid to a non-U.S. person with respect to dividends attributable to "qualified
short-term gain" (i.e., the excess of net short-term capital gain over net
long-term capital loss) designated as such by the Fund and dividends
attributable to certain U.S. source interest income that would not be subject to
federal withholding tax if earned directly by a non-U.S. person, provided such
amounts are properly designated by the Fund.
INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE APPLICATION OF THE ABOVE-DESCRIBED GENERAL FEDERAL INCOME TAX RULES TO THEIR
OWN CIRCUMSTANCES AND WITH RESPECT TO OTHER FEDERAL, STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES TO THEM BEFORE MAKING AN INVESTMENT IN FUNDPREFERRED SHARES.
EXPERTS
The Financial Statements of the Fund as of May 15, 2007, appearing in this
Statement of Additional Information have been audited by Ernst & Young LLP, the
Fund's independent registered public accounting firm, as set forth in their
report thereon appearing elsewhere herein, and is included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing. Ernst & Young LLP provides accounting and auditing services to the
Fund. The principal business address of Ernst & Young LLP is 233 South Wacker
Drive, Chicago, Illinois 60606.
CUSTODIAN, TRANSFER AGENT, AUCTION AGENT, DIVIDEND
DISBURSING AGENT AND REDEMPTION AGENT
The custodian of the assets of the Fund is State Street Bank and Trust
Company, One Federal Street, Boston, Massachusetts 02110. The custodian performs
custodial, fund accounting and portfolio accounting services. The Fund's
transfer, shareholder services and dividend paying agent is also State Street
Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110. The
Bank of New
S-46
York is the Auction Agent with respect to the FundPreferred shares and acts as
transfer agent, registrar, dividend disbursing agent and redemption agent with
respect to the FundPreferred shares.
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments thereto,
relating to the shares of the Fund offered hereby, has been filed by the Fund
with the Commission, Washington, D.C. The Fund's Prospectus and this Statement
of Additional Information do not contain all of the information set forth in the
Registration Statement, including any exhibits and schedules thereto. For
further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's Registration Statement. Statements contained in
the Fund's Prospectus and this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of the
Registration Statement may be inspected without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the Commission upon the payment of certain fees prescribed by
the Commission.
S-47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholder
Nuveen Tax-Advantaged Dividend Growth Fund
We have audited the accompanying statement of assets and liabilities of
Nuveen Tax-Advantaged Dividend Growth Fund (the "Fund") as of May 15, 2007, and
the related statement of operations for the period from February 22, 2007 (date
of organization) to May 15, 2007. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Fund's internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Nuveen
Tax-Advantaged Dividend Growth Fund at May 15, 2007, and the results of its
operations for the period from February 22, 2007 (date of organization) to May
15, 2007, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
May 16, 2007
NUVEEN TAX-ADVANTAGED DIVIDEND GROWTH FUND
Statement of Assets and Liabilities
May 15, 2007
Assets:
Cash $100,084
Offering costs 500,000
Receivable from Adviser 11,000
--------
Total assets 611,084
--------
Liabilities:
Accrued offering costs 500,000
Payable for organization costs 11,000
--------
Total liabilities 511,000
--------
Net assets $100,084
========
Common shares outstanding 5,240
========
Net asset value per Common share outstanding ($100,084 divided by 5,240 Common shares
outstanding) $ 19.10
========
Net Assets Represent:
Common shares, $.01 par value; unlimited number of shares authorized, 5,240 Common shares
outstanding $ 52
Paid-in surplus 100,032
--------
Net assets $100,084
========
F-2
NUVEEN TAX-ADVANTAGED DIVIDEND GROWTH FUND
Statement of Operations
Period from February 22, 2007 (date of organization) through May 15, 2007
Investment income $ --
----------
Expenses:
Organization costs 11,000
Expense reimbursement (11,000)
----------
Total expenses --
----------
Net investment income $ --
==========
(1) THE FUND
The Nuveen Tax-Advantaged Dividend Growth Fund (the "Fund") was
organized as a Massachusetts business trust on February 22, 2007, and has been
inactive since that date except for matters relating to its organization and
registration as a diversified, closed-end management investment company under
the Investment Company Act of 1940, as amended, and the Securities Act of 1933,
as amended, and the sale of 5,240 Common Shares to Nuveen Asset Management, the
Fund's investment adviser (the "Adviser"), a wholly owned subsidiary of Nuveen
Investments, Inc. ("Nuveen").
The Fund seeks to provide an attractive level of tax-advantaged
distributions and capital appreciation by investing primarily in common stocks
and preferred stocks of mid- to large-cap companies.
The Fund is authorized by its Declaration of Trust to utilize financial
leverage through borrowing, issuing commercial paper or notes and/or offering
Preferred shares ("FundPreferred shares"). FundPreferred shares may have a
liquidation value of $25,000 per share and may be issued in one or more classes
or series, with dividend, liquidation preference and other rights as determined
by the Fund's Board of Trustees without approval of the Common shareholders.
(2) SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results may differ from those estimates.
(3) ORGANIZATION AND OFFERING COSTS
Nuveen Investments, LLC (the "Distributor"), a wholly owned subsidiary
of Nuveen, has agreed to (i) reimburse all organizational costs of the Fund
(approximately $11,000) and (ii) pay all offering costs (other than sales load)
that exceed $.04 per Common share. Based on an estimated offering of 12,500,000
Common shares, the Fund would pay a maximum of $500,000 of offering costs and
Nuveen would pay all offering costs in excess of $500,000, which is currently
estimated to be $375,000. The Fund's share of Common share offering costs will
be recorded as a reduction of the proceeds from the sale of the shares upon
commencement of Fund operations. If the Fund offers FundPreferred shares, the
offering costs will be borne by Common shareholders as a direct reduction to
paid-in surplus.
(4) INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an investment management agreement between the Adviser and
the Fund, the Fund has agreed to pay an annual management fee for the services
and facilities provided by the Adviser, payable on a monthly basis, based on the
sum of a fund-level fee and a complex-level fee, as described below.
Fund-Level Fee. The annual fund-level fee, payable monthly, shall be
applied according to the following schedule:
FUND-LEVEL FEE
FUND-LEVEL AVERAGE DAILY MANAGED ASSETS RATE
-------------
Up to $500 million 0.8000%
$500 million to $1 billion 0.7750%
$1 billion to $1.5 billion 0.7500%
$1.5 billion to $2 billion 0.7250%
$2 billion and over 0.7000%
Complex-Level Fee. The annual complex-level fee, payable monthly, shall be
applied according to the schedule below. Based on complex-level assets of $73.9
billion as of April 30, 2007, the complex-level fee rate would be 0.1824%.
COMPLEX-LEVEL FEE
COMPLEX-LEVEL DAILY MANAGED ASSETS (1) RATE
-------------------
For the first $55 billion 0.2000%
For the next $1 billion 0.1800%
For the next $1 billion 0.1600%
For the next $3 billion 0.1425%
For the next $3 billion 0.1325%
For the next $3 billion 0.1250%
For the next $5 billion 0.1200%
For the next $5 billion 0.1175%
For the next $15 billion 0.1150%
For managed assets over $91 billion (2) 0.1400%
----------
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets"
means the average daily net assets of each fund including assets
attributable to preferred stock issued by and borrowings by the Nuveen
funds) of Nuveen sponsored funds in the U.S.
(2) With respect to complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a
later date. In the unlikely event that complex-wide Managed Assets
reach $91 billion prior to a determination of the complex-level fee
rate or rates to be applied to Managed Assets in excess of $91 billion,
the complex-level fee rate for such complex-wide Managed Assets shall
be 0.1400% until such time as a different rate or rates is determined.
The management fee compensates the Adviser for overall investment
advisory and administrative services and general office facilities. The Adviser
has entered into Sub-Advisory Agreements with Santa Barbara Asset Management,
LLC ("Santa Barbara") and NWQ Investment Management Company, LLC ("NWQ"). Santa
Barbara is a wholly owned subsidiary of Nuveen. Nuveen owns a controlling
interest in NWQ, while key management of NWQ owns a non-controlling minority
interest. Santa Barbara and NWQ are compensated for their services to the Fund
from the management fee paid to the Adviser. The Fund pays no compensation
directly to those of its Trustees who are affiliated with the Adviser or to its
officers, all of whom receive remuneration for their services to the Fund from
the Adviser or its affiliates.
(5) INCOME TAXES
The Fund intends to comply with the requirements of Subchapter M of the
Internal Revenue Code applicable to regulated investment companies. The Fund
intends to distribute substantially all of its investment company taxable income
to shareholders. In any year when the Fund realizes net capital gains, the Fund
may choose to distribute all or a portion of its net capital gains to
shareholders, or alternatively, to retain all or a portion of its net capital
gains and pay Federal corporate income taxes on such retained gains.
F-3
NUVEEN TAX-ADVANTAGED DIVIDEND GROWTH FUND
FINANCIAL STATEMENTS
NUVEEN TAX-ADVANTAGED DIVIDEND GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 2007
---------------------------------------------------------------------------
ASSETS
Repurchase agreement, at cost (which approximates value) $271,605,000
Cash 100,084
Interest receivable 60,357
---------------------------------------------------------------------------
Total assets 271,765,441
---------------------------------------------------------------------------
LIABILITIES
Accrued expenses:
Management fees 14,663
Other 21,899
---------------------------------------------------------------------------
Total liabilities 36,562
---------------------------------------------------------------------------
Net assets applicable to Common shares $271,728,879
---------------------------------------------------------------------------
Common shares outstanding 14,255,240
---------------------------------------------------------------------------
Net asset value per Common share outstanding $ 19.06
===========================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
---------------------------------------------------------------------------
Shares, $.01 par value per share $ 142,552
Paid-in surplus 271,562,532
Undistributed (Over-distribution of) net investment income 23,795
---------------------------------------------------------------------------
Net assets applicable to Common shares $271,728,879
===========================================================================
Authorized shares:
Common Unlimited
Preferred Unlimited
===========================================================================
See accompanying notes to financial statements.
F-4
NUVEEN TAX-ADVANTAGED DIVIDEND GROWTH FUND
STATEMENT OF OPERATIONS (UNAUDITED)
PERIOD FROM JUNE 26, 2007 (COMMENCEMENT OF OPERATIONS) THROUGH JUNE 30, 2007
-----------------------------------------------------------------------------
INVESTMENT INCOME $60,357
-----------------------------------------------------------------------------
EXPENSES
Management fees 14,663
Shareholders' servicing agent fees and expenses 10
Custodian's fees and expenses 338
Trustees' fees and expenses 37
Professional fees 326
Shareholders' reports - printing and mailing expenses 20,555
Investor relations expense 582
Other expenses 51
-----------------------------------------------------------------------------
Total expenses 36,562
-----------------------------------------------------------------------------
Net investment income 23,795
-----------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $23,795
=============================================================================
See accompanying notes to financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
PERIOD FROM JUNE 26, 2007 (COMMENCEMENT OF OPERATIONS) THROUGH JUNE 30, 2007
--------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 23,795
--------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations 23,795
--------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of Common shares, net of offering
costs 271,605,000
--------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from capital share transactions 271,605,000
--------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares 271,628,795
Net assets applicable to Common shares at the beginning of
period 100,084
--------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $271,728,879
--------------------------------------------------------------------------------
Undistributed (Over-distribution of) net investment income
at the end of period $ 23,795
================================================================================
See accompanying notes to financial statements.
F-6
NUVEEN TAX-ADVANTAGED DIVIDEND GROWTH FUND (JTD)
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 2007
Principal
Amount (000) Description Coupon Maturity Value
271,605 Repurchase Agreement with State Street Bank,
dated 6/29/07, repurchase price $271,695,535, 4.000% 7/02/07 271,605,000
collateralized by:
$195,000,000 U.S. Treasury
Notes, 3.000%, due 7/15/12, value $230,831,250
$25,500,000 U.S. Treasury
Notes, 2.500%, due 7/15/16, value $26,010,000
$20,455,000 U.S. Treasury
Notes, 2.000%, due 4/15/12, value $20,199,313
(cost $271,605,000) - 100.0%
Other Assets Less Liabilities - 0.0% 123,879
-----------
Net Assets - 100% 271,728,879
===========
See accompanying notes to financial statements.
F-7
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Tax-Advantaged Dividend Growth Fund (the "Fund") is a diversified,
closed-end management investment company registered under the Investment Company
Act of 1940, as amended. The Fund's shares are listed on the New York Stock
Exchange and trade under the ticker symbol "JTD." The Fund was organized as a
Massachusetts business trust on February 22, 2007.
The Fund seeks to provide an attractive level of tax-advantaged distributions
and capital appreciation by investing primarily in common stocks and preferred
stocks of mid- to large-cap companies.
Prior to the commencement of operations, the Fund had no operations other than
those related to organizational matters, the initial capital contribution of
$100,084 by Nuveen Asset Management (the "Adviser"), a wholly owned subsidiary
of Nuveen Investments, Inc. ("Nuveen"), and the recording of the organization
expenses ($11,000) and their reimbursement by Nuveen Investments, LLC, also a
wholly owned subsidiary of Nuveen.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities are generally valued at the last sales price on the
securities exchange on which such securities are primarily traded. Securities
traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq are valued at the
Nasdaq Official Closing Price. The prices of fixed-income securities are
generally provided by an independent pricing service approved by the Fund's
Board of Trustees. When price quotes are not readily available, the pricing
service or, in the absence of a pricing service for a particular investment, the
Board of Trustees of the Fund, or its designee, may establish fair value using a
wide variety of market data including yields or prices of investments of
comparable quality, type of issue, coupon, maturity and rating, market quotes or
indications of value from security dealers, evaluations of anticipated cash
flows or collateral, general market conditions and other information and
analysis, including the obligor's credit characteristics considered relevant by
the pricing service or the Board of Trustee's designee. If the pricing service
is unable to supply a price for a fixed-income security, the Fund may use a
market quote provided by a major broker/dealer in such investments. If it is
determined that the market price for an investment is unavailable or
inappropriate, the Board of Trustees of the Fund, or its designee, may establish
fair value in accordance with procedures established in good faith by the Board
of Trustees. Short-term investments are valued at amortized cost, which
approximates market value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from investment transactions are determined on the specific
identification method. Investments purchased on a when-issued/delayed delivery
basis may have extended settlement periods. Any investments so purchased are
subject to market fluctuation during this period. The Fund has instructed the
custodian to segregate assets with a current value at least equal to the amount
of the when-issued/delayed delivery purchase commitments. At June 30, 2007, the
Fund had no such outstanding purchase commitments.
Investment Income
Dividend income is recorded on the ex-dividend date. Interest income, which
includes the amortization of premiums and accretion of discounts for financial
reporting purposes, is recorded on an accrual basis.
Federal Income Taxes
The Fund intends to comply with the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. The Fund intends to
distribute substantially all of its investment company taxable income to
shareholders. In any year when the Fund realizes net capital gains, the Fund may
choose to distribute all or a portion of its net capital gains to shareholders,
or alternatively, to retain all or a portion of its net capital gains and pay
federal corporate income taxes on such retained gains.
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
The Fund intends to make quarterly cash distributions to Common shareholders of
a stated dollar amount per share. Subject to approval and oversight by the
Fund's Board of Trustees, the Fund seeks to maintain a stable distribution level
designed to deliver the long-term return potential of the Fund's investment
strategy through regular quarterly distributions (a "Managed Distribution
Policy"). Total distributions during a calendar year generally will be made from
the Fund's net investment income, net realized capital gains and net unrealized
capital gains in the Fund's portfolio, if any. The portion of distributions paid
from net unrealized gains, if any, would be distributed from the Fund's assets
and would be treated by shareholders as a non-taxable distribution for tax
purposes. If the Fund's total return on net asset value exceeds total
distributions during a calendar year, the excess will be reflected as an
increase in net asset value per share. In the event that total distributions
during a calendar year exceed the Fund's total return on net asset value, the
difference will be treated as a return of capital for tax purposes and will
reduce net asset value per share. The final determination of the source and
character of all distributions for the fiscal year are made after the end of the
fiscal year and reflected in the financial statements contained in the annual
report as of December 31 each year.
Leverage
The Fund is authorized by its Declaration of Trust to utilize financial leverage
through borrowing, issuing commercial paper or notes and/or offering Preferred
shares ("FundPreferred shares"). FundPreferred shares may have a liquidation
value of $25,000 per share and may be issued in one or more classes or series,
with dividend, liquidation preference and other rights as determined by the
Fund's Board of Trustees without approval of the Common shareholders.
Derivative Financial Instruments
The Fund is authorized to invest in derivative instruments, such as call
options, swaps, futures and forward contracts for the purposes of managing risk,
hedging, creating investment exposure and generating current income and gains.
Although the Fund is authorized to invest in such financial instruments, and may
do so in the future, it did not invest in any such instruments during the period
June 26, 2007 (commencement of operations) through June 30, 2007.
Organization and Offering Costs
Nuveen Investments, LLC has agreed to reimburse all organization expenses
(approximately $11,000) and pay all Common share offering costs (other than the
sales load) that exceed $.04 per Common share. The Fund's Common share of
offering costs of $570,000 was recorded as a reduction of the proceeds from the
sale of shares.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments. Credits for cash balances may be offset by charges for any days on
which the Fund overdraws its account at the custodian bank.
Indemnifications
Under the Fund's organizational documents, its Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts that provide general indemnifications to other parties.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
During the period June 26, 2007 (commencement of operations) through June 30,
2007, the Fund sold 14,250,000 Common shares.
3. INVESTMENT TRANSACTIONS
The Fund did not make any investment purchases or sales (excluding short-term
investments) during the period June 26, 2007 (commencement of operations)
through June 30, 2007.
4. INCOME TAX INFORMATION
At June 30, 2007, the cost of investments was the same for both financial
statement and federal income tax purposes. During the period June 26, 2007
(commencement of operations) through June 30, 2007, the Fund made no
distributions to its shareholders.
5. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is separated into two components - a complex-level
component, based on the aggregate amount of all fund assets managed by the
Adviser, and a specific fund-level component, based only on the amount of assets
within the Fund. This pricing structure enables Nuveen fund shareholders to
benefit from growth in the assets within each individual fund as well as from
growth in the amount of complex-wide assets managed by the Adviser.
The annual fund-level fee, payable monthly, is based upon the average daily
Managed Assets of the Fund as follows:
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
---------------------------------------------------------------------------------------------------
For the first $500 million .8000%
For the next $500 million .7750
For the next $500 million .7500
For the next $500 million .7250
For Managed Assets over $2 billion .7000
---------------------------------------------------------------------------------------------------
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as stated in the tables below. As
of June 30, 2007, the complex level fee rate was .1828%.
Effective August 20, 2007, the complex-level fee schedule is as follows:
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL(1) EFFECTIVE RATE AT BREAKPOINT LEVEL
---------------------------------------------------------------------------------------------------
$55 billion .2000%
$56 billion .1996
$57 billion .1989
$60 billion .1961
$63 billion .1931
$66 billion .1900
$71 billion .1851
$76 billion .1806
$80 billion .1773
$91 billion .1691
$125 billion .1599
$200 billion .1505
$250 billion .1469
$300 billion .1445
---------------------------------------------------------------------------------------------------
Prior to August 20, 2007, the complex-level fee schedule was as follows:
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL(1) EFFECTIVE RATE AT BREAKPOINT LEVEL
---------------------------------------------------------------------------------------------------
$55 billion .2000%
$56 billion .1996
$57 billion .1989
$60 billion .1961
$63 billion .1931
$66 billion .1900
$71 billion .1851
$76 billion .1806
$80 billion .1773
$91 billion .1698
$125 billion .1617
$200 billion .1536
$250 billion .1509
$300 billion .1490
---------------------------------------------------------------------------------------------------
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
preferred stock issued by or borrowings by the Nuveen funds) of
Nuveen-sponsored funds in the U.S.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser is
responsible for the overall strategy and asset allocation decisions. The Adviser
has entered into Sub-Advisory Agreements with Santa Barbara Asset Management,
LLC ("Santa Barbara"), a wholly owned subsidiary of Nuveen, and NWQ Investment
Management Company, LLC ("NWQ"), of which Nuveen owns a controlling interest
while key management of NWQ owns a non-controlling minority interest. Santa
Barbara manages the portion of the Fund's investment portfolio allocated to
dividend-paying equity securities. NWQ manages the portion of the Fund's
investment portfolio allocated to preferred securities and other fixed-income
securities. The Adviser is also responsible for the writing of index call
options on various equity market indices, if any. Santa Barbara and NWQ are
compensated for their services to the Fund from the management fees paid to the
Adviser.
The Fund pays no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its Officers, all of whom receive remuneration
for their services to the Fund from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised funds.
Agreement and Plan of Merger
On June 20, 2007, Nuveen Investments announced that it had entered into a
definitive Agreement and Plan of Merger ("Merger Agreement") with an investor
group majority-led by Madison Dearborn Partners, LLC. Madison Dearborn Partners,
LLC is a private equity investment firm based in Chicago, Illinois. The investor
group includes affiliates of Merrill Lynch, Wachovia, Citigroup, Deutsche Bank
and Morgan Stanley. It is anticipated that Merrill Lynch and its affiliates will
be indirect "affiliated persons" (as that term is defined in the Investment
Company Act of 1940) of the Fund. One important implication is that the Fund
will not be able to buy or sell securities to or from Merrill Lynch, but the
portfolio management teams and Fund management do not expect that this will
significantly impact the ability of the Fund to pursue its investment objectives
and policies. Under the terms of the merger, each outstanding share of Nuveen
Investments' common stock (other than dissenting shares) will be converted into
the right to receive a specified amount of cash, without interest. The merger is
expected to be completed by the end of the year, subject to customary
conditions, including obtaining the approval of Nuveen Investments shareholders,
obtaining necessary fund and client consents sufficient to satisfy the terms of
the Merger Agreement, and expiration of certain regulatory waiting periods. The
obligations of Madison Dearborn Partners, LLC to consummate the merger are not
conditioned on its obtaining financing.
The consummation of the merger will be deemed to be an "assignment" (as defined
in the 1940 Act) of the investment management agreement between the Fund and the
Adviser, and will result in the automatic termination of the Fund's agreement.
Prior to the consummation of the merger, it is anticipated that the Board of
Trustees of the Fund will consider a new investment management agreement with
the Adviser. If approved by the Board, the new agreement would be presented to
the Fund's shareholders for approval, and, if so approved by shareholders, would
take effect upon consummation of the merger. There can be no assurance that the
merger described above will be consummated as contemplated or that necessary
shareholder approvals will be obtained.
6. NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 48
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48).
FIN 48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006, and is to be
applied to all open tax years as of the effective date, however, SEC guidance
allows funds which commence operations after December 15, 2006 to delay
implementing FIN 48 into NAV calculations until the fund's last NAV calculation
in the second required financial statement reporting period. As a result, the
Fund will begin to incorporate FIN 48 into its NAV calculations by December 31,
2007. At this time, management is continuing to evaluate the implications of FIN
48 and does not expect the adoption of FIN 48 will have a significant impact on
the net assets or results of operations of the Fund.
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 157.
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The changes to current generally accepted accounting principles from the
application of this standard relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. As of June 30, 2007, the Fund does not believe the adoption of
SFAS No. 157 will impact the financial statement amounts; however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements included within the Statement of
Operations for the period.
7. SUBSEQUENT EVENTS
Distributions to Common Shareholders
On August 8, 2007, the Fund declared a distribution of $.4050 per Common share
which will be paid on October 1, 2007, to shareholders of record on
September 15, 2007.
On August 14, 2007, the Fund issued an additional 600,000 Common shares in
connection with an exercise by the underwriters of their over allotment option.
Financial
HIGHLIGHTS (Unaudited)
Selected data for a share outstanding throughout each period:
Investment Operations
------------------------
Net Net Offering
Beginning Investment Realized/ Costs and Ending Ending
Net Asset Income Unrealized Underwriting Net Asset Market
Value (a) Gain (Loss) Total Discounts Value Value
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2007(b) $ 19.10 $ --*** $ -- $ -- $ (.04) $ 19.06 $ 20.00
------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
-----------------------------------------------------
Total Returns
-------------------
Based Ratio of Net
Based on Ratio of Investment
on Net Ending Net Expenses Income (Loss) Portfolio
Market Asset Assets to Average to Average Turnover
Value** Value** (000) Net Assets Net Assets Rate
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
.00% (.21)% $ 271,729 1.23%* .80%* 0%
--------------------------------------------------------------------------------------
See accompanying notes to financial statements.
* Annualized.
** Total Return on Market Value is the combination of changes in the market
price per share and the effect of reinvested dividend income and reinvested
capital gains distributions, if any, at the average price paid per share at
the time of reinvestment. The last dividend declared in the period, which
is typically paid on the first business day of the following month, is
assumed to be reinvested at the ending market price. The actual
reinvestment for the last dividend declared in the period takes place over
several days, and in some instances may not be based on the market price,
so the actual reinvestment price may be different from the price used in
the calculation. Total returns are not annualized.
Total Return on Common Share Net Asset Value is the combination of changes
in Common share net asset value, reinvested dividend income at net asset
value and reinvested capital gains distributions at net asset value, if
any. The last dividend declared in the period, which is typically paid on
the first business day of the following month, is assumed to be reinvested
at the ending net asset value. The actual reinvest price for the last
dividend declared in the period may often be based on the Fund's market
price (and not its net asset value), and therefore may be different from
the price used in the calculation. Total returns are not annualized.
*** Per share Net Investment Income rounds to less than $.01 per share.
(a) Per share Net Investment Income is calculated using the average
daily shares method.
(b) For the period June 26, 2007 (commencement of operations) through
June 30, 2007.
APPENDIX A
NUVEEN TAX-ADVANTAGED DIVIDEND GROWTH FUND
STATEMENT ESTABLISHING AND FIXING THE RIGHTS AND PREFERENCES
OF FUNDPREFERRED SHARES
Nuveen Tax-Advantaged Dividend Growth Fund (the "Fund"), a Massachusetts
business trust, certifies that:
FIRST, pursuant to the authority expressly vested in the Board of the Fund
by Articles IV and VI of the Fund's Declaration of Trust (which, as hereafter
restated or amended from time to time, are together with this Statement herein
called the "Declaration"), the Board of Trustees has, by resolution, authorized
the issuance of ____ preferred shares of beneficial interest ("Preferred
Shares"), $.01 par value, classified as FundPreferred shares ("FundPreferred
shares"), and further classified as Series T FundPreferred shares (each series,
and together with additional series of FundPreferred shares that may be
authorized and issued, a "Series") each with a liquidation preference of $25,000
per share;
SECOND, the preferences, rights, voting powers, restrictions, limitations
as to dividends, qualifications and terms and conditions of redemption of the
shares of such series of FundPreferred shares are as follows:
DESIGNATION
SERIES T: A series of ____ Preferred Shares, liquidation preference
$25,000 per share, is designated "Series T FundPreferred shares"
("FundPreferred shares Series T"). The initial Dividend Period for
FundPreferred shares Series T shall be the period from and including the Date
of Original Issue thereof to but excluding __________ __, 200_. Each share of
FundPreferred shares Series T shall have an Applicable Rate for its initial
Dividend Period equal to ___% per annum and an initial Dividend Payment Date of
____ __, 200_ and each share of FundPreferred shares Series T shall have such
other preferences, rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption, in addition to
those required by applicable law or set forth in the Declaration applicable to
preferred shares of the Fund, as are set forth in Part I and Part II of this
Statement. The FundPreferred shares Series T shall constitute a separate series
of Preferred Shares of the Fund.
Subject to the provisions of Section 11 of Part I hereof, the Board of
Trustees of the Fund may, in the future, authorize the issuance of additional
shares of the Fund's Preferred Shares as FundPreferred shares Series T with the
same preferences, rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption and other terms
of the respective series herein described, except that the Applicable Rate for
its initial Dividend Period, its initial Dividend Payment Date and any other
changes in the terms herein set forth shall be as set forth in an amendment to
this Statement.
As used in Part I and Part II of this Statement, capitalized terms shall
have the meanings provided in Section 17 of Part I.
PART I: FUNDPREFERRED SHARES TERMS
1. Number of Shares; Ranking.
(a) The initial number of authorized shares constituting
FundPreferred shares Series T is ____ shares. No fractional shares of
FundPreferred shares Series T shall be issued.
A-1
(b) Any shares of each Series of FundPreferred shares which at any
time have been redeemed or purchased by the Fund shall, after such redemption or
purchase, have the status of authorized but unissued shares of Preferred Shares.
(c) The shares of each Series of FundPreferred shares shall rank on
a parity with shares of any other series of Preferred Shares (including any
other FundPreferred shares) as to the payment of dividends to which such shares
are entitled and the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund.
(d) No holder of shares of any Series of FundPreferred shares shall
have, solely by reason of being such a holder, any preemptive right, or, unless
otherwise determined by the Trustees other right to acquire, purchase or
subscribe for any shares of any Series of FundPreferred shares, shares of common
shares of the Fund or other securities of the Fund which the Fund may hereafter
issue or sell.
2. Dividends.
(a) The Holders of shares of any Series of FundPreferred shares
shall be entitled to receive, when, as and if declared by the Board of Trustees,
out of funds legally available therefor, cumulative cash dividends on their
shares at the Applicable Rate, determined as set forth in paragraph (c) of this
Section 2, and no more, payable on the respective dates determined as set forth
in paragraph (b) of this Section 2. Dividends on the Outstanding shares of any
Series of FundPreferred shares issued on the Date of Original Issue shall
accumulate from the Date of Original Issue.
(b) (i) Dividends shall be payable when, as and if declared by the
Board of Trustees following the initial Dividend Payment Date, subject to
subparagraph (b)(ii) of this Section 2, on the shares of each Series of
FundPreferred shares, with respect to any Dividend Period on the first Business
Day following the last day of such Dividend Period; provided, however, if the
Dividend Period is greater than 30 days then on a monthly basis on the first
Business Day of each month within such Dividend Period and on the Business Day
following the last day of such Dividend Period.
(ii) If a day for payment of dividends resulting from the
application of subparagraph (b)(i) above is not a Business Day, (A) then
the Dividend Payment Date shall be the first Business Day following such
day for payment of dividends in the case of a Series of FundPreferred
shares designated as "Series M" or "Series F" or (B) then the Dividend
Payment Date shall be the first Business Day that falls prior to such day
for payment of dividends in the case of a Series of FundPreferred shares
designated as "Series T," "Series W," or "Series TH."
(iii) The Fund shall pay to the Paying Agent not later than
3:00 p.m., New York City time, on the Business Day next preceding each
Dividend Payment Date for the shares of each Series of FundPreferred
shares, an aggregate amount of funds available on the next Business Day in
the City of New York, New York, equal to the dividends to be paid to all
Holders of such shares on such Dividend Payment Date. The Fund shall not
be required to establish any reserves for the payment of dividends.
(iv) All moneys paid to the Paying Agent for the payment of
dividends shall be held in trust for the payment of such dividends by the
Paying Agent for the benefit of the Holders specified in subparagraph
(b)(v) of this Section 2. Any moneys paid to the Paying Agent in
accordance with the foregoing but not applied by the Paying Agent to the
payment of dividends, including interest earned on such moneys, will, to
the extent permitted by law, be repaid to the Fund at the end of 90 days
from the date on which such moneys were to have been so applied.
A-2
(v) Each dividend on a Series of FundPreferred shares shall be
paid on the Dividend Payment Date therefor to the Holders of that series
as their names appear on the share ledger or share records of the Fund on
the Business Day next preceding such Dividend Payment Date. Dividends in
arrears for any past Dividend Period may be declared and paid at any time,
without reference to any regular Dividend Payment Date, to the Holders as
their names appear on the share ledger or share records of the Fund on
such date, not exceeding 15 days preceding the payment date thereof, as
may be fixed by the Board of Trustees. No interest will be payable in
respect of any dividend payment or payments which may be in arrears.
(c) (i) The dividend rate on Outstanding shares of each Series of
FundPreferred shares during the period from and after the Date of Original Issue
to and including the last day of the initial Dividend Period therefor shall be
equal to the rate per annum set forth under "Designation" above. For each
subsequent Dividend Period with respect to the FundPreferred shares Outstanding
thereafter, the dividend rate shall be equal to the rate per annum that results
from an Auction; provided, however, that if an Auction for any subsequent
Dividend Period of a Series of FundPreferred shares is not held for any reason
or if Sufficient Clearing Bids have not been made in an Auction (other than as a
result of all shares of a Series of FundPreferred shares being the subject of
Submitted Hold Orders), then the dividend rate on the shares of a Series of
FundPreferred shares for any such Dividend Period shall be the Maximum Rate
(except (i) during a Default Period when the dividend rate shall be the Default
Rate, as set forth in Section 2(c)(ii) below) or (ii) after a Default Period and
prior to the beginning of the next Dividend Period when the dividend rate shall
be the Maximum Rate at the close of business on the last day of such Default
Period). The All Hold Rate will apply automatically following an Auction in
which all of the Outstanding shares of a Series of FundPreferred shares are
subject (or are deemed to be subject) to Hold Orders. The rate per annum at
which dividends are payable on shares of a Series of FundPreferred shares as
determined pursuant to this Section 2(c)(i) shall be the "Applicable Rate."
(ii) Subject to the cure provisions below, a "Default Period"
with respect to a particular Series will commence on any date the Fund
fails to deposit irrevocably in trust in same-day funds, with the Paying
Agent by 12:00 noon, New York City time, (A) the full amount of any
declared dividend on that Series payable on the Dividend Payment Date (a
"Dividend Default") or (B) the full amount of any redemption price (the
"Redemption Price") payable on the date fixed for redemption (the
"Redemption Date") (a "Redemption Default" and together with a Dividend
Default, hereinafter referred to as "Default"). Subject to the cure
provisions of Section 2(c)(iii) below, a Default Period with respect to a
Dividend Default or a Redemption Default shall end on the Business Day on
which, by 12:00 noon, New York City time, all unpaid dividends and any
unpaid Redemption Price shall have been deposited irrevocably in trust in
same-day funds with the Paying Agent. In the case of a Dividend Default,
the Applicable Rate for each Dividend Period commencing during a Default
Period will be equal to the Default Rate, and each subsequent Dividend
Period commencing after the beginning of a Default Period shall be a
Standard Dividend Period; provided, however, that the commencement of a
Default Period will not by itself cause the commencement of a new Dividend
Period. No Auction shall be held during a Default Period with respect to a
Dividend Default applicable to that Series of FundPreferred shares.
(iii) No Default Period with respect to a Dividend Default or
Redemption Default shall be deemed to commence if the amount of any
dividend or any Redemption Price due (if such default is not solely due to
the willful failure of the Fund) is deposited irrevocably in trust, in
same-day funds with the Paying Agent by 12:00 noon, New York City time
within three Business Days after the applicable Dividend Payment Date or
Redemption Date, together with an amount equal to the Default Rate applied
to the amount of such non-payment based on the actual
A-3
number of days comprising such period divided by 365 for each Series. The
Default Rate shall be equal to the Reference Rate multiplied by three (3).
(iv) The amount of dividends per share payable (if declared)
on each Dividend Payment Date of each Dividend Period of less than one (1)
year (or in respect of dividends on another date in connection with a
redemption during such Dividend Period) shall be computed by multiplying
the Applicable Rate (or the Default Rate) for such Dividend Period (or a
portion thereof) by a fraction, the numerator of which will be the number
of days in such Dividend Period (or portion thereof) that such share was
Outstanding and for which the Applicable Rate or the Default Rate was
applicable and the denominator of which will be 365, multiplying the
amount so obtained by $25,000, and rounding the amount so obtained to the
nearest cent. During any Dividend Period of one (1) year or more, the
amount of dividends per share payable on any Dividend Payment Date (or in
respect of dividends on another date in connection with a redemption
during such Dividend Period) shall be computed as described in the
preceding sentence, except that it will be determined on the basis of a
year consisting of twelve 30-day months.
(d) Any dividend payment made on shares of any Series of
FundPreferred shares shall first be credited against the earliest accumulated
but unpaid dividends due with respect to such Series.
(e) For so long as the FundPreferred shares are Outstanding, except
as contemplated by Part I of this Statement, the Fund will not declare, pay or
set apart for payment any dividend or other distribution (other than a dividend
or distribution paid in shares of, or options, warrants or rights to subscribe
for or purchase, Common Shares or other shares of beneficial interest, if any,
ranking junior to the FundPreferred shares as to dividends or upon liquidation)
in respect to Common Shares or any other shares of the Fund ranking junior to or
on a parity with the FundPreferred shares as to dividends or upon liquidation,
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 FundPreferred shares as to
dividends and upon liquidation) or any such parity shares (except by conversion
into or exchange for shares of the Fund ranking junior to or on a parity with
the FundPreferred shares as to dividends and upon liquidation), unless (i)
immediately after such transaction, the Fund would have Eligible Assets with an
aggregate Discounted Value at least equal to the FundPreferred Shares Basic
Maintenance Amount and the 1940 Act FundPreferred Shares Asset Coverage would be
achieved, (ii) full cumulative dividends on the FundPreferred Shares due on or
prior to the date of the transaction have been declared and paid and (iii) the
Fund has redeemed the full number of FundPreferred shares required to be
redeemed by any provision for mandatory redemption contained in Section
3(a)(ii).
(f) The Fund will not declare, pay or set apart for payment any
dividend or other distribution in respect to the FundPreferred shares unless (i)
there is not an event of default under indebtedness senior to the FundPreferred
shares, if any, or (ii) immediately after such transaction, the Fund would have
eligible portfolio holdings with an aggregate discounted value at least equal to
the asset coverage requirements under the indebtedness senior to the
FundPreferred shares.
3. Redemption.
(a) (i) After the initial Dividend Period, subject to the provisions
of this Section 3 and to the extent permitted under the 1940 Act and
Massachusetts law, the Fund may, at its option, redeem in whole or in part out
of funds legally available therefor shares of a Series of FundPreferred shares
herein designated as (A) having a Dividend Period of one year or less, on the
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Business Day after the last day of such Dividend Period by delivering a notice
of redemption not less than 15 days and not more than 40 days prior to the date
fixed for such redemption, at a redemption price per share equal to $25,000,
plus an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) to the date fixed for redemption ("Redemption Price"), or
(B) having a Dividend Period of more than one year, on any Business Day prior to
the end of the relevant Dividend Period by delivering a notice of redemption not
less than 15 days and not more than 40 days prior to the date fixed for such
redemption, at the Redemption Price, plus a redemption premium, if any,
determined by the Board of Trustees after consultation with the Broker-Dealers
and set forth in any applicable Specific Redemption Provisions at the time of
the designation of such Dividend Period as set forth in Section 4 of this
Statement; provided, however, that during a Dividend Period of more than one
year no shares of a Series of FundPreferred shares will be subject to optional
redemption except in accordance with any Specific Redemption Provisions approved
by the Board of Trustees after consultation with the Broker-Dealers at the time
of the designation of such Dividend Period. Notwithstanding the foregoing, the
Fund shall not give a notice of or effect any redemption pursuant to this
Section 3(a)(i) unless, on the date on which the Fund intends to give such
notice and on the date of redemption (a) the Fund has available certain 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 a Series of FundPreferred
shares by reason of the redemption of such FundPreferred shares on such date
fixed for the redemption and (b) the Fund would satisfy the FundPreferred Shares
Basic Maintenance Amount immediately subsequent to such redemption, if such
redemption were to occur on such date, it being understood that the provisions
of paragraph (d) of this Section 3 shall be applicable in such circumstances in
the event the Fund makes the deposit and takes the other action required
thereby.
(ii) If the Fund fails to maintain, as of any Valuation Date,
the FundPreferred Shares Basic Maintenance Amount or, as of the last
Business Day of any month, the 1940 Act FundPreferred Shares Asset
Coverage, and such failure is not cured within ten Business Days following
such Valuation Date in the case of a failure to maintain the FundPreferred
Shares Basic Maintenance Amount or on the last Business Day of the
following month in the case of a failure to maintain the 1940 Act
FundPreferred Shares Asset Coverage as of such last Business Day (each an
"Asset Coverage Cure Date"), the FundPreferred shares will be subject to
mandatory redemption out of funds legally available therefor. The number
of FundPreferred shares to be redeemed in such circumstances will be equal
to the lesser of (A) the minimum number of FundPreferred shares the
redemption of which, if deemed to have occurred immediately prior to the
opening of business on the relevant Asset Coverage Cure Date, would result
in the Fund satisfying the FundPreferred Shares Basic Maintenance Amount,
or sufficient to satisfy 1940 Act FundPreferred Shares Asset Coverage, as
the case may be, in either case as of the relevant Asset Coverage Cure
Date (provided that, if there is no such minimum number of shares the
redemption of which would have such result, all shares of FundPreferred
shares then Outstanding will be redeemed), and (B) the maximum number of
FundPreferred shares that can be redeemed out of funds expected to be
available therefor on the Mandatory Redemption Date at the Mandatory
Redemption Price set forth in subparagraph (a)(iii) of this Section 3.
(iii) In determining the FundPreferred shares required to be
redeemed in accordance with the foregoing Section 3(a)(ii), the Fund shall
allocate the number of shares required to be redeemed to satisfy the
FundPreferred Shares Basic Maintenance Amount or the 1940 Act
FundPreferred Shares Asset Coverage, as the case may be, pro rata among
the Holders of FundPreferred shares in proportion to the number of shares
they hold and shares of other Preferred Shares subject to mandatory
redemption provisions similar to those contained in this Section 3,
subject to the further provisions of this subparagraph (iii). The Fund
shall effect any required mandatory redemption pursuant to subparagraph
(a)(ii) of this Section 3 no later than 40 days after the Asset Coverage
Cure Date (the "Mandatory Redemption Date"), except that if the
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Fund does not have funds legally available for the redemption of, or is
not otherwise legally permitted to redeem, the number of shares of the
FundPreferred shares which would be required to be redeemed by the Fund
under clause (A) of subparagraph (a)(ii) of this Section 3 if sufficient
funds were available, together with shares of other Preferred Shares which
are subject to mandatory redemption under provisions similar to those
contained in this Section 3, or the Fund otherwise is unable to effect
such redemption on or prior to such Mandatory Redemption Date, the Fund
shall redeem those shares of the FundPreferred shares, and shares of other
Preferred Shares which it was unable to redeem, on the earliest
practicable date on which the Fund will have such funds available, upon
notice pursuant to Section 3(b) to record owners of the FundPreferred
shares to be redeemed and the Paying Agent. The Fund will deposit with the
Paying Agent funds sufficient to redeem the specified number of
FundPreferred shares with respect to a redemption required under
subparagraph (a)(ii) of this Section 3, by 1:00 p.m., New York City time,
of the Business Day immediately preceding the Mandatory Redemption Date.
If fewer than all of the Outstanding FundPreferred shares are to be
redeemed pursuant to this Section 3(a)(iii), the number of shares to be
redeemed shall be redeemed pro rata from the Holders of such shares in
proportion to the number of such shares held by such Holders, by lot or by
such other method as the Fund shall deem fair and equitable, subject,
however, to the terms of any applicable Specific Redemption Provisions.
"Mandatory Redemption Price" means the Redemption Price plus (in the case
of a Dividend Period of one year or more only) a redemption premium, if
any, determined by the Board of Trustees after consultation with the
Broker-Dealers and set forth in any applicable Specific Redemption
Provisions.
(b) In the event of a redemption pursuant to Section 3(a), the Fund
will file a notice of its intention to redeem with the Securities and Exchange
Commission so as to provide at least the minimum notice required under Rule
23c-2 under the 1940 Act or any successor provision. In addition, the Fund shall
deliver a notice of redemption to the Auction Agent (the "Notice of Redemption")
containing the information set forth below (i) in the case of an optional
redemption pursuant to subparagraph (a)(i) above, one Business Day prior to the
giving of notice to the Holders and (ii) in the case of a mandatory redemption
pursuant to subparagraph (a)(ii) above, on or prior to the 30th day preceding
the Mandatory Redemption Date. The Auction Agent will use its reasonable efforts
to provide notice to each Holder of shares of each Series of FundPreferred
shares called for redemption by electronic or other reasonable means not later
than the close of business on the Business Day immediately following the day on
which the Auction Agent determines the shares to be redeemed (or, during a
Default Period with respect to such shares, not later than the close of business
on the Business Day immediately following the day on which the Auction Agent
receives Notice of Redemption from the Fund). The Auction Agent shall confirm
such notice in writing not later than the close of business on the third
Business Day preceding the date fixed for redemption by providing the Notice of
Redemption to each Holder of shares called for redemption, the Paying Agent (if
different from the Auction Agent) and the Securities Depository. Notice of
Redemption will be addressed to the registered owners of each Series of
FundPreferred shares at their addresses appearing on the share records of the
Fund. Such Notice of Redemption will set forth (i) the date fixed for
redemption, (ii) the number and identity of FundPreferred shares to be redeemed,
(iii) the redemption price (specifying the amount of accumulated dividends to be
included therein), (iv) that dividends on the shares to be redeemed will cease
to accumulate on such date fixed for redemption, and (v) the provision under
which redemption shall be made. No defect in the Notice of Redemption or in the
transmittal or mailing thereof will affect the validity of the redemption
proceedings, except as required by applicable law. If fewer than all shares held
by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder
shall also specify the number of shares to be redeemed from such Holder.
(c) Notwithstanding the provisions of paragraph (a) of this Section
3, but subject to Section 7(e), no FundPreferred shares may be redeemed unless
all dividends in arrears on the Outstanding
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FundPreferred shares and all shares of beneficial interest of the Fund ranking
on a parity with the FundPreferred shares with respect to payment of dividends
or upon liquidation, have been or are being contemporaneously paid or set aside
for payment; provided, however, that the foregoing shall not prevent the
purchase or acquisition of all Outstanding FundPreferred shares 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 FundPreferred
shares.
(d) Upon the deposit of funds sufficient to redeem shares of any
Series of FundPreferred shares with the Paying Agent and the giving of the
Notice of Redemption to the Auction Agent under paragraph (b) of this Section 3,
dividends on such shares shall cease to accumulate and such shares shall no
longer be deemed to be Outstanding for any purpose (including, without
limitation, for purposes of calculating whether the Fund has maintained the
requisite FundPreferred Shares Basic Maintenance Amount or the 1940 Act
FundPreferred Shares Asset Coverage), and all rights of the holder of the shares
so called for redemption shall cease and terminate, except the right of such
holder to receive the redemption price specified herein, but without any
interest or other additional amount. Such redemption price shall be paid by the
Paying Agent to the nominee of the Securities Depository. The Fund shall be
entitled to receive from the Paying Agent, promptly after the date fixed for
redemption, any cash deposited with the Paying Agent in excess of (i) the
aggregate redemption price of the FundPreferred shares called for redemption on
such date and (ii) such other amounts, if any, to which Holders of shares of
each Series of FundPreferred shares called for redemption may be entitled. Any
funds so deposited that are unclaimed at the end of two years from such
redemption date shall, to the extent permitted by law, be paid to the Fund,
after which time the Holders of FundPreferred shares so called for redemption
may look only to the Fund for payment of the redemption price and all other
amounts, if any, 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
earned on the funds so deposited.
(e) To the extent that any redemption for which Notice of Redemption
has been given is not made by reason of the absence of legally available funds
therefor, or is otherwise prohibited, such redemption shall be made as soon as
practicable to the extent such funds become legally available or such redemption
is no longer otherwise prohibited. Failure to redeem shares of any Series of
FundPreferred 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 Paying Agent the
redemption price with respect to any shares for which such Notice of Redemption
has been given. Notwithstanding the fact that the Fund may not have redeemed
shares of any Series of FundPreferred shares for which a Notice of Redemption
has been given, dividends may be declared and paid on FundPreferred shares
Series and shall include those FundPreferred shares for which Notice of
Redemption has been given but for which deposit of funds has not been made.
(f) All moneys paid to the Paying Agent for payment of the
redemption price of shares of any Series of FundPreferred shares called for
redemption shall be held in trust by the Paying Agent for the benefit of holders
of shares so to be redeemed.
(g) So long as any shares of any Series of FundPreferred shares are
held of record by the nominee of the Securities Depository, the redemption price
for such shares will be paid on the date fixed for redemption to the nominee of
the Securities Depository for distribution to Agent Members for distribution to
the persons for whom they are acting as agent.
(h) Except for the provisions described above, nothing contained in
this Statement limits any right of the Fund to purchase or otherwise acquire any
shares of each Series of FundPreferred shares outside of an Auction at any
price, whether higher or lower than the price that would be paid in connection
with an optional or mandatory redemption, so long as, at the time of any such
purchase, there
A-7
is no arrearage in the payment of dividends on, or the mandatory or optional
redemption price with respect to, any shares of any Series of FundPreferred
shares for which Notice of Redemption has been given and the Fund is in
compliance with the 1940 Act FundPreferred Shares Asset Coverage and the
FundPreferred Shares Basic Maintenance Amount after giving effect to such
purchase or acquisition on the date thereof. Any shares which are purchased,
redeemed or otherwise acquired by the Fund shall have no voting rights. If fewer
than all the Outstanding shares of any Series of FundPreferred shares are
redeemed or otherwise acquired by the Fund, the Fund shall give notice of such
transaction to the Auction Agent, in accordance with the procedures agreed upon
by the Board of Trustees.
(i) In the case of any redemption pursuant to this Section 3, only
whole shares of FundPreferred shares shall be redeemed, and in the event that
any provision of the Declaration would require redemption of a fractional share,
the Auction Agent shall be authorized to round up so that only whole shares are
redeemed.
(j) Notwithstanding anything herein to the contrary, including,
without limitation, Sections 2(e), 6(f) and 11 of Part I hereof, the Board of
Trustees may authorize, create or issue any class or series of shares of
beneficial interest, including other series of FundPreferred shares, ranking
prior to or on a parity with the FundPreferred 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, to the extent permitted by the 1940
Act, as amended, if, upon issuance, either (A) the net proceeds from the sale of
such shares of beneficial interest (or such portion thereof needed to redeem or
repurchase the Outstanding FundPreferred shares) are deposited with the Auction
Agent in accordance with Section 3(d) of Part I hereof, Notice of Redemption as
contemplated by Section 3(b) of Part I hereof has been delivered prior thereto
or is sent promptly thereafter, and such proceeds are used to redeem all
Outstanding FundPreferred shares or (B) the Fund would meet the 1940 Act
FundPreferred Shares Asset Coverage, the FundPreferred Shares Basic Maintenance
Amount and the requirements of Section 11 of Part I hereof.
4. Designation of Dividend Period.
(a) The initial Dividend Period for each Series of FundPreferred
shares is as set forth under "Designation" above. The Fund will designate the
duration of subsequent Dividend Periods of each Series of FundPreferred shares;
provided, however, that no such designation is necessary for a Standard Dividend
Period and, provided further, that any designation of a Special Dividend Period
shall be effective only if (i) notice thereof shall have been given as provided
herein, (ii) any failure to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, FundPreferred shares
shall have been cured as provided above, (iii) Sufficient Clearing Bids shall
have existed in an Auction held on the Auction Date immediately preceding the
first day of such proposed Special Dividend Period, (iv) if the Fund shall have
mailed a Notice of Redemption with respect to any shares, the redemption price
with respect to such shares shall have been deposited with the Paying Agent, and
(v) in the case of the designation of a Special Dividend Period, the Fund has
confirmed that as of the Auction Date next preceding the first day of such
Special Dividend Period, it satisfies the FundPreferred Shares Basic Maintenance
Amount, and the Fund has consulted with the Broker-Dealers and has provided
notice of such designation and otherwise complied with the Rating Agency
Guidelines.
(b) If the Fund proposes to designate any Special Dividend Period,
not fewer than 7 (or two Business Days in the event the duration of the Dividend
Period prior to such Special Dividend Period is fewer than 8 days) nor more than
30 Business Days prior to the first day of such Special Dividend Period, notice
shall be (i) made by press release and (ii) communicated by the Fund by
telephonic or other means to the Auction Agent and confirmed in writing promptly
thereafter. Each such notice shall state (A) that the Fund proposes to exercise
its option to designate a succeeding Special Dividend Period, specifying the
first and last days thereof and (B) that the Fund will by 3:00 p.m., New
A-8
York City time, on the second Business Day next preceding the first day of such
Special Dividend Period, notify the Auction Agent, who will promptly notify the
Broker-Dealers, of either (x) its determination, subject to certain conditions,
to proceed with such Special Dividend Period, subject to the terms of any
Specific Redemption Provisions, or (y) its determination not to proceed with
such Special Dividend Period, in which latter event the succeeding Dividend
Period shall be a Standard Dividend Period.
No later than 3:00 p.m., New York City time, on the second Business
Day next preceding the first day of any proposed Special Dividend Period, the
Fund shall deliver to the Auction Agent, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(i) a notice stating (A) that the Fund has determined to
designate the next succeeding Dividend Period as a Special Dividend
Period, specifying the first and last days thereof and (B) the terms of
any Specific Redemption Provisions; or
(ii) a notice stating that the Fund has determined not to
exercise its option to designate a Special Dividend Period.
If the Fund fails to deliver either such notice with respect to any designation
of any proposed Special Dividend Period to the Auction Agent or is unable to
make the confirmation provided in clause (v) of Paragraph (a) of this Section 4
by 3:00 p.m., New York City time, on the second Business Day next preceding the
first day of such proposed Special Dividend Period, the Fund shall be deemed to
have delivered a notice to the Auction Agent with respect to such Dividend
Period to the effect set forth in clause (ii) above, thereby resulting in a
Standard Dividend Period.
5. Restrictions on Transfer. Shares of a Series of FundPreferred shares
may be transferred only (a) pursuant to an order placed in an Auction, (b) to or
through a Broker-Dealer or (c) to the Fund or any Affiliate. Notwithstanding the
foregoing, a transfer other than pursuant to an Auction will not be effective
unless the selling Existing Holder or the Agent Member of such Existing Holder,
in the case of an Existing Holder whose shares are listed in its own name on the
books of the Auction Agent, or the Broker-Dealer or Agent Member of such
Broker-Dealer, in the case of a transfer between persons holding FundPreferred
shares through different Broker-Dealers, advises the Auction Agent of such
transfer. The certificates representing the shares of a Series of FundPreferred
shares issued to the Securities Depository will bear legends with respect to the
restrictions described above and stop-transfer instructions will be issued to
the Transfer Agent and/or Registrar.
6. Voting Rights.
(a) Except as otherwise provided in the Declaration and the Fund's
By-laws, herein or as otherwise required by applicable law, (i) each Holder of
shares of any Series of FundPreferred shares shall be entitled to one vote for
each share of any Series of FundPreferred shares held on each matter submitted
to a vote of shareholders of the Fund, and (ii) the holders of Outstanding
shares of Preferred Shares, including each Series of FundPreferred shares, and
shares of Common Shares shall vote together as a single class on all matters
submitted to shareholders; provided, however, that, at any meeting of the
shareholders of the Fund held for the election of Trustees, the holders of
Outstanding shares of Preferred Shares, including each Series of FundPreferred
shares, represented in person or by proxy at said meeting, shall be entitled, as
a class, to the exclusion of the holders of all other securities and classes of
shares of beneficial interest of the Fund, to elect two Trustees of the Fund,
each share of Preferred Shares, including each Series of FundPreferred shares,
entitling the holder thereof to one vote; provided, further, that if the Board
of Trustees shall be divided into classes, the Board of Trustees shall determine
to which class or classes the Trustees elected by the holders of Preferred
Shares shall be assigned and the holders of the Preferred Shares shall only be
entitled to elect the Trustees so designated as being elected by the holders of
the Preferred Shares when their term shall have expired. The identity of the
nominees of such Trustees may be fixed by the Board of Trustees. Subject to
paragraph (b) of this Section 6, the holders of Outstanding shares of Common
Shares and Preferred Shares, including each Series of FundPreferred shares,
voting together as a single class, shall elect the balance of the Trustees.
A-9
(b) During any period in which any one or more of the conditions
described below shall exist (such period being referred to herein as a "Voting
Period"), the number of Trustees constituting the Board of Trustees shall be
automatically increased by the smallest number that, when added to the two
Trustees elected exclusively by the holders of shares of Preferred Shares,
including each Series of FundPreferred shares, would constitute a majority of
the Board of Trustees as so increased by such smallest number; and the holders
of shares of Preferred Shares, including each Series of FundPreferred 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 the
Fund), to elect such smallest number of additional Trustees, together with the
two Trustees that such holders are in any event entitled to elect. A Voting
Period shall commence:
(i) if at the close of business on any Dividend Payment Date
accumulated dividends (whether or not earned or declared) on Preferred
Shares equal to at least two full years' dividends shall be due and
unpaid; or
(ii) if at any time holders of any Preferred Shares are
entitled under the 1940 Act to elect a majority of the Trustees of the
Fund.
Upon the termination of a Voting Period, the voting rights described in this
paragraph (b) of Section 6 shall cease, subject always, however, to the
revesting of such voting rights in the Holders of shares of Preferred Shares,
including each Series of FundPreferred shares, upon the further occurrence of
any of the events described in this paragraph (b) of Section 6.
(c) As soon as practicable after the accrual of any right of the
Holders of shares of Preferred Shares, including each Series of FundPreferred
shares, to elect additional Trustees as described in paragraph (b) of this
Section 6, the Fund shall notify the Auction Agent, and the Auction Agent shall
instruct the Trustees to call a special meeting of such holders and shall mail a
notice of such special meeting to such holders, such meeting to be held not less
than 10 nor more than 30 days after the date of mailing of such notice. If the
Fund fails to send such notice to the Auction Agent or if such special meeting
is not called, 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 shares of Preferred Shares, including each
Series of FundPreferred shares, held during a Voting Period at which Trustees
are to be elected, such holders, voting together as a class (to the exclusion of
the holders of all other securities and classes of capital stock of the Fund),
shall be entitled to elect the number of Trustees prescribed in paragraph (b) of
this Section 6 on a one-vote-per-share basis.
(d) The terms of office of all persons who are Trustees of the Fund
at the time of a special meeting of holders of the FundPreferred shares and
holders of other Preferred Shares to elect Trustees shall continue,
notwithstanding the election at such meeting by the holders and such other
holders of the number of Trustees that they are entitled to elect, and the
persons so elected by such holders, together with the two incumbent Trustees
elected by such holders and the remaining incumbent Trustees, shall constitute
the duly elected Trustees of the Fund.
(e) Simultaneously with the termination of a Voting Period, the
terms of office of the additional directors elected by the Holders of the
FundPreferred shares and holders of other Preferred Shares pursuant to paragraph
(b) of this Section 6 shall terminate, the remaining Trustees shall constitute
the Trustees of the Fund and the voting rights of such holders to elect
additional Trustees pursuant to paragraph (b) of this Section 6 shall cease,
subject to the provisions of the last sentence of paragraph (b) of this Section
6.
A-10
(f) So long as any of the shares of Preferred Shares, including each
Series of FundPreferred shares, are Outstanding, the Fund will not, without the
affirmative vote of the holders of a majority of the Outstanding shares of
Preferred Shares determined with reference to a "majority of outstanding voting
securities" as that term is defined in Section 2(a)(42) of the 1940 Act, voting
as a separate class, (i) amend, alter or repeal any of the preferences, rights
or powers of such class so as to affect materially and adversely such
preferences, rights or powers as defined in Section 6(h) below; (ii) increase
the authorized number of shares of Preferred Shares; (iii) create, authorize or
issue shares of any class of shares of beneficial interest ranking senior to or
on a parity with the Preferred Shares with respect to the payment of dividends
or the distribution of assets, or any securities convertible into, or warrants,
options or similar rights to purchase, acquire or receive, such shares of
beneficial interest ranking senior to or on a parity with the Preferred Shares
or reclassify any authorized shares of beneficial interest of the Fund into any
shares ranking senior to or on a parity with the Preferred Shares (except that,
notwithstanding the foregoing, but subject to the provisions of either Section
3(j) or 11, as applicable, the Board of Trustees, without the vote or consent of
the holders of the Preferred Shares, may from time to time authorize, create and
classify, and the Fund may from time to time issue, shares or series of
Preferred Shares, including other series of FundPreferred shares, ranking on a
parity with the FundPreferred shares with respect to the payment of dividends
and the distribution of assets upon dissolution, liquidation or winding up to
the affairs of the Fund, and may authorize, reclassify and/or issue any
additional shares of each Series of FundPreferred shares, including shares
previously purchased or redeemed by the Fund, subject to continuing compliance
by the Fund with 1940 Act FundPreferred Shares Asset Coverage and FundPreferred
Shares Basic Maintenance Amount requirements); (iv) institute any proceedings to
be adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it, or file a petition seeking or
consenting to reorganization or relief under any applicable federal or state law
relating to bankruptcy or insolvency, or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Fund or a substantial part of its property, or make any
assignment for the benefit of creditors, or, except as may be required by
applicable law, admit in writing its inability to pay its debts generally as
they become due or take any corporate action in furtherance of any such action;
(v) create, incur or suffer to exist, or agree to create, incur or suffer to
exist, or consent to cause or permit in the future (upon the happening of a
contingency or otherwise) the creation, incurrence or existence of any material
lien, mortgage, pledge, charge, security interest, security agreement,
conditional sale or trust receipt or other material encumbrance of any kind upon
any of the Fund's assets as a whole, except (A) liens the validity of which are
being contested in good faith by appropriate proceedings, (B) liens for taxes
that are not then due and payable or that can be paid thereafter without
penalty, (C) liens, pledges, charges, security interests, security agreements or
other encumbrances arising in connection with any indebtedness senior to the
FundPreferred shares or arising in connection with any futures contracts or
options thereon, interest rate swap or cap transactions, forward rate
transactions, put or call options, short sales of securities or other similar
transactions; (D) liens, pledges, charges, security interests, security
agreements or other encumbrances arising in connection with any indebtedness
permitted under clause (vi) below and (E) liens to secure payment for services
rendered including, without limitation, services rendered by the Fund's
custodian and the Auction Agent; or (vi) create, authorize, issue, incur or
suffer to exist any indebtedness for borrowed money or any direct or indirect
guarantee of such indebtedness for borrowed money or any direct or indirect
guarantee of such indebtedness, except the Fund may borrow as may be permitted
by the Fund's investment restrictions; provided, however, that transfers of
assets by the Fund subject to an obligation to repurchase shall not be deemed to
be indebtedness for purposes of this provision to the extent that after any such
transaction the Fund satisfies the FundPreferred Shares Basic Maintenance Amount
as of the immediately preceding Valuation Date.
(g) The affirmative vote of the holders of a majority of the
Outstanding shares of Preferred Shares, including each Series of FundPreferred
shares, voting as a separate class, determined with reference to a "majority of
outstanding voting securities" as that term is defined in Section 2(a)(42)
A-11
of the 1940 Act, shall be required to approve any plan of reorganization (as
such term is used in the 1940 Act) adversely affecting such shares or any action
requiring a vote of security holders of the Fund under Section 13(a) of the 1940
Act. In the event a vote of holders of shares of Preferred Shares is required
pursuant to the provisions of Section 13(a) of the 1940 Act, the Fund shall, not
later than ten Business Days prior to the date on which such vote is to be
taken, notify any Rating Agency which so requires that such vote is to be taken
and the nature of the action with respect to which such vote is to be taken and
shall, not later than ten Business Days after the date on which such vote is
taken, notify such Rating Agency, as applicable, of the results of such vote.
(h) The affirmative vote of the holders of a majority of the
Outstanding shares of any series of Preferred Shares, including any Series of
FundPreferred shares, voting separately from any other series, determined with
reference to a "majority of outstanding voting securities" as that term is
defined in Section 2(a)(42) of the 1980 Act, shall be required with respect to
any matter that materially and adversely affects the rights, preferences, or
powers of that series in a manner different from that of other series of classes
of the Fund's shares of beneficial interest. For purposes of the foregoing, no
matter shall be deemed to adversely affect any right, preference or power 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) any restriction on transfer
applicable to such series. The vote of holders of any shares described in this
Section 6(h) will in each case be in addition to a separate vote of the
requisite percentage of common shares and/or Preferred Shares, if any, necessary
to authorize the action in question.
(i) The Board of Trustees, without the vote or consent of any holder
of shares of Preferred Shares, including any Series of FundPreferred shares, 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 or maintaining the
rating of any Rating Agency which is then rating the FundPreferred shares, and
any such adoption, amendment, alteration or repeal will not be deemed to affect
the preferences, rights or powers of Preferred Shares, including FundPreferred
shares, or the Holders thereof, provided that the Board of Trustees receives
written confirmation from such Rating Agency, as applicable (with such
confirmation in no event being required to be obtained from a particular Rating
Agency with respect to definitions or other provisions relevant only to and
adopted in connection with another Rating Agency's rating of any Series of
FundPreferred shares) that any such amendment, alteration or repeal would not
adversely affect the rating then assigned by such Rating Agency.
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 holder of shares of Preferred Shares, including any
Series of FundPreferred shares, or any other shareholder of the Fund.
In addition, subject to compliance with applicable law, the Board of
Trustees may amend the definition of Maximum Rate to increase the percentage
amount by which the Reference Rate is multiplied to determine the Maximum Rate
shown therein without the vote or consent of the holders of the Preferred
Shares, including any Series of FundPreferred shares, or any other shareholder
of the Fund, and without receiving any confirmation from any Rating Agency after
consultation with the Broker-Dealers, provided that immediately following any
such increase the Fund would be in compliance with the FundPreferred Shares
Basic Maintenance Amount.
A-12
(j) Unless otherwise required by law, holders of shares of any
Series of FundPreferred shares shall not have any relative rights or preferences
or other special rights other than those specifically set forth herein. The
holders of shares of any Series of FundPreferred shares shall have no rights to
cumulative voting. In the event that the Fund fails to pay any dividends on the
shares of any Series of FundPreferred shares, the exclusive remedy of the
holders shall be the right to vote for Trustees pursuant to the provisions of
this Section 6.
(k) The foregoing voting provisions will not apply with respect to
any Series of FundPreferred shares if, at or prior to the time when a vote is
required, such shares have been (i) redeemed or (ii) called for redemption and
sufficient funds shall have been deposited in trust to effect such redemption.
7. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of the affairs
of the Fund, whether voluntary or involuntary, the holders of each Series of
FundPreferred shares then Outstanding, together with holders of shares of any
class of shares ranking on a parity with each Series of FundPreferred shares
upon dissolution, liquidation or winding up, shall be entitled to receive and to
be paid out of the assets of the Fund (or the proceeds thereof) available for
distribution to its shareholders after satisfaction of claims of creditors of
the Fund an amount equal to the liquidation preference with respect to such
shares. The liquidation preference for shares of each Series of FundPreferred
shares shall be $25,000 per share, plus an amount equal to all accumulated
dividends thereon (whether or not earned or declared but without interest) to
the date payment of such distribution is made in full or a sum sufficient for
the payment thereof is set apart with the Paying Agent. No redemption premium
shall be paid upon any liquidation even if such redemption premium would be paid
upon optional or mandatory redemption of the relevant shares.
(b) If, upon any such liquidation, dissolution or winding up of the
affairs of the Fund, whether voluntary or involuntary, the assets of the Fund
available for distribution among the holders of all outstanding Preferred
Shares, including the FundPreferred shares, shall be insufficient to permit the
payment in full to such holders of the amounts to which they are entitled, then
such available assets shall be distributed among the holders of all outstanding
Preferred Shares, including the FundPreferred shares, ratably in any such
distribution of assets according to the respective amounts which would be
payable on all such shares if all amounts thereon were paid in full.
(c) Upon the dissolution, liquidation or winding up of the affairs
of the Fund, whether voluntary or involuntary, until payment in full is made to
the holders of FundPreferred shares of the liquidation distribution to which
they are entitled, no dividend or other distribution shall be made to the
holders of shares of Common Shares or any other class of shares of beneficial
interest of the Fund ranking junior to FundPreferred shares upon dissolution,
liquidation or winding up and no purchase, redemption or other acquisition for
any consideration by the Fund shall be made in respect of the shares of Common
Shares or any other class of shares of beneficial interest of the Fund ranking
junior to FundPreferred shares upon dissolution, liquidation or winding up.
(d) A consolidation, reorganization or merger of the Fund with or
into any other trust or company, or a sale, lease or exchange of all or
substantially all of the assets of the Fund in consideration for the issuance of
equity securities of another trust or company shall not be deemed to be a
liquidation, dissolution or winding up, whether voluntary or involuntary, for
the purposes of this Section 7.
A-13
(e) After the payment to the Holders of Preferred Shares, including
FundPreferred shares, of the full preferential amounts provided for in this
Section 7, the holders of Preferred Shares, including FundPreferred shares, as
such shall have no right or claim to any of the remaining assets of the Fund.
(f) In the event the assets of the Fund or proceeds thereof
available for distribution to the Holders of FundPreferred 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 (a) of this Section 7, no
such distribution shall be made on account of any shares of any other class or
series of Preferred Shares ranking on a parity with FundPreferred shares unless
proportionate distributive amounts shall be paid on account of the FundPreferred
shares, ratably, in proportion to the full distributable amounts to which
holders of all such parity shares are entitled upon such dissolution,
liquidation or winding up.
(g) Subject to the rights of the holders of shares of any Series or
class or classes of stock ranking on a parity with FundPreferred 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 FundPreferred shares as provided in paragraph (a) of this Section
7, but not prior thereto, any other series or class or classes of stock ranking
junior to FundPreferred shares with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund shall, subject
to any 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 FundPreferred shares shall not be entitled to share therein.
8. Auction Agent. For so long as any FundPreferred shares are Outstanding,
the Auction Agent, duly appointed by the Fund to so act, shall be in each case a
commercial bank, trust company or other financial institution independent of the
Fund and its Affiliates (which, however, may engage or have engaged in business
transactions with the Fund or its Affiliates) and at no time shall the Fund or
any of its Affiliates act as the Auction Agent in connection with the Auction
Procedures. If the Auction Agent resigns or for any reason its appointment is
terminated during any period that any FundPreferred shares are Outstanding, the
Fund shall use its best efforts promptly thereafter to appoint another qualified
commercial bank, trust company or financial institution to act as the Auction
Agent.
9. 1940 Act FundPreferred Shares Asset Coverage. The Fund shall maintain,
as of the last Business Day of each month in which any shares of the
FundPreferred shares are Outstanding, asset coverage with respect to the
FundPreferred shares which is equal to or greater than the 1940 Act
FundPreferred Shares Asset Coverage; provided, however, that Section 3(a)(ii)
shall be the sole remedy in the event the Fund fails to do so.
10. FundPreferred Shares Basic Maintenance Amount. So long as the
FundPreferred shares are Outstanding and any Rating Agency is then rating the
FundPreferred shares, the Fund shall maintain, as of each Valuation Date, the
FundPreferred Shares Basic Maintenance Amount; provided, however, that Section
3(a)(ii) shall be the sole remedy in the event the Fund fails to do so.
11. Certain Other Restrictions. For so long as any shares of FundPreferred
shares are Outstanding and any Rating Agency is then rating the shares of
FundPreferred shares, the Fund will not engage in certain proscribed
transactions set forth in the Rating Agency Guidelines, unless it has received
written confirmation from each such Rating Agency that proscribes the applicable
transaction in its Rating Agency Guidelines that any such action would not
impair the rating then assigned by such Rating Agency to a Series of
FundPreferred shares.
A-14
12. Compliance Procedures for Asset Maintenance Tests. For so long as any
FundPreferred shares are Outstanding and any Rating Agency is then rating such
shares:
(a) As of each Valuation Date, the Fund shall determine in
accordance with the procedures specified herein (i) whether the FundPreferred
Shares Basic Maintenance Amount is met as of that date, and (ii) whether the
1940 Act FundPreferred Shares Asset Coverage is met as of that date.
(b) Upon any failure to maintain the required FundPreferred Shares
Basic Maintenance Amount or 1940 Act FundPreferred Shares Asset Coverage on any
Valuation Date, the Fund may use reasonable commercial efforts (including,
without limitation, altering the composition of its portfolio, purchasing
FundPreferred shares outside of an Auction or in the event of a failure to file
a Rating Agency Certificate (as defined below) on a timely basis, submitting the
requisite Rating Agency Certificate) to re-attain (or certify in the case of a
failure to file on a timely basis, as the case may be) the required
FundPreferred Shares Basic Maintenance Amount or 1940 Act FundPreferred Shares
Asset Coverage on or prior to the Asset Coverage Cure Date.
(c) Compliance with the FundPreferred Shares Basic Maintenance
Amount and 1940 Act FundPreferred Shares Asset Coverage tests shall be
determined with reference to those FundPreferred shares which are deemed to be
Outstanding hereunder.
(d) The Fund shall deliver to each Rating Agency which is then
rating FundPreferred shares and any other party specified in the Rating Agency
Guidelines all certificates that are set forth in the respective Rating Agency
Guidelines regarding 1940 Act FundPreferred Shares Asset Coverage, FundPreferred
Shares 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").
(e) In the event that any Rating Agency Certificate is not delivered
within the time periods set forth in the Rating Agency Guidelines, the Fund
shall be deemed to have failed to maintain the FundPreferred Shares Basic
Maintenance Amount or the 1940 Act FundPreferred Shares Asset Coverage, as the
case may be, on such Valuation Date for purposes of Section 12(b). In the event
that any Rating Agency Certificate with respect to an applicable Asset Coverage
Cure Date is not delivered within the time periods set forth in the Rating
Agency Guidelines, the Fund shall be deemed to have failed to satisfy the
FundPreferred Shares Basic Maintenance Amount or to meet the 1940 FundPreferred
Shares Asset Coverage, as the case may be, as of the related Valuation Date, and
such failure shall be deemed not to have been cured as of such Asset Coverage
Cure Date for purposes of the mandatory redemption provisions.
13. Notice. All notices or communications hereunder, unless otherwise
specified in this Statement, shall be sufficiently given if in writing and
delivered in person, by telecopier, by electronic means or mailed by first-class
mail, postage prepaid. Notices delivered pursuant to this Section 13 shall be
deemed given on the earlier of the date received or the date five days after
which such notice is mailed.
14. Waiver. Holders of at least a majority of the Outstanding
FundPreferred shares, acting collectively, or each Series of FundPreferred
shares acting as a separate series, determined with reference to a "majority of
the outstanding voting securities" as that term is defined in Section 2(a)(42)
of the 1940 Act, may waive any provision hereof intended for their respective
benefit in accordance with such procedures as may from time to time be
established by the Board of Trustees.
A-15
15. Termination. In the event that no FundPreferred shares are
Outstanding, all rights and preferences of such shares established and
designated hereunder shall cease and terminate, and all obligations of the Fund
under this Statement, shall terminate.
16. Amendment. Subject to the provisions of 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
this Statement to (1) reflect any amendments hereto which the Board of Trustees
is entitled to adopt pursuant to the terms of this Statement without shareholder
approval or (2) add additional series of FundPreferred shares or additional
shares of a series of FundPreferred shares (and terms relating thereto) to the
series and shares of FundPreferred shares theretofore described thereon. All
such additional shares shall be governed by the terms of this Statement, except
as set forth in such amendment with respect to such additional shares. To the
extent permitted by applicable law, the Board of Trustees may interpret, amend
or adjust the provisions of this Statement to resolve any inconsistency or
ambiguity or to remedy any defect.
17. Definitions. As used in Part I and Part II of this Statement, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
(a) "Affiliate" means any person controlled by, in control of or
under common control with the Fund; provided that no Broker-Dealer controlled
by, in control of or under common control with the Fund shall be deemed to be an
Affiliate nor shall any corporation or any person controlled by, in control of
or under common control with such corporation one of the trustees, directors or
executive officers of which is also a Trustee of the Fund be deemed to be an
Affiliate solely because such Trustee, director or executive officer is also a
Trustee of the Fund.
(b) "Agent Member" means a member of or participant in the
Securities Depository that will act on behalf of a Bidder.
(c) "All Hold Rate" means 80% of the Reference Rate.
(d) "Applicable Rate" means, with respect to each Series of
FundPreferred shares for each Dividend Period (i) if Sufficient Clearing Orders
exist for the Auction in respect thereof, the Winning Bid Rate, (ii) if
Sufficient Clearing Orders do not exist for the Auction in respect thereof, the
Maximum Applicable Rate and (iii) in the case where all the shares of
FundPreferred shares are the subject of Hold Orders for the Auction in respect
thereof, the All Hold Rate.
(e) "Applicable Percentage" means the percentage determined based on
the higher of the credit ratings assigned to the series of FundPreferred on such
date by Moody's and Fitch or equivalent credit rating by any Other Rating Agency
as follows:
CREDIT RATINGS
----------------------------- APPLICABLE
MOODY'S FITCH PERCENTAGE
------------- ------------- ----------
Aaa AAA 125%
Aa3 to Aa1 AA- to AA+ 150%
A3 to A1 A- to A+ 200%
Baa3 to Baa1 BBB- to BBB+ 250%
Ba1 and lower BB+ and lower 300%
A-16
The Applicable Percentage as so determined shall be further subject to
upward but not downward adjustment in the discretion of the Board of Trustees of
the Fund after consultation with the Broker-Dealers, provided that immediately
following any such increase the Fund would be in compliance with the
FundPreferred Basic Maintenance Amount.
(f) "Applicable Spread" means the spread determined based on the
higher of the credit rating assigned to the series of FundPreferred on such date
by Moody's and S&P (or equivalent credit rating by any Other Rating Agency) as
follows:
CREDIT RATINGS
-----------------------------
MOODY'S S&P SPREAD
------------- ------------- -------
Aaa AAA 125 bps
Aa3 to Aa1 AA- to AA+ 150 bps
A3 to A1 A- to A+ 200 bps
Baa3 to Baa1 BBB- to BBB+ 250 bps
Ba1 and lower BB+ and lower 300 bps
The Applicable Spread as so determined shall be further subject to upward
but not downward adjustment in the discretion of the Board of Trustees after
consultation with the Broker-Dealers, provided that immediately following any
such increase the Fund would be in compliance with the FundPreferred Basic
Maintenance Amount.
(g) "Asset Coverage Cure Date" has the meaning set forth in Section
3(a)(ii).
(h) "Auction" means each periodic operation of the procedures set
forth under "Auction Procedures."
(i) "Auction Agent" means The Bank of New York unless and until
another commercial bank, trust company, or other financial institution appointed
by a resolution of the Board of Trustees enters into an agreement with the Fund
to follow the Auction Procedures for the purpose of determining the Applicable
Rate.
(j) "Auction Date" means the first Business Day next preceding the
first day of a Dividend Period for each Series of FundPreferred shares.
(k) "Auction Procedures" means the procedures for conducting
Auctions set forth in Part II hereof.
(l) "Beneficial Owner," with respect to shares of each Series of
FundPreferred shares, means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder
of shares of such Series.
(m) "Bid" shall have the meaning specified in paragraph (a) of
Section 1 of Part II of this Statement.
(n) "Bidder" shall have the meaning specified in paragraph (a) of
Section 1 of Part II of this Statement; provided, however, that neither the Fund
nor any affiliate thereof shall be permitted to be a Bidder in an Auction,
except that any Broker-Dealer that is an affiliate of the Fund may be a Bidder
in an Auction, but only if the Orders placed by such Broker-Dealer are not for
its own account.
A-17
(o) "Board of Trustees" or "Board" means the Board of Trustees of
the Fund or any duly authorized committee thereof as permitted by applicable
law.
(p) "Broker-Dealer" means any broker-dealer or broker-dealers, or
other entity permitted by law to perform the functions required of a
Broker-Dealer by the Auction Procedures, that has been selected by the Fund and
has entered into a Broker-Dealer Agreement that remains effective.
(q) "Broker-Dealer Agreement" means an agreement among the Auction
Agent and a Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow
the Auction Procedures.
(r) "Business Day" means a day on which the New York Stock Exchange
is open for trading and which is not a Saturday, Sunday or other day on which
banks in the City of New York, New York are authorized or obligated by law to
close.
(s) "Code" means the Internal Revenue Code of 1986, as amended.
(t) "Commission" means the Securities and Exchange Commission.
(u) "Common Share" means the shares of beneficial interest, par
value $.01 per share, of the Fund.
(v) "Date of Original Issue" means, with respect to Series T,
FundPreferred shares, ______, 200_.
(w) "Default" has the meaning set forth in Section 2(c)(ii) of this
Part I.
(x) "Default Period" has the meaning set forth in Section 2(c)(ii)
of this Part I.
(y) "Default Rate" means the Reference Rate multiplied by three (3).
(z) "Deposit Securities" means cash and any obligations or
securities, including short term money market instruments that are Eligible
Assets, rated at least AAA, A-2 or SP-2 by S&P, except that, for purposes of
section 3(a)(i) of this Part I, such obligations or securities shall be
considered "Deposit Securities" only if they are also rated at least P-2 by
Moody's.
(aa) "Discount Factor" means the Moody's Discount Factor (if Moody's
is then rating the FundPreferred shares), S&P Discount Factor (if S&P is
then rating the FundPreferred shares) or an Other Rating Agency Discount Factor,
whichever is applicable.
(bb) "Discounted Value" means the quotient of the Market Value of an
Eligible Asset divided by the applicable Discount Factor.
(cc) "Dividend Default" has the meaning set forth in Section
2(c)(ii) of this Part I.
(dd) "Dividend Payment Date" with respect to a Series of
FundPreferred shares means any date on which dividends are payable pursuant to
Section 2(b) of this Part I.
(ee) "Dividend Period" means, with respect to a Series of
FundPreferred shares, the period commencing on the Date of Original Issue
thereof and ending on the date specified for such series on the Date of Original
Issue thereof and thereafter, as to such series, the period commencing on the
day following each Dividend Period for such series and ending on the day
established for such series by the Fund.
A-18
(ff) "Eligible Assets" means Moody's Eligible Assets or S&P
Eligible Assets (if Moody's or S&P are then rating the FundPreferred shares)
and/or Other Rating Agency Eligible Assets, whichever is applicable.
(gg) "Existing Holder," with respect to shares of a series of
FundPreferred shares, shall mean a Broker-Dealer (or any such other Person as
may be permitted by the Fund) that is listed on the records of the Auction Agent
as a holder of shares of such series.
(hh) "FundPreferred Shares Basic Maintenance Amount" as of any
Valuation Date has the meaning set forth in the Rating Agency Guidelines.
(ii) "FundPreferred shares Series T" means the shares of Series T
of the FundPreferred shares or any other shares of Preferred Shares hereinafter
designated as shares of Series T of the FundPreferred shares.
(jj) "Holder" means, with respect to FundPreferred shares, the
registered holder of shares of each Series of FundPreferred shares as the same
appears on the share ledger or share records of the Fund.
(kk) "Hold Order" shall have the meaning specified in paragraph (a)
of Section 1 of Part II of this Statement.
(ll) "LIBOR Rate" on any Auction Date, means (i) the rate for
deposits in U.S. dollars for the designated Rate Period, which appears on
display page 3750 of Moneyline's Telerate Service ("Telerate Page 3750") (or
such other page as may replace that page on that service, or such other service
as may be selected by the Fund in consultation with Broker-Dealers) as of 11:00
a.m., London time, on the day that is the London Business Day on the Auction
Date or, if the Auction Date is not a London Business Day, the London Business
Day preceding the Auction Date (the "LIBOR Determination Date"), or (ii) if such
rate does not appear on Telerate Page 3750 or such other page as may replace
such Telerate Page 3750, (A) the Fund in consultation with Broker-Dealers 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 the Fund in consultation
with Broker-Dealers by reference to requests for quotations as of approximately
11:00 a.m. (London time) on such date made by the Fund in consultation with
Broker-Dealers to the reference banks, (B) if at least two of the reference
banks provide such quotations, LIBOR Rate shall equal such arithmetic mean of
such quotations, (C) if only one or none of the reference banks provide such
quotations, 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 Fund in
consultation with Broker-Dealers are quoting on the relevant LIBOR Determination
Date for
A-19
deposits in U.S. dollars for the designated Rate Period in an amount determined
by the Fund in consultation with Broker-Dealers 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. If the number of
Rate Period days shall be (i) 7 or more but fewer than 21 days, such rate shall
be the seven-day LIBOR rate; (ii) more than 21 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; (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
days but fewer than 365 days, such rate shall be the twelve-month LIBOR rate.
(mm) "London Business Day" means any day on which commercial banks
are generally open for business in London.
(nn) "Mandatory Redemption Date" has the meaning set forth in
Section 3(a)(iii) of this Part I.
(oo) "Mandatory Redemption Price" has the meaning set forth in
Section 3(a)(iii) of this Part I.
(pp) "Market Value" means the market value of the assets of the Fund
as computed in accordance with the Fund's pricing procedures adopted by the
Board of the Fund in connection with valuing the Fund's assets.
(qq) "Maximum Rate" means the greater of the Applicable Percentage
of the Reference Rate or the Applicable Spread plus the Reference Rate. The
Auction Agent will round each applicable Maximum Rate to the nearest
one-thousandth (0.001) of one percent per annum, with any such number ending in
five ten-thousandths of one percent being rounded upwards to the nearest
one-thousandth (0.001) of one percent.
(rr) "Moody's" means Moody's Investors Service, Inc., a Delaware
corporation, and its successors at law.
(ss) "Moody's Discount Factor" means the discount factors set forth
in the Moody's Guidelines for use in calculating the Discounted Value of the
Fund's assets in connection with Moody's ratings of FundPreferred Shares.
(tt) "Moody's Eligible Assets" means assets of the Fund set forth in
the Moody's Guidelines as eligible for inclusion in calculating the Discounted
Value of the Fund's assets in connection with Moody's ratings of FundPreferred
Shares.
A-20
(uu) "Moody's Guidelines" mean the guidelines provided by Moody's,
as may be amended from time to time, in connection with Moody's ratings of
FundPreferred shares.
(vv) "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
(ww) "1940 Act FundPreferred Shares Asset Coverage" means asset
coverage, as determined in accordance with Section 18(h) of the 1940 Act, of at
least 200% with respect to all outstanding senior securities of the Fund which
are stock, including all Outstanding FundPreferred shares (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are stock of a closed-end
investment company as a condition of declaring dividends on its common shares),
determined on the basis of values calculated as of a time within 48 hours next
preceding the time of such determination.
(xx) "Notice of Redemption" means any notice with respect to the
redemption of shares of FundPreferred shares pursuant to Section 3.
(yy) "Order" shall have the meaning specified in paragraph (a) of
Section 1 of Part II of this Statement.
(zz) "Other Rating Agency" means each rating agency, if any, other
than Moody's or S&P then providing a rating for the FundPreferred shares
pursuant to the request of the Fund.
(aaa) "Other Rating Agency Discount Factor" means the discount
factors set forth in the Other Rating Agency Guidelines of each Other Rating
Agency for use in calculating the Discounted Value of the Fund's assets in
connection with the Other Rating Agency's rating of FundPreferred Shares.
(bbb) "Other Rating Agency Eligible Assets" means assets of the Fund
set forth in the Other Rating Agency Guidelines of each Other Rating Agency as
eligible for inclusion in calculating the Discounted Value of the Fund's assets
in connection with the Other Rating Agency's rating of FundPreferred shares.
(ccc) "Other Rating Agency Guidelines" mean the guidelines provided
by each Other Rating Agency, as may be amended from time to time, in connection
with the Other Rating Agency's rating of FundPreferred shares.
(ddd) "Outstanding" or "outstanding" means, as of any date,
FundPreferred shares theretofore issued by the Fund except, without duplication,
(i) any shares of FundPreferred shares theretofore canceled, redeemed or
repurchased by the Fund, or delivered to the Auction Agent for cancellation or
with respect to which the Fund has given notice of redemption and irrevocably
deposited with the Paying Agent sufficient funds to redeem such FundPreferred
shares and (ii) any FundPreferred shares represented by any certificate in lieu
of which a new certificate has been executed and delivered by the Fund.
Notwithstanding the foregoing, (A) for purposes of voting rights (including the
determination of the number of shares required to constitute a quorum), any of
the FundPreferred shares to which the Fund or any Affiliate of the Fund shall be
the Existing Holder shall be disregarded and not deemed Outstanding; (B) in
connection with any Auction, any Series of FundPreferred shares as to which the
Fund or any person known to the Auction Agent to be an Affiliate of the Fund
shall be the Existing Holder thereof shall be disregarded and deemed not to be
Outstanding; and (C) for purposes of determining the FundPreferred Shares Basic
Maintenance Amount, FundPreferred shares held by the Fund shall be disregarded
and not deemed Outstanding but shares held by any Affiliate of the Fund shall be
deemed Outstanding.
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(eee) "Paying Agent" means The Bank of New York unless and until
another entity appointed by a resolution of the Board of Trustees enters into an
agreement with the Fund to serve as paying agent, which paying agent may be the
same as the Auction Agent.
(fff) "Person" or "person" means and includes an individual, a
partnership, a trust, a Fund, an unincorporated association, a joint venture or
other entity or a government or any agency or political subdivision thereof.
(ggg) "Potential Beneficial Owner," with respect to shares of a
series of FundPreferred shares, shall mean a customer of a Broker-Dealer that is
not a Beneficial Owner of shares of such series but that wishes to purchase
shares of such series, or that is a Beneficial Owner of shares of such series
that wishes to purchase additional shares of such series.
(hhh) "Preferred Share" means the preferred shares of beneficial
interest, par value $.01 per share, including the FundPreferred shares, of the
Fund from time to time.
(iii) "Rating Agency" means each of Moody's (if Moody's is then
rating FundPreferred shares), S&P (if S&P is then rating FundPreferred
shares) and any Other Rating Agency.
(jjj) "Rating Agency Guidelines" mean Moody's Guidelines (if Moody's
is then rating FundPreferred shares), S&P Guidelines (if S&P is then rating
FundPreferred shares) and any Other Rating Agency Guidelines.
(kkk) "Redemption Default" has the meaning set forth in Section
2(c)(ii) of this Part I.
(lll) "Redemption Price" has the meaning set forth in Section
3(a)(i) of this Part I.
(mmm) "Reference Rate" means, with respect to the determination of
the Maximum Rate and Default Rate, the applicable LIBOR Rate (for a Dividend
Period of fewer than 365 days) or the applicable Treasury Index Rate (for a
Dividend Period of 365 days or more).
(nnn) "Rule 144A Securities" means securities which are restricted
as to resale under federal securities laws but are eligible for resale pursuant
to Rule 144A under the Securities Act as determined by the Fund's investment
manager or portfolio manager acting pursuant to procedures approved by the Board
of Trustees of the Fund.
(ooo) "S&P" means Standard & Poor's Ratings Services, a division of
the McGraw-Hill Companies, Inc., or its successors at law.
(ppp) "S&P Discount Factor" means the discount factors set forth in
the S&P Guidelines for use in calculating the Discounted Value of the Fund's
assets in connection with S&P ratings of FundPreferred Shares.
(qqq) "S&P Eligible Asset" means assets of the Fund set forth in
the S&P Guidelines as eligible for inclusion in calculating the Discounted
Value of the Fund's assets in connection S&P's ratings of FundPreferred
Shares.
(rrr) "S&P Guidelines" mean the guidelines provided by S&P, as
may be amended from time to time, in connection with S&P ratings of
FundPreferred shares.
(sss) "Securities Act" means the Securities Act of 1933, as amended
from time to time.
(ttt) "Securities Depository" means The Depository Trust Company and
its successors and assigns or any successor securities depository selected by
the Fund that agrees to follow the procedures required to be followed by such
securities depository in connection with the shares of FundPreferred shares
Series T.
(uuu) "Sell Order" shall have the meaning specified in paragraph (a)
of Section 1 of Part II of this Statement.
(vvv) "Special Dividend Period" means a Dividend Period that is not
a Standard Dividend Period.
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(www) "Specific Redemption Provisions" means, with respect to any
Special Dividend Period of more than one year, either, or any combination of (i)
a period (a "Non-Call Period") determined by the Board of Trustees after
consultation with the Broker-Dealers, during which the shares subject to such
Special Dividend Period are not subject to redemption at the option of the Fund
pursuant to Section 3(a)(i) and (ii) a period (a "Premium Call Period"),
consisting of a number of whole years as determined by the Board of Trustees
after consultation with the Broker-Dealers, during each year of which the shares
subject to such Special Dividend Period shall be redeemable at the Fund's option
pursuant to Section 3(a)(i) and/or in connection with any mandatory redemption
pursuant to Section 3(a)(i) at a price per share equal to $25,000 plus
accumulated but unpaid dividends plus a premium expressed as a percentage or
percentages of $25,000 or expressed as a formula using specified variables as
determined by the Board of Trustees after consultation with the Broker-Dealers.
(xxx) "Standard Dividend Period" means a Dividend Period of 7 days.
(yyy) "Submission Deadline" means 1:00 P.M., Eastern Standard time,
on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as specified
by the Auction Agent from time to time.
(zzz) "Submitted Bid" shall have the meaning specified in paragraph
(a) of Section 3 of Part II of this Statement.
(aaaa) "Submitted Hold Order" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(bbbb) "Submitted Order" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(cccc) "Submitted Sell Order" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(dddd) "Sufficient Clearing Bids" shall have the meaning specified
in paragraph (a) of Section 3 of Part II of this Statement.
(eeee) "Treasury Index Rate" means the average yield to maturity for
actively traded marketable U.S. Treasury fixed interest rate securities having
the same number of 30-day periods to maturity as the length of the applicable
Dividend Period, determined, to the extent necessary, by linear interpolation
based upon the yield for such securities having the next shorter and next longer
number of 30-day periods to maturity treating all Dividend Periods with a length
greater than the longest maturity for such securities as having a length equal
to such longest maturity, in all cases based upon data set forth in the most
recent weekly statistical release published by the Board of Governors of the
Federal Reserve System (currently in H.15(519)); provided, however, if the most
recent such statistical release shall not have been published during the 15 days
preceding the date of computation, the foregoing computations shall be based
upon the average of comparable data as quoted to the Fund by at least three
recognized dealers in U.S. Government securities selected by the Fund.
(ffff) "Valuation Date" means every Friday, or, if such day is not a
Business Day, the next preceding Business Day; provided, however, that the first
Valuation Date may occur on any other date established by the Fund; provided,
further, however, that such first Valuation Date shall be not more than one week
from the date on which FundPreferred shares Series T initially are issued.
A-23
(gggg) "Winning Bid Rate" has the meaning set forth in Section
3(a)(iii) of Part II of this Statement.
18. Interpretation. References to sections, subsections, clauses,
sub-clauses, paragraphs and subparagraphs are to such sections, subsections,
clauses, sub-clauses, paragraphs and subparagraphs contained in this Part I or
Part II hereof, as the case may be, unless specifically identified otherwise.
PART II: AUCTION PROCEDURES
1. Orders.
(a) Prior to the Submission Deadline on each Auction Date for shares
of a series of FundPreferred shares:
(i) each Beneficial Owner of shares of such series may submit
to its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner desires to continue to hold without regard to the
Applicable Rate for shares of such Series for the next
succeeding Dividend Period of such shares;
(B) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner offers to sell if the Applicable Rate for shares of such
Series for the next succeeding Dividend Period of shares of
such series shall be less than the rate per annum specified by
such Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner offers to sell without regard to the Applicable Rate for
shares of such Series for the next succeeding Dividend Period
of shares of such series;
and
(ii) one or more Broker-Dealers, using lists of Potential Beneficial
Owners, shall in good faith for the purpose of conducting a competitive
Auction in a commercially reasonable manner, contact Potential Beneficial
Owners (by telephone or otherwise), including Persons that are not
Beneficial Owners, on such lists to determine the number of shares, if
any, of such series which each such Potential Beneficial Owner offers to
purchase if the Applicable Rate for shares of such Series for the next
succeeding Dividend Period of shares of such series shall not be less than
the rate per annum specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, of information referred to in clause (i) (A), (i) (B), (i) (C) or
(ii) of this paragraph (a) is hereinafter referred to as an "Order" and
collectively as "Orders" and each Beneficial Owner and each Potential Beneficial
Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing an
Order with the Auction Agent, is hereinafter referred to as a "Bidder" and
collectively as "Bidders"; an Order containing the information referred to in
clause (i)(A) of this paragraph (a) is hereinafter referred to as a "Hold Order"
and collectively as "Hold Orders"; an Order containing the information referred
to in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as
a "Bid" and collectively as "Bids"; and an Order containing
A-24
the information referred to in clause (i)(C) of this paragraph (a) is
hereinafter referred to as a "Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares
of a series of FundPreferred shares subject to an Auction on any Auction Date
shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified
in such Bid if the Applicable Rate for shares of such series
determined on such Auction Date shall be less than the rate
specified therein;
(B) such number or a lesser number of Outstanding shares of
such series to be determined as set forth in clause (iv) of
paragraph (a) of Section 4 of this Part II if the Applicable Rate
for shares of such series determined on such Auction Date shall be
equal to the rate specified therein; or
(C) the number of Outstanding shares of such series specified
in such Bid if the rate specified therein shall be higher than the
Maximum Rate for shares of such series, or such number or a lesser
number of Outstanding shares of such series to be determined as set
forth in clause (iii) of paragraph (b) of Section 4 of this Part II
if the rate specified therein shall be higher than the Maximum Rate
for shares of such series and Sufficient Clearing Bids for shares of
such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of
shares of a series of FundPreferred shares subject to an Auction on any
Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series specified
in such Sell Order; or
(B) such number or a lesser number of Outstanding shares of
such series as set forth in clause (iii) of paragraph (b) of Section
4 of this Part II if Sufficient Clearing Bids for shares of such
series do not exist;
PROVIDED, HOWEVER, that a Broker-Dealer that is an Existing Holder with respect
to shares of a series of FundPreferred shares shall not be liable to any Person
for failing to sell such shares pursuant to a Sell Order described in the
proviso to paragraph (c) of Section 2 of this Part II if (1) such shares were
transferred by the Beneficial Owner thereof without compliance by such
Beneficial Owner or its transferee Broker-Dealer (or other transferee person, if
permitted by the Fund) with the provisions of Section 7 of this Part II or (2)
such Broker-Dealer has informed the Auction Agent pursuant to the terms of its
Broker-Dealer Agreement that, according to such Broker-Dealer's records, such
Broker-Dealer believes it is not the Existing Holder of such shares.
(iii) A Bid by a Potential Beneficial Holder or a Potential Holder
of shares of a series of FundPreferred shares subject to an Auction on any
Auction Date shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series specified
in such Bid if the Applicable Rate for shares of such series
determined on such Auction Date shall be higher than the rate
specified therein; or
A-25
(B) such number or a lesser number of Outstanding shares of
such series as set forth in clause (v) of paragraph (a) of Section 4
of this Part II if the Applicable Rate for shares of such series
determined on such Auction Date shall be equal to the rate specified
therein.
(c) No Order for any number of FundPreferred shares other than whole
shares shall be valid.
2. Submission of Orders by Broker-Dealers to Auction Agent.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent
prior to the Submission Deadline on each Auction Date all Orders for
FundPreferred shares of a series subject to an Auction on such Auction Date
obtained by such Broker-Dealer, designating itself (unless otherwise permitted
by the Fund) as an Existing Holder in respect of shares subject to Orders
submitted or deemed submitted to it by Beneficial Owners and as a Potential
Holder in respect of shares subject to Orders submitted to it by Potential
Beneficial Owners, and shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be
the Broker-Dealer unless otherwise permitted by the Fund);
(ii) the aggregate number of shares of such series that are
the subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of
shares of such series:
(A) the number of shares, if any, of such series subject
to any Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series subject
to any Bid of such Existing Holder and the rate specified in
such Bid; and
(C) the number of shares, if any, of such series subject
to any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares
of such series, the rate and number of shares of such series
specified in such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of
FundPreferred shares of a series held by any Existing Holder is not submitted to
the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem
a Hold Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent; provided,
however, that if an Order or Orders covering all of the Outstanding shares of
such series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline for an Auction relating to a Special Dividend
Period consisting of more than 28 Dividend Period Days, the Auction Agent shall
deem a Sell Order to
A-26
have been submitted by or on behalf of such Existing Holder covering the number
of outstanding shares of such series held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
FundPreferred shares of a series subject to an Auction held by such Existing
Holder, such Orders shall be considered valid in the following order of
priority:
(i) all Hold Orders for shares of such series shall be
considered valid, but only up to and including in the aggregate the
number of Outstanding shares of such series held by such Existing
Holder, and if the number of shares of such series subject to such
Hold Orders exceeds the number of Outstanding shares of such series
held by such Existing Holder, the number of shares subject to each
such Hold Order shall be reduced pro rata to cover the number of
Outstanding shares of such series held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding
shares of such series held by such Existing Holder over the number
of shares of such series subject to any Hold Orders referred to in
clause (i) above;
(B) subject to subclause (A), if more than one Bid of an
Existing Holder for shares of such series is submitted to the
Auction Agent with the same rate and the number of Outstanding
shares of such series subject to such Bids is greater than
such excess, such Bids shall be considered valid up to and
including the amount of such excess, and the number of shares
of such series subject to each Bid with the same rate shall be
reduced pro rata to cover the number of shares of such series
equal to such excess;
(C) subject to subclauses (A) and (B), if more than one
Bid of an Existing Holder for shares of such series is
submitted to the Auction Agent with different rates, such Bids
shall be considered valid in the ascending order of their
respective rates up to and including the amount of such
excess; and
(D) in any such event, the number, if any, of such
Outstanding shares of such series subject to any portion of
Bids considered not valid in whole or in part under this
clause (ii) shall be treated as the subject of a Bid for
shares of such series by or on behalf of a Potential Holder at
the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be
considered valid up to and including the excess of the number of
Outstanding shares of such series held by such Existing Holder over
the sum of shares of such series subject to valid Hold Orders
referred to in clause (i) above and valid Bids referred to in clause
(ii) above.
(e) If more than one Bid for one or more shares of a series of
FundPreferred shares is submitted to the Auction Agent by or on behalf of any
Potential Holder, each such Bid submitted shall be a separate Bid with the rate
and number of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date, shall be
irrevocable.
A-27
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(a) Not earlier than the Submission Deadline on each Auction Date
for shares of a series of FundPreferred shares, the Auction Agent shall assemble
all valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order" and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such
series over the number of Outstanding shares of such series subject
to Submitted Hold Orders (such excess being hereinafter referred to
as the "Available FundPreferred shares" of such series);
(ii) from the Submitted Orders for shares of such series
whether:
(A) the number of Outstanding shares of such series
subject to Submitted Bids of Potential Holders specifying one
or more rates equal to or lower than the Maximum Rate for
shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series
subject to Submitted Bids of Existing Holders specifying one
or more rates equal to or lower than the Maximum Rate for
shares of such series; and
(C) the number of Outstanding shares of such series
subject to Submitted Sell Orders
(in the event such excess or such equality exists (other than
because the number of shares of such series in subclauses (B) and
(C) above is zero because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), such Submitted Bids in
subclause (A) above being hereinafter referred to collectively as
"Sufficient Clearing Bids" for shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series
exist, the lowest rate specified in such Submitted Bids (the
"Winning Bid Rate" for shares of such series) which if:
(A) (I) each such Submitted Bid of Existing Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Existing Holders specifying lower rates were rejected,
thus entitling such Existing Holders to continue to hold the
shares of such series that are subject to such Submitted Bids;
and
(B) (I) each such Submitted Bid of Potential Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Potential Holders specifying lower rates were
accepted;
would result in such Existing Holders described in subclause (A)
above continuing to hold an aggregate number of Outstanding shares
of such series which, when added to the number of Outstanding shares
of such series to be purchased by such Potential Holders described
in subclause (B) above, would equal not less than the Available
FundPreferred shares of such series.
A-28
(b) Promptly after the Auction Agent has made the determinations
pursuant to paragraph (a) of this Section 3, the Auction Agent shall advise the
Fund of the Maximum Rate for shares of the series of FundPreferred shares for
which an Auction is being held on the Auction Date and, based on such
determination, the Applicable Rate for shares of such series for the next
succeeding Dividend Period thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series
exist, that the Applicable Rate for all shares of such series for
the next succeeding Dividend Period thereof shall be equal to the
Winning Bid Rate for shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do
not exist (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), that the Applicable
Rate for all shares of such series for the next succeeding Dividend
Period thereof shall be equal to the Maximum Rate for shares of such
series; or
(iii) if all of the Outstanding shares of such series are
subject to Submitted Hold Orders, that the Applicable Rate for all
shares of such series for the next succeeding Dividend Period
thereof shall be the All Hold Rate.
4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
and Allocation of Shares. Existing Holders shall continue to hold the
FundPreferred shares that are subject to Submitted Hold Orders, and, based on
the determinations made pursuant to paragraph (a) of Section 3 of this Part II,
the Submitted Bids and Submitted Sell Orders shall be accepted or rejected by
the Auction Agent and the Auction Agent shall take such other action as set
forth below:
(a) If Sufficient Clearing Bids for shares of a series of
FundPreferred shares have been made, all Submitted Sell Orders with respect to
shares of such series shall be accepted and, subject to the provisions of
paragraphs (d) and (e) of this Section 4, Submitted Bids with respect to shares
of such series shall be accepted or rejected as follows in the following order
of priority and all other Submitted Bids with respect to shares of such series
shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for
shares of such series shall be accepted, thus requiring each such
Existing Holder to sell the FundPreferred shares subject to such
Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such
series specifying any rate that is lower than the Winning Bid Rate
for shares of such series shall be rejected, thus entitling each
such Existing Holder to continue to hold the FundPreferred shares
subject to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of such
series specifying any rate that is lower than the Winning Bid Rate
for shares of such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such
series specifying a rate that is equal to the Winning Bid Rate for
shares of such series shall be rejected, thus entitling such
Existing Holder to continue to hold the FundPreferred shares subject
to such Submitted Bid, unless the number of Outstanding
FundPreferred shares subject to all such Submitted Bids shall be
greater than the number of FundPreferred shares ("remaining shares")
in the excess of the Available FundPreferred shares of such series
over the number of FundPreferred shares subject to Submitted Bids
described in clauses (ii) and (iii) of this paragraph (a), in which
A-29
event such Submitted Bid of such Existing Holder shall be rejected
in part, and such Existing Holder shall be entitled to continue to
hold FundPreferred shares subject to such Submitted Bid, but only in
an amount equal to the number of FundPreferred shares of such series
obtained by multiplying the number of remaining shares by a
fraction, the numerator of which shall be the number of Outstanding
FundPreferred shares held by such Existing Holder subject to such
Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding FundPreferred shares subject to such Submitted
Bids made by all such Existing Holders that specified a rate equal
to the Winning Bid Rate for shares of such series; and
(v) each Potential Holder's Submitted Bid for shares of such
series specifying a rate that is equal to the Winning Bid Rate for
shares of such series shall be accepted but only in an amount equal
to the number of shares of such series obtained by multiplying the
number of shares in excess of the Available FundPreferred shares of
such series over the number of FundPreferred shares subject to
Submitted Bids described in clauses (ii) through (iv) of this
paragraph (a) by a fraction, the numerator of which shall be the
number of Outstanding FundPreferred shares subject to such Submitted
Bid and the denominator of which shall be the aggregate number of
Outstanding FundPreferred shares subject to such Submitted Bids made
by all such Potential Holders that specified a rate equal to the
Winning Bid Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of
FundPreferred shares have not been made (other than because all of the
Outstanding shares of such series are subject to Submitted Hold Orders), subject
to the provisions of paragraph (d) of this Section 4, Submitted Orders for
shares of such series shall be accepted or rejected as follows in the following
order of priority and all other Submitted Bids for shares of such series shall
be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate
for shares of such series shall be rejected, thus entitling such
Existing Holders to continue to hold the FundPreferred shares
subject to such Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such
series specifying any rate that is equal to or lower than the
Maximum Rate for shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such
series specifying any rate that is higher than the Maximum Rate for
shares of such series and the Submitted Sell Orders for shares of
such series of each Existing Holder shall be accepted, thus
entitling each Existing Holder that submitted or on whose behalf was
submitted any such Submitted Bid or Submitted Sell Order to sell the
shares of such series subject to such Submitted Bid or Submitted
Sell Order, but in both cases only in an amount equal to the number
of shares of such series obtained by multiplying the number of
shares of such series subject to Submitted Bids described in clause
(ii) of this paragraph (b) by a fraction, the numerator of which
shall be the number of Outstanding shares of such series held by
such Existing Holder subject to such Submitted Bid or Submitted Sell
Order and the denominator of which shall be the aggregate number of
Outstanding shares of such series subject to all such Submitted Bids
and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of FundPreferred
shares are subject to Submitted Hold Orders, all Submitted Bids for shares of
such series shall be rejected.
A-30
(d) If, as a result of the procedures described in clause (iv) or
(v) of paragraph (a) or clause (iii) of paragraph (b) of this Section 4, any
Existing Holder would be entitled or required to sell, or any Potential Holder
would be entitled or required to purchase, a fraction of a share of a series of
FundPreferred shares on any Auction Date, the Auction Agent shall, in such
manner as it shall determine in its sole discretion, round up or down the number
of FundPreferred shares of such series to be purchased or sold by any Existing
Holder or Potential Holder on such Auction Date as a result of such procedures
so that the number of shares so purchased or sold by each Existing Holder or
Potential Holder on such Auction Date shall be whole shares of FundPreferred
shares.
(e) If, as a result of the procedures described in clause (v) of
paragraph (a) of this Section 4, any Potential Holder would be entitled or
required to purchase less than a whole share of a series of FundPreferred shares
on any Auction Date, the Auction Agent shall, in such manner as it shall
determine in its sole discretion, allocate FundPreferred shares of such series
or purchase among Potential Holders so that only whole shares of FundPreferred
shares of such series are purchased on such Auction Date as a result of such
procedures by any Potential Holder, even if such allocation results in one or
more Potential Holders not purchasing FundPreferred shares of such series on
such Auction Date.
(f) Based on the results of each Auction for shares of a series of
FundPreferred shares, the Auction Agent shall determine the aggregate number of
shares of such series to be purchased and the aggregate number of shares of such
series to be sold by Potential Holders and Existing Holders and, with respect to
each Potential Holder and Existing Holder, to the extent that such aggregate
number of shares to be purchased and such aggregate number of shares to be sold
differ, determine to which other Potential Holder(s) or Existing Holder(s) they
shall deliver, or from which other Potential Holder(s) or Existing Holder(s)
they shall receive, as the case may be, FundPreferred shares of such series.
Notwithstanding any provision of the Auction Procedures or the Settlement
Procedures to the contrary, in the event an Existing Holder or Beneficial Owner
of shares of a series of FundPreferred shares with respect to whom a
Broker-Dealer submitted a Bid to the Auction Agent for such shares that was
accepted in whole or in part, or submitted or is deemed to have submitted a Sell
Order for such shares that was accepted in whole or in part, fails to instruct
its Agent Member to deliver such shares against payment therefor, partial
deliveries of shares of FundPreferred shares that have been made in respect of
Potential Holders' or Potential Beneficial Owners' Submitted Bids for shares of
such series that have been accepted in whole or in part shall constitute good
delivery to such Potential Holders and Potential Beneficial Owners.
(g) Neither the Fund nor the Auction Agent nor any affiliate of
either shall have any responsibility or liability with respect to the failure of
an Existing Holder, a Potential Holder, a Beneficial Owner, a Potential
Beneficial Owner or its respective Agent Member to deliver FundPreferred shares
of any series or to pay for FundPreferred shares of any series sold or purchased
pursuant to the Auction Procedures or otherwise.
[Signature Page Follows]
A-31
IN WITNESS WHEREOF, NUVEEN TAX-ADVANTAGED DIVIDEND GROWTH FUND has caused
these presents to be signed as of _____________, 200_ in its name and on its
behalf by its Vice-President, and its corporate seal to be hereunto affixed and
attested by its Assistant Secretary. The Fund's Declaration of Trust 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 or shareholders of the Fund,
individually, but are binding only upon the assets and property of the Fund.
NUVEEN TAX-ADVANTAGED DIVIDEND
GROWTH FUND
By:
_______________________________
Kevin J. McCarthy,
Vice President
ATTEST:
__________________________________________
Virginia L. O'Neal, Assistant Secretary
A-32
APPENDIX B
RATINGS OF INVESTMENTS
Standard & Poor's Corporation -- A brief description of the applicable
Standard & Poor's Corporation, a division of The McGraw-Hill Companies
("Standard & Poor's" or "S&P"), rating symbols and their meanings (as published
by S&P) follows:
A Standard & Poor's issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program
(including ratings on medium term note programs and commercial paper programs).
It takes into consideration the creditworthiness of guarantors, insurers, or
other forms of credit enhancement on the obligation and takes into account the
currency in which the obligation is denominated. The issue credit rating is not
a recommendation to purchase, sell, or hold a financial obligation, inasmuch as
it does not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the
obligors or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
credit rating and may, on occasion, rely on unaudited financial information.
Credit ratings may be changed, suspended, or withdrawn as a result of changes
in, or unavailability of, such information, or based on other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term
ratings are generally assigned to those obligations considered short-term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days -- including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an
obligor with respect to put features on long-term obligations. The result is a
dual rating, in which the short-term rating addresses the put feature, in
addition to the usual long-term rating. Medium-term notes are assigned long-term
ratings.
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based in varying degrees, on the following
considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to
meet its financial commitment on an obligation in accordance with the terms of
the obligation;
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentiation applies when an entity has
both senior and subordinated obligations, secured and unsecured obligations, or
operating company and holding company obligations.) Accordingly, in the case of
junior debt, the rating may not conform exactly with the category definition.
AAA -- An obligation rated `AAA' has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
B-1
AA -- An obligation rated `AA' differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
A -- An obligation rated `A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB -- An obligation rated `BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB, B, CCC, CC, AND C -- Obligations rated `BB', `B', `CCC', `CC', and `C'
are regarded as having significant speculative characteristics. `BB' indicates
the least degree of speculation and `C' the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB -- An obligation rated `BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B -- An obligation rated `B' is more vulnerable to nonpayment than
obligations rated `BB', but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC -- An obligation rated `CCC' is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC -- An obligation rated `CC' is currently highly vulnerable to
nonpayment.
C -- A subordinated debt or preferred stock obligation rated `C' is
CURRENTLY HIGHLY VULNERABLE to nonpayment. The `C' rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued. A `C' also will be
assigned to a preferred stock issue in arrears on dividends or sinking fund
payments, but that is currently paying.
D -- An obligation rated `D' is in payment default. The `D' rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The `D'
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus (-). The ratings from `AA' to `CCC' may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
r -- This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating.
B-2
N.R. -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.
SHORT-TERM ISSUE CREDIT RATINGS
A-1 -- A short-term obligation rated `A-1' is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor's capacity to meet its financial commitment on these obligations is
extremely strong.
A-2 -- A short-term obligation rated `A-2' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 -- A short-term obligation rated `A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
B -- A short-term obligation rated `B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C -- A short-term obligation rated `C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D -- A short-term obligation rated `D' is in payment default. The `D'
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period. The
`D' rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized. Moody's
Investors Service, Inc. -- A brief description of the applicable Moody's
Investors Service, Inc. ("Moody's") rating symbols and their meanings (as
published by Moody's) follows:
MUNICIPAL BONDS
Aaa -- Bonds which are rated `Aaa' are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated `Aa' are judged to be of high quality by all
standards. Together with the `Aaa' group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in `Aaa' securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in `Aaa'
securities.
A -- Bonds which are rated `A' possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are
B-3
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Baa -- Bonds which are rated `Baa' are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated `Ba' are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated `B' generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated `Caa' are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated `Ca' represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C -- Bonds which are rated `C' are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
# (hatchmark): Represents issues that are secured by escrowed funds held
in cash, held in trust, invested and reinvested in direct, non-callable,
non-prepayable United States government obligations or non-callable,
non-prepayable obligations unconditionally guaranteed by the U.S. Government,
Resolution Funding Corporation debt obligations.
Con. (...): Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. The parenthetical rating denotes probable credit stature upon
completion of construction or elimination of the basis of the condition.
(P): When applied to forward delivery bonds, indicates the rating is
provisional pending delivery of the bonds. The rating may be revised prior to
delivery if changes occur in the legal documents or the underlying credit
quality of the bonds.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
issue ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.
B-4
SHORT-TERM LOANS
MIG 1/VMIG 1 -- This designation denotes superior credit quality.
Excellent protection is afforded by established cash flows, highly reliable
liquidity support, or demonstrated broad-based access to the market for
refinancing.
MIG 2/VMIG 2 -- This designation denotes strong credit quality. Margins of
protection are ample, although not as large as in the preceding group.
MIG 3/VMIG 3 -- This designation denotes acceptable credit quality.
Liquidity and cash-flow protection may be narrow, and market access for
refinancing is likely to be less well-established.
SG -- This designation denotes speculative-grade credit quality. Debt
instruments in this category may lack sufficient margins of protection.
COMMERCIAL PAPER
Issuers (or supporting institutions) rated Prime-1 have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will normally be evidenced by the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers (or supporting institutions) rated Prime-2 have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation than is the case for Prime-2 securities. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Fitch Ratings -- A brief description of the applicable Fitch Ratings
("Fitch") ratings symbols and meanings (as published by Fitch) follows:
B-5
LONG-TERM CREDIT RATINGS
INVESTMENT GRADE
AAA -- Highest credit quality. `AAA' ratings denote the lowest expectation
of credit risk. They are assigned only in case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is highly unlikely to
be adversely affected by foreseeable events.
AA -- Very high credit quality. `AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A -- High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB -- Good credit quality. `BBB' ratings indicate that there is currently
a low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
SPECULATIVE GRADE
BB -- Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic change
over time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B -- Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C -- High default risk. Default is a real possibility. Capacity
for meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A `CC' rating indicates that default of some
kind appears probable. `C' ratings signal imminent default.
DDD, DD, AND D DEFAULT -- The ratings of obligations in this category are
based on their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected recovery values are
highly speculative and cannot be estimated with any precision, the following
serve as general guidelines. `DDD' obligations have the highest potential for
recovery, around 90%-100% of outstanding amounts and accrued interest. `DD'
indicates potential recoveries in the range of 50%-90%, and `D' the lowest
recovery potential, i.e., below 50%. Entities rated in this category have
defaulted on some or all of their obligations. Entities rated `DDD' have the
highest prospect for resumption of performance or continued operation with or
without a formal reorganization process. Entities rated `DD' and `D' are
generally undergoing a formal reorganization or liquidation process; those rated
`DD' are likely to satisfy a higher portion of their outstanding obligations,
while entities rated `D' have a poor prospect for repaying all obligations.
B-6
SHORT-TERM CREDIT RATINGS
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F1 -- Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.
F2 -- Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the case
of the higher ratings.
F3 -- Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade. B Speculative. Minimal capacity for timely
payment of financial commitments, plus vulnerability to near-term adverse
changes in financial and economic conditions.
B -- Speculative Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
C -- High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D -- Default. Denotes actual or imminent payment default.
Notes to Long-term and Short-term ratings:
"+" or "-" may be appended to a rating to denote relative status within
major rating categories. Such suffixes are not added to the `AAA' Long-term
rating category, to categories below `CCC', or to Short-term ratings other than
`F1'.
`NR' indicates that Fitch Ratings does not rate the issuer or issue in
question.
`Withdrawn': A rating is withdrawn when Fitch Ratings deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
Rating Watch: Ratings are placed on Rating Watch to notify investors that
there is a reasonable probability of a rating change and the likely direction of
such change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. Rating Watch is typically resolved over a relatively
short period.
A Rating Outlook indicates the direction a rating is likely to move over a
one to two year period. Outlooks may be positive, stable, or negative. A
positive or negative Rating Outlook does not imply a rating change is
inevitable. Similarly, ratings for which outlooks are `stable' could be
downgraded before an outlook moves to positive or negative if circumstances
warrant such an action. Occasionally, Fitch Ratings may be unable to identify
the fundamental trend. In these cases, the Rating Outlook may be described as
evolving.
B-7
PART C - OTHER INFORMATION
ITEM 25: FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements:
Statement of Assets and Liabilities, May 15, 2007 (audited)
Statement of Operations from February 22, 2007 (date of organization)
through May 15, 2007 (audited)
Statement of Assets and Liabilities, June 30, 2007 (unaudited)
Statement of Operations from June 26, 2007 (commencement of operations)
through June 30, 2007 (unaudited)
Statement of Changes in Net Assets from June 26, 2007 (commencement of
operations) through June 30, 2007 (unaudited)
Portfolio of Investments June 30, 2007 (unaudited)
2. Exhibits:
a. Declaration of Trust dated February 22, 2007. Filed on April 24, 2007 as
Exhibit a.1 to Registrant's Registration Statement on Form N-2 (File No.
333-142318) and incorporated by reference herein.
b. By-laws of Registrant. Filed on April 24, 2007 as Exhibit b to
Registrant's Registration Statement on Form N-2 (File No. 333-142318) and
incorporated by reference herein.
c. None.
d.1 Form of Share Certificate.*
d.2 Rating Agency Guidelines.*
e. Terms and Conditions of the Automatic Dividend Reinvestment Plan. Filed on
June 25, 2007 as Exhibit e to Registrant's Registration Statement on Form
N-2 (File No. 333-142318) and incorporated by reference herein.
f. None.
g.1 Investment Management Agreement between Registrant and Nuveen Asset
Management dated April 4, 2007. Filed on June 25, 2007 as Exhibit g.1 to
Registrant's Registration Statement on Form N-2 (File No. 333-142318) and
incorporated by reference herein.
g.2 Investment SubAdvisory Agreement between Nuveen Asset Management and Santa
Barbara Asset Management, LLC dated June 19, 2007. Filed on June 25, 2007
as Exhibit g.2 to Registrant's Registration Statement on Form N-2 (File
No. 333-142318) and incorporated by reference herein.
g.3 Investment SubAdvisory Agreement between Nuveen Asset Management and NWQ
Investment Management Company, LLC dated June 25, 2007. Filed on June 25,
2007 as Exhibit g.3 to Registrant's Registration Statement on Form N-2
(File No. 333-142318) and incorporated by reference herein.
h.1 Form of Underwriting Agreement.*
h.2 Form of Citigroup Global Markets Inc. Standard Dealer Agreement.*
h.3 Form of Nuveen Master Selected Dealer Agreement.*
h.4 Form of Citigroup Global Markets Inc. Master Agreement Among
Underwriters.*
h.5 Form of Dealer Letter Agreement.*
i. Nuveen Open-End and Closed-End Funds Deferred Compensation Plan for
Independent
C-1
Directors and Trustees. Filed on June 25, 2007 as Exhibit i to
Registrant's Registration Statement on Form N-2 (File No. 333-142318) and
incorporated by reference herein.
j. Amended and Restated Master Custodian Agreement between Registrant and
State Street Bank and Trust Company dated February 25, 2005. Filed on June
25, 2007 as Exhibit j to Registrant's Registration Statement on Form N-2
(File No. 333-142318) and incorporated by reference herein.
k.1 Transfer Agency and Service Agreement between Registrant and State Street
Bank and Trust Company dated October 7, 2002. Filed on June 25, 2007 as
Exhibit k to Registrant's Registration Statement on Form N-2 (File No.
333-142318) and incorporated by reference herein.
k.2 Form of Auction Agency Agreement.*
k.3 Form of Broker Dealer Agreement.*
k.4 Form of DTC Representation Letter.*
l.1 Opinion and consent of Vedder, Price, Kaufman & Kammholz, P.C.*
l.2 Opinion and consent of Bingham McCutchen LLP.*
m. Not Applicable.
n. Consent of Ernst & Young LLP.*
o. None.
p. Subscription Agreement of Nuveen Asset Management dated May 15, 2007.
Filed on June 25, 2007 as Exhibit p to Registrant's Registration Statement
on Form N-2 (File No. 333-142318) and incorporated by reference herein.
q. None.
r. Code of Ethics and Reporting Requirements of Nuveen Investments (and
certain subsidiaries, including NWQ Investment Management Company, LLC and
Santa Barbara Asset Management, LLC), Nuveen Defined Portfolios and Nuveen
Funds. Filed on June 25, 2007 as Exhibit r to Registrant's Registration
Statement on Form N-2 (File No. 333-142318) and incorporated by reference
herein.
s. Powers of Attorney. Filed on June 25, 2007 as Exhibit s to Registrant's
Registration Statement on Form N-2 (File No. 333-142318) and incorporated
by reference herein.
--------------
* Filed herewith.
ITEM 26: MARKETING ARRANGEMENTS
Sections 3, 5 and 6(f) of the Form of Underwriting Agreement to be filed
as Exhibit h.1 to this Registration Statement.
See Sections 2 and 3(d) of the Form of Citigroup Global Markets Inc.
Standard Dealer Agreement to be filed as Exhibit h.2 to this Registration
Statement and the Introductory Paragraph and Sections 2 and 3 of the Form of
Nuveen Master Selected Dealer Agreement to be filed as Exhibit h.3 to this
Registration Statement.
See Sections 1.2, 3.1, 3.2, 3.4-3.8, 4.1, 4.2, 5.1-5.4, 6.1, 10.9 and
10.10 of the Form of Citigroup Global Markets Inc. Master Agreement Among
Underwriters to be filed as Exhibit h.4 to this Registration Statement.
See Paragraph e of the Form of Dealer Letter Agreement between Nuveen and
the underwriters to be filed as Exhibit h.5 to this Registration Statement.
C-2
ITEM 27: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission fees................. $ 1,105
Printing and engraving expenses......................... 45,000
Legal fees.............................................. 100,000
Accounting fees......................................... 7,000
Rating agency fees...................................... 40,000
Miscellaneous expenses.................................. 6,895
--------
Total............................................... $200,000
========
ITEM 28: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 29: NUMBER OF HOLDERS OF SECURITIES
At August 31, 2007:
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
------------------------------ --------------
Common Shares, $0.01 par value 11,274
ITEM 30: INDEMNIFICATION
Section 4 of Article XII of the Registrant's Declaration of Trust provides
as follows:
Subject to the exceptions and limitations contained in this Section 4,
every person who is, or has been, a Trustee, officer, employee or agent of the
Trust, including persons who serve at the request of the Trust as directors,
trustees, officers, employees or agents of another organization in which the
Trust has an interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person"), shall be indemnified by the Trust to the
fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been such a Trustee, director, officer, employee or agent and
against amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its shareholders by reason of a
final adjudication by the court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a
final adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination that
such Covered Person did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office by the court or other body approving the settlement or other disposition
or a reasonable determination, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that he did not engage in such conduct:
C-3
(i) by a vote of a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding subject to a claim for indemnification under this
Section 4 shall be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any such
advances; or
(b) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act on
the matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not
an Interested Person of the Trust (including anyone, as such Disinterested
Trustee, who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits, proceedings (civil,
criminal, administrative or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
The trustees and officers of the Registrant are covered by Investment
Adviser and Mutual Fund Professional and Directors and Officers Liability
policies in the aggregate amount of $50,000,000 against liability and expenses
of claims of wrongful acts arising out of their position with the Registrant and
other Nuveen funds, except for matters that involve willful acts, bad faith,
gross negligence and willful disregard of duty (i.e., where the insured did not
act in good faith for a purpose he or she reasonably believed to be in the best
interest of the Registrant or where he or she had reasonable cause to believe
this conduct was unlawful). The policy has a $1,000,000 deductible for
operational failures (after the deductible is satisfied, the insurer would cover
80% of any additional operational failure claims and the Fund would be liable
for 20% of any such claims) and $1,000,000 deductible for all other claims, with
$0 deductible for individual insureds.
Section 9 of the Form of Underwriting Agreement to be filed as Exhibit h.1
to this Registration Statement provides for each of the parties thereto,
including the Registrant and the underwriters, to indemnify the others, their
trustees, directors, certain of their officers, trustees, directors and persons
who
C-4
control them against certain liabilities in connection with the offering
described herein, including liabilities under the federal securities laws.
Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant, unless in the opinion of its counsel the matter has
been settled by controlling precedent, will submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 31: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Nuveen Asset Management ("NAM") serves as investment adviser to separately
managed accounts, closed-end management investment companies and to the
following open-end management type investment companies: Nuveen Multistate Trust
I, Nuveen Multistate Trust II, Nuveen Multistate Trust III, Nuveen Multistate
Trust IV, Nuveen Municipal Trust, Nuveen Investment Trust, Nuveen Investment
Trust II, Nuveen Investment Trust III, Nuveen Investment Trust V and Nuveen
Managed Accounts Portfolios Trust.
NAM has no other clients or business at the present time. For a
description of any other business, profession, vocation or employment of a
substantial nature in which any director or officer of the investment adviser
who serves as officer or Trustee of the Registrant has engaged during the last
two years for his or her account or in the capacity of director, officer,
employee, partner or trustee, see the descriptions under "Management of the
Fund" in Part B of this Registration Statement. Such information for the
remaining executive officers of NAM appears below:
OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME AND POSITION WITH NAM DURING PAST TWO FISCAL YEARS
------------------------------------------ -------------------------------------------------------------------------------------
John P. Amboian, President, Chief Executive President, Chief Executive Officer (since July 2007) and Director of Nuveen
Officer and Director Investments, Inc., Rittenhouse Asset Management, Inc., Nuveen Investments Advisers
Inc., Nuveen Investments Holdings, Inc., Nuveen Investments, LLC, NWQ Holdings, LLC
and Nuveen Investments Institutional Services Group LLC.
Stuart J. Cohen, Vice President, Assistant Vice President, Assistant Secretary and Assistant General Counsel of Nuveen
Secretary and Assistant General Counsel Investments, LLC, Nuveen Investments Holdings, Inc., NWQ Holdings, LLC, Nuveen
Investments Institutional Services Group LLC, and Rittenhouse Asset Management, Inc.;
Vice President of Nuveen Investments Advisers Inc; Assistant Secretary of Tradewinds
Global Investors, LLC, Santa Barbara Asset Management, LLC and Symphony Asset
Management, LLC.
Sherri A. Hlavacek, Vice President and Vice President and Corporate Controller of Nuveen Investments, Inc., Nuveen
Corporate Controller Investments, LLC, Nuveen Investments Holdings, Inc., Nuveen Investments
Advisers Inc. and Rittenhouse Asset Management, Inc.; Vice President of NWQ
Holdings, LLC, Nuveen Investments Advisers Inc. and Nuveen Investments Institutional
Services Group LLC; Certified Public Accountant.
C-5
Mary E. Keefe, Managing Director and Managing Director (since 2004) and Director of Compliance of Nuveen Investments,
Chief Compliance Officer Inc.; Managing Director and Chief Compliance Officer of Nuveen Investments, LLC,
Nuveen Investments Advisers Inc., Rittenhouse Asset Management, Inc., Symphony
Asset Management, LLC, NWQ Investment Management Company, LLC, Santa Barbara Asset
Management LLC and HydePark Investment Strategies, LLC; Managing Director of Nuveen
Investments Institutional Services Group LLC.
John L. MacCarthy, Senior Vice President, Senior Vice President, Secretary and General Counsel (since 2006) of Nuveen
Secretary and General Counsel Investments, Inc., Nuveen Investments, LLC, Rittenhouse Asset Management, Inc. and
Nuveen Investments Holdings, Inc.; Senior Vice President and Secretary (since 2006)
of Nuveen Investments Advisers Inc., NWQ Holdings, LLC and Nuveen Investments
Institutional Services Group LLC; Assistant Secretary (since 2006) of NWQ Investment
Management Company, LLC and Tradewinds Global Investors, LLC; Secretary of
Symphony Asset Management, LLC and Santa Barbara Asset Management, LLC; formerly,
Partner at law firm of Winston & Strawn LLP.
Glenn R. Richter, Executive Vice President Executive Vice President, Chief Administrative Officer of Nuveen Investments, Inc.
(since 2006); Executive Vice President of Nuveen Investments, LLC; Executive Vice
President of Nuveen Investments Holdings, Inc.; Chief Administrative Officer of
NWQ Holdings, LLC; formerly, Executive Vice President and Chief Financial Officer
of RR Donnelley & Sons (2004-2005); prior thereto, Executive Vice President
(2004) and Chief Financial Officer of Sears, Roebuck and Co. (2002).
The principal business address of Nuveen Investments, Inc. and its
affiliates is 333 West Wacker Drive, Chicago, Illinois 60606.
Santa Barbara Asset Management, LLC ("Santa Barbara") serves as a
subadviser to the Nuveen Santa Barbara Growth Fund, Nuveen Santa Barbara Growth
Opportunities Fund and the Nuveen Santa Barbara Dividend Growth Fund and serves
as investment adviser to separately managed accounts. See "Investment Adviser
and Subadvisers" in Part B of the Registration Statement.
Set forth below is a list of each director and officer of Santa Barbara,
indicating each business profession, vocation or employment of a substantial
nature in which such person has been, at any time during the past two fiscal
years, engaged for his or her own account or in the capacity of director,
officer, partner or trustee.
OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME AND POSITION WITH SANTA BARBARA DURING PAST TWO FISCAL YEARS
------------------------------------------ -------------------------------------------------
Michael G. Mayfield, President, Chief
Investment Officer None
Steven Spencer, Chief Operating Officer None
George M. Tharakan, Director of Research None
James R. Boothe, Portfolio Manager None
Britton C. Smith, Portfolio Manager None
C-6
NWQ Investment Management Company, LLC ("NWQ") serves as a subadviser to
certain Nuveen open-end investment management companies and serves as investment
adviser to separately managed accounts. See "Investment Adviser and Subadvisers"
in Part B of the Registration Statement.
Set forth below is a list of each director and officer of NWQ, indicating
each business profession, vocation or employment of a substantial nature in
which such person has been, at any time during the past two fiscal years,
engaged for his or her own account or in the capacity of director, officer,
partner or trustee.
OTHER BUSINESS PROFESSION, VOCATION OR EMPLOYMENT
NAME AND POSITION WITH NWQ DURING PAST TWO FISCAL YEARS
--------------------------------------------------------------- ---------------------------------------------------------------
Jon D. Bosse, CFA, Co-President, Chief Investment Officer None
John E. Conlin, Co-President, Executive Committee Member, Chief Co-Founder (2004-2006) of Education Partners; Board Member
Operating Officer (since 2003) of Montgomery & Company; Board Member (since 2005),
Pope Resources M.L.P.; Board Member (since 2005), Acme
Communications Corporation.
Edward C. Friedel Jr., CFA, Managing Director, Executive None
Committee Member, Portfolio Manager
Phyllis G. Thomas, CFA, Managing Director, Investment Oversight None
Committee Member
Michael J. Carne, CFA, Managing Director, Fixed Income None
Investment Policy Committee Member
Mark A. Morris, Managing Director None
Mark R. Patterson, CFA, Managing Director None
James T. Stephenson, CFA, Managing Director None
David M. Stumpf, CFA, CFP, Managing Director, Fixed Income None
Investment Policy Committee Member
Gregg S. Tenser, CFA, Managing Director None
Kevin A. Hunter, Senior Vice President, Fixed Income Investment None
Policy Committee Member
Darren T. Peers, Managing Director None
Kirk Allen, Managing Director, Trading None
ITEM 32: LOCATION OF ACCOUNTS AND RECORDS
NAM, 333 West Wacker Drive, Chicago, Illinois 60606, maintains the
Declaration of Trust, By-laws, minutes of Trustees' and shareholders' meetings
and contracts of the Registrant and all advisory material of the investment
adviser.
C-7
State Street Bank and Trust Company, 250 Royall Street, Canton,
Massachusetts 02021, maintains all general and subsidiary ledgers, journals,
trial balances, records of all portfolio purchases and sales, and all other
required records not maintained by NAM.
ITEM 33: MANAGEMENT SERVICES
Not applicable.
ITEM 34: UNDERTAKINGS
1. Registrant undertakes to suspend the offering of its shares until it
amends its prospectus if: (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement; or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. The Registrant undertakes that:
a. For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant under Rule 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective.
b. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.
6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.
C-8
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in this City of Chicago, and State of Illinois, on the 6th day
of September, 2007.
NUVEEN TAX-ADVANTAGED DIVIDEND
GROWTH FUND
/s/ Kevin J. McCarthy
-------------------------------------
Kevin J. McCarthy, Vice President and
Secretary
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
SIGNATURE TITLE DATE
--------------------------------- ---------------------------------------- -------------
/s/ Stephen D. Foy Vice President and Controller (principal September 6, 2007
--------------------------------- financial and accounting officer)
Stephen D. Foy
/s/ Gifford R. Zimmerman Chief Administrative Officer (principal September 6, 2007
--------------------------------- executive officer)
Gifford R. Zimmerman
Timothy R. Schwertfeger* Chairman of the Board and Trustee
Robert P. Bremner* Trustee
Jack B. Evans* Trustee
William C. Hunter* Trustee
David J. Kundert* Trustee
William J. Schneider* Trustee
Judith M. Stockdale* Trustee
Carole E. Stone* Trustee
By: /s/ Kevin J. McCarthy
-----------------------------
Kevin J. McCarthy
Attorney-In-Fact
September 6, 2007
----------------
* The original powers of attorney authorizing Kevin J. McCarthy, Larry W.
Martin, Gifford R. Zimmerman and Eric Fess to execute this Registration
Statement, and Amendments thereto, for the trustees of the Registrant on
whose behalf this Registration Statement was executed and filed on June
25, 2007 as Exhibit s to Registrant's Registration Statement on Form N-2
(File No. 333-142318) and incorporated by reference herein.
C-9
INDEX TO EXHIBITS
a. Declaration of Trust dated February 22, 2007.*
b. By-laws of Registrant.*
c. None.
d.1 Form of Share Certificate.**
d.2 Rating Agency Guidelines.**
e. Terms and Conditions of the Automatic Dividend Reinvestment Plan.*
f. None.
g.1 Investment Management Agreement between Registrant and Nuveen Asset
Management dated April 4, 2007.*
g.2 Investment SubAdvisory Agreement between Nuveen Asset Management and Santa
Barbara Asset Management, LLC dated June 19, 2007.*
g.3 Investment SubAdvisory Agreement between Nuveen Asset Management and NWQ
Investment Management Company, LLC dated June 25, 2007.*
h.1 Form of Underwriting Agreement.**
h.2 Form of Citigroup Global Markets Inc. Standard Dealer Agreement.**
h.3 Form of Nuveen Master Selected Dealer Agreement.**
h.4 Form of Citigroup Global Markets Inc. Master Agreement Among
Underwriters.**
h.5 Form of Dealer Letter Agreement.**
i. Nuveen Open-End and Closed-End Funds Deferred Compensation Plan for
Independent Directors and Trustees.*
j. Amended and Restated Master Custodian Agreement between Registrant and
State Street Bank and Trust Company dated February 25, 2005.*
k.1 Transfer Agency and Service Agreement between Registrant and State Street
Bank and Trust Company dated October 7, 2002.*
k.2 Form of Auction Agency Agreement.**
k.3 Form of Broker Dealer Agreement.**
k.4 Form of DTC Representation Letter.**
l.1 Opinion and consent of Vedder, Price, Kaufman & Kammholz, P.C.**
l.2 Opinion and consent of Bingham McCutchen LLP.**
m. Not Applicable.
n. Consent of Ernst & Young LLP.**
o. None.
p. Subscription Agreement of Nuveen Asset Management dated May 15, 2007.*
q. None.
r. Code of Ethics and Reporting Requirements of Nuveen Investments (and
certain subsidiaries, including NWQ Investment Management Company, LLC and
Santa Barbara Asset Management, LLC), Nuveen Defined Portfolios and Nuveen
Funds.*
s. Powers of Attorney.*
-------------
* Previously filed.
** Filed herewith.