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<SEC-DOCUMENT>0000950137-03-000143.txt : 20030114
<SEC-HEADER>0000950137-03-000143.hdr.sgml : 20030114
<ACCEPTANCE-DATETIME>20030108115335
ACCESSION NUMBER:		0000950137-03-000143
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		12
FILED AS OF DATE:		20030108

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NUVEEN INSURED CALIFORNIA TAX FREE ADVANTAGE MUNICIPAL FUND
		CENTRAL INDEX KEY:			0001195738
		IRS NUMBER:				362639476
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			0831

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-100874
		FILM NUMBER:		03507353

	BUSINESS ADDRESS:	
		STREET 1:		333 WEST WACKER DRIVE
		CITY:			CHICAGO
		STATE:			IL
		ZIP:			60606
		BUSINESS PHONE:		3129178146

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NUVEEN INSURED CALIFORNIA TAX FREE ADVANTAGE MUNICIPAL FUND
		CENTRAL INDEX KEY:			0001195738
		IRS NUMBER:				362639476
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			0831

	FILING VALUES:
		FORM TYPE:		N-2/A
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-21212
		FILM NUMBER:		03507354

	BUSINESS ADDRESS:	
		STREET 1:		333 WEST WACKER DRIVE
		CITY:			CHICAGO
		STATE:			IL
		ZIP:			60606
		BUSINESS PHONE:		3129178146
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2/A
<SEQUENCE>1
<FILENAME>c72644a1nv2za.txt
<DESCRIPTION>AMENDMENT TO REGISTRATION STATEMENT
<TEXT>
<PAGE>


    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 2003



                                                    1933 ACT FILE NO. 333-100874


                                                     1940 ACT FILE NO. 811-21212
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM N-2
                        (CHECK APPROPRIATE BOX OR BOXES)


<Table>
<C>       <S>
   [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. 5
</Table>


          NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL 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

                               JESSICA R. DROEGER
                          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:

<Table>
<S>                                <C>                                <C>
         DAVID A. STURMS                    THOMAS S. HARMAN                  CYNTHIA G. COBDEN
VEDDER, PRICE, KAUFMAN & KAMMHOLZ     MORGAN, LEWIS & BOCKIUS LLP         SIMPSON THACHER & BARTLETT
        222 N. LASALLE ST.                1800 M STREET, N.W.                 425 LEXINGTON AVE.
        CHICAGO, IL 60601                WASHINGTON, D.C. 20036               NEW YORK, NY 10077
</Table>

     APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement
                             ---------------------

     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):

     [X]  when declared effective pursuant to section 8(c).
                             ---------------------

        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933


<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
                                                         PROPOSED         PROPOSED MAXIMUM
     TITLE OF SECURITIES          AMOUNT BEING       MAXIMUM OFFERING    AGGREGATE OFFERING       AMOUNT OF
      BEING REGISTERED             REGISTERED         PRICE PER UNIT           PRICE         REGISTRATION FEE(1)
- -----------------------------------------------------------------------------------------------------------------
<S>                           <C>                  <C>                  <C>                  <C>
MuniPreferred Shares, $0.01
  par value..................     1,800 Shares           $25,000            $45,000,000            $4,140*
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</Table>



 *  $92 has been previously paid.


(1) Transmitted prior to filing.


     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES 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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

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 JANUARY 7, 2003


PROSPECTUS

[NUVEEN INVESTMENTS LOGO]


                                  $45,000,000

          NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL FUND
               MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
                              ("MUNIPREFERRED(R)")

                            1,800 SHARES, SERIES TH

                    LIQUIDATION PREFERENCE $25,000 PER SHARE
                             ---------------------


    Nuveen Insured California Tax-Free Advantage Municipal Fund (the "Fund") is
a non-diversified, closed-end management investment company. The Fund's
investment objectives are to provide current income exempt from regular federal
income tax, the federal alternative minimum tax applicable to individuals and
California income tax and to enhance portfolio value relative to the municipal
bond market by investing in tax-exempt municipal bonds that the Fund's
investment adviser believes are underrated or undervalued or that represent
municipal market sectors that are undervalued. Under normal circumstances, the
Fund will invest at least 80% of its net assets in a portfolio of municipal
bonds that pay interest that is exempt from regular federal income tax, the
federal alternative minimum tax applicable to individuals and California income
tax and that are covered by insurance guaranteeing the timely payment of
principal and interest thereon. Through November 30, 2003, the Fund may invest
in municipal bonds that pay interest that is exempt from regular federal income
tax and the federal alternative minimum income tax applicable to individuals,
but not from California income tax, provided that no more than 10% of the Fund's
investment income during that time may be derived from investments in those
bonds. The Fund may at all times invest up to 20% of its net assets in uninsured
municipal bonds backed by an escrow or trust account containing sufficient U.S.
Government or U.S. Government agency securities to ensure timely payment of
principal and interest, or other municipal bonds that, at the time of
investment, are investment grade quality. The Fund cannot assure you that it
will achieve its investment objectives.



    The Fund's principal office is located at 333 West Wacker Drive, Chicago,
Illinois 60606, and its telephone number is (800) 257-8787. 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
         , 2003 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. A copy of the
Statement of Additional Information, the table of contents of which appears on
page 40 of this prospectus, may be obtained without charge by calling the Fund
at (800) 257-8787. In addition, the SEC maintains a web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information filed by the Fund
electronically with the SEC.


                             ---------------------


    INVESTING IN MUNIPREFERRED SHARES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 17.


    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.

                             ---------------------


(R) Registered trademark of Nuveen Investments, LLC



<Table>
<Caption>
                                                              PER SHARE       TOTAL
                                                              ---------       -----
<S>                                                           <C>            <C>
Public Offering Price                                          $25,000       $
Sales Load(1)                                                  $             $
Proceeds to the Fund (before expenses)(2)                      $             $
</Table>


- ------------
(1) One-half of the sales load from this offering will be paid to certain
    underwriters based on their participation in the Fund's offering of common
    shares.

(2) Not including offering expenses payable by the Fund estimated to be
    $        .


    The underwriters are offering the shares of MuniPreferred subject to various
conditions. The underwriters expect to deliver shares of MuniPreferred in
book-entry form, through the facilities of The Depository Trust Company, to
purchasers on or about          , 2003.


                             ---------------------


SALOMON SMITH BARNEY                                     NUVEEN INVESTMENTS, LLC


A.G. EDWARDS & SONS, INC.                                  PRUDENTIAL SECURITIES



          , 2003

<PAGE>


     The Fund is offering 1,800 shares of Series TH MuniPreferred. The shares
are referred to in this prospectus as "MuniPreferred." The MuniPreferred have a
liquidation preference of $25,000 per share, plus any accumulated and unpaid
dividends. The MuniPreferred 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 MuniPreferred Series TH. The
initial dividend rate period is from the date of issuance through           ,
2003. For subsequent rate periods, MuniPreferred shares pay dividends based on a
rate set at auction, usually held weekly. Prospective purchasers should
carefully review the auction procedures described in this prospectus and should
note: (1) a buy order (called a "bid order") or sell order is a commitment to
buy or sell MuniPreferred shares based on the results of an auction; (2)
auctions will be conducted by telephone; and (3) purchases and sales will be
settled on the next business day after the auction. MuniPreferred shares are not
listed on an exchange. You may only buy or sell MuniPreferred 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 MuniPreferred 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.
<PAGE>

     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. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS PROSPECTUS.

                           -------------------------

                               TABLE OF CONTENTS


<Table>
<S>                                                            <C>
Prospectus Summary..........................................     1
Financial Highlights........................................     6
The Fund....................................................     7
Use of Proceeds.............................................     7
Capitalization..............................................     8
Portfolio Composition.......................................     8
The Fund's Investments......................................     9
Risk Factors................................................    17
How the Fund Manages Risk...................................    19
Management of the Fund......................................    20
Description of MuniPreferred Shares.........................    21
The Auction.................................................    30
Description of Common Shares................................    33
Certain Provisions in the Declaration of Trust..............    33
Repurchase of Common Shares; Conversion to Open-End Fund....    34
Tax Matters.................................................    35
Other Matters...............................................    36
Custodian, Transfer Agent, Dividend Disbursing Agent and
  Redemption Agent..........................................    37
Underwriting................................................    38
Legal Opinions..............................................    39
Available Information.......................................    39
Table of Contents for the Statement of Additional
  Information...............................................    40
Taxable Equivalent Yield Table..............................   A-1
</Table>


                           -------------------------

                                        i
<PAGE>

                               PROSPECTUS SUMMARY

     The following information is qualified in its entirety by reference to the
more detailed information included elsewhere in this prospectus and the Fund's
Statement Establishing and Fixing the Rights and Preferences of Municipal
Auction Rate Cumulative Preferred Shares (the "Statement") attached as Appendix
A to the Statement of Additional Information. Capitalized terms used but not
defined in this prospectus shall have the meanings given to such terms in the
Statement.


The Fund......................   Nuveen Insured California Tax-Free Advantage
                                 Municipal Fund (the "Fund") is a recently
                                 organized, non-diversified, closed-end
                                 management investment company. The Fund is
                                 designed to provide tax benefits to investors
                                 who are residents of California. See "The
                                 Fund." The Fund's common shares, $.01 par value
                                 ("common shares"), are traded on the American
                                 Stock Exchange (the "Exchange") under the
                                 symbol "NKX." See "Description of Common
                                 Shares." As of December 31, 2002, the Fund had
                                 5,757,000 common shares outstanding and net
                                 assets of $83,819,921.



Investment Objectives.........   The Fund's investment objectives are to provide
                                 current income exempt from regular federal
                                 income tax, the federal alternative minimum tax
                                 applicable to individuals and California income
                                 tax and enhance portfolio value relative to the
                                 municipal bond market by investing in
                                 tax-exempt municipal bonds that the Fund's
                                 investment adviser believes are underrated or
                                 undervalued or that represent municipal market
                                 sectors that are undervalued. Under normal
                                 circumstances, the Fund will invest at least
                                 80% of its net assets in a portfolio of
                                 municipal bonds that:


                                 - pay interest that is exempt from regular
                                   federal and California income taxes and from
                                   the federal alternative minimum tax
                                   applicable to individuals; and

                                 - are covered by insurance guaranteeing the
                                   timely payment of principal and interest
                                   thereon.

                                 This insurance does not protect the market
                                 value of portfolio holdings or the net asset
                                 value of the Fund.


                                 With respect to its entire portfolio, the Fund
                                 will invest only in bonds and other eligible
                                 investments, whether or not insured, that at
                                 the time of investment are investment grade
                                 quality. Under normal circumstances, the Fund
                                 (i) expects to be fully invested (at least 95%
                                 of its assets) in municipal bonds that pay
                                 interest that is exempt from regular federal
                                 and California income taxes, and (ii) will not
                                 invest in bonds that pay interest subject to
                                 the federal alternative minimum tax applicable
                                 to individuals ("AMT Bonds"). Through November
                                 30, 2003, (the "Invest-up Period"), the Fund
                                 may invest in municipal bonds that pay interest
                                 that is exempt from regular federal income tax
                                 and the federal alternative minimum tax
                                 applicable to individuals, but not from
                                 California income tax ("Out of State Bonds"),
                                 provided that no more than 10% of the Fund's
                                 investment income during that time may be
                                 derived from investments in Out of State Bonds.


                                 The Fund may at all times invest up to 20% of
                                 its net assets in (i) uninsured municipal bonds
                                 that are backed by an escrow or

                                        1
<PAGE>


                                 trust account containing sufficient U.S.
                                 Government or U.S. Government agency securities
                                 to ensure timely payment of principal and
                                 interest, or (ii) other municipal bonds, that
                                 at the time of investment, are investment grade
                                 quality. An investment grade quality bond is a
                                 bond rated within the four highest grades (Baa
                                 or BBB or better by Moody's Investors Service,
                                 Inc. ("Moody's"), Standard & Poor's
                                 Corporation, a division of The McGraw-Hill
                                 Companies ("S&P") or Fitch Ratings ("Fitch"))
                                 by all nationally recognized statistical rating
                                 organizations (each an "NRSRO") that rate the
                                 bond or a bond that is unrated but judged to be
                                 of comparable quality by the Fund's investment
                                 adviser. The Fund will primarily invest in
                                 municipal bonds with long-term maturities in
                                 order to maintain a weighted average maturity
                                 of 15-30 years, but the weighted average
                                 maturity of obligations held by the Fund may be
                                 shortened, depending on market conditions. The
                                 Fund cannot assure you that it will attain its
                                 investment objectives. See "The Fund's
                                 Investments."


Investment Adviser............   Nuveen Advisory Corp. ("Nuveen Advisory") acts
                                 as the Fund's investment adviser. Nuveen
                                 Advisory is a wholly owned subsidiary of The
                                 John Nuveen Company. For more information on
                                 fees and expenses, see "Management of the
                                 Fund."


The Offering..................   The Fund is offering 1,800 shares of Series TH
                                 MuniPreferred at a purchase price of $25,000
                                 per share. Shares of MuniPreferred are being
                                 offered by the underwriters listed under
                                 "Underwriting."


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 MuniPreferred 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
                                   MuniPreferred shares, you may receive less
                                   than the price you paid for your shares if
                                   you sell them outside of the auction,
                                   especially when market interest rates are
                                   rising;

                                 - a rating agency could downgrade MuniPreferred
                                   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;

                                 - if long-term interest rates rise, the value
                                   of the Fund's investment portfolio will
                                   decline, reducing the asset coverage for the
                                   MuniPreferred shares;

                                 - if an issuer of a municipal bond in which the
                                   Fund invests is downgraded or defaults, there
                                   may be a negative impact on the income and/or
                                   asset value of the Fund's portfolio;

                                        2
<PAGE>

                                 - the Fund is a non-diversified management
                                   investment company and therefore may be more
                                   susceptible to any single economic, political
                                   or regulatory occurrence; and

                                 - the Fund's policy of investing primarily in
                                   municipal obligations of issuers located in
                                   California makes the Fund more susceptible to
                                   adverse economic, political or regulatory
                                   occurrences affecting those issuers. To the
                                   extent that a particular industry sector
                                   represents a larger portion of the state's
                                   total economy, the greater the impact that a
                                   downturn in such sector is likely to have on
                                   the state's economy.

                                 For additional general risks of investing in
                                 MuniPreferred shares of the Fund, see "Risk
                                 Factors" below.

Trading Market................   MuniPreferred shares are not listed on an
                                 exchange. Instead, you may buy or sell
                                 MuniPreferred shares at an auction that
                                 normally is held weekly by submitting orders to
                                 one of the broker-dealers that has entered into
                                 an agreement with the auction agent and the
                                 Fund (each, 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 MuniPreferred shares outside of
                                 auctions, but may discontinue this activity at
                                 any time. There is no assurance that a
                                 secondary market will provide shareholders with
                                 liquidity. 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 MuniPreferred
                                 will be           , 2003, the business day
                                 before the dividend payment date for the
                                 initial rate period for the MuniPreferred. 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 MuniPreferred
                                 offered in this prospectus. For subsequent rate
                                 periods, MuniPreferred shares will pay
                                 dividends based on a rate set at auctions,
                                 normally held weekly. In most instances
                                 dividends are also paid weekly, on the day
                                 following the end of the rate period. The rate
                                 set at auction will not exceed the Maximum
                                 Rate. See "Description of MuniPreferred
                                 shares -- Dividends and Dividend
                                 Periods -- General."

                                 The table below also shows the date from which
                                 dividends on the MuniPreferred 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
                                 Tuesday and that day is not a business day,
                                 then your dividends will be paid on the first
                                 business day that falls after that day. If
                                 dividends are payable on a Wednesday, Thursday
                                 or Friday and that day is not a business day,
                                 then your dividends generally will be paid on
                                 the first business day prior to that day.

                                        3
<PAGE>

                                 Finally, the table below shows the number of
                                 days of the initial rate period for the
                                 MuniPreferred. Subsequent rate periods
                                 generally will be seven days. The dividend
                                 payment date for special rate periods of more
                                 than 28 days will be set out in the notice
                                 designating a special rate period. See
                                 "Description of MuniPreferred
                                 shares -- Dividends and Dividend
                                 Periods -- Designation of Special Rate Periods"
                                 and "-- Gross-up Payments."

<Table>
<Caption>
                                                                                   DIVIDEND
                                                                                   PAYMENT                 NUMBER OF
                                                                      DATE OF      DATE FOR   SUBSEQUENT    DAYS OF
                                                                    ACCUMULATION   INITIAL     DIVIDEND     INITIAL
                                                                     AT INITIAL      RATE      PAYMENT       RATE
                                             INITIAL DIVIDEND RATE     RATE*       PERIOD*       DAY        PERIOD
                                             ---------------------  ------------   --------   ----------   ---------
                                             <S>                    <C>            <C>        <C>          <C>
</Table>

                                  ----------------------------------------------

                                 * All dates are 2003.



Taxation......................   Because under normal circumstances the Fund
                                 will invest substantially all of its assets in
                                 municipal bonds that pay interest exempt from
                                 regular federal income tax and the federal
                                 alternative minimum tax applicable to
                                 individuals, the income you receive will
                                 ordinarily be similarly exempt. Taxable income
                                 and gain earned by the Fund will be allocated
                                 proportionately to holders of MuniPreferred
                                 shares and common shares, based on the
                                 percentage of total dividends paid to each
                                 class for that year. Accordingly, certain
                                 specified MuniPreferred dividends may be
                                 subject to regular federal income tax on income
                                 or gains attributed to the Fund. The Fund
                                 intends to notify shareholders, before any
                                 applicable auction for a rate period of 28 days
                                 or less, of the amount of any taxable income
                                 and gain for regular federal income tax
                                 purposes only, to be paid for the period
                                 relating to that auction. For longer periods,
                                 the Fund may notify shareholders. In certain
                                 limited circumstances, the Fund will make
                                 shareholders whole for taxes owing on dividends
                                 paid to shareholders that include taxable
                                 income and gain. See "Tax Matters."


Ratings.......................   Shares of each series of MuniPreferred will be
                                 issued with a rating of "Aaa" from Moody's and
                                 "AAA" from S&P. Because the Fund is required to
                                 maintain at least one of these ratings, it must
                                 own portfolio securities of a sufficient value
                                 and with adequate credit quality to meet the
                                 rating agencies' guidelines. See "Description
                                 of MuniPreferred shares -- Rating Agency
                                 Guidelines and Asset Coverage."

Redemption....................   Although the Fund will not ordinarily redeem
                                 MuniPreferred shares, it may be required to
                                 redeem shares if, for example, the Fund does
                                 not meet an asset coverage ratio required by
                                 law or in order to correct a failure to meet a
                                 rating agency guideline in a timely manner. The
                                 Fund voluntarily may redeem MuniPreferred
                                 shares in certain circumstances. See
                                 "Description of MuniPreferred
                                 shares -- Redemption" and "Description of
                                 MuniPreferred shares -- Rating Agency
                                 Guidelines and Asset Coverage."

Liquidation Preference........   The liquidation preference of the shares of
                                 MuniPreferred will be $25,000 per share plus
                                 accumulated but unpaid dividends, if any,

                                        4
<PAGE>

                                 thereon. See "Description of MuniPreferred
                                 shares -- Liquidation."

Voting Rights.................   The holders of the Fund's preferred shares,
                                 $.01 par value ("Preferred Shares"), including
                                 MuniPreferred, voting as a separate class, have
                                 the right to elect at least two trustees at all
                                 times and to elect a majority of the trustees
                                 in the event two full years' dividends on the
                                 Preferred Shares are unpaid. In each case, the
                                 remaining trustees will be elected by holders
                                 of common shares and Preferred Shares,
                                 including MuniPreferred, voting together as a
                                 single class. The holders of shares of
                                 Preferred Shares, including MuniPreferred, will
                                 vote as a separate class or classes on certain
                                 other matters as required under the Declaration
                                 of Trust, the Investment Company Act of 1940
                                 (the "1940 Act") and Massachusetts law. See
                                 "Description of MuniPreferred shares -- Voting
                                 Rights" and "Certain Provisions in the
                                 Declaration of Trust."

                                        5
<PAGE>

                              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 from the commencement of the Fund's investment
operations on November 22, 2002 until December 18, 2002. Since the Fund
commenced operations on November 22, 2002, the table covers approximately four
weeks of operations, during which a substantial portion of the Fund's assets
were held in cash pending investment in municipal bonds 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. For
additional information, see the report of the Fund's independent auditors, which
is contained in the Statement of Additional Information and can be obtained by
shareholders of the Fund upon request.



<Table>
<Caption>
                                                                  (UNAUDITED)
                                                               NOVEMBER 22, 2002-
                                                               DECEMBER 18, 2002
                                                               ------------------
<S>                                                            <C>
PER SHARE OPERATING PERFORMANCE:
  Net Asset Value, Beginning of Period......................        $ 14.33
                                                                    -------
     Net Investment Income..................................            .01
     Net Gains on Securities (Unrealized)...................            .08
                                                                    -------
       Total from Investment Operations.....................            .09
                                                                    -------
  Offering Costs............................................           (.03)
                                                                    -------
  Common Share Net Asset Value, End of Period...............        $ 14.39
                                                                    =======
  Per Share Market Value, End of Period.....................        $ 15.01
                                                                    =======
  Total Return on Net Asset Value(a)........................           .42%
  Total Investment Return on Market Value(a)................           .07%
RATIOS/SUPPLEMENTAL DATA:
  Net Assets Applicable to Common Shares, End of Period (In
     Thousands).............................................        $78,540
  Ratio of Expenses to Average Net Assets Applicable to
     Common Shares Before Reimbursement.....................           .78%*
  Ratio of Net Investment Income to Average Net Assets
     Applicable to Common Shares Before Reimbursement.......           .96%*
  Ratio of Expenses to Average Net Assets Applicable to
     Common Shares After Reimbursement......................           .46%*
  Ratio of Net Investment Income to Average Net Assets
     Applicable to Common Shares After Reimbursement........          1.28%*
  Portfolio Turnover Rate...................................            --%
</Table>


- ------------


 *  Annualized



(a) Total Investment Return on Market Value is the combination of reinvested
    dividend income, reinvested capital gains distributions, if any, and changes
    in stock price per share. Total Return on Common Share Net Asset Value is
    the combination of reinvested dividend income, reinvested capital gains
    distributions, if any, and changes in Common Share net asset value per
    share. Total returns are not annualized.


                                        6
<PAGE>

                                    THE FUND


     The Fund is a recently organized, non-diversified, closed-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). The Fund was organized as a Massachusetts business trust on July
29, 2002, pursuant to a Declaration of Trust (the "Declaration") governed by the
laws of the Commonwealth of Massachusetts. On November 26, 2002, the Fund issued
an aggregate of 5,450,000 common shares of beneficial interest, par value $.01
per share, pursuant to the initial public offering thereof. On December 20, 2002
and January 7, 2003, the Fund issued an aggregate of 300,000 and 125,000 common
shares of beneficial interest, respectively, par value $.01 per share, in
connection with the exercise by the underwriters of the over-allotment option.
The Fund's common shares are traded on the Exchange under the symbol "NKX." The
Fund's principal office is located at 333 West Wacker Drive, Chicago, Illinois
60606, and its telephone number is (800) 257-8787. The Fund is designed to
provide tax benefits to investors who are residents of California.



     The following provides information about the Fund's outstanding shares as
of December 31, 2002:



<Table>
<Caption>
                                                                  AMOUNT HELD
                                                     AMOUNT     BY THE FUND OR      AMOUNT
TITLE OF CLASS                                     AUTHORIZED   FOR ITS ACCOUNT   OUTSTANDING
- --------------                                     ----------   ---------------   -----------
<S>                                                <C>          <C>               <C>
Common...........................................  Unlimited           0           5,757,000
MuniPreferred....................................  Unlimited           0                   0
  Series TH......................................      1,800           0                   0
</Table>


                                USE OF PROCEEDS


     The net proceeds of this offering will be approximately $43,955,500 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 stated below. It is presently
anticipated that the Fund will be able to invest substantially all of the net
proceeds in municipal bonds that meet those investment objectives and policies
within three months after the completion of the offering. Pending such
investment, it is anticipated that the proceeds will be invested in short-term,
tax-exempt securities in accordance with the Fund's investment policies.

                                        7
<PAGE>

                                 CAPITALIZATION


     The following table sets forth the capitalization of the Fund as of
December 31, 2002, and as adjusted to give effect to the issuance of 125,000
Common Shares on January 7, 2003, as well as the shares of MuniPreferred offered
hereby.



<Table>
<Caption>
                                                                   ACTUAL            AS ADJUSTED
                                                              DECEMBER 31, 2002   DECEMBER 31, 2002
                                                              -----------------   -----------------
                                                                 (UNAUDITED)         (UNAUDITED)
<S>                                                           <C>                 <C>
MuniPreferred shares, $25,000 stated value per share, at
  liquidation value; unlimited shares authorized (no shares
  issued and 1,800 shares issued, as adjusted,
  respectively)*............................................     $        --         $45,000,000
                                                                 ===========         ===========
COMMON SHAREHOLDERS' EQUITY:
  Common Shares, $.01 par value per share; unlimited shares
     authorized, 5,757,000 shares outstanding and 5,882,000
     shares outstanding, as adjusted, respectively*.........     $    57,570         $    58,820
  Paid-in surplus**.........................................      82,238,956          82,980,081
  Undistributed net investment income.......................         180,166             180,166
  Accumulated net realized gain from investments............           2,163               2,163
  Net unrealized appreciation (depreciation) of
     investments............................................       1,341,066           1,341,066
                                                                 -----------         -----------
  Net assets applicable to common shares....................     $83,819,921         $84,562,296
                                                                 ===========         ===========
</Table>


- ------------

 * None of these outstanding shares are held by or for the account of the Fund.


** As adjusted paid-in surplus reflects the proceeds of the issuance of the
   common shares ($1,790,625) less $.01 par value per common share ($1,250) and
   the offering costs of $.03 per common share ($3,750) as well as a reduction
   for the sales load and estimated offering costs of the MuniPreferred shares'
   issuance ($1,044,500).


                             PORTFOLIO COMPOSITION


     As of December 31, 2002, 91% of the market value of the Fund's portfolio
was invested in long-term municipal bonds. The following table sets forth
certain information with respect to the composition of the Fund's investment
portfolio as of December 31, 2002.



<Table>
<Caption>
                                                                 VALUE      PERCENT
                                                              -----------   -------
<S>                                                           <C>           <C>
Insured.....................................................  $75,539,575    79.64%
Not Insured***..............................................   19,315,294    20.36
                                                              -----------   ------
  Total.....................................................  $94,854,869   100.00%
                                                              ===========   ======
</Table>


- ------------


*** Includes short-term securities.


                                        8
<PAGE>

                             THE FUND'S INVESTMENTS

INVESTMENT OBJECTIVES AND POLICIES

     The Fund's investment objectives are:


     - to provide current income exempt from regular federal income tax, the
       federal alternative minimum tax applicable to individuals and California
       income tax; and


     - to enhance portfolio value relative to the municipal bond market by
       investing in tax-exempt municipal bonds that Nuveen Advisory believes are
       underrated or undervalued or that represent municipal market sectors that
       are undervalued.


     Underrated municipal bonds are those whose ratings do not, in Nuveen
Advisory's opinion, reflect their true creditworthiness. Undervalued municipal
bonds are bonds that, in Nuveen Advisory's opinion, are worth more than the
value assigned to them in the marketplace. Nuveen Advisory may at times believe
that bonds associated with a particular municipal market sector (for example,
electric utilities), or issued by a particular municipal issuer, are
undervalued. Nuveen Advisory may purchase such a bond for the Fund's portfolio
because it represents a market sector or issuer that Nuveen Advisory considers
undervalued, even if the value of the particular bond appears to be consistent
with the value of similar bonds. Municipal bonds of particular types (e.g.,
hospital bonds, industrial revenue bonds or bonds issued by a particular
municipal issuer) may be undervalued because there is a temporary excess of
supply in that market sector, or because of a general decline in the market
price of municipal bonds of the market sector for reasons that do not apply to
the particular municipal bonds that are considered undervalued. The Fund's
investment in underrated or undervalued municipal bonds will be based on Nuveen
Advisory's belief that their yield is higher than that available on bonds
bearing equivalent levels of interest rate risk, credit risk and other forms of
risk, and that their prices will ultimately rise (relative to the market) to
reflect their true value. The Fund attempts to increase its portfolio value
relative to the municipal bond market by prudent selection of municipal bonds
regardless of the direction the market may move. There can be no assurance that
the Fund's attempt to increase its portfolio value relative to the municipal
bond market will succeed. To the extent that it does succeed, however, such
success would increase the amount of net capital gains or reduce the amount of
net capital losses that the Fund would otherwise have realized. While this
incremental increase in net realized gains due to successful value investing, if
any, is expected to be modest over time, it would tend to result in the
distribution, over time, of a modestly greater amount of taxable capital gains
to common shareholders and MuniPreferred shareholders.



     Under normal circumstances, the Fund will invest at least 80% of its
average daily net assets, including assets attributable to MuniPreferred shares
outstanding ("Managed Assets") in a portfolio of municipal bonds that:


     - pay interest that is exempt from regular federal and California income
       tax and from the federal alternative minimum tax applicable to
       individuals; and

     - are covered by insurance guaranteeing the timely payment of principal and
       interest thereon.

This insurance does not protect the market value of portfolio holdings or the
net asset value of the Fund.


     With respect to its entire portfolio, the Fund will invest only in bonds
and other eligible investments, whether or not insured, that at the time of
investment are investment grade quality. Under normal circumstances, the Fund
(i) expects to be fully invested (at least 95% of its assets) in municipal bonds
that pay interest that is exempt from regular federal and California income tax
and (ii) will not invest in AMT Bonds. During the Invest-up Period, the Fund may
invest in Out of State Bonds, provided that no more than 10% of the Fund's
investment income during that time may be derived from Out of State Bonds. The
Fund will purchase Out of State Bonds if other suitable investments are not
available. Investment in Out of State Bonds would result in a portion of your
dividends being subject to California income tax. For more information, see the
Statement of Additional Information. In addition, capital gain dividends will be
subject to capital gains taxes. See "Tax Matters."


                                        9
<PAGE>

     The Fund may at all times invest up to 20% of its net assets in (i)
uninsured municipal bonds that are backed by an escrow or trust account
containing sufficient U.S. Government or U.S. Government agency securities to
ensure timely payment of principal and interest, or (ii) other municipal bonds
that, at the time of investment, are investment grade quality. Investment grade
quality means that such bonds are rated by all NRSROs that rate the bond within
the four highest grades (Baa or BBB or better by Moody's, S&P or Fitch) or are
unrated but judged to be of comparable quality by Nuveen Advisory. The foregoing
credit quality policy applies only at the time a security is purchased, and the
Fund is not required to dispose of a security in the event that a rating agency
downgrades its assessment of the credit characteristics of a particular issue.
In determining whether to retain or sell such a security, Nuveen Advisory may
consider such factors as Nuveen Advisory's assessment of the credit quality of
the issuer of such security, the price at which such security could be sold and
the rating, if any, assigned to such security by other rating agencies. A
general description of Moody's, S&P's and Fitch's ratings of municipal bonds is
set forth in Appendix B to the Statement of Additional Information. See
"--Municipal Bonds" below for a general description of the economic and credit
characteristics of municipal issuers in California. The Fund may also invest in
securities of other open- or closed-end investment companies that invest
primarily in municipal bonds of the types in which the Fund may invest directly.
See "-- Other Investment Companies."

     Each insured municipal bond that the Fund acquires will be (1) covered by
an insurance policy applicable to a specific security and obtained by the issuer
of the security or a third party at the time of original issuance ("Original
Issue Insurance"), (2) covered by an insurance policy applicable to a specific
security and obtained by the Fund or a third party subsequent to the time of
original issuance ("Secondary Market Insurance"), or (3) covered by a master
municipal insurance policy purchased by the Fund ("Portfolio Insurance"). See
"-- Municipal Bond Insurance." The Fund, as non-fundamental policies that can be
changed by the Board of Trustees, (A) will only buy Portfolio Insurance from
insurers whose claims-paying ability Moody's rates "Aaa" or S&P or Fitch rates
"AAA" and (B) will maintain at least 80% of its total Managed Assets in
municipal bonds covered by insurance from insurers with a claims-paying ability
rated, at the time of the bond's purchase, "Aaa" by Moody's or "AAA" by S&P or
Fitch.

     The credit quality of companies that provide insurance on bonds will affect
the value of those bonds. Although the insurance feature reduces certain
financial risks, the premiums for insurance and the higher market price paid for
insured obligations may reduce the Fund's income. The insurance feature does not
guarantee the market value of the insured obligations or the net asset value of
the common shares or the shares of MuniPreferred.

     The Fund may at all times invest up to 20% of its net assets in uninsured
municipal bonds that are entitled to the benefit of an escrow or trust account
that contains securities issued or guaranteed by the U.S. Government or U.S.
Government agencies backed by the full faith and credit of the United States,
and sufficient in amount to ensure the payment of interest and principal on the
original interest payment and maturity dates ("collateralized obligations").
These collateralized obligations generally will not be insured and will include,
but are not limited to, municipal bonds that have been (1) advance refunded
where the proceeds of the refunding have been used to buy U.S. Government or
U.S. Government agency securities that are placed in escrow and whose interest
or maturing principal payments, or both, are sufficient to cover the remaining
scheduled debt service on that municipal bond; or (2) issued under state or
local housing finance programs that use the issuance proceeds to fund mortgages
that are then exchanged for U.S. Government or U.S. Government agency securities
and deposited with a trustee as security for those municipal bonds. These
collateralized obligations are normally regarded as having the credit
characteristics of the underlying U.S. Government or U.S. Government agency
securities.

     Upon Nuveen Advisory's recommendation, during temporary defensive periods
and in order to keep the Fund's cash fully invested, including the period during
which the net proceeds of the offering of shares of MuniPreferred are being
invested, the Fund may deviate from its investment objectives and policies and
invest up to 100% of its net assets in short-term investments including high
quality, short-term securities that may be either tax-exempt or taxable. The
Fund intends to invest in taxable short-term investments only in the event that
suitable tax-exempt short-term investments are not available at reasonable
prices and yields. Investment in such short-term investments would result in a
portion of your dividends being subject to regular federal

                                        10
<PAGE>


income tax, the federal alternative minimum tax applicable to individuals and
California income tax. For more information, see the Statement of Additional
Information. Likewise, the Fund may deviate from its normal investment policies
and invest up to 5% of its net assets in tax-exempt or in taxable fixed-income
or equity securities of an issuer of municipal bonds that the Fund already owns
for the purpose of acquiring control of that issuer when Nuveen Advisory
determines that such investment should enable the Fund to better maximize the
value of its existing investment. The Fund does not intend to change this policy
without prior notification to shareholders. See the Statement of Additional
Information under "Other Investment Policies and Techniques -- Miscellaneous
Investments."



     The Fund cannot change (i) its fundamental investment restrictions set
forth in the Statement of Additional Information or (ii) its policy to invest
80% of its Managed Assets in a portfolio of municipal bonds that pay interest
that is exempt from regular federal and California income taxes and the federal
alternative minimum tax applicable to individuals without the approval of the
holders of a "majority of the outstanding" common shares and shares of
MuniPreferred voting together as a single class, and of the holders of a
"majority of the outstanding" shares of MuniPreferred 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 Shares -- MuniPreferred shares -- Voting Rights" for
additional information with respect to the voting rights of holders of shares of
MuniPreferred. Other than as noted above, the investment objectives and policies
of the Fund may be changed by the Board without shareholder action.


MUNICIPAL BONDS

     General.  Municipal bonds are either general obligation or revenue bonds
and typically are issued to finance public projects (such as roads or public
buildings), to pay general operating expenses, or to refinance outstanding debt.
Municipal bonds may also be issued for private activities, such as housing,
medical and educational facility construction, or for privately owned industrial
development and pollution control projects. General obligation bonds are backed
by the full faith and credit, or taxing authority, of the issuer and may be
repaid from any revenue source; revenue bonds may be repaid only from the
revenues of a specific facility or source. The Fund also may purchase municipal
bonds that represent lease obligations. These carry special risks because the
issuer of the bonds may not be obligated to appropriate money annually to make
payments under the lease. In order to reduce this risk, the Fund will only
purchase municipal bonds representing lease obligations where Nuveen Advisory
believes the issuer has a strong incentive to continue making appropriations
until maturity.


     The municipal bonds in which the Fund will invest are generally issued by
the State of California, a municipality in California, or a political
subdivision or agency or instrumentality of such State or municipality
("California municipal bonds"), and pay interest that, in the opinion of bond
counsel to the issuer (or on the basis of other authority believed by Nuveen
Advisory to be reliable), is exempt from regular federal income tax, the
alternative minimum tax applicable to individuals and California income tax. The
Fund may invest in municipal bonds issued by United States territories (such as
Puerto Rico or Guam) that pay interest that is exempt from regular federal and
California income taxes and the federal alternative minimum tax applicable to
individuals. During the Invest-up Period, the Fund also may invest in Out of
State Bonds, subject to the limitations described under "-- Investment
Objectives and Policies." It is a fundamental policy of the Fund that its
investment in municipal bonds to which the interest is not taxable under regular
federal and California income taxes or the federal alternative minimum tax
applicable to individuals will, under normal circumstances, comprise at least
80% of the Fund's Managed Assets.


     The yields on municipal bonds depend on a variety of factors, including
prevailing interest rates and the condition of the general money market and the
municipal bond market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The market value of municipal bonds will
vary with changes in interest rate levels and as a result of changing
evaluations of the ability of their issuers to meet interest and principal
payments.

                                        11
<PAGE>

     The Fund expects to primarily invest in municipal bonds with long-term
maturities in order to maintain a weighted average maturity of 15-30 years, but
the weighted average maturity of obligations held by the Fund may be shortened,
depending on market conditions.


     Special Considerations Relating to California Municipal Bonds.  As
described above, except to the extent the Fund invests in temporary investments,
the Fund will invest substantially all of its net assets in California municipal
bonds. The Fund is therefore susceptible to political, economic or regulatory
factors affecting issuers of California municipal bonds. The information set
forth below and in the Statement of Additional Information is derived from
sources that are generally available to investors. The information is provided
as general information intended to give a recent historical description and is
not intended to indicate future or continuing trends in the financial or other
positions of California. It should be noted that the creditworthiness of
obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and that
there is no obligation on the part of the State to make payment on such local
obligations in the event of default.



     California's economy is the largest among the 50 states and one of the
largest in the world. The State has a diversified economy with major sectors in
manufacturing, agriculture, services, tourism, international trade and
construction. The State has a population of about 35 million, which has been
growing at a 1-2% annual rate for several decades. Gross domestic product of
goods and services in the State exceeds $1 trillion. Personal income was
estimated at over $1,116 billion in 2001. Total employment is over 16 million.



     Since 1994 the California economy had been growing steadily, outpacing the
rest of the nation, with particular strength in high technology manufacturing,
software, exports, services, entertainment and construction. By late 2000,
unemployment had fallen to its lowest level in three decades. After a strong
fourth quarter of 2000, the economy entered a mild recession in 2001, in concert
with the slowdown of the national economy and a cyclical downturn in the high
technology sector. The aftermath of the September 11, 2001 terrorist attacks
temporarily hurt tourism-based areas. California's economy appears to have begun
a mild recovery in early 2002, but employment growth had stagnated by the summer
of 2002 and the economy remained sluggish as of the start of 2003.



     The State has received significant tax revenues in recent years, derived
from the strong economy and stock market through 2000. Capital gains and stock
option income represented almost a quarter of General Fund revenue in the
2000-01 fiscal year. The slowing economy and depressed stock market after
mid-2000 resulted in significantly reduced revenues compared to earlier
forecasts. The State addressed a total "budget gap" of $23.6 billion for the
final 2002-03 Budget with a combination of expenditure reductions and deferrals,
limited revenue increases, borrowing and substantial interfund loans and
securitizations. The Governor reported in December 2002 that revenues are
expected to be substantially below earlier projections, and estimated that a
budget gap of almost $35 billion will have to be addressed for the balance of
the 2002-03 fiscal year and the upcoming 2003-04 fiscal year. To close this gap,
the 2003-04 budget will require significant spending cuts in virtually all parts
of State government, including aid to local governments and schools. Tax
increases and additional borrowings will also be considered. More detailed and
updated information including economic and revenue projections will be released
on January 10, 2003 when the Governor presents his proposed budget for 2003-04.
The sluggish economy is also adversely affecting local government revenues.



     In December, 2002, the ratings of the State's General Obligation bonds were
reduced by Standard & Poor's from "A+" to "A" and by FitchRatings from "AA" to
"A" and both agencies reduced the ratings on the State's short-term Notes.
Moody's rating of the State's General Obligation Bonds is "A1" with a negative
outlook as of January 1, 2003. Reduced revenues have also created a cash flow
shortfall for the State which has required the State to issue large cash flow
note borrowings in order to pay its ongoing obligations, including repayment of
previous cash flow borrowings. Until the State brings its revenues and
expenditures into balance, it may continue to depend on having access to public
debt markets to fund its cash flow requirements. A large part of the State's
annual budget is mandated by constitutional guarantees (such as for education
funding and debt service) and caseload requirements for health and welfare
programs.


     Many local government agencies, particularly counties, continue to face
budget constraints due to limited taxing powers and mandated expenditures for
health, welfare and public safety, among other factors. The
                                        12
<PAGE>

State and local governments are limited in their ability to levy and raise
property taxes and other forms of taxes, fees or assessments, and in their
ability to appropriate their tax revenues, by a series of constitutional
amendments, enacted by voter initiative since 1978. Individual local governments
may also have local initiative which affect their fiscal flexibility.

     The foregoing information constitutes only a brief summary of some of the
general factors which may impact certain issuers of municipal bonds and does not
purport to be a complete or exhaustive description of all adverse conditions to
which the issuers of municipal bonds held by the Fund are subject. Additionally,
many factors including national economic, social and environmental policies and
conditions, which are not within the control of the issuers of the municipal
bonds, could affect or could have an adverse impact on the financial condition
of the issuers. The Fund is unable to predict whether or to what extent such
factors or other factors may affect the issuers of the municipal bonds, the
market value or marketability of the municipal bonds or the ability of the
respective issuers of the municipal bonds acquired by the Fund to pay interest
on or principal of the municipal bonds. This information has not been
independently verified. See the Statement of Additional Information for a
further discussion of factors affecting municipal bonds in California.

MUNICIPAL BOND INSURANCE

     Each insured municipal bond the Fund acquires will be covered by Original
Issue Insurance, Secondary Market Insurance or Portfolio Insurance. The Fund
expects initially to emphasize investments in municipal bonds insured under
bond-specific insurance policies (i.e., Original Issue or Secondary Market
Insurance). The Fund may obtain Portfolio Insurance from the insurers described
in Appendix C to the Statement of Additional Information. The Fund, as a
non-fundamental policy that can be changed by its Board, will only obtain
policies of Portfolio Insurance issued by insurers whose claims-paying ability
is rated "Aaa" by Moody's or "AAA" by S&P or Fitch. There is no limit on the
percentage of the Fund's assets that may be invested in municipal bonds insured
by any one insurer.

     A municipal bond covered by Original Issue Insurance or Secondary Market
Insurance is itself typically assigned the same rating as that of the insurer.
For example, if the insurer has a rating of "Aaa" or "AAA," a bond covered by an
Original Issue Insurance or Secondary Market Insurance policy would also
typically be assigned the same rating. Such a municipal bond would generally be
assigned a lower rating if the ratings were based instead upon the credit
characteristics of the issuer without regard to the insurance feature. By way of
contrast, the rating, if any, assigned to a municipal bond insured under
Portfolio Insurance will be based primarily upon the credit characteristics of
the issuer, without regard to the insurance feature, and therefore will
generally carry a rating that is below "Aaa" or "AAA." While in the portfolio of
the Fund, however, a municipal bond backed by Portfolio Insurance from a
particular insurer will effectively be of the same credit quality as a municipal
bond issued by an issuer of comparable credit characteristics that is backed by
Original Issue Insurance or Secondary Market Insurance from that insurer.

     The Fund's policy of investing primarily in municipal bonds insured by
insurers whose claims-paying ability is rated "Aaa" or "AAA" applies only at the
time of purchase of a security, and the Fund will not be required to dispose of
the securities in the event Moody's, S&P or Fitch, as the case may be,
downgrades its assessment of the claims-paying ability of a particular insurer
or the credit characteristics of a particular issuer. In the event Moody's, S&P
or Fitch (or all of them) should downgrade its (or their) rating of a particular
insurer, it (or they) could also be expected to downgrade the ratings assigned
to municipal bonds insured under Original Issue Insurance or Secondary Market
Insurance policies by such insurer, and municipal bonds insured under Portfolio
Insurance issued by such insurer also would be of reduced quality in the
portfolio of the Fund. Moody's, S&P and Fitch continually assess the
claims-paying ability of insurers and the credit characteristics of issuers, and
there can be no assurance that they will not downgrade their assessments
subsequent to the time the Fund purchases securities.

     The value of municipal bonds covered by Portfolio Insurance that are in
default or in significant risk of default will be determined by separately
establishing a value for the municipal bond and a value for the Portfolio
Insurance.

                                        13
<PAGE>

     Original Issue Insurance.  Original Issue Insurance is purchased with
respect to a particular issue of municipal bonds by the issuer thereof or a
third party in conjunction with the original issuance of such municipal bonds.
Under this insurance, the insurer unconditionally guarantees to the holder of
the municipal bond the timely payment of principal and interest on such
obligations when and as these payments become due but not paid by the issuer,
except that in the event of the acceleration of the due date of the principal by
reason of mandatory or optional redemption (other than acceleration by reason of
a mandatory sinking fund payment), default or otherwise, the payments guaranteed
may be made in the amounts and at the times as payment of principal would have
been due had there not been any acceleration. The insurer is responsible for
these payments less any amounts received by the holder from any trustee for the
municipal bond issuer or from any other source. Original Issue Insurance does
not guarantee payment on an accelerated basis, the payment of any redemption
premium (except with respect to certain premium payments in the case of certain
small issue industrial development and pollution control municipal bonds), the
value of the Fund's shares, the market value of municipal bonds, or payments of
any tender purchase price upon the tender of the municipal bonds. Original Issue
Insurance also does not insure against nonpayment of principal or interest on
municipal bonds resulting from the insolvency, negligence or any other act or
omission of the trustee or other paying agent for these bonds.

     Original Issue Insurance remains in effect as long as the municipal bonds
it covers remain outstanding and the insurer remains in business, regardless of
whether the Fund ultimately disposes of these municipal bonds. Consequently,
Original Issue Insurance may be considered to represent an element of market
value with respect to the municipal bonds so insured, but the exact effect, if
any, of this insurance on the market value cannot be estimated.

     Secondary Market Insurance.  Subsequent to the time of original issuance of
a municipal bond, the Fund or a third party may, upon the payment of a single
premium, purchase insurance on that security. Secondary Market Insurance
generally provides the same type of coverage as Original Issue Insurance and, as
with Original Issue Insurance, Secondary Market Insurance remains in effect as
long as the municipal bonds it covers remain outstanding and the insurer remains
in business, regardless of whether the Fund ultimately disposes of these
municipal bonds.

     One of the purposes of acquiring Secondary Market Insurance with respect to
a particular municipal bond would be to enable the Fund to enhance the value of
the security. The Fund, for example, might seek to purchase a particular
municipal bond and obtain Secondary Market Insurance, for it if, in Nuveen
Advisory's opinion, the market value of the security, as insured, less the cost
of the Secondary Market Insurance would exceed the current value of the security
without insurance. Similarly, if the Fund owns but wishes to sell a municipal
bond that is then covered by Portfolio Insurance, the Fund might seek to obtain
Secondary Market Insurance for it if, in Nuveen Advisory's opinion, the net
proceeds of the Fund's sale of the security, as insured, less the cost of the
Secondary Market Insurance would exceed the current value of the security. In
determining whether to insure municipal bonds the Fund owns, an insurer will
apply its own standards, which correspond generally to the standards it has
established for determining the insurability of new issues of municipal bonds.
See "-- Original Issue Insurance" above.

     Portfolio Insurance.  Portfolio Insurance guarantees the payment of
principal and interest on specified eligible municipal bonds purchased by the
Fund. Except as described below, Portfolio Insurance generally provides the same
type of coverage as is provided by Original Issue Insurance or Secondary Market
Insurance. Municipal bonds insured under a Portfolio Insurance policy would
generally not be insured under any other policy. A municipal bond is eligible
for coverage under a policy if it meets certain requirements of the insurer.
Portfolio Insurance is intended to reduce financial risk, but the cost thereof
and compliance with investment restrictions imposed under the policy will reduce
the yield to shareholders of the Fund.

     If a municipal bond is already covered by Original Issue Insurance or
Secondary Market Insurance, then the security is not required to be additionally
insured under any Portfolio Insurance that the Fund may purchase. All premiums
respecting municipal bonds covered by Original Issue Insurance or Secondary
Market Insurance are paid in advance by the issuer or other party obtaining the
insurance.

                                        14
<PAGE>

     Portfolio Insurance policies are effective only as to municipal bonds owned
by and held by the Fund, and do not cover municipal bonds for which the contract
for purchase fails. A "when-issued" municipal obligation will be covered under a
Portfolio Insurance policy upon the settlement date of the issue of such
"when-issued" municipal bond.

     In determining whether to insure municipal bonds held by the Fund, an
insurer will apply its own standards, which correspond generally to the
standards it has established for determining the insurability of new issues of
municipal bonds. See "-- Original Issue Insurance" above.

     Each Portfolio Insurance policy will be noncancellable and will remain in
effect so long as the Fund is in existence, the municipal bonds covered by the
policy continue to be held by the Fund, and the Fund pays the premiums for the
policy. Each insurer will generally reserve the right at any time upon 90 days'
written notice to the Fund to refuse to insure any additional bonds purchased by
the Fund after the effective date of such notice. The Fund generally will
reserve the right to terminate each policy upon seven days' written notice to an
insurer if it determines that the cost of such policy is not reasonable in
relation to the value of the insurance to the Fund.

     Each Portfolio Insurance policy will terminate as to any municipal bond
that has been redeemed from or sold by the Fund on the date of redemption or the
settlement date of sale, and an insurer will not have any liability thereafter
under a policy for any municipal bond, except that if the redemption date or
settlement date occurs after a record date and before the related payment date
for any municipal bond, the policy will terminate for that municipal bond on the
business day immediately following the payment date. Each policy will terminate
as to all municipal bonds covered thereby on the date on which the last of the
covered municipal bonds mature, are redeemed or are sold by the Fund.

     One or more Portfolio Insurance policies may provide the Fund, pursuant to
an irrevocable commitment of the insurer, with the option to exercise the right
to obtain permanent insurance ("Permanent Insurance") for a municipal bond that
is sold by the Fund. The Fund would exercise the right to obtain Permanent
Insurance upon payment of a single, predetermined insurance premium payable from
the sale proceeds of the municipal bond. The Fund expects to exercise the right
to obtain Permanent Insurance for a municipal bond only if, in Nuveen Advisory's
opinion, upon the exercise the net proceeds from the sale of the municipal bond,
as insured, would exceed the proceeds from the sale of the security without
insurance.

     The Permanent Insurance premium for each municipal bond is determined based
upon the insurability of each security as of the date of purchase and will not
be increased or decreased for any change in the security's creditworthiness
unless the security is in default as to payment of principal or interest, or
both. If such event occurs, the Permanent Insurance premium will be subject to
an increase predetermined at the date of the Fund's purchase.

     The Fund generally intends to retain any insured bonds covered by Portfolio
Insurance that are in default or in significant risk of default and to place a
value on the insurance, which ordinarily will be the difference between the
market value of the defaulted bond and the market value of similar bonds of
minimum investment grade (that is, rated "Baa" or "BBB") that are not in
default. In certain circumstances, however, Nuveen Advisory may determine that
an alternative value for the insurance, such as the difference between the
market value of the defaulted bond and either its par value or the market value
of similar bonds that are not in default or in significant risk of default, is
more appropriate. Except as described above for bonds covered by Portfolio
Insurance that are in default or subject to significant risk of default, the
Fund will not place any value on the Portfolio Insurance in valuing the
municipal bonds it holds.

     Because each Portfolio Insurance policy will terminate for municipal bonds
sold by the Fund on the date of sale, in which event the insurer will be liable
only for those payments of principal and interest that are then due and owing
(unless Permanent Insurance is obtained by the Fund), the provision for this
insurance will not enhance the marketability of the Fund's bonds, whether or not
the bonds are in default or in significant risk of default. On the other hand,
because Original Issue Insurance and Secondary Market Insurance generally will
remain in effect as long as the municipal bonds they cover are outstanding,
these insurance policies may enhance the marketability of these bonds even when
they are in default or in significant risk of default, but the

                                        15
<PAGE>

exact effect, if any, on marketability, cannot be estimated. Accordingly, the
Fund may determine to retain or, alternatively, to sell municipal bonds covered
by Original Issue Insurance or Secondary Market Insurance that are in default or
in significant risk of default.

     Premiums for a Portfolio Insurance policy are paid monthly, and are
adjusted for purchases and sales of municipal bonds covered by the policy during
the month. The yield on the Fund is reduced to the extent of the insurance
premiums it pays.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

     The Fund may buy and sell municipal bonds on a when-issued or delayed
delivery basis, making payment or taking delivery at a later date, normally
within 15 to 45 days of the trade date. This type of transaction may involve an
element of risk because no interest accrues on the bonds prior to settlement
and, because bonds are subject to market fluctuations, the value of the bonds at
time of delivery may be less (or more) than cost. A separate account of the Fund
will be established with its custodian consisting of cash, cash equivalents, or
liquid securities having a market value at all times at least equal to the
amount of the commitment.

MISCELLANEOUS INVESTMENTS


     The Fund may invest up to 5% of its net assets in tax-exempt or taxable
fixed-income or equity securities, for the purpose of acquiring control of an
issuer whose municipal bonds (a) the Fund already owns and (b) have deteriorated
or are expected shortly to deteriorate significantly in credit quality; provided
Nuveen Advisory determines that such investment should enable the Fund to better
maximize its existing investment in such issuer. Investment in such securities
would result in a portion of your dividend being subject to regular federal and
California income taxes or the federal alternative minimum tax applicable to
individuals.


OTHER INVESTMENT COMPANIES

     The Fund may invest up to 10% of its net assets in securities of other
open- or closed-end investment companies that invest primarily in municipal
bonds of the types in which the Fund may invest directly. The Fund generally
expects to invest in other investment companies 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 MuniPreferred
shares, or during periods when there is a shortage of attractive, high-yielding
municipal bonds available in the market. As a stockholder 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. Holders of the Fund's
common shares would therefore be subject to duplicative expenses to the extent
the Fund invests in other investment companies. Nuveen Advisory will take
expenses into account when evaluating the investment merits of an investment in
the investment company relative to available municipal bond investments. In
addition, the securities of other investment companies may also be leveraged and
will therefore be subject to the same leverage risks described herein. As
described in the section entitled "Risk Factors," the net asset value and market
value of leveraged shares will be more volatile and the yield to shareholders of
the Fund will tend to fluctuate more than the yield generated by unleveraged
shares.

                                        16
<PAGE>

                                  RISK FACTORS

     Risk is inherent in all investing. Investing in any investment company
security involves risk, 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 MuniPreferred shares.

LIMITED OPERATING HISTORY

     The Fund is a recently organized, non-diversified, closed-end management
investment company and has a limited operating history.

INTEREST RATE RISK

     The Fund issues MuniPreferred shares, which pay dividends based on
short-term interest rates, and use the proceeds to buy municipal bonds, which
pay interest based on long-term yields. Long-term municipal bond yields are
typically, although not always, higher than short-term interest rates. Both
long-term and short term interest rates may fluctuate. If short-term interest
rates rise, MuniPreferred rates may rise so that the amount of dividends paid to
MuniPreferred shareholders exceeds the income from the portfolio securities
purchased with the proceeds from the sale of MuniPreferred shares. Because
income from the Fund's entire investment portfolio (not just the portion of the
portfolio purchased with the proceeds of the MuniPreferred share offering) is
available to pay MuniPreferred dividends, however, MuniPreferred dividend rates
would need to greatly exceed the Fund's net portfolio income before the Fund's
ability to pay MuniPreferred dividends would be jeopardized. If long-term rates
rise, the value of the Fund's investment portfolio will decline, reducing the
amount of assets serving as asset coverage for the MuniPreferred shares.

AUCTION RISK

     You may not be able to sell your MuniPreferred shares at an auction if the
auction fails; that is, if there are more MuniPreferred shares offered for sale
than there are buyers for those shares. Also, if you place hold orders (orders
to retain MuniPreferred 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
MuniPreferred 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
MuniPreferred shares" and "The Auction -- Auction Procedures."

SECONDARY MARKET RISK

     If you try to sell your MuniPreferred 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 rate period (a rate period of more than 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 MuniPreferred shares, if any, 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.
MuniPreferred shares are not registered on a stock exchange or the NASDAQ stock
market. If you sell your MuniPreferred 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. Accrued MuniPreferred
dividends, however, should at least partially compensate for the increased
market interest rates.

RATINGS AND ASSET COVERAGE RISK

     While Moody's and S&P assign ratings of "Aaa" and "AAA," respectively, to
MuniPreferred shares, the ratings do not eliminate or necessarily mitigate the
risks of investing in MuniPreferred shares. A rating agency could downgrade
MuniPreferred shares, which may make your shares less liquid at an auction or in
the secondary market, although the downgrade would probably result in higher
dividend rates. If a rating agency

                                        17
<PAGE>

downgrades MuniPreferred shares, the Fund will alter its portfolio or redeem
MuniPreferred shares. The Fund may voluntarily redeem MuniPreferred shares under
certain circumstances. See "Description of MuniPreferred shares -- Rating Agency
Guidelines and Asset Coverage" for a description of the asset maintenance tests
the Fund must meet.

CREDIT RISK

     Credit risk is the risk that one or more municipal bonds in the Fund's
portfolio will decline in price, or fail to pay interest or principal when due,
because the issuer of the bond experiences a decline in its financial status. In
general, lower-rated municipal bonds carry a greater degree of risk that the
issuer will lose its ability to make interest and principal payments, which
could have a negative impact on the Fund's net asset value or dividends.

CONCENTRATION IN CALIFORNIA ISSUERS

     The Fund's policy of investing primarily in municipal obligations of
issuers located in California makes the Fund more susceptible to adverse
economic, political or regulatory occurrences affecting such issuers. For a
description of unique considerations relating to California municipal bonds, see
"The Fund's Investments -- Municipal Bonds -- Special Considerations Relating to
California Municipal Bonds."

MUNICIPAL BOND MARKET RISK

     Investing in the municipal bond market involves certain risks. The amount
of public information available about the municipal bonds in the Fund's
portfolio is generally less than that for corporate equities or bonds, and the
investment performance of the Fund may therefore be more dependent on the
analytical abilities of Nuveen Advisory than if the Fund were a stock fund or
taxable bond fund. The secondary market for municipal bonds also tends to be
less well-developed or liquid than many other securities markets, which may
adversely affect the Fund's ability to sell its bonds at attractive prices or at
prices approximating those at which the Fund currently values them.

     The ability of municipal issuers to make timely payments of interest and
principal may be diminished during general economic downturns and as
governmental cost burdens are reallocated among federal, state and local
governments. In addition, laws enacted in the future by Congress or state
legislatures or referenda could extend the time for payment of principal and/or
interest, or impose other constraints on enforcement of such obligations, or on
the ability of municipalities to levy taxes. Issuers of municipal securities
might seek protection under the bankruptcy laws. In the event of bankruptcy of
such an issuer, the Fund could experience delays in collecting principal and
interest and the Fund may not, in all circumstances, be able to collect all
principal and interest to which it is entitled. To enforce its rights in the
event of a default in the payment of interest or repayment of principal, or
both, the Fund may take possession of and manage any assets which might be
securing the issuer's obligations on such securities, which may increase the
Fund's operating expenses. Any income derived from the Fund's ownership or
operation of such assets may not be exempt from regular federal income tax.

MUNICIPAL BOND INSURANCE

     In the event Moody's, S&P or Fitch (or all of them) should downgrade its
assessment of the claims-paying ability of a particular insurer, it (or they)
could also be expected to downgrade the ratings assigned to municipal bonds
insured by such insurer, and municipal bonds insured under Portfolio Insurance
issued by such insurer also would be of reduced quality in the portfolio of the
Fund.

     In addition, the Fund may be subject to certain restrictions on investments
imposed by guidelines of the insurance companies issuing Portfolio Insurance.
The Fund does not expect these guidelines to prevent Nuveen Advisory from
managing the Fund's portfolio in accordance with the Fund's investment
objectives and policies.

                                        18
<PAGE>

INCOME RISK

     The Fund's income is based primarily on the interest it earns from its
investments, which can vary widely over the short-term and long-term. If
interest rates drop, the Fund's income available over time to make dividend
payments with respect to the MuniPreferred could drop as well if the Fund
purchases securities with lower interest coupons.

REINVESTMENT RISK

     Reinvestment risk is the risk that income from the Fund's bond portfolio
will decline if and when the Fund invests the proceeds from matured, traded or
called bonds at market interest rates that are below the portfolio's current
earnings rate.


INFLATION RISK


     Inflation risk is the risk that the value of assets or income from
investment will be worth less in the future as inflation decreases the value of
money. As inflation increases, the real value of your MuniPreferred investment
or the income from that investment will be worth less in the future. In other
word, as inflation occurs, the real value of the MuniPreferred shares and
distributions declines. In an inflationary period, however, it is expected that,
through the auction process, MuniPreferred dividend rates would increase,
tending to offset this risk.

CALL RISK

     If interest rates fall, it is possible that issuers of callable bonds with
higher interest coupons will "call" (or prepay) their bonds before their
maturity date. If a call were exercised by the issuer during a period of
declining interest rates, the Fund is likely to replace such called security
with a lower yielding security.

ECONOMIC SECTOR RISK

     The Fund may invest 25% or more of its total assets in municipal
obligations in the same economic sector. This may make the Fund more susceptible
to adverse economic, political or regulatory occurrences affecting an economic
sector. As concentration increases, so does the potential for fluctuation in the
value of the Fund's assets.

NON-DIVERSIFICATION

     Because the Fund is classified as "non-diversified" under the 1940 Act it
can invest a greater portion of its assets in obligations of a single issuer. As
a result, the Fund will be more susceptible than a diversified fund to any
single corporate, economic, political or regulatory occurrence. See "The Fund's
Investments." Also, the Fund's policy of generally investing in bonds that are
exempt from the federal alternative minimum tax applicable to individuals may
prevent the Fund from investing in certain kinds of bonds and thereby limit the
Fund's ability to optimally diversify its portfolio. In addition, the Fund must
satisfy certain asset diversification rules in order to qualify as a regulated
investment company for federal income tax purposes.

                           HOW THE FUND MANAGES RISK

INVESTMENT LIMITATIONS

     The Fund has adopted certain investment limitations designed to limit
investment risk and maintain portfolio diversification. These limitations are
fundamental and may not be changed without the approval of the holders of a
"majority of the outstanding" common shares and MuniPreferred shares voting
together as a single class, and the approval of the holders of a "majority of
the outstanding" MuniPreferred shares voting as a separate class. When used with
respect to particular shares of the Fund, a "majority of the outstanding" shares
means (i) 67% or more of the shares present at a meeting, if the holders of more
than 50% of the shares are present or represented by proxy, or (ii) more than
50% of the shares, whichever is less. Among other

                                        19
<PAGE>

restrictions, the Fund may not invest more than 25% of total Fund assets in
securities of issuers in any one industry, except that this limitation does not
apply to municipal bonds backed by the assets and revenues of governments or
political subdivisions of governments.

     The Fund is subject to guidelines which are more limiting than the
investment restriction set forth above in order to obtain and maintain ratings
from Moody's or S&P on the MuniPreferred shares. See "Investment Objectives" in
the Statement of Additional Information for information about these guidelines
and a complete list of the fundamental and non-fundamental investment policies
of the Fund.

     The Fund seeks to reduce credit risk by buying bonds that are either
covered by insurance or backed by an escrow or trust account, each with the
purpose of ensuring timely payment of principal and interest. However, these
municipal bonds remain subject to market risk.

HEDGING STRATEGIES

     The Fund may use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures or
options based on either an index of long-term municipal securities or on taxable
debt securities whose prices, in the opinion of Nuveen Advisory, correlate with
the prices of the Fund's investments. The Fund does not intend to use
derivatives to increase leverage or to enhance current income. Successful
implementation of most hedging strategies would generate taxable income.

                             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 Nuveen Advisory. 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 Statement of Additional Information.

INVESTMENT ADVISER


     Nuveen Advisory, 333 West Wacker Drive, Chicago, Illinois 60606, serves as
the investment adviser to the Fund. In this capacity, Nuveen Advisory is
responsible for the selection and on-going monitoring of the municipal bonds in
the Fund's investment portfolio, managing the Fund's business affairs and
providing certain clerical, bookkeeping and administrative services. Nuveen
Advisory serves as investment adviser to investment portfolios with more than
$43.6 billion in assets under management as of October 31, 2002. See the
Statement of Additional Information under "Investment Adviser."



     Nuveen Advisory is responsible for execution of specific investment
strategies and day-to-day investment operations. Nuveen Advisory manages the
Fund using a team of analysts and portfolio managers that focus on a specific
group of funds. William M. Fitzgerald is the portfolio manager of the Fund and
will provide daily oversight for, and execution of, the Fund's investment
activities through January 12, 2003. Mr. Fitzgerald has been a Managing Director
of Nuveen Advisory since 2000. Prior to that time, he was a Vice President of
Nuveen Advisory. Mr. Fitzgerald currently manages investments for fourteen (14)
Nuveen-sponsored investment companies. Effective January 13, 2003, Thomas J.
O'Shaughnessy will be the portfolio manager for the Fund and will provide daily
oversight for, and execution of, the Fund's investment activities. Mr.
O'Shaughnessy has been a portfolio manager for Nuveen Advisory since 1991 and an
Assistant Vice President of Nuveen Advisory since 1998. He became a Vice
President of Nuveen Advisory in January, 2002. Effective January 13, 2003, Mr.
O'Shaughnessy will manage investments for sixteen (16) Nuveen-sponsored
investment companies.



     Nuveen Advisory is a wholly owned subsidiary of The John Nuveen Company,
333 West Wacker Drive, Chicago, Illinois 60606. Founded in 1898, The John Nuveen
Company and its affiliates had over $84 billion of assets under management or
surveillance as of October 31, 2002. The John Nuveen Company is a


                                        20
<PAGE>

majority-owned subsidiary of The St. Paul Companies, Inc., a publicly-traded
company which is principally engaged in providing property-liability insurance
through subsidiaries.

INVESTMENT MANAGEMENT AGREEMENT

     Pursuant to an investment management agreement between Nuveen Advisory and
the Fund, the Fund has agreed to pay for the services and facilities provided by
Nuveen Advisory an annual management fee, payable on a monthly basis, according
to the following schedule:

<Table>
<Caption>
AVERAGE DAILY MANAGED ASSETS                                  MANAGEMENT FEE
- ----------------------------                                  --------------
<S>                                                           <C>
Up to $125 million..........................................      .6500%
$125 million to $250 million................................      .6375
$250 million to $500 million................................      .6250
$500 million to $1 billion..................................      .6125
$1 billion to $2 billion....................................      .6000
$2 billion and over.........................................      .5750
</Table>


     In addition to the fee of Nuveen Advisory, the Fund pays all other costs
and expenses of its operations, including compensation of its trustees (other
than those affiliated with Nuveen Advisory), custodian, transfer agency and
dividend disbursing expenses, legal fees, expenses of independent auditors,
expenses of repurchasing shares, expenses of issuing any MuniPreferred shares,
expenses of preparing, printing and distributing shareholder reports, notices,
proxy statements and reports to governmental agencies, and taxes, if any.


     For the first eight full years of the Fund's operation, Nuveen Advisory has
contractually agreed to reimburse the Fund for fees and expenses in the amounts,
and for the time periods, set forth below:

<Table>
<Caption>
                                    PERCENTAGE                                          PERCENTAGE
                                    REIMBURSED                                          REIMBURSED
             YEAR                (AS A PERCENTAGE                YEAR                (AS A PERCENTAGE
            ENDING                  OF MANAGED                  ENDING                  OF MANAGED
         NOVEMBER 30,                ASSETS)                 NOVEMBER 30,                ASSETS)
- -------------------------------  ----------------   -------------------------------  ----------------
<S>                              <C>                <C>                              <C>
2002(1)........................        .32%         2007...........................        .32%
2003...........................        .32          2008...........................        .24
2004...........................        .32          2009...........................        .16
2005...........................        .32          2010...........................        .08
2006...........................        .32
</Table>

- ------------

(1) From the commencement of operations.

     Nuveen Advisory has not agreed to reimburse the Fund for any portion of its
fees and expenses beyond November 30, 2010.

                      DESCRIPTION OF MUNIPREFERRED SHARES

     The following is a brief description of the terms of the MuniPreferred
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 the
MuniPreferred shares in the Fund's Statement attached as Appendix A to the
Statement of Additional Information. Capitalized terms not otherwise defined in
the prospectus shall have the same meaning as defined in the Statement.

GENERAL


     The Fund's Declaration of Trust authorizes the issuance of an unlimited
number of preferred shares, par value $.01 per share, in one or more classes or
series, with rights as determined by the Board of Trustees without the approval
of holders of common shares. The Statement currently authorizes the issuance of
1,800 shares of MuniPreferred Series TH. All MuniPreferred shares will have a
liquidation preference of


                                        21
<PAGE>

$25,000 per share plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared).

     The MuniPreferred shares of each series will rank on parity with shares of
any other series of MuniPreferred and with shares of any other series of
preferred shares of the Fund as to the payment of dividends and the distribution
of assets upon liquidation. All MuniPreferred shares carry one vote per share on
all matters on which such shares are entitled to be voted. Shares of
MuniPreferred are, when issued, fully paid and, subject to matters discussed in
"Certain Provisions in the Declaration of Trust," non-assessable and have no
preemptive, conversion or cumulative voting rights.

DIVIDENDS AND DIVIDEND PERIODS


     General.  The Initial Rate Period of MuniPreferred Series TH will be a
period consisting of      days. Any Subsequent Rate Period of shares of a series
of MuniPreferred will be a Minimum Rate Period (7 Rate Period Days), unless the
Fund, subject to certain conditions, designates such Subsequent Rate Period as a
Special Rate Period. See "-- Designation of Special Rate Periods" below.



     Dividends on shares of each series of MuniPreferred shall be payable, when,
as and if declared by the Board out of funds legally available therefor in
accordance with the Declaration of Trust, including the Statement, and
applicable law, on shares of MuniPreferred Series TH, on           , 2003, and
thereafter on each Friday; provided, however, that (i) if the Monday or the
Tuesday, as the case may be, on which dividends would otherwise be payable as
set forth above is not a Business Day, then such dividends shall be payable on
such shares on the first Business Day that falls after such Monday or Tuesday,
as the case may be; (ii) if the Wednesday, Thursday or Friday on which dividends
would otherwise be payable as set forth above is not a Business Day, then such
dividends shall be payable on such shares on the first Business Day that falls
prior to such Wednesday, Thursday or Friday, as the case may be; and (iii) the
Fund may specify different Dividend Payment Dates in respect of any Special Rate
Period of more than 28 Rate Period Days.


     The amount of dividends per share payable on shares of a series of
MuniPreferred on any date on which dividends shall be payable on shares of such
series shall be computed by multiplying the Applicable Rate for shares of such
series in effect for such Dividend Period or Dividend Periods or part thereof
for which dividends have not been paid by a fraction, the numerator of which
shall be the number of days in such Dividend Period or Dividend Periods or part
thereof and the denominator of which shall be 365 if such Dividend Period
consists of 7 Rate Period Days and 360 for all other Dividend Periods, and
applying the rate obtained against $25,000.

     Dividends will be paid through the Securities Depository on each Dividend
Payment Date in accordance with its normal procedures, which currently provide
for it to distribute dividends in next-day funds to Agent Members, who in turn
are expected to distribute such dividend payments to the persons for whom they
are acting as agents. Each of the current Broker-Dealers, however, has indicated
to the Fund that such Broker-Dealer or the Agent Member designated by such
Broker-Dealer will make such dividend payments available in same-day funds on
each Dividend Payment Date to customers that use such Broker-Dealer or its
designee as Agent Member.


     Dividends on shares of each series of MuniPreferred will accumulate from
the Date of Original Issue thereof. The dividend rate for shares of
MuniPreferred of a particular series for the initial Rate Period for such shares
shall be      % per annum for Series TH. For each Subsequent Rate Period of
shares of MuniPreferred of a particular series, the dividend rate for such
shares will be the Applicable Rate for such shares that the Auction Agent
advises the Fund results from an Auction, except as provided below. The
Applicable Rate that results from an Auction for shares of any series of
MuniPreferred will not be greater than the Maximum Rate for shares of such
series, which is:


          (a) in the case of any Auction Date which is not the Auction Date
     immediately prior to the first day of any proposed Special Rate Period, the
     product of (i) the Reference Rate on such Auction Date for the next Rate
     Period of shares of such series and (ii) the Rate Multiple on such Auction
     Date, unless shares of such series have or had a Special Rate Period (other
     than a Special Rate Period of 28 Rate Period

                                        22
<PAGE>

     Days or fewer) and an Auction at which Sufficient Clearing Bids existed has
     not yet occurred for a Minimum Rate Period of shares of such series after
     such Special Rate Period, in which case the higher of:

             (A) the dividend rate on shares of such series for the then-ending
        Rate Period; and

             (B) the product of (x) the higher of (I) the Reference Rate on such
        Auction Date for a Rate Period equal in length to the then-ending Rate
        Period of shares of such series, if such then-ending Rate Period was 364
        Rate Period Days or fewer, or the Treasury Note Rate on such Auction
        Date for a Rate Period equal in length to the then-ending Rate Period of
        shares of such series, if such then-ending Rate Period was more than 364
        Rate Period Days, and (II) the Reference Rate on such Auction Date for a
        Rate Period equal in length to such Special Rate Period of shares of
        such series, if such Special Rate Period was 364 Rate Period Days or
        fewer, or the Treasury Note Rate on such Auction Date for a Rate Period
        equal in length to such Special Rate Period, if such Special Rate Period
        was more than 364 Rate Period Days and (y) the Rate Multiple on such
        Auction Date; or

          (b) in the case of any Auction Date which is the Auction Date
     immediately prior to the first day of any proposed Special Rate Period, the
     product of (i) the highest of (x) the Reference Rate on such Auction Date
     for a Rate Period equal in length to the then-ending Rate Period of shares
     of such series, if such then-ending Rate Period was 364 Rate Period Days or
     fewer, or the Treasury Note Rate on such Auction Date for a Rate Period
     equal in length to the then-ending Rate Period of shares of such series, if
     such then-ending Rate Period was more than 364 Rate Period Days, (y) the
     Reference Rate on such Auction Date for the Special Rate Period for which
     the Auction is being held if such Special Rate Period is 364 Rate Period
     Days or fewer or the Treasury Note Rate on such Auction Date for the
     Special Rate Period for which the Auction is being held if such Special
     Rate Period is more than 364 Rate Period Days, and (z) the Reference Rate
     on such Auction Date for Minimum Rate Periods and (ii) the Rate Multiple on
     such Auction Date.

     If an Auction for any Subsequent Rate Period of shares of any series of
MuniPreferred is not held for any reason other than as described below, the
dividend rate on shares of such series for such Subsequent Rate Period will be
the Maximum Rate for shares of such series on the Auction Date for such
Subsequent Rate Period.


     If the Fund fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, any shares of any series
of MuniPreferred during any Rate Period thereof (other than any Special Rate
Period of more than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period of more than 364 Rate Period Days during which such a
failure occurred that has not been cured), but, prior to 12:00 noon, New York
City time, on the third Business Day next succeeding the date such failure
occurred, such failure shall have been cured and the Fund shall have paid a late
charge, as described more fully in the Statement, no Auction will be held in
respect of shares of such series for the Subsequent Rate Period thereafter and
the dividend rate for shares of such series for such Subsequent Rate Period will
be the Maximum Rate for shares of such series on the Auction Date for such
Subsequent Rate Period.



     If the Fund fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, any shares of any series
of MuniPreferred during any Rate Period thereof (other than any Special Rate
Period of more than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period of more than 364 Rate Period Days during which such a
failure occurred that has not been cured), and, prior to 12:00 noon, New York
City time, on the third Business Day next succeeding the date on which such
failure occurred, such failure shall not have been cured or the Fund shall not
have paid a late charge, as described more fully in the Statement, no Auction
will be held in respect of shares of such series for the first Subsequent Rate
Period thereof thereafter (or for any Rate Period thereof thereafter to and
including the Rate Period during which such failure is so cured and such late
charge so paid) (such late charge to be paid only in the event Moody's is rating
such shares at the time the Fund cures such failure), and the dividend rate for
shares of such series for each such Subsequent Rate Period shall be a rate per
annum equal to the Maximum Rate for shares of such series on the Auction Date
for such Subsequent Rate Period (but with the


                                        23
<PAGE>

prevailing rating for shares of such series, for purposes of determining such
Maximum Rate, being deemed to be "Below 'ba3'/BB2").

     If the Fund fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, any shares of any series
of MuniPreferred during a Special Rate Period thereof of more than 364 Rate
Period Days, or during any Rate Period thereof succeeding any Special Rate
Period of more than 364 Rate Period Days during which such a failure occurred
that has not been cured, and such failure shall not have been cured or the Fund
shall not have paid a late charge, as described more fully in the Statement, no
Auction will be held in respect of shares of such series for such Subsequent
Rate Period thereof (or for any Rate Period thereof thereafter to and including
the Rate Period during which such failure is so cured and such late charge so
paid) (such late charge to be paid only in the event Moody's is rating such
shares at the time the Fund cures such failure), and the dividend rate for
shares of such series for each such Subsequent Rate Period shall be a rate per
annum equal to the Maximum Rate for shares of such series on the Auction Date
for each such Subsequent Rate Period (but with the prevailing rating for shares
of such series, for purposes of determining such Maximum Rate, being deemed to
be "Below 'ba3'/BB2").


     A failure to pay dividends on, or the redemption price of, shares of any
series of MuniPreferred shall have been cured (if such failure to deposit is not
solely due to the willful failure of the Fund to make the required payment to
the Auction Agent) with respect to any Rate Period thereof if, within the
respective time periods described in the Statement, the Fund shall have paid to
the Auction Agent (a) all accumulated and unpaid dividends on the shares of such
series and (b) without duplication, the redemption price for shares, if any, of
such series for which notice of redemption has been mailed by the Fund;
provided, however, that the foregoing clause (b) shall not apply to the Fund's
failure to pay the redemption price in respect of shares of MuniPreferred when
the related notice of redemption provides that redemption of such shares is
subject to one or more conditions precedent and any such condition precedent
shall not have been satisfied at the time or times and in the manner specified
in such notice of redemption.


     Gross-up Payments.  Holders of shares of MuniPreferred are entitled to
receive, when, as and if declared by the Board, out of funds legally available
therefor in accordance with the Declaration of Trust, including the Statement,
and applicable law, dividends in an amount equal to the aggregate Gross-up
Payments in accordance with the following:

     If, in the case of any Minimum Rate Period or any Special Rate Period of 28
Rate Period Days or fewer, the Fund allocates any net capital gain or other
income taxable for regular federal income tax purposes to a dividend paid on
shares of MuniPreferred without having given advance notice thereof to the
Auction Agent as described below under "The Auction -- Auction Procedures" (a
"Taxable Allocation") solely by reason of the fact that such allocation is made
retroactively as a result of the redemption of all or a portion of the
outstanding shares of MuniPreferred or the liquidation of the Fund, the Fund
will, prior to the end of the calendar year in which such dividend was paid,
provide notice thereof to the Auction Agent and direct the Fund's dividend
disbursing agent to send such notice with a Gross-up Payment to each holder of
shares (initially Cede & Co., as nominee of the Securities Depository) that was
entitled to such dividend payment during such calendar year at such holder's
address as the same appears or last appeared on the record books of the Fund.

     If, in the case of any Special Rate Period of more than 28 Rate Period
Days, the Fund makes a Taxable Allocation to a dividend paid on shares of
MuniPreferred without having given notice thereof to the Auction Agent, the Fund
shall, prior to the end of the calendar year in which such dividend was paid,
provide notice thereof to the Auction Agent and direct the Fund's dividend
disbursing agent to send such notice with a Gross-up Payment to each holder of
shares that was entitled to such dividend payment during such calendar year at
such holder's address as the same appears or last appeared on the record books
of the Fund.

     A "Gross-up Payment" means payment to a holder of shares of MuniPreferred
of an amount which, when taken together with the aggregate amount of Taxable
Allocations made to such holder to which such Gross-up Payment relates, would
cause such holder's dividends in dollars (after federal income tax consequences)
from the aggregate of such Taxable Allocations and the related Gross-up Payment
to be equal to the dollar amount of the dividends which would have been received
by such holder if the amount of the
                                        24
<PAGE>


aggregate Taxable Allocations would have been excludable from the gross income
of such holder. Such Gross-up Payment shall be calculated: (a) without
consideration being given to the time value of money; (b) assuming that no
holder of shares of MuniPreferred is subject to the federal alternative minimum
tax with respect to dividends received from the Fund; and (c) assuming that each
Taxable Allocation and each Gross-up Payment (except to the extent such Gross-up
Payment is designated as an exempt-interest dividend under Section 852(b)(5) of
the Internal Revenue Code or successor provisions) would be taxable in the hands
of each holder of shares of MuniPreferred at the maximum marginal combined
regular federal personal income tax rate applicable to ordinary income (taking
into account the federal income tax deductibility of state and local income
taxes paid or incurred) or net capital gain, as applicable, or the maximum
marginal regular federal corporate income tax rate applicable to ordinary income
or net capital gain, as applicable, whichever is greater, in effect at the time
such Gross-up Payment is made.



     Restrictions on Dividends and Other Distributions.  Except as otherwise
described herein, for so long as any shares of MuniPreferred are outstanding,
the Fund may not declare, pay or set apart for payment of any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, its common shares or
other shares, if any, ranking junior to the shares of MuniPreferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of its common shares or any other shares
of the Fund ranking junior to, or on parity with, shares of MuniPreferred as to
the payments of dividends or the distribution of assets upon dissolution,
liquidation or winding up, or call for redemption, redeem, purchase or otherwise
acquire for consideration any common shares or any other such junior shares or
other such parity shares (except by conversion into or exchange for shares of
the Fund ranking junior to the shares of MuniPreferred as to the payment of
dividends and the distribution of assets upon liquidation, dissolution or
winding up of the affairs of the Fund), unless (a) full cumulative dividends on
shares of each series of MuniPreferred through its most recently ended Dividend
Period shall have been paid or shall have been declared and sufficient funds for
the payment thereof deposited with the Auction Agent and (b) the Fund shall have
redeemed the full number of shares of MuniPreferred required to be redeemed by
any provision for mandatory redemption pertaining thereto. Except as otherwise
described herein, for so long as any shares of MuniPreferred are outstanding,
the Fund may not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, common shares or other
shares, if any, ranking junior to shares of MuniPreferred as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of common shares or any other shares of the Fund ranking
junior to shares of MuniPreferred as to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up, or call for
redemption, redeem, purchase or otherwise acquire for consideration any common
shares or any other such junior shares (except by conversion into or exchange
for shares of the Fund ranking junior to shares of MuniPreferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up), unless immediately after such transaction the
Discounted Value of the Fund's portfolio would at least equal the MuniPreferred
Basic Maintenance Amount in accordance with guidelines of the rating agency or
agencies then rating the shares of MuniPreferred.


     Except as set forth in the next sentence, no dividends shall be declared or
paid or set apart for payment on the shares of any class or series of Fund
shares ranking, as to the payment of dividends, on a parity with shares of
MuniPreferred for any period unless full cumulative dividends have been or
contemporaneously are declared and paid on the shares of each series of
MuniPreferred through its most recent Dividend Payment Date. When dividends are
not paid in full upon the shares of each series of MuniPreferred through its
most recent Dividend Payment Date or upon the shares of any other class or
series of shares ranking on a parity as to the payment of dividends with shares
of MuniPreferred through their most recent respective dividend payment dates,
all dividends declared upon shares of MuniPreferred and any other such class or
series of shares ranking on a parity as to the payment of dividends with shares
of MuniPreferred shall be declared pro rata so that the amount of dividends
declared per share on shares of MuniPreferred and such other class or series of
shares shall in all cases bear to each other the same ratio that accumulated
dividends per share on the shares of MuniPreferred and such other class or
series of shares bear to each other.

                                        25
<PAGE>

     Designation of Special Rate Periods.  The Fund, at its option, may
designate any succeeding Subsequent Rate Period of shares of a particular series
of MuniPreferred as a Special Rate Period consisting of a specified number of
Rate Period Days evenly divisible by seven and not more than 1,820
(approximately 5 years), subject to certain adjustments. A designation of a
Special Rate Period shall be effective only if, among other things, (a) the Fund
shall have given certain notices to the Auction Agent, (b) an Auction for shares
of such series shall have been held on the Auction Date immediately preceding
the first day of such proposed Special Rate Period and Sufficient Clearing Bids
for shares of such series shall have existed in such Auction and (c) if the Fund
shall have mailed a notice of redemption with respect to any shares of such
series, the redemption price with respect to such shares shall have been
deposited with the Auction Agent. The Fund will give MuniPreferred shareholders
notice of a special rate period as provided in the Statement.

REDEMPTION


     Mandatory Redemption.  In the event the Fund does not timely cure a failure
to maintain (a) a Discounted Value of its eligible portfolio securities equal to
the MuniPreferred Basic Maintenance Amount or (b) the 1940 Act MuniPreferred
Asset Coverage (as defined below), in each case in accordance with the
requirements of the rating agency or agencies then rating the shares of
MuniPreferred, shares of MuniPreferred will be subject to mandatory redemption
on a date fixed by the Board out of funds legally available therefor in
accordance with the Declaration of Trust, including the Statement, and
applicable law, at the redemption price of $25,000 per share plus an amount
equal to accumulated but unpaid dividends thereon (whether or not earned or
declared) to (but not including) the date fixed for redemption. Any such
redemption will be limited to the lesser of the (i) minimum number of shares of
MuniPreferred, together with all other Preferred Shares subject to redemption or
retirement, necessary to restore the required Discounted Value or the 1940 Act
MuniPreferred Asset Coverage, as the case may be, and (ii) the maximum number of
shares of MuniPreferred, together with all other Preferred Shares subject to
redemption or retirement, that can be redeemed with the funds legally available
under the Declaration of Trust and applicable law.


     Optional Redemption.  Shares of MuniPreferred of each series are
redeemable, at the option of the Fund:

          (a) as a whole or from time to time in part, on the second Business
     Day preceding any Dividend Payment Date for shares of such series, out of
     funds legally available therefor in accordance with the Declaration of
     Trust, including the Statement, and applicable law, at the redemption price
     of $25,000 per share plus an amount equal to accumulated but unpaid
     dividends thereon (whether or not earned or declared) to (but not
     including) the date fixed for redemption; provided, however, that (i)
     shares of such series may not be redeemed in part if after such partial
     redemption fewer than 250 shares of such series would remain outstanding;
     (ii) shares of a series of MuniPreferred are redeemable by the Fund during
     the Initial Rate Period thereof only on the second Business Day next
     preceding the last Dividend Payment Date for such Initial Rate Period; and
     (iii) the notice establishing a Special Rate Period of shares of such
     series, as delivered to the Auction Agent and filed with the Secretary of
     the Fund, may provide that shares of such series shall not be redeemable
     during the whole or any part of such Special Rate Period (except as
     provided in clause (b) below) or shall be redeemable during the whole or
     any part of such Special Rate Period only upon payment of such redemption
     premium or premiums as shall be specified therein; and

          (b) as a whole but not in part, out of funds legally available
     therefor in accordance with the Declaration of Trust, including the
     Statement, and applicable law, on the first day following any Dividend
     Period thereof included in a Rate Period of more than 364 Rate Period Days
     if, on the date of determination of the Applicable Rate for shares of such
     series for such Rate Period, such Applicable Rate equaled or exceeded on
     such date of determination the Treasury Note Rate for such Rate Period, at
     a redemption price of $25,000 per share plus an amount equal to accumulated
     but unpaid dividends thereon (whether or not earned or declared) to (but
     not including) the date fixed for redemption.

     Notwithstanding the foregoing, if any dividends on shares of a series of
MuniPreferred (whether or not earned or declared) are in arrears, no shares of
such series shall be redeemed unless all outstanding shares of

                                        26
<PAGE>

such series are simultaneously redeemed, and the Fund shall not purchase or
otherwise acquire any shares of such series; provided, however, that the
foregoing shall not prevent the purchase or acquisition of all outstanding
shares of such series pursuant to the successful completion of an otherwise
lawful purchase or exchange offer made on the same terms to, and accepted by,
holders of all outstanding shares of such series.

LIQUIDATION


     Subject to the rights of holders of any series or class or classes of
shares ranking on a parity with shares of MuniPreferred with respect to the
distribution of assets upon the dissolution, liquidation or winding up of the
Fund, upon a liquidation of the Fund, whether voluntary or involuntary, the
holders of shares of MuniPreferred then outstanding will be entitled to receive
and to be paid out of the assets of the Fund available for distribution to its
shareholders, before any payment or distribution shall be made on the common
shares or any other class of shares of the Fund ranking junior to the
MuniPreferred, an amount equal to the liquidation preference with respect to
such shares ($25,000 per share), plus an amount equal to all dividends thereon
(whether or not earned or declared) accumulated but unpaid to (but not
including) the date of final distribution in same-day funds, together with any
applicable Gross-up Payments in connection with the liquidation of the Fund.
After the payment to the holders of shares of MuniPreferred of the full
preferential amounts provided for as described in this paragraph, the holders of
shares of MuniPreferred as such shall have no right or claim to any of the
remaining assets of the Fund.



     Neither the sale of all or substantially all the property or business of
the Fund, nor the merger or consolidation of the Fund into or with any
Massachusetts business trust or corporation nor the merger or consolidation of
any Massachusetts business trust or corporation into or with the Fund, shall be
a dissolution, liquidation or winding up, whether voluntary or involuntary, for
the purposes of the foregoing paragraph.


RATING AGENCY GUIDELINES AND ASSET COVERAGE

     The Fund is required under Moody's and S&P guidelines to maintain assets
having in the aggregate a Discounted Value at least equal to the MuniPreferred
Basic Maintenance Amount. Moody's and S&P have each established separate
guidelines for determining Discounted Value. To the extent any particular
portfolio holding does not satisfy the applicable rating agency's guidelines,
all or a portion of such holding's value will not be included in the calculation
of Discounted Value (as defined by such rating agency). The Moody's and S&P
guidelines do not impose any limitations on the percentage of the Fund's assets
that may be invested in holdings not eligible for inclusion in the calculation
of the Discounted Value of the Fund's portfolio. The amount of such assets
included in the portfolio at any time may vary depending upon the rating,
diversification and other characteristics of the eligible assets included in the
portfolio, although it is not anticipated that in the normal course of business
the value of such assets would exceed 20% of the Fund's total assets. The
MuniPreferred Basic Maintenance Amount includes the sum of (a) the aggregate
liquidation preference of shares of MuniPreferred then outstanding and (b)
certain accrued and projected payment obligations of the Fund.


     The Fund is also required under the 1940 Act and rating agency guidelines
to maintain, with respect to shares of MuniPreferred, as of the last Business
Day of each month in which any such shares are outstanding, asset coverage of at
least 200% with respect to all outstanding senior securities which are shares of
beneficial interest, including MuniPreferred (or such other asset coverage as
may in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are shares of a closed-end investment
company as a condition of declaring dividends on its common shares) ("1940 Act
MuniPreferred Asset Coverage"). Based on the composition of the portfolio of the
Fund and market conditions as of December 31, 2002, 1940 Act MuniPreferred Asset
Coverage with respect to shares of MuniPreferred, assuming the issuance of
125,000 Common Shares on January 7, 2003, less the offering costs related
thereto, and the


                                        27
<PAGE>


issuance of all shares of MuniPreferred offered hereby and giving effect to the
deduction of sales load and offering costs related thereto estimated at
$1,044,500, would have been computed as follows:



<Table>
<S>                                                           <C>   <C>               <C>   <C>
         Value of Fund assets less liabilities not
               constituting senior securities                         $129,562,296
- ------------------------------------------------------------   =    ---------------    =    288%
      Senior securities representing indebtedness plus                $45,000,000
      liquidation value of the shares of MuniPreferred
</Table>


     In the event the Fund does not timely cure a failure to maintain (a) a
Discounted Value of its portfolio equal to the MuniPreferred Basic Maintenance
Amount or (b) the 1940 Act MuniPreferred Asset Coverage, in each case in
accordance with the requirements of the rating agency or agencies then rating
the shares of MuniPreferred, the Fund will be required to redeem shares of
MuniPreferred as described under "Redemption -- Mandatory Redemption" above.

     The Fund may, but is not required to, adopt any modifications to the
guidelines that may hereafter be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of ratings altogether. In addition, any rating agency
providing a rating for the shares of MuniPreferred may, at any time, change or
withdraw any such rating. The Board may, without shareholder approval, amend,
alter or repeal any or all of the definitions and related provisions which have
been adopted by the Fund pursuant to the rating agency guidelines in the event
the Fund receives written confirmation from Moody's or S&P, or both, as
appropriate, that any such amendment, alteration or repeal would not impair the
ratings then assigned by Moody's and S&P to shares of MuniPreferred.

     As recently described by Moody's and S&P, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. The ratings on the shares of MuniPreferred are not recommendations
to purchase, hold or sell those shares, inasmuch as the ratings do not comment
as to market price or suitability for a particular investor. The rating agency
guidelines described above also do not address the likelihood that an owner of
shares of MuniPreferred will be able to sell such shares in an Auction or
otherwise. The ratings are based on current information furnished to Moody's and
S&P by the Fund and the Adviser and information obtained from other sources. The
ratings may be changed, suspended or withdrawn as a result of changes in, or the
unavailability of, such information. The common shares have not been rated by a
nationally recognized statistical rating organization.

     A rating agency's guidelines will apply to shares of MuniPreferred only so
long as such rating agency is rating such shares. The Fund will pay certain fees
to Moody's or S&P, or both, for rating shares of MuniPreferred.

VOTING RIGHTS

     Except as otherwise provided in this prospectus and in the Statement of
Additional Information, in the Declaration of Trust or as otherwise required by
law, holders of shares of MuniPreferred will have equal voting rights with
holders of common shares and any Preferred Shares (one vote per share) and will
vote together with holders of common shares and any Preferred Shares as a single
class.

     In connection with the election of the Fund's trustees, holders of
outstanding Preferred Shares, including MuniPreferred shares, voting as a
separate class, are entitled to elect two of the Fund's trustees, and the
remaining trustees are elected by holders of common shares and Preferred Shares,
including MuniPreferred shares, voting together as a single class. In addition,
if at any time dividends (whether or not earned or declared) on any outstanding
Preferred Shares, including MuniPreferred shares, shall be due and unpaid in an
amount equal to at least two full years' dividends thereon, and sufficient cash
or specified securities shall not have been deposited with the Auction Agent for
the payment of such dividends, then, as the sole remedy of holders of
outstanding Preferred Shares, including MuniPreferred shares, the number of
trustees constituting the Board shall be automatically increased by the smallest
number that, when added to the two trustees elected exclusively by the holders
of Preferred Shares, including shares of MuniPreferred, 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

                                        28
<PAGE>

trustees are to be elected, the holders of Preferred Shares, including shares of
MuniPreferred, 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, 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 MuniPreferred shares, the voting rights stated in the second preceding
sentence shall cease, and the terms of office of all of the additional trustees
elected by the holders of Preferred Shares, including MuniPreferred 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 have
the right to elect in any event), will terminate automatically.

     So long as any shares of MuniPreferred are outstanding, the Fund will not,
without the affirmative vote or consent of the holders of at least a majority of
the shares of MuniPreferred outstanding at the time (voting as a separate
class):

          (a) authorize, create or issue any class or series of stock ranking
     prior to or on a parity with shares of MuniPreferred with respect to the
     payment of dividends or the distribution of assets upon liquidation,
     dissolution or winding up of the affairs of the Fund or authorize, create
     or issue additional shares of any series of MuniPreferred (except that,
     notwithstanding the foregoing, but subject to certain rating agency
     approvals, the Board, without the vote or consent of the holders of
     MuniPreferred, may from time to time authorize and create, and the Fund may
     from time to time issue additional shares of, any series of MuniPreferred
     or classes or series of Preferred Shares ranking on a parity with shares of
     MuniPreferred with respect to the payment of dividends and the distribution
     of assets upon liquidation, dissolution or winding up of the affairs of the
     Fund; provided, however, that if Moody's or S&P is not then rating the
     shares of MuniPreferred, the aggregate liquidation preference of all
     Preferred Shares of the Fund outstanding after any such issuance, exclusive
     of accumulated and unpaid dividends, may not exceed $          ) or

          (b) amend, alter or repeal the provisions of the Declaration of Trust,
     including the Statement, whether by merger, consolidation or otherwise, so
     as to affect any preference, right or power of such shares of MuniPreferred
     or the holders thereof;


provided, however, that (i) none of the actions permitted by the exception to
(a) above will be deemed to affect such preferences, rights or powers, (ii) a
division of a share of MuniPreferred will be deemed to affect such preferences,
rights or powers only if the terms of such division adversely affect the holders
of shares of MuniPreferred and (iii) the authorization, creation and issuance of
classes or series of shares ranking junior to shares of MuniPreferred with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the affairs of the Fund will be deemed
to affect such preferences, rights or powers only if Moody's or S&P is then
rating shares of MuniPreferred and such issuance would, at the time thereof,
cause the Fund not to satisfy the 1940 Act MuniPreferred Asset Coverage or the
MuniPreferred Basic Maintenance Amount. So long as any shares of MuniPreferred
are outstanding, the Fund shall not, without the affirmative vote or consent of
the holders of at least 66 2/3% of the shares of MuniPreferred outstanding at
the time, voting as a separate class, file a voluntary application for relief
under federal bankruptcy law or any similar application under state law for so
long as the Fund is solvent and does not foresee becoming insolvent. If any
action set forth above would adversely affect the rights of one or more series
(the "Affected Series") of MuniPreferred shares in a manner different from any
other series of MuniPreferred shares, the Fund will not approve any such action
without the affirmative vote or consent of the holders of at least a majority of
the shares of each such Affected Series outstanding at the time, in person or by
proxy, either in writing or at a meeting (each such Affected Series voting as a
separate class).


     The Board may, without shareholder approval, from time to time, amend,
alter or repeal any or all of the definitions and related provisions which have
been adopted by the Fund pursuant to the rating agency guidelines in the event
the Fund receives written confirmation from Moody's or S&P, or both, as
appropriate, that any such amendment, alteration or repeal would not impair the
ratings then assigned by Moody's and S&P to shares of MuniPreferred. Unless a
higher percentage is provided for in the Declaration of Trust (see

                                        29
<PAGE>

"Certain Provisions in the Declaration of Trust"), (A) the affirmative vote of
the holders of at least a majority of the Preferred Shares, including
MuniPreferred shares, outstanding at the time, voting as a separate class, shall
be required to approve any conversion of the Fund from a closed-end to an
open-end investment company and (B) the affirmative vote of the holders of a
majority of the outstanding Preferred Shares, including MuniPreferred shares,
voting as a separate class, shall be required to approve any plan of
reorganization (as such term is used in the 1940 Act) adversely affecting such
shares. The affirmative vote of the holders of a majority of the outstanding
Preferred Shares, including MuniPreferred shares, voting as a separate class,
shall be required to approve any action not described in the preceding sentence
requiring a vote of security holders of the Fund under Section 13(a) of the 1940
Act.

     The foregoing voting provisions will not apply with respect to shares of
MuniPreferred if, at or prior to the time when a vote is required, such shares
shall have been (i) redeemed or (ii) called for redemption and sufficient funds
shall have been deposited in trust to effect such redemption.

                                  THE AUCTION

GENERAL

     The Statement provides that, except as otherwise described herein, the
Applicable Rate for the shares of each series of MuniPreferred, including the
shares of MuniPreferred to be issued in this offering, for each Rate Period of
shares of such series after the initial Rate Period thereof shall be equal to
the rate per annum that the Auction Agent advises has resulted on the Business
Day preceding the first day of such Subsequent Rate Period (an "Auction Date")
from implementation of the auction procedures (the "Auction Procedures") set
forth in the Statement and summarized below, in which persons determine to hold
or offer to sell or, based on dividend rates bid by them, offer to purchase or
sell shares of such series. Each periodic implementation of the Auction
Procedures is referred to herein as an "Auction." See the Statement for a more
complete description of the Auction process.

     Auction Agency Agreement.  The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
Deutsche Bank Trust Company Americas) which provides, among other things, that
the Auction Agent will follow the Auction Procedures for purposes of determining
the Applicable Rate for shares of each series of MuniPreferred so long as the
Applicable Rate for shares of such series is to be based on the results of an
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 or for any reason its appointment is terminated during any
period that any shares of MuniPreferred are outstanding, the Board will use its
best efforts to appoint a successor Auction Agent. The Fund may remove the
Auction Agent; provided, that prior to such removal the Fund shall have entered
into such an agreement with a successor Auction Agent.

     Broker-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 shares of MuniPreferred.

     The Auction Agent, on the Business Day next succeeding each Auction for
shares of MuniPreferred, 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 364 days, or a
percentage agreed to by the Fund and the Broker-Dealers in the case of any
Auction immediately preceding a Rate Period of 364 days or longer, of the
purchase price of shares of MuniPreferred placed by such Broker-Dealer at such
Auction. For the purposes of the preceding sentence, shares of MuniPreferred
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

                                        30
<PAGE>

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 shares of a
series of MuniPreferred, each customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder
of shares of such series (a "Beneficial Owner") may submit orders ("Orders")
with respect to shares of such series to that Broker-Dealer as follows:

     - Hold Order -- indicating its desire to hold shares of such series without
       regard to the Applicable Rate for shares of such series for the next Rate
       Period thereof.

     - Bid -- indicating its desire to sell shares of such series at $25,000 per
       share if the Applicable Rate for shares of such series for the next Rate
       Period thereof is less than the rate specified in such Bid (also known as
       a hold-at-a-rate order).

     - Sell Order -- indicating its desire to sell shares of such series at
       $25,000 per share without regard to the Applicable Rate for shares of
       such series for the next Rate Period thereof.

     A Beneficial Owner may submit different types of Orders to its
Broker-Dealer with respect to shares of a series of MuniPreferred then held by
such Beneficial Owner. A Beneficial Owner of shares of such series that submits
a Bid with respect to shares of such series to its Broker-Dealer having a rate
higher than the Maximum Rate for shares of such series on the Auction Date
therefor will be treated as having submitted a Sell Order with respect to such
shares to its Broker-Dealer. A Beneficial Owner of shares of such series that
fails to submit an Order with respect to such shares to its Broker-Dealer will
be deemed to have submitted a Hold Order with respect to such shares of such
series to its Broker-Dealer; provided, however, that if a Beneficial Owner of
shares of such series fails to submit an Order with respect to shares of such
series to its Broker-Dealer for an Auction relating to a Rate Period of more
than 28 Rate Period Days, such Beneficial Owner will be deemed to have submitted
a Sell Order with respect to such shares to its Broker-Dealer. A Sell Order
shall constitute an irrevocable offer to sell the shares of MuniPreferred
subject thereto. A Beneficial Owner that offers to become the Beneficial Owner
of additional shares of MuniPreferred is, for purposes of such offer, a
Potential Beneficial Owner as discussed below.

     A customer of a Broker-Dealer that is not a Beneficial Owner of shares of a
series of MuniPreferred but that wishes to purchase shares of such series, or
that is a Beneficial Owner of shares of such series that wishes to purchase
additional shares of such series (in each case, a "Potential Beneficial Owner"),
may submit Bids to its Broker-Dealer in which it offers to purchase shares of
such series at $25,000 per share if the Applicable Rate for shares of such
series for the next Rate Period thereof is not less than the rate specified in
such Bid. A Bid placed by a Potential Beneficial Owner of shares of such series
specifying a rate higher than the Maximum Rate for shares of such series on the
Auction Date therefor will not be accepted.

     The Broker-Dealers in turn will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves (unless otherwise permitted by the 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 any shares of MuniPreferred 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 shares of
MuniPreferred held

                                        31
<PAGE>

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 shares of a series of MuniPreferred exist
(that is, the number of shares of such series subject to Bids submitted or
deemed submitted to the Auction Agent by Broker-Dealers as or on behalf of
Potential Holders with rates equal to or lower than the Maximum Rate for shares
of such series is at least equal to the number of shares of such series subject
to Sell Orders submitted or deemed submitted to the Auction Agent by
Broker-Dealers as or on behalf of Existing Holders), the Applicable Rate for
shares of such series for the next succeeding Rate Period thereof will be the
lowest rate specified in the Submitted Bids which, taking into account such rate
and all lower rates bid by Broker-Dealers as or on behalf of Existing Holders
and Potential Holders, would result in Existing Holders and Potential Holders
owning the shares of such series available for purchase in the Auction. If
Sufficient Clearing Bids for shares of a series of MuniPreferred do not exist,
the Applicable Rate for shares of such series for the next succeeding Rate
Period thereof will be the Maximum Rate for shares of such series on the Auction
Date therefor. In such event, Beneficial Owners of shares of such series that
have submitted or are deemed to have submitted Sell Orders may not be able to
sell in such Auction all shares of such series subject to such Sell Orders. If
Broker-Dealers submit or are deemed to have submitted to the Auction Agent Hold
Orders with respect to all Existing Holders of shares of a series of
MuniPreferred, the Applicable Rate for shares of such series for the next
succeeding Rate Period thereof will be the All Hold Order Rate.

     The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder continuing to hold or selling,
or a Potential Holder purchasing, a number of shares of a series of
MuniPreferred that is fewer than the number of shares of such series specified
in its Order. To the extent the allocation procedures have that result,
Broker-Dealers that have designated themselves as Existing Holders or Potential
Holders in respect of customer Orders will be required to make appropriate pro
rata allocations among their respective customers.

     Settlement of purchases and sales will be made on the next Business Day
(also a Dividend Payment Date) after the Auction Date through the Securities
Depository. Purchasers will make payment through their Agent Members in same-day
funds to the Securities Depository against delivery to their respective Agent
Members. The Securities Depository will make payment to the sellers' Agent
Members in accordance with the Securities Depository's normal procedures, which
now provide for payment against delivery by their Agent Members in same-day
funds.


     The Auctions for shares of MuniPreferred Series TH will normally be held
every Thursday and each Subsequent Rate Period of shares of such series will
normally begin on the following Friday.


     Whenever the Fund intends to include any net capital gain or other income
taxable for regular federal income tax purposes in any dividend on shares of
MuniPreferred, the Fund shall, in the case of Minimum Rate Periods or Special
Rate Periods of 28 Rate Period Days or fewer, and may, in the case of any other
Special Rate Period, notify the Auction Agent of the amount to be so included
not later than the Dividend Payment Date next preceding the Auction Date on
which the Applicable Rate for such dividend is to be established. Whenever the
Auction Agent receives such notice from the Fund, it will be required in turn to
notify each Broker-Dealer, who, on or prior to such Auction Date, in accordance
with its Broker-Dealer Agreement, will be required to notify its customers who
are Beneficial Owners and Potential Beneficial Owners believed by it to be
interested in submitting an Order in the Auction to be held on such Auction
Date.

SECONDARY MARKET TRADING AND TRANSFER OF MUNIPREFERRED SHARES

     The Broker-Dealers are expected to maintain a secondary trading market in
shares of MuniPreferred outside of Auctions, but are not obligated to do so, and
may discontinue such activity at any time. There can be no assurance that such
secondary trading market in shares of MuniPreferred will provide owners with
liquidity of investment. The shares of MuniPreferred are not registered on any
stock exchange or on the Nasdaq Stock Market. Investors who purchase shares in
an Auction for a Special Rate Period should note that because the dividend rate
on such shares will be fixed for the length of such Rate Period, the value of
the

                                        32
<PAGE>

shares may fluctuate in response to changes in interest rates, and may be more
or less than their original cost if sold on the open market in advance of the
next Auction therefor, depending upon market conditions.

     A Beneficial Owner or an Existing Holder may sell, transfer or otherwise
dispose of shares of MuniPreferred only in whole shares and only (1) pursuant to
a Bid or Sell Order placed with the Auction Agent in accordance with the Auction
Procedures, (2) to a Broker-Dealer or (3) to such other persons as may be
permitted by the Fund; provided, however, that (a) a sale, transfer or other
disposition of shares of MuniPreferred from a customer of a Broker-Dealer who is
listed on the records of that Broker-Dealer as the holder of such shares to that
Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to
be a sale, transfer or other disposition for purposes of the foregoing if such
Broker-Dealer remains the Existing Holder of the shares so sold, transferred or
disposed of immediately after such sale, transfer or disposition and (b) in the
case of all transfers other than pursuant to Auctions, the Broker-Dealer (or
other person, if permitted by the Fund) to whom such transfer is made shall
advise the Auction Agent of such transfer.

                          DESCRIPTION OF COMMON SHARES

     In addition to the MuniPreferred shares, the Declaration authorizes the
issuance of an unlimited number of common shares, par value of $0.01 per share.
All outstanding common shares have equal rights to the payment of dividends and
the distribution of assets upon liquidation, are fully paid and, subject to
matters discussed in "Certain Provisions in the Declaration of Trust,"
non-assessable, and have no pre-emptive or conversion rights or rights to
cumulative voting. Whenever MuniPreferred shares are outstanding, holders of the
Fund's common shares will not be entitled to receive any cash distributions from
the Fund unless all accrued dividends on MuniPreferred shares have been paid,
and unless asset coverage (as defined in the 1940 Act) with respect to
MuniPreferred shares would be at least 200% after giving effect to the
distributions.

                 CERTAIN PROVISIONS IN THE DECLARATION OF TRUST

     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 includes provisions that could limit the ability of other
entities or persons to acquire control of the Fund or to convert the Fund to
open-end status. Specifically, the Declaration requires a vote by holders of at
least two-thirds of the common shares and MuniPreferred 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 or
recapitalization of the Fund, or a series or class of the Fund, (3) a sale,
lease or transfer of all or substantially all of the 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
MuniPreferred 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. None of the

                                        33
<PAGE>


foregoing provisions may be amended except by the vote of at least two-thirds of
the common shares and MuniPreferred shares, voting together as a single class.
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 which adversely affects the holders of MuniPreferred shares, the
action in question will also require the affirmative vote of the holders of at
least two-thirds of the Fund's MuniPreferred 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 Fund's MuniPreferred shares outstanding at
the time, voting as a separate class. The votes required to approve the
conversion of the Fund from a closed-end to an open-end investment company or to
approve transactions constituting a plan of reorganization which adversely
affects the holders of MuniPreferred 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. See the Statement of Additional Information under "Certain
Provisions in the Declaration of Trust."


     Reference should be made to the Declaration on file with the Securities and
Exchange Commission for the full text of these provisions.

            REPURCHASE OF COMMON 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, call protection, dividend stability, portfolio
credit quality, relative demand for and supply of such shares in the market,
general market and economic conditions and other factors. Because shares of
closed-end 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 MuniPreferred shares then outstanding (requiring in turn
that it liquidate a portion of its investment portfolio), and the common shares
would no longer be listed on the Exchange. In contrast to a closed-end
investment company, shareholders of an open-end investment company may require
the company to redeem their shares at any time (except in certain circumstances
as authorized by or under the 1940 Act) at their net asset value, less any
redemption charge that is in effect at the time of redemption. See the Statement
of Additional Information under "Certain Provisions in the Declaration of Trust"
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 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
Statement of Additional Information under "Repurchase of Common Shares;
Conversion to Open-End Fund" for a further discussion of possible action to
reduce or eliminate such discount to net asset value.

                                        34
<PAGE>

                                  TAX MATTERS


     The discussions below and in the Statement of Additional Information
provide general U.S. federal income tax information. Because tax laws are
complex and often change, you should consult your tax advisor about the tax
consequences of an investment in the MuniPreferred shares before making such an
investment.


FEDERAL INCOME TAX MATTERS


     The Fund intends to elect to be treated, and to qualify each year, as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and intends to distribute substantially all of
its net income and gains to its shareholders each year. Therefore, it is not
expected that the Fund will be subject to any federal income tax on its income
and net capital gains distributed to shareholders. The Fund primarily invests in
municipal bonds from issuers located in California or in municipal bonds whose
income is otherwise exempt from regular federal and California income taxes and
the federal alternative minimum tax applicable to individuals. Substantially all
of the Fund's dividends to you should qualify as "exempt-interest dividends." A
shareholder treats an exempt-interest dividend as interest on state and local
bonds exempt from regular federal income tax. Different federal alternative
minimum tax rules apply to individuals and to corporations.


     In addition to exempt-interest dividends, the Fund also may distribute to
its shareholders amounts that are treated as long-term capital gain or ordinary
income. These distributions will generally be taxable to holders of
MuniPreferred. The Fund will allocate distributions to shareholders that are
treated as tax-exempt interest and as long-term capital gain and ordinary
income, if any, among the common shares and MuniPreferred shares in proportion
to total dividends paid to each class for the year. The Fund intends to notify
MuniPreferred shareholders in advance if it will allocate to them income that is
not exempt from regular federal income tax. In certain circumstances the Fund
will make payments to MuniPreferred shareholders to offset the tax effects of
the taxable distribution. See "Description of MuniPreferred shares -- Dividends
and Dividend Periods -- Gross-Up Payments." As long as the Fund qualifies as a
regulated investment company, distributions paid by the Fund generally will not
be eligible for the dividends-received deduction available to corporations.
Although dividends generally will be treated as distributed when paid, dividends
declared in October, November or December, payable to shareholders of record on
a specified date in one of those months and paid during the following January,
will be treated as having been distributed by the Fund (and received by the
shareholders) on December 31 of the year declared.


     The sale or other disposition of common shares or shares of MuniPreferred
of the Fund will normally result in capital gain or loss to shareholders if such
shares are held as a capital asset. Present law taxes both long-term and
short-term capital gains of corporations at the rates applicable to ordinary
income. For non-corporate taxpayers, long-term capital gains are generally
subject to reduced rates of taxation. Losses realized by a shareholder on the
sale or exchange of shares of the Fund held for six months or less are
disallowed to the extent of any distribution of exempt-interest dividends
received with respect to such shares, and, if not disallowed, such losses are
treated as long-term capital losses to the extent of any distribution of
long-term capital gain received (or designated amounts of undistributed capital
gain that are treated as received) with respect to such shares. Under certain
circumstances, a shareholder's holding period may have to restart after, or may
be suspended for, any periods during which the shareholder's risk of loss is
diminished as a result of holding one or more other positions in substantially
similar or related property, or through certain options or short sales. Any loss
realized on a sale or exchange of shares of the Fund will be disallowed to the
extent those shares of the Fund are replaced by other substantially identical
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the date of disposition of the original shares. In that
event, the basis of the replacement shares of the Fund will be adjusted to
reflect the disallowed loss.



     The Code provides that interest on indebtedness incurred or used to
purchase or carry the Fund's shares to which exempt-interest dividends are
allocated is not deductible. Under rules used by the Internal Revenue Service
for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase or ownership of shares
may be considered to have been made with borrowed funds even though such funds
are not directly used for the purchase or ownership of such shares.


                                        35
<PAGE>


     If you receive social security benefits you should be aware that
exempt-interest dividends may be taken into account in calculating the amount of
these benefits that is subject to federal income tax.



     The Fund is required in certain circumstances to withhold a portion of any
taxable dividends and certain other payments paid to certain MuniPreferred
holders who do not furnish to the taxable Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain certifications, or who are otherwise subject to backup withholding.


     The Statement of Additional Information contains a more detailed summary of
the federal income tax rules that apply to the Fund and its shareholders.
Legislative, judicial or administrative action may change the tax rules that
apply to the Fund or its shareholders and any such change may be retroactive.
You should consult with your tax advisor about federal income tax matters before
making an investment in the Fund.

CALIFORNIA TAX MATTERS

     The following is based upon the advice of Orrick, Herrington & Sutcliffe,
LLP, special California counsel to the Fund.

     The Fund's regular monthly dividends will not be subject to California
personal income taxes to the extent they are paid out of income earned on
obligations that, when held by individuals, pay interest that is exempt from
taxation by California under California law (e.g., obligations of California and
its political subdivisions) or federal law, so long as at the close of each
quarter of the Fund's taxable year at least 50 percent of the value of the
Fund's total assets consist of such obligations. The portion of the Fund's
monthly dividends that is attributable to income other than as described in the
preceding sentence will be subject to the California income tax. The Fund
expects to earn no or only a minimal amount of such non-exempt income. You will
be subject to California personal income taxes to the extent the Fund
distributes any taxable income or realized capital gains, or if you sell or
exchange MuniPreferred shares and realize a capital gain on the transaction.

     Shareholders are advised to consult with their own tax advisors for more
detailed information concerning California tax matters. Please refer to the
Statement of Additional Information for more detailed information.

                                 OTHER MATTERS


     A lawsuit was brought in June 1996 (Green et al. v. Nuveen Advisory Corp.,
et al.) by certain individual common shareholders of six leveraged closed-end
funds sponsored by Nuveen Investments, LLC ("Nuveen"), and ultimately heard in
the federal district court for the Northern District of Illinois. The suit was
originally brought against Nuveen, Nuveen Advisory, six Nuveen investment
companies (the "leveraged closed-end funds") managed by Nuveen Advisory and two
of the leveraged closed-end funds' former directors seeking unspecified damages,
an injunction and other relief. The suit also sought certification of a
defendant class consisting of all Nuveen-managed leveraged funds.


     The plaintiffs alleged that the leveraged closed-end funds engaged in
certain practices that violated various provisions of the 1940 Act and common
law. The plaintiffs also alleged, among other things, breaches of fiduciary duty
by the funds' directors and Nuveen Advisory and various misrepresentations and
omissions in prospectuses and shareholder reports relating to the use of
leverage through the issuance and periodic auctioning of preferred stock and the
basis of the calculation and payment of management fees to Nuveen Advisory and
Nuveen. Plaintiffs also filed a motion to certify defendant and plaintiff
classes.

     The defendants filed motions to dismiss the entire lawsuit asserting that
the claims were without merit and to oppose certification of any classes. On
March 30, 1999, the court entered a memorandum opinion and order (1) granting
the defendants' motion to dismiss all of plaintiffs' counts against the
defendants other than Nuveen Advisory, (2) granting Nuveen Advisory's motion to
dismiss all of plaintiffs' counts against it other than breach of fiduciary duty
under Section 36(b) of the 1940 Act, and (3) denying the plaintiffs' motion to
certify a plaintiff class and a defendant class. No appeal was made by
plaintiffs of this decision, and the remaining Section 36(b) count against
Nuveen Advisory is discussed below.

                                        36
<PAGE>

     As to alleged damages, plaintiffs have claimed as damages the portion of
all advisory compensation received by Nuveen Advisory from the funds during the
period from June 21, 1995 to the present that is equal to the proportion of each
of such fund's preferred stock to its total assets. The preferred stock
constitutes approximately one third of the funds' assets so the amount claimed
would equal approximately one third of management fees received by Nuveen
Advisory for managing the funds during this period. Nuveen Advisory believes
that it has no liability and the plaintiffs have suffered no damages and filed a
motion for summary judgment as to both liability and damages.


     Plaintiffs filed a motion for partial summary judgment as to liability
only. In a memorandum opinion and order dated September 6, 2001, the federal
district court granted Nuveen Advisory's motion for summary judgment and denied
plaintiffs' motion for partial summary judgment, thereby terminating the
litigation before the court. Plaintiffs appealed this decision on October 8,
2001. In an opinion dated July 8, 2002, the Seventh Circuit Court of Appeals
affirmed the opinion of the district court dismissing the plaintiffs' lawsuit.
Plaintiffs filed a petition for certiorari with the United States Supreme Court
on October 1, 2002 seeking to appeal the Seventh Circuit opinion. The United
States Supreme Court denied the petition on December 16, 2002.


                      CUSTODIAN, TRANSFER AGENT, DIVIDEND
                     DISBURSING AGENT AND REDEMPTION AGENT

     The custodian of the assets of and transfer, shareholder services and
dividend paying agent for the Fund is State Street Bank Corp., 225 Franklin
Street, Boston, Massachusetts 02110. The Custodian performs custodial, fund
accounting and portfolio accounting services. Deutsche Bank Trust Company
Americas, 100 Plaza One, 6th Floor, Jersey City, NJ 07311, a banking corporation
organized under the laws of New York, is the Auction Agent with respect to
shares of MuniPreferred and acts as transfer agent, registrar, dividend
disbursing agent and redemption agent with respect to such shares.

                                        37
<PAGE>

                                  UNDERWRITING


     Salomon Smith Barney Inc. is acting as the representative of the
underwriters named below. Subject to the terms and conditions stated in the
underwriting agreement dated the date of this prospectus, each underwriter named
below has severally agreed to purchase, and the Fund has agreed to sell to such
underwriter, the number of shares of MuniPreferred set forth opposite the name
of such underwriter.



<Table>
<Caption>
                                                              NUMBER OF
UNDERWRITERS                                                   SHARES
- ------------                                                  ---------
<S>                                                           <C>
Salomon Smith Barney Inc....................................
Nuveen Investments, LLC.....................................
A.G. Edwards & Sons, Inc....................................
Prudential Securities Incorporated..........................
                                                               -------
  Total.....................................................
                                                               =======
</Table>


     The underwriting agreement provides that the obligations of the several
underwriters to purchase the MuniPreferred shares included in this offering are
subject to approval of certain legal matters by counsel and to certain other
conditions. The underwriters are obligated to purchase all the MuniPreferred
shares if they purchase any of the MuniPreferred shares.


     The underwriters propose to offer some of the MuniPreferred shares directly
to the public at the public offering price set forth on the cover page of this
prospectus and some of the MuniPreferred shares to dealers at the public
offering price less a concession not in excess of $     per MuniPreferred share.
The sales load the Fund will pay of $     per share is equal to      % of the
initial offering price. One half of the sales load from this offering will be
paid to certain underwriters based on their participation in the offering of the
Fund's common shares. The underwriters may allow, and such dealers may reallow,
a concession not in excess of $     per MuniPreferred share on sales to other
dealers. If all of the MuniPreferred shares are not sold at the initial offering
price, the underwriters may change the public offering price and other selling
terms. Investors must pay for any MuniPreferred shares purchased on or before
          , 2003.



     The Fund anticipates that certain of the underwriters may from time to time
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 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 Statement of Additional Information.

     Nuveen, one of the underwriters, is an affiliate of Nuveen Advisory.

     The Fund and Nuveen Advisory have agreed to indemnify the underwriters
against certain liabilities, including liabilities arising under the Securities
Act of 1933, or to contribute payments the underwriters may be required to make
for any of those liabilities. Insofar as indemnification for liability arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Fund pursuant to the foregoing provisions, or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Fund of
expenses incurred or paid by a director, officer or controlling person of the
Fund 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 Fund will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

     The principal business address of Salomon Smith Barney Inc. is 388
Greenwich Street, New York, New York 10013.

                                        38
<PAGE>

                                 LEGAL OPINIONS

     Certain legal matters in connection with the MuniPreferred shares will be
passed upon for the Fund by Vedder, Price, Kaufman & Kammholz, Chicago,
Illinois, and for the underwriters by Simpson Thacher & Bartlett, New York, New
York. Vedder, Price, Kaufman & Kammholz and Simpson Thacher & Bartlett may rely
as to certain matters of Massachusetts law on the opinion of Bingham McCutchen
LLP, Boston, Massachusetts and as, to certain matters of California law on the
opinion of Orrick, Harrington & Sutcliffe, LLP.

                             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, and Northeast Regional Office, Woolworth Building, 233
Broadway, New York, NY 10013-2409. 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 MuniPreferred 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 Commission, including proxy statements and reports filed
under the Securities Exchange Act of 1934.

                                        39
<PAGE>

                           TABLE OF CONTENTS FOR THE
                      STATEMENT OF ADDITIONAL INFORMATION

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Investment Objectives.......................................   S-2
Investment Policies and Techniques..........................   S-5
Other Investment Policies and Techniques....................  S-11
Management of the Fund......................................  S-13
Investment Adviser..........................................  S-21
Portfolio Transactions......................................  S-23
Net Asset Value.............................................  S-24
Additional Information Concerning the Auctions for
  MuniPreferred.............................................  S-24
Certain Provisions in the Declaration of Trust..............  S-26
Repurchase of Common Shares; Conversion to Open-End Fund....  S-27
Tax Matters.................................................  S-28
Experts.....................................................  S-33
Custodian...................................................  S-33
Additional Information......................................  S-33
Report of Independent Auditors..............................   F-1
Financial Statements........................................   F-2
Appendices
Appendix A -- Statement Establishing and Fixing the Rights
              and Preferences of MuniPreferred shares.......   A-1
Appendix B -- Ratings of Investments........................   B-1
Appendix C -- Description of Insurers.......................   C-1
Appendix D -- Hedging Strategies and Risks..................   D-1
Appendix E -- Factors Pertaining to California..............   E-1
</Table>

                                        40
<PAGE>

                         TAXABLE EQUIVALENT YIELD TABLE


     The taxable equivalent yield is the current yield you would need to earn on
a taxable investment in order to equal a stated tax-free yield for federal
regular income tax purposes on a municipal investment. To assist you to more
easily compare municipal investments like the Fund with taxable alternative
investments, the table below presents the taxable equivalent yield for a range
of hypothetical tax-free yields assuming the stated marginal federal tax rates
for 2003 listed below:


                     TAXABLE EQUIVALENT OF TAX-FREE YIELDS*

                                 TAX-FREE YIELD

<Table>
<Caption>
COMBINED
TAX RATE*   0.50%   1.00%   1.50%   2.00%   2.50%   3.00%
- ---------   -----   -----   -----   -----   -----   -----
<S>         <C>     <C>     <C>     <C>     <C>     <C>
  10.00%    0.56%   1.11%   1.67%   2.22%   2.78%   3.33%
  15.00     0.59    1.18    1.76    2.35    2.94    3.53
  27.00     0.68    1.37    2.05    2.74    3.42    4.11
  30.00     0.71    1.43    2.14    2.86    3.57    4.29
  35.00     0.77    1.54    2.31    3.08    3.85    4.62
  38.60     0.81    1.63    2.44    3.26    4.07    4.89
</Table>

- ------------
* In the table above, the taxable equivalent yields are calculated assuming that
  the Fund's exempt-interest dividends are 100% federally tax-free. To the
  extent the Fund were to invest in federally taxable investments (which it does
  not expect to do), its taxable equivalent yield would be lower.

                                   CALIFORNIA


     The following tables show the approximate taxable yields to individuals
that are equivalent to tax-free yields under combined federal and California
state tax rates, using published 2003 marginal federal tax rates and marginal
California tax rates currently available and scheduled to be in effect.



<Table>
<Caption>
 SINGLE RETURN       JOINT RETURN     FEDERAL TAX                      COMBINED TAX
    BRACKET            BRACKET           RATE       STATE TAX RATE**      RATE**      0.50%   1.00%   1.50%   2.00%   2.50%   3.00%
- ----------------   ----------------   -----------   ----------------   ------------   -----   -----   -----   -----   -----   -----
<S>                <C>                <C>           <C>                <C>            <C>     <C>     <C>     <C>     <C>     <C>
$      0-  6,000   $      0- 12,000      10.00%           2.00%           11.80%      0.57%   1.13%   1.70%   2.27%   2.83%   3.40%
   6,000- 28,400     12,000- 47,450      15.00            6.00            20.10       0.63    1.25    1.88    2.50    3.13    3.75
  28,400- 68,800     47,450-114,650      27.00            9.30            33.80       0.76    1.51    2.27    3.02    3.78    4.53
  68,800-143,500    114,650-174,700      30.00            9.30            36.50       0.79    1.57    2.36    3.15    3.94    4.72
 143,500-311,950    174,700-311,950      35.00            9.30            41.00       0.85    1.69    2.54    3.39    4.24    5.08
    Over 311,950       Over 311,950      38.60            9.30            44.30       0.90    1.80    2.69    3.59    4.49    5.39
</Table>



** The state tax brackets are those for 2002. The 2003 brackets will be adjusted
   to take into account changes in the California Consumer Price Index. These
   adjustments have not yet been released. The combined tax rates shown reflect
   the fact that state tax payments are currently deductible for federal tax
   purposes. Please note that the table does not reflect (i) any federal or
   state limitations on the amounts of allowable itemized deductions, phase-outs
   of personal or dependent exemption credits or other allowable credits, (ii)
   any local taxes imposed, or (iii) any alternative minimum taxes or any taxes
   other than personal income taxes. The table assumes that federal taxable
   income is equal to state income subject to tax, and in cases where more than
   one state rate falls within a federal bracket, the highest state rate
   corresponding to the highest income within that federal bracket is used. The
   numbers in the Combined Tax Rate column are rounded to the nearest one-tenth
   of one percent.


                                       A-1
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------


                                  $45,000,000


                       NUVEEN INSURED CALIFORNIA TAX-FREE
                            ADVANTAGE MUNICIPAL FUND

               MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES
                                MUNIPREFERRED(R)


                            1,800 SHARES, SERIES TH


                                ---------------

                                   PROSPECTUS


                                          , 2003


                                ---------------

                              SALOMON SMITH BARNEY

                            NUVEEN INVESTMENTS, LLC


                           A.G. EDWARDS & SONS, INC.


                             PRUDENTIAL SECURITIES


- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.


                     SUBJECT TO COMPLETION, DATED     , 2003


          Nuveen Insured California Tax-Free Advantage Municipal Fund

                       STATEMENT OF ADDITIONAL INFORMATION

         Nuveen Insured California Tax-Free Advantage Municipal Fund (the
"Fund") is a newly organized, non-diversified closed-end management investment
company.


         This Statement of Additional Information relating to MuniPreferred
shares of the Fund ("MuniPreferred shares") does not constitute a prospectus,
but should be read in conjunction with the Fund's Prospectus relating thereto
dated           , 2003 (the "Prospectus"). This Statement of Additional
Information does not include all information that a prospective investor should
consider before purchasing MuniPreferred 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.


                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                    Page
                                                                    ----
<S>                                                                 <C>
Investment Objectives................................................S-2
Investment Policies and Techniques...................................S-5
Other Investment Policies and Techniques............................S-11
Management of the Fund..............................................S-13
Investment Adviser..................................................S-21
Portfolio Transactions..............................................S-23
Net Asset Value.....................................................S-24
Additional Information Concerning the Auctions for MuniPreferred....S-24
Certain Provisions in the Declaration of Trust......................S-26
Repurchase of Common Shares; Conversion to Open-End Fund............S-27
Tax Matters.........................................................S-28
Experts  ...........................................................S-33
Custodian...........................................................S-33
Additional Information..............................................S-33
Report of Independent Auditors.......................................F-1
Financial Statements.................................................F-2

Appendices
Appendix A -- Statement Establishing and Fixing the Rights
                  and Preferences of MuniPreferred Shares............A-1
Appendix B-- Ratings of Investments..................................B-1
Appendix C-- Description of Insurers.................................C-1
Appendix D-- Hedging Strategies and Risks............................D-1
Appendix E-- Factors Pertaining to California........................E-1
</Table>


         This Statement of Additional Information is dated     , 2003




                                      S-1
<PAGE>
                             INVESTMENT OBJECTIVES

         The Fund's investment objectives are to provide current income exempt
from regular federal income tax, the federal alternative minimum tax applicable
to individuals and California income tax, and to enhance portfolio value
relative to the municipal bond market by investing in tax-exempt municipal bonds
that the Fund's investment adviser believes are underrated or undervalued or
that represent municipal market sectors that are undervalued.


         The Fund's investment in underrated or undervalued municipal bonds will
be based on Nuveen Advisory's belief that their yield is higher than that
available on bonds bearing equivalent levels of interest rate risk, credit risk
and other forms of risk, and that their prices will ultimately rise (relative to
the market) to reflect their true value. The Fund attempts to increase its
portfolio value relative to the municipal bond market by prudent selection of
municipal bonds regardless of the direction the market may move. There can be no
assurance that the Fund's attempt to increase its portfolio value relative to
the municipal bond market will succeed. To the extent that it does succeed,
however, such success would increase the amount of net capital gains or reduce
the amount of net capital losses that the Fund would otherwise have realized.
While this incremental increase in net realized gains due to successful value
investing, if any, is expected to be modest over time, it would tend to result
in the distribution, over time, of a modestly greater amount of taxable capital
gains to holders of common shares and MuniPreferred shares. The Fund's
investment objectives are fundamental policies of the Fund.


         Under normal circumstances, the Fund will invest at least 80% of its
Managed Assets in a portfolio of municipal bonds that:

         o        pay interest that is exempt from regular federal and
                  California income taxes and from the federal alternative
                  minimum tax applicable to individuals; and

         o        are covered by insurance guaranteeing the timely payment of
                  principal and interest thereon.

         This insurance does not protect the market value of portfolio holdings
or the net asset value of the Fund.


         With respect to its entire portfolio, the Fund will invest only in
bonds and other eligible investments, whether or not insured, that at the time
of investment are investment grade quality. Under normal circumstances, the Fund
(i) expects to be fully invested (at least 95% of its assets) in municipal bonds
that pay interest that is exempt from regular federal and California income
taxes and (ii) will not invest in AMT Bonds. Through November 30, 2003, (the
"Invest-Up Period"), the Fund may invest in municipal bonds that pay interest
that is exempt from regular federal income tax and the alternative minimum tax
applicable to individuals but not from California income tax ("Out of State
Bonds"), provided that no more than 10% of the Fund's investment income during
that time may be derived from investments Out of State Bonds. It is a
fundamental policy of the Fund that its investments in municipal bonds the
interest on which is not taxable under regular federal income tax the
federal alternative minimum income tax applicable to individuals and California
income tax will, under normal circumstances, comprise at least 80% of the Fund's
Managed Assets. The Fund will notify shareholders at least 60 days prior to any
change in its policy to invest 80% of its Managed Assets in bonds that are
covered by insurance guaranteeing the timely payment of principal and interest
thereon.


         The Fund may at all times invest up to 20% of its net assets in (i)
uninsured municipal bonds that are backed by an escrow or trust account
containing sufficient U.S. Government or U.S. Government agency securities to
ensure timely payment of principal and interest, or (ii) other municipal bonds
that at the time of investment are investment grade quality. Investment grade
quality bonds are bonds rated by all NRSROs that rate the bond within the four
highest grades (Baa or BBB or better by Moody's, S&P or Fitch), or bonds that
are unrated but judged to be of comparable quality by Nuveen Advisory.

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 MuniPreferred shares (as hereinafter defined) voting together as a
single class, and of the holders of a majority of the outstanding MuniPreferred
shares voting as a separate class:


                                      S-2
<PAGE>

         (1)      Under normal circumstances, invest less than 80% of the Fund's
                  net assets (plus any borrowings for investment purposes) in
                  investments the income from which is exempt from both regular
                  federal and California income taxes and the federal
                  alternative minimum tax applicable to individuals;


         (2)      Issue senior securities, as defined in the Investment Company
                  Act of 1940, other than MuniPreferred shares, except to the
                  extent permitted under the Investment Company Act of 1940 and
                  except as otherwise described in the Prospectus;

         (3)      Borrow money, except from banks for temporary or emergency
                  purposes or for repurchase of its shares, and then only in an
                  amount not exceeding one-third of the value of the Fund's
                  total assets (including the amount borrowed) less the Fund's
                  liabilities (other than borrowings);

         (4)      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 in connection
                  with the purchase and sale of portfolio securities;

         (5)      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 municipal bonds other than those
                  municipal bonds backed only by the assets and revenues of
                  non-governmental users;

         (6)      Purchase or sell real estate, but this shall not prevent the
                  Fund from investing in municipal bonds secured by real estate
                  or interests therein or foreclosing upon and selling such
                  security;

         (7)      Purchase or sell physical commodities unless acquired as a
                  result of ownership of securities or other instruments (but
                  this shall not prevent the Fund from purchasing or selling
                  options, futures contracts, derivative instruments or from
                  investing in securities or other instruments backed by
                  physical commodities);

         (8)      Make loans, other than by entering into repurchase agreements
                  and through the purchase of municipal bonds or short-term
                  investments in accordance with its investment objectives,
                  policies and limitations; and

         (9)      Purchase any securities (other than obligations issued or
                  guaranteed by the United States Government or by its agencies
                  or instrumentalities), if as a result more than 5% of the
                  Fund's total assets would then be invested in securities of a
                  single issuer or if as a result 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; provided that, with respect to 50% of the
                  Fund's assets, the Fund may invest up to 25% of its assets in
                  the securities of any are issuer.

         For purposes of the foregoing and "Description of Shares --
MuniPreferred shares -- Voting Rights" below, "majority of the outstanding,"
when used with respect to particular shares of the Fund, 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.

         For the purpose of applying the limitation set forth in subparagraph
(9) above, an issuer shall be deemed the sole issuer of a security when its
assets and revenues are separate from other governmental entities and its
securities are backed only by its assets and revenues. Similarly, in the case of
a non- governmental issuer, such as an industrial corporation or a privately
owned or operated hospital, if the security is backed only by the assets and
revenues of the non-governmental issuer, then such non-governmental issuer would
be deemed to be the sole issuer. Where a security is also backed by the
enforceable obligation of a superior or unrelated governmental or other entity
(other than a bond insurer),


                                      S-3
<PAGE>

it shall also be included in the computation of securities owned that are issued
by such governmental or other entity. Where a security is guaranteed by a
governmental entity or some other facility, such as a bank guarantee or letter
of credit, such a guarantee or letter of credit would be considered a separate
security and would be treated as an issue of such government, other entity or
bank. When a municipal bond is insured by bond insurance, it shall not be
considered a security that is issued or guaranteed by the insurer; instead, the
issuer of such municipal bond will be determined in accordance with the
principles set forth above. The foregoing restrictions do not limit the
percentage of the Fund's assets that may be invested in municipal bonds insured
by any given insurer.

         Under the Investment Company Act of 1940, the Fund may invest only up
to 10% of its Managed Assets in the aggregate in shares of other investment
companies and only up to 5% of its Managed Assets in any one investment company,
provided the investment does not represent more than 3% of the voting stock of
the acquired investment company at the time such shares are purchased. As a
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 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 also be leveraged and
will therefore be subject to the same leverage risks described herein. As
described in the Prospectus in the section entitled "Risk Factors", 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.

         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, unless the Fund owns or has the right
                  to obtain securities equivalent in kind and amount to the
                  securities sold at no added cost, and provided that
                  transactions in options, futures contracts, options on futures
                  contracts, or other derivative instruments are not deemed to
                  constitute selling securities short.

         (2)      Purchase securities of open-end or closed-end investment
                  companies except in compliance with the Investment Company Act
                  of 1940 or any exemptive relief obtained thereunder.

         (3)      Enter into futures contracts or related options or forward
                  contracts, if more than 30% of the Fund's net assets would be
                  represented by futures contracts or more than 5% of the Fund's
                  net assets would be committed to initial margin deposits and
                  premiums on futures contracts and related options.

         (4)      Purchase securities when borrowings exceed 5% of its total
                  assets if and so long as MuniPreferred shares are outstanding.

         (5)      Purchase securities of companies for the purpose of exercising
                  control, except that the Fund may invest up to 5% of its net
                  assets in tax-exempt or taxable fixed-income or equity
                  securities, for the purpose of acquiring control of an issuer
                  whose municipal bonds (a) the Fund already owns and (b) have
                  deteriorated or are expected shortly to deteriorate
                  significantly in credit quality, provided Nuveen Advisory
                  determines that such investment should enable the Fund to
                  better maximize the value of its existing investment in such
                  issuer.


                                      S-4
<PAGE>

         (6)      Invest in inverse floating rate securities (which are
                  securities that pay interest at rates that vary inversely with
                  changes in prevailing short-term tax-exempt interest rates and
                  which represent a leveraged investment in an underlying
                  municipal bond).

         The restrictions and other limitations set forth above will apply only
at the time of purchase of securities and will not be considered violated unless
an excess or deficiency occurs or exists immediately after and as a result of an
acquisition of securities.

                       INVESTMENT POLICIES AND TECHNIQUES

         The following information supplements the discussion of the Fund's
investment objectives, policies, and techniques that are described in the Fund's
Prospectus.

INVESTMENT IN MUNICIPAL BONDS

         PORTFOLIO INVESTMENTS

         Under normal circumstances, the Fund will invest at least 80% of its
Managed Assets in a portfolio of municipal bonds that (i) pay interest that is
exempt from regular federal and California income taxes and from the federal
alternative minimum tax applicable to individuals and (ii) are covered by
insurance guaranteeing the timely payment of principal and interest thereon.
This insurance does not protect the market value of portfolio holdings or the
net asset value of the Fund. During the Invest-up Period, the Fund may invest in
Out of State Bonds, provided that no more than 10% of the Fund's investment
income during that time may be derived from Out of State Bonds.

         The Fund may at all times invest up to 20% of its net assets in (i)
uninsured municipal bonds that are backed by an escrow or trust account
containing sufficient U.S. Government or U.S. Government agency securities to
ensure timely payment of principal and interest, or (ii) other municipal bonds
that at the time of investment are investment grade quality. Investment grade
quality bonds are bonds rated by all NRSROs that rate the bond within the four
highest grades (Baa or BBB or better by Moody's, S&P or Fitch), or bonds that
are unrated but judged to be of comparable quality by Nuveen Advisory.


         With respect to its entire portfolio, the Fund will invest only in
bonds and other eligible investments, whether or not insured, that at the time
of investment are investment grade quality. Under normal circumstances, and
except for the temporary investments described below, the Fund (i) expects to be
fully invested (at least 95% of its assets) in municipal bonds that pay interest
that is exempt from regular federal and California income taxes and (ii) will
not invest in AMT Bonds.


         Municipal bonds rated Baa or BBB are considered "investment grade"
securities; municipal bonds rated Baa are considered medium grade obligations
which lack outstanding investment characteristics and have speculative
characteristics, while municipal bonds rated BBB are regarded as having adequate
capacity to pay principal and interest. Municipal bonds rated AAA in which the
Fund may invest may have been so rated on the basis of the existence of
insurance guaranteeing the timely payment, when due, of all principal and
interest.

         A general description of Moody's, S&P's and Fitch's ratings of
municipal bonds is set forth in Appendix B hereto. The ratings of Moody's, S&P
and Fitch represent their opinions as to the quality of the municipal bonds they
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, municipal bonds with the same
maturity, coupon and rating may have different yields while obligations of the
same maturity and coupon with different ratings may have the same yield.

         Each insured municipal bond that the Fund holds will either be (1)
covered by an insurance policy applicable to a specific security and obtained by
the issuer of the security or a third party at the time of original issuance
("Original Issue Insurance"), (2) covered by an insurance policy applicable to a
specific security and obtained by the Fund and/or a third party subsequent to
the time of original issuance


                                      S-5
<PAGE>

("Secondary Market Insurance"), or (3) covered by a master municipal insurance
policy purchased by the Fund ("Portfolio Insurance"). The Fund, as
non-fundamental policies that can be changed by the Board of Trustees, (A) will
only buy Portfolio Insurance from insurers whose claims-paying ability Moody's
rates "Aaa" or S&P or Fitch rates "AAA," and (B) will maintain at least 80% of
its total Managed Assets in municipal bonds covered by insurance from insurers
with a claims-paying ability rated, at the time of the bond's purchase, "Aaa" by
Moody's or "AAA" by S&P or Fitch.

         Information about the primary municipal bond insurers with whom the
Fund intends to maintain specific insurance policies for particular municipal
bonds or policies of Portfolio Insurance is set forth in Appendix D hereto.

         The Fund may at all times invest up to 20% of its net assets in
uninsured municipal bonds that are entitled to the benefit of an escrow or trust
account that contains securities issued or guaranteed by the U.S. Government or
U.S. Government agencies, backed by the full faith and credit of the United
States, and sufficient in amount to ensure the payment of interest and principal
on the original interest payment and maturity dates ("collateralized
obligations"). These collateralized obligations generally will not be insured
and will include, but are not limited to municipal bonds that have been (1)
advance refunded where the proceeds of the refunding have been used to buy U.S.
Government or U.S. Government agency securities that are placed in escrow and
whose interest or maturing principal payments, or both, are sufficient to cover
the remaining scheduled debt service on that municipal bond; or (2) issued under
state or local housing finance programs that use the issuance proceeds to fund
mortgages that are then exchanged for U.S. Government or U.S. Government agency
securities and deposited with a trustee as security for those municipal bonds.
These collateralized obligations are normally regarded as having the credit
characteristics of the underlying U.S. Government or U.S. Government agency
securities.

         The Fund will primarily invest in municipal bonds with long-term
maturities in order to maintain a weighted average maturity of 15-30 years, but
the average weighted maturity of obligations held by the Fund may be shortened,
depending on market conditions. As a result, the Fund's portfolio at any given
time may include both long-term and intermediate-term municipal bonds. Moreover,
during temporary defensive periods (e.g., times when, in Nuveen Advisory's
opinion, temporary imbalances of supply and demand or other temporary
dislocations in the tax-exempt bond market adversely affect the price at which
long-term or intermediate-term municipal bonds are available), and in order to
keep the Fund's cash fully invested, including the period during which the net
proceeds of the offering are being invested, the Fund may invest up to 100% of
its net assets in short-term investments including high quality, short-term
securities that may be either tax-exempt or taxable and up to 10% of its net
assets in securities of other open or closed-end investment companies that
invest primarily in municipal bonds of the type in which the Fund may invest
directly. The Fund intends to invest in taxable short-term investments only in
the event that suitable tax-exempt short-term investments are not available at
reasonable prices and yields. Tax-exempt short-term investments include various
obligations issued by state and local governmental issuers, such as tax-exempt
notes (bond anticipation notes, tax anticipation notes and revenue anticipation
notes or other such municipal bonds maturing in three years or less from the
date of issuance) and municipal commercial paper. The Fund will invest only in
taxable short-term investments which are U.S. Government securities or
securities rated within the highest grade by Moody's, S&P or Fitch, and which
mature within one year from the date of purchase or carry a variable or floating
rate of interest. See Appendix B for a general description of Moody's, S&P's and
Fitch's ratings of securities in such categories. Taxable short-term investments
of the Fund may include certificates of deposit issued by U.S. banks with assets
of at least $1 billion, or commercial paper or corporate notes, bonds or
debentures with a remaining maturity of one year or less, or repurchase
agreements. See "Other Investment Policies and Techniques -- Repurchase
Agreements." To the extent the Fund invests in taxable investments, the Fund
will not at such times be in a position to achieve its investment objective of
tax-exempt income.


                                      S-6
<PAGE>

         The foregoing policies as to ratings of portfolio investments will
apply only at the time of the purchase of a security, and the Fund will not be
required to dispose of securities in the event Moody's, S&P or Fitch downgrades
its assessment of the credit characteristics of a particular issuer.

         Nuveen Advisory seeks to enhance portfolio value relative to the
municipal bond market by investing in tax-exempt municipal bonds that it
believes are underrated or undervalued or that represent municipal market
sectors that are undervalued. Underrated municipal bonds are those whose ratings
do not, in Nuveen Advisory's opinion, reflect their true creditworthiness.
Undervalued municipal bonds are bonds that, in Nuveen Advisory's opinion, are
worth more than the value assigned to them in the marketplace. Nuveen Advisory
may at times believe that bonds associated with a particular municipal market
sector (for example, electric utilities), or issued by a particular municipal
issuer, are undervalued. Nuveen Advisory may purchase such a bond for the Fund's
portfolio because it represents a market sector or issuer that Nuveen Advisory
considers undervalued, even if the value of the particular bond is consistent
with the value of similar bonds. Municipal bonds of particular types or purposes
(e.g., hospital bonds, industrial revenue bonds or bonds issued by a particular
municipal issuer) may be undervalued because there is a temporary excess of
supply in that market sector, or because of a general decline in the market
price of municipal bonds of the market sector for reasons that do not apply to
the particular municipal bonds that are considered undervalued. The Fund's
investment in underrated or undervalued municipal bonds will be based on Nuveen
Advisory's belief that their yield is higher than that available on bonds
bearing equivalent levels of interest rate risk, credit risk and other forms of
risk, and that their prices will ultimately rise (relative to the market) to
reflect their true value.

         Likewise, the Fund may deviate from its normal investment policies and
invest up to 5% of its net assets in tax-exempt or taxable fixed-income or
equity securities of an issuer of municipal bonds that the Fund already owns for
the purpose of acquiring control of that issuer when Nuveen Advisory determines
that such investment should enable the Fund to better maximize the value of its
existing investment.

         Also included within the general category of municipal bonds described
in the Fund's Prospectus are participations in lease obligations or installment
purchase contract obligations (hereinafter collectively called "Municipal Lease
Obligations") of municipal authorities or entities. Although a Municipal Lease
Obligation does not constitute a general obligation of the municipality for
which the municipality's taxing power is pledged, a Municipal Lease Obligation
is ordinarily backed by the municipality's covenant to budget for, appropriate
and make the payments due under the Municipal Lease Obligation. However, certain
Municipal Lease Obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In the case of a "non-appropriation" lease, the Fund's ability to
recover under the lease in the event of non-appropriation or default will be
limited solely to the repossession of the leased property, without recourse to
the general credit of the lessee, and disposition or releasing of the property
might prove difficult. In order to reduce this risk, the Fund will only purchase
Municipal Lease Obligations where Nuveen Advisory believes the issuer has a
strong incentive to continue making appropriations until maturity.

         Obligations of issuers of municipal bonds are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Bankruptcy Reform Act of 1978. In addition, the
obligations of such issuers may become subject to the laws enacted in the future
by Congress, state legislatures or referenda extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon municipalities to levy taxes. There is also the
possibility that, as a result of legislation or other conditions, the power or
ability of any issuer to pay, when due, the principal of and interest on its
municipal bonds may be materially affected.


                                      S-7
<PAGE>

         The Fund will generally select obligations which may not be redeemed at
the option of the issuer for approximately seven to nine years.

ADDITIONAL INFORMATION ON MUNICIPAL BOND INSURANCE

         Original Issue Insurance. If interest or principal on a municipal bond
is due, but the issuer fails to pay it, the insurer will make payments in the
amount due to the fiscal agent no later than one business day after the insurer
has been notified of the issuer's nonpayment. The fiscal agent will pay the
amount due to the Fund after the fiscal agent receives evidence of the Fund's
right to receive payment of the principal and/or interest, and evidence that all
of the rights of payment due shall thereupon vest in the insurer. When the
insurer pays the Fund the payment due from the issuer, the insurer will succeed
to the Fund's rights to that payment.

         Portfolio Insurance. Each portfolio insurance policy will be
noncancellable and will remain in effect so long as the Fund is in existence,
the Fund continues to own the municipal bonds covered by the policy, and the
Fund pays the premiums for the policy. Each insurer generally will reserve the
right at any time upon 90 days' written notice to the Fund to refuse to insure
any additional bonds the Fund buys after the effective date of the notice. The
Fund's Board of Trustees will generally reserve the right to terminate each
policy upon seven day's written notice to an insurer if it determines that the
cost of the policy is not reasonable in relation to the value of the insurance
to the Fund.

SHORT-TERM INVESTMENTS

         SHORT-TERM TAXABLE FIXED INCOME SECURITIES

         For temporary defensive purposes or to keep cash on hand fully
invested, the Fund may invest up to 100% of its net assets in cash equivalents
and short-term taxable fixed-income securities, although the Fund intends to
invest in taxable short-term investments only in the event that suitable
tax-exempt short-term investments are not available at reasonable prices and
yields. Short-term taxable fixed income investments are defined to include,
without limitation, the following:

         (1)      U.S. government securities, including bills, notes and bonds
                  differing as to maturity and rates of interest that are either
                  issued or guaranteed by the U.S. Treasury or by U.S.
                  government agencies or instrumentalities. U.S. government
                  agency securities include securities issued by (a) the Federal
                  Housing Administration, Farmers Home Administration,
                  Export-Import Bank of the United States, Small Business
                  Administration, and the Government National Mortgage
                  Association, whose securities are supported by the full faith
                  and credit of the United States; (b) the Federal Home Loan
                  Banks, Federal Intermediate Credit Banks, and the Tennessee
                  Valley Authority, whose securities are supported by the right
                  of the agency to borrow from the U.S. Treasury; (c) the
                  Federal National Mortgage Association, whose securities are
                  supported by the discretionary authority of the U.S.
                  government to purchase certain obligations of the agency or
                  instrumentality; and (d) the Student Loan Marketing
                  Association, whose securities are supported only by its
                  credit. While the U.S. government provides financial support
                  to such U.S. government-sponsored agencies or
                  instrumentalities, no assurance can be given that it always
                  will do so since it is not so obligated by law. The U.S.
                  government, its agencies, and instrumentalities do not
                  guarantee the market value of their securities. Consequently,
                  the value of such securities may fluctuate.

         (2)      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


                                      S-8
<PAGE>

                  the amount deposited plus interest to the bearer of the
                  certificate on the date specified thereon. Under current FDIC
                  regulations, the maximum insurance payable as to any one
                  certificate of deposit is $100,000; therefore, certificates of
                  deposit purchased by the Fund may not be fully insured.

         (3)      Repurchase agreements, which involve purchases of debt
                  securities. At the time the Fund purchases securities pursuant
                  to a repurchase agreement, it simultaneously agrees to resell
                  and redeliver such securities to the seller, who also
                  simultaneously agrees to buy back the securities at a fixed
                  price and time. This assures a predetermined yield for the
                  Fund during its holding period, since the resale price is
                  always greater than the purchase price and reflects an
                  agreed-upon market rate. Such actions afford an opportunity
                  for the Fund to invest temporarily available cash. The Fund
                  may enter into repurchase agreements only with respect to
                  obligations of the U.S. government, its agencies or
                  instrumentalities; certificates of deposit; or bankers'
                  acceptances in which the Fund may invest. Repurchase
                  agreements may be considered loans to the seller,
                  collateralized by the underlying securities. The risk to the
                  Fund is limited to the ability of the seller to pay the
                  agreed-upon sum on the repurchase date; in the event of
                  default, the repurchase agreement provides that the Fund is
                  entitled to sell the underlying collateral. If the seller
                  defaults under a repurchase agreement when the value of the
                  underlying collateral is less than the repurchase price, the
                  Fund could incur a loss of both principal and interest. The
                  investment adviser monitors the value of the collateral at the
                  time the action is entered into and at all times during the
                  term of the repurchase agreement. The Fund's investment
                  adviser does so in an effort to determine that the value of
                  the collateral always equals or exceeds the agreed-upon
                  repurchase price to be paid to the Fund. If the seller were to
                  be subject to a federal bankruptcy proceeding, the ability of
                  the Fund to liquidate the collateral could be delayed or
                  impaired because of certain provisions of the bankruptcy laws.

         (4)      Commercial paper, which consists of short-term unsecured
                  promissory notes, including variable rate master demand notes
                  issued by corporations to finance their current operations.
                  Master demand notes are direct lending arrangements between
                  the Fund and a corporation. There is no secondary market for
                  such notes. However, they are redeemable by the Fund at any
                  time. Nuveen Advisory 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 major
                  rating agency and which mature within one year of the date of
                  purchase or carry a variable or floating rate of interest.

         SHORT-TERM TAX-EXEMPT FIXED INCOME SECURITIES

         Short-term tax-exempt fixed-income securities are securities that are
exempt from regular federal income tax and mature within three years or less
from the date of issuance. Short-term tax-exempt fixed income securities are
defined to include, without limitation, the following:

         Bond Anticipation Notes ("BANs") are usually general obligations of
state and local governmental issuers which are sold to obtain interim financing
for projects that will eventually be funded through the sale of long-term debt
obligations or bonds. The ability of an issuer to meet its obligations on


                                      S-9
<PAGE>

its BANs is primarily dependent on the issuer's access to the long-term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal and interest on the BANs.

         Tax Anticipation Notes ("TANs") are issued by state and local
governments to finance the current operations of such governments. Repayment is
generally to be derived from specific future tax revenues. TANs are usually
general obligations of the issuer. A weakness in an issuer's capacity to raise
taxes due to, among other things, a decline in its tax base or a rise in
delinquencies, could adversely affect the issuer's ability to meet its
obligations on outstanding TANs.

         Revenue Anticipation Notes ("RANs") are issued by governments or
governmental bodies with the expectation that future revenues from a designated
source will be used to repay the notes. In general, they also constitute general
obligations of the issuer. A decline in the receipt of projected revenues, such
as anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and
interest on RANs.

         Construction Loan Notes are issued to provide construction financing
for specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.

         Bank Notes are notes issued by local government bodies and agencies,
such as those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These notes
may have risks similar to the risks associated with TANs and RANs.

         Tax-Exempt Commercial Paper ("Municipal Paper") represents very
short-term unsecured, negotiable promissory notes issued by states,
municipalities and their agencies. Payment of principal and interest on issues
of municipal paper may be made from various sources, to the extent the funds are
available therefrom. Maturities of municipal paper generally will be shorter
than the maturities of TANs, BANs or RANs. There is a limited secondary market
for issues of Municipal Paper.

         Certain municipal bonds may carry variable or floating rates of
interest whereby the rate of interest is not fixed but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market index.

         While the various types of notes described above as a group represent
the major portion of the short-term tax-exempt note market, other types of notes
are available in the marketplace and the Fund may invest in such other types of
notes to the extent permitted under its investment objectives, policies and
limitations. Such notes may be issued for different purposes and may be secured
differently from those mentioned above.

HEDGING STRATEGIES

         The Fund may periodically engage in hedging transactions. Hedging is a
term used for various methods of seeking to preserve portfolio capital value by
offsetting price changes in one investment through making another investment
whose price should tend to move in the opposite direction. It may be desirable
and possible in various market environments to partially hedge the portfolio
against fluctuations in market value due to interest rate fluctuations by
investment in financial futures and index futures as well as related put and
call options on such instruments. Both parties entering into an index or
financial futures contract are required to post an initial deposit of 1% to 5%
of the total contract price. Typically, option holders enter into offsetting
closing transactions to enable settlement in cash rather than take


                                      S-10
<PAGE>

delivery of the position in the future of the underlying security. The Fund will
only sell covered futures contracts, which means that the Fund segregates assets
equal to the amount of the obligations.

         These transactions present certain risks. In particular, the imperfect
correlation between price movements in the futures contract and price movements
in the securities being hedged creates the possibility that losses on the hedge
by a Fund may be greater than gains in the value of the securities in the Fund's
portfolio. In addition, futures and options markets may not be liquid in all
circumstances. As a result, in volatile markets, the Fund may not be able to
close out the transaction without incurring losses substantially greater than
the initial deposit. Finally, the potential deposit requirements in futures
contracts create an ongoing greater potential financial risk than do options
transactions, where the exposure is limited to the cost of the initial premium.
Losses due to hedging transactions will reduce yield. Net gains, if any, from
hedging and other portfolio transactions will be distributed as taxable
distributions to shareholders. The Fund will not make any investment (whether an
initial premium or deposit or a subsequent deposit) other than as necessary to
close a prior investment if, immediately after such investment, the sum of the
amount of its premiums and deposits would exceed 5% of the Fund's net assets.
The Fund will invest in these instruments only in markets believed by Nuveen
Advisory to be active and sufficiently liquid. The Fund does not intend to use
derivatives to increase leverage or to enhance current income. Successful
implementation of most hedging strategies would generate taxable income. For
further information regarding these investment strategies and risks presented
thereby, see Appendix D to this Statement of Additional Information.

FACTORS PERTAINING TO CALIFORNIA

     Factors pertaining to California are set forth in Appendix E.

                    OTHER INVESTMENT POLICIES AND TECHNIQUES

ILLIQUID SECURITIES

         The Fund may invest in illiquid securities (i.e., securities that are
not readily marketable), including, but not limited to, restricted securities
(securities the disposition of which is restricted under the federal securities
laws), securities that may be resold only pursuant to Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"); and repurchase
agreements with maturities in excess of seven days.

         Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is required,
the Fund may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than that which
prevailed when it decided to sell. Illiquid securities will be priced at a fair
value as determined in good faith by the Board of Trustees or its delegate.

PORTFOLIO TRADING AND TURNOVER RATE

         Portfolio trading may be undertaken to accomplish the investment
objectives of the Fund in relation to actual and anticipated movements in
interest rates. In addition, a security may be sold and another of comparable
quality purchased at approximately the same time to take advantage of what
Nuveen Advisory believes to be a temporary price disparity between the two
securities. Temporary price disparities between two comparable securities may
result from supply and demand imbalances where, for example, a temporary
oversupply of certain bonds may cause a temporarily low price for such bonds, as
compared with other bonds of like quality and characteristics. The Fund may also
engage to a limited extent in short-term trading consistent with its investment
objectives. Securities may be sold in anticipation of a market decline (a rise
in interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold, but the Fund will not engage in trading solely
to recognize a gain.


                                      S-11
<PAGE>

         Subject to the foregoing, the Fund will attempt to achieve its
investment objectives by prudent selection of municipal bonds with a view to
holding them for investment. While there can be no assurance thereof, the Fund
anticipates that its annual portfolio turnover rate will generally not exceed
100%. However, the rate of turnover will not be a limiting factor when the Fund
deems it desirable to sell or purchase securities. Therefore, depending upon
market conditions, the annual portfolio turnover rate of the Fund may exceed
100% in particular years.

OTHER INVESTMENT COMPANIES

         The Fund may invest in securities of other open or closed-end
investment companies that invest primarily in municipal bonds of the types in
which the Fund may invest directly. The Fund generally expects to invest in
other investment companies 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 MuniPreferred shares, or during periods
when there is a shortage of attractive, high-yielding municipal bonds available
in the market. As a stockholder 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 management, 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. Nuveen Advisory will take expenses into account when evaluating the
investment merits of an investment in the investment company relative to
available municipal bond investments. In addition, the securities of other
investment companies may also be leveraged and will therefore be subject to the
same leverage risks described herein. As described in the Fund's Prospectus in
the section entitled "Risk Factors," 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.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

         The Fund may buy and sell municipal bonds on a when-issued or delayed
delivery basis, making payment or taking delivery at a later date, normally
within 15-45 days of the trade date. On such transactions the payment obligation
and the interest rate are fixed at the time the buyer enters into the
commitment. Beginning on the date the Fund enters into a commitment to purchase
securities on a when-issued or delayed delivery basis, the Fund is required
under rules of the 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 the commitment. Income generated
by any such assets which provide taxable income for federal income tax purposes
is includable in the taxable income of the Fund. The Fund may enter into
contracts to purchase municipal bonds 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 sixty days before or
after the settlement date of the forward transaction. The commitment to purchase
securities on a when-issued, delayed delivery or forward basis may involve an
element of risk because no interest accrues on the bonds prior to settlement and
at the time of delivery the market value may be less than cost.

MISCELLANEOUS INVESTMENTS

         The Fund may invest up to 5% of its net assets in tax-exempt or taxable
fixed-income or equity securities for the purpose of acquiring control of an
issuer whose municipal bonds (a) the Fund already owns and (b) have deteriorated
or are expected shortly to deteriorate significantly in credit quality, provided
Nuveen Advisory determines that such investment should enable the Fund to better
maximize its existing investment in such issuer. Investment in such securities
would result in a portion of your dividend being subject to regular federal and
California income taxes or the alternative minimum tax applicable to
individuals.


                                      S-12
<PAGE>

REPURCHASE AGREEMENTS

         As temporary investments, the Fund may invest in repurchase agreements.
A repurchase agreement is a contractual agreement whereby the seller of
securities (U.S. Government securities or municipal bonds) agrees to repurchase
the same security at a specified price on a future date agreed upon by the
parties. The agreed-upon repurchase price determines the yield during the Fund's
holding period. Repurchase agreements are considered to be loans collateralized
by the underlying security that is the subject of the repurchase contract.
Income generated from transactions in repurchase agreements will be taxable. See
"Tax Matters" for information relating to the allocation of taxable income
between common shares and MuniPreferred shares, if any. The Fund will only enter
into repurchase agreements with registered securities dealers or domestic banks
that, in the opinion of Nuveen Advisory, present minimal credit risk. The risk
to the Fund is limited to the ability of the issuer to pay the agreed-upon
repurchase price on the delivery date; however, although the value of the
underlying collateral at the time the transaction is entered into always equals
or exceeds the agreed-upon repurchase price, if the value of the collateral
declines there is a risk of loss of both principal and interest. In the event of
default, the collateral may be sold but the Fund might incur a loss if the value
of the collateral declines, and might incur disposition costs or experience
delays in connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the Fund may be delayed or limited. Nuveen
Advisory will monitor the value of the collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that such value always equals or exceeds the
agreed-upon repurchase price. In the event the value of the collateral declines
below the repurchase price, Nuveen Advisory will demand additional collateral
from the issuer to increase the value of the collateral to at least that of the
repurchase price, including interest.

ZERO COUPON BONDS

         The Fund may invest in zero coupon bonds. A zero coupon bond is a bond
that does not pay interest for its entire life. When held to its maturity, its
return comes from the difference between the purchase price and its maturity
value. The market prices of zero coupon bonds are affected to a greater extent
by changes in prevailing levels of interest rates and thereby tend to be more
volatile in price than securities that pay interest periodically and may be more
speculative than such securities. In addition, because the Fund accrues income
with respect to these securities prior to the receipt of such interest, it may
have to dispose of portfolio securities under disadvantageous circumstances in
order to obtain cash needed to pay income dividends in amounts necessary to
avoid unfavorable tax consequences.

                             MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

         The management of the Fund, including general supervision of the duties
performed for the Fund under the management agreement between Nuveen Advisory
and the Fund, is the responsibility of the Board of Trustees of the Fund. The
number of trustees of the Fund is currently set at seven. None of the trustees
who are not "interested" persons of the Fund has ever been a director or
employee of, or consultant to, Nuveen or its affiliates. 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-13
<PAGE>


<Table>
<Caption>
                                   POSITIONS AND
                                   OFFICES WITH                                                       NUMBER OF
                                        THE                                                         PORTFOLIOS IN
                                   FUND AND YEAR               PRINCIPAL OCCUPATIONS                 FUND COMPLEX
       NAME, BIRTHDATE             FIRST ELECTED           INCLUDING OTHER DIRECTORSHIPS             OVERSEEN BY
         AND ADDRESS              OR APPOINTED(1)              DURING PAST FIVE YEARS                  TRUSTEE
       ---------------            ---------------           -----------------------------            -------------
<S>                             <C>                  <C>                                            <C>
Trustee who is an interested person of the Fund:

Timothy R. Schwertfeger*          Chairman of the    Chairman and Director (since 1996) of The           141
3/28/49                         Board and Trustee    John Nuveen Company, Nuveen Investments, LLC,
333 West Wacker Drive                  2002          Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606                                    Institutional Advisory Corp.; prior
                                                     thereto, Executive Vice President and Director
                                                     of The John Nuveen Company and Nuveen
                                                     Investments, LLC; Director (since 1992) and
                                                     Chairman (since 1996) of Nuveen Advisory Corp.
                                                     and Nuveen Institutional Advisory Corp.;
                                                     Chairman and Director (since 1997) of Nuveen
                                                     Asset Management Inc.; Director (since 1996)
                                                     of Institutional Capital Corporation; Chairman
                                                     and Director (since 1999) of Rittenhouse
                                                     Financial Services Inc.; Chief Executive
                                                     Officer (since 1999) of Nuveen Senior Loan
                                                     Asset Management Inc.

Trustees who are not interested persons of the Fund:

Robert P. Bremner                     Trustee        Private Investor and Management                     122
8/22/40                                2002          Consultant.
3725 Huntington Street,
     N.W.
Washington, D.C.  20015

Lawrence H. Brown                     Trustee        Retired (August 1989) as Senior Vice                122
7/29/34                                2002          President of The Northern Trust Company.
201 Michigan Avenue
Highwood, IL  60040

Anne E. Impellizzeri                  Trustee        Retired, formerly, Executive Director               122
1/26/33                                2002          of Manitoga (Center for Russel Wright's
15 High Street                                       Design with Nature); prior thereto, President
Cold Spring, NY 10516                                and Executive Officer of Blanton-Peale
                                                     Institutes Chief of Religion and Health
                                                     (since 1990); prior thereto, Vice
                                                     President, Metropolitan Life Insurance Co.

</Table>



- ----------

* Mr. Schwertfeger is an "interested person" of the Fund, as defined in the
Investment Company Act of 1940, because he is an officer and director of Nuveen
Advisory.

                                      S-14
<PAGE>

<Table>
<Caption>
                                   POSITIONS AND
                                   OFFICES WITH                                                       NUMBER OF
                                        THE                                                         PORTFOLIOS IN
                                   FUND AND YEAR               PRINCIPAL OCCUPATIONS                 FUND COMPLEX
       NAME, BIRTHDATE             FIRST ELECTED           INCLUDING OTHER DIRECTORSHIPS             OVERSEEN BY
         AND ADDRESS              OR APPOINTED(1)              DURING PAST FIVE YEARS                  TRUSTEE
       ---------------             -------------           -----------------------------            -------------
<S>                             <C>                  <C>                                            <C>
Peter R. Sawers                       Trustee        Adjunct Professor of Business and                   122
4/3/33                                 2002          Economics, University of Dubuque, Iowa;
22 The Landmark                                      formerly (1991-2000) Adjunct Professor,
Northfield, IL  60093                                Lake Forest Graduate School of
                                                     Management, Lake Forest, Illinois; prior
                                                     thereto, Executive Director, Towers Perrin
                                                     Australia, a management consulting firm;
                                                     Chartered Financial Analyst; Certified
                                                     Management Consultant; Director, Executive
                                                     Service Corps of Chicago; Director, Hadley
                                                     School for the Blind.

William J. Schneider                  Trustee        Senior Partner and Chief Operating                  122
9/24/44                                2002          Officer, Miller-Valentine Group, Vice
4000 Miller-Valentine Ct.                            President, Miller-Valentine Realty, a
P. O. Box 744                                        development and contract company; Chair,
Dayton, OH  45439                                    Miami Valley Hospital; Chair, Miami
                                                     Valley Economic Development Coalition;
                                                     formerly, Member, Community Advisory
                                                     Board, National City Bank, Dayton, Ohio
                                                     and Business Advisory Council, Cleveland
                                                     Federal Reserve Bank.

Judith M. Stockdale                   Trustee        Executive Director, Gaylord and Dorothy             122
12/29/47                               2002          Donnelley Foundation (private philanthropic
35 E. Wacker Drive                                   foundation) (since 1994); prior thereto,
Suite 2600                                           Executive Director, Great Lakes Protection
Chicago, IL  60601                                   Fund (from 1990 to 1994).
</Table>


                                      S-15
<PAGE>


<Table>
<Caption>
                                   POSITIONS AND
                                   OFFICES WITH                                                       NUMBER OF
                                        THE                                                         PORTFOLIOS IN
                                   FUND AND YEAR               PRINCIPAL OCCUPATIONS                 FUND COMPLEX
       NAME, BIRTHDATE             FIRST ELECTED           INCLUDING OTHER DIRECTORSHIPS             OVERSEEN BY
         AND ADDRESS              OR APPOINTED(2)              DURING PAST FIVE YEARS                  TRUSTEE
       ---------------            ---------------          -----------------------------            -------------
<S>                             <C>                  <C>                                            <C>
Officers of the Fund:

Gifford R. Zimmerman                   Chief         Managing Director (since 2002), Assistant           141
9/9/56                            Administrative     Secretary and Associate General Counsel,
333 W. Wacker Drive                   Officer        formerly, Vice President and Assistant
Chicago, IL  60606                     2002          General Counsel of Nuveen Investments, LLC;
                                                     Managing Director (since 2002), General
                                                     Counsel and Assistant Secretary,
                                                     formerly, Vice President of Nuveen Advisory
                                                     Corp. and Nuveen Institutional Advisory
                                                     Corp.; Managing Director (since 2002),
                                                     Assistant Secretary, formerly, Vice President
                                                     (since 1999) of Nuveen Senior Loan Asset
                                                     Management Inc.; Managing Director (since
                                                     2002), Assistant Secretary and Associate
                                                     General Counsel, formerly, Vice President
                                                     (since 2000), of Nuveen Asset Management
                                                     Inc.; Vice President and Assistant Secretary
                                                     of The John Nuveen Company (since 1994);
                                                     Chartered Financial Analyst.

Michael T. Atkinson             Vice President and   Vice President (since January 2002),                141
2/3/66                          Assistant Secretary  formerly, Assistant Vice President (since
333 W. Wacker Drive                    2002          2000), previously, Associate of Nuveen
Chicago, IL  60606                                   Investments, LLC.

Paul L. Brennan                   Vice President     Vice President (since January 2002),                136
11/10/66                               2002          formerly, Assistant Vice President (since
333 W. Wacker Drive                                  1997), of Nuveen Advisory Corp.; prior
Chicago, IL  60606                                   thereto, portfolio manager of Flagship
                                                     Financial Inc.; Chartered Financial
                                                     Analyst and Certified Public Accountant.

Peter H. D'Arrigo               Vice President and   Vice President of Nuveen Investments, LLC           141
11/28/67                             Treasurer       (since 1999), prior thereto, Assistant
333 W. Wacker Drive                    2002          Vice President (from 1997); Vice
Chicago, IL  60606                                   President and Treasurer (since 1999) of
                                                     Nuveen Senior Loan Asset Management Inc.;
                                                     formerly, Associate of Nuveen Investments;
                                                     Chartered Financial Analyst.

Susan M. DeSanto                  Vice President     Vice President of Nuveen Advisory Corp.             141
9/8/54                                 2002          (since 2001); previously, Vice President
333 W. Wacker Drive                                  of Van Kampen Investment Advisory Corp.
Chicago, IL  60606                                   (since 1998); prior thereto, Assistant
                                                     Vice President of Van Kampen Investment
                                                     Advisory Corp. (since 1994).
</Table>



                                      S-16
<PAGE>


<Table>
<Caption>
                                   POSITIONS AND
                                   OFFICES WITH                                                       NUMBER OF
                                        THE                                                         PORTFOLIOS IN
                                   FUND AND YEAR               PRINCIPAL OCCUPATIONS                 FUND COMPLEX
       NAME, BIRTHDATE             FIRST ELECTED           INCLUDING OTHER DIRECTORSHIPS             OVERSEEN BY
         AND ADDRESS              OR APPOINTED(2)              DURING PAST FIVE YEARS                  TRUSTEE
       ---------------            ---------------          -----------------------------            -------------
<S>                             <C>                  <C>                                            <C>
Jessica R. Droeger              Vice President and   Vice President (since January 2002) and             141
9/24/64                              Secretary       Assistant General Counsel (since 1998);
333 W. Wacker Drive                    2002          formerly, Assistant Vice President (since
Chicago, IL  60606                                   1998) of Nuveen Investments, LLC; Vice
                                                     President (since May 2002), formerly
                                                     Assistant Vice President and Assistant
                                                     Secretary (since 1998) of Nuveen Advisory
                                                     Corp. and Nuveen Institutional Advisory
                                                     Corp.; prior thereto, Associate at the
                                                     law firm D'Ancona Partners LLC.

Lorna C. Ferguson                 Vice President     Vice President of Nuveen Investments, LLC;          141
10/24/45                               2002          Vice President (since 1998) of Nuveen
333 W. Wacker Drive                                  Advisory Corp. and Nuveen Institutional
Chicago, IL  60606                                   Advisory Corp.

William M. Fitzgerald             Vice President     Managing Director (since 2002) of Nuveen            141
3/2/64                                 2002          Investments, LLC; Managing Director (since
333 W. Wacker Drive                                  2001), formerly Vice President of Nuveen
Chicago, IL  60606                                   Advisory Corp. and Nuveen Institutional
                                                     Advisory Corp. (since 1995); Chartered
                                                     Financial Analyst.

Stephen D. Foy                  Vice President and   Vice President of Nuveen Investments, LLC           141
5/31/54                             Controller       and The John Nuveen Company; Vice President
333 W. Wacker Drive                    2002          (since 1999) of Nuveen Senior Loan
Chicago, IL  60606                                   Management Inc.; Certified Public
                                                     Accountant.

J. Thomas Futrell                 Vice President     Vice President of Nuveen Advisory Corp.;            136
7/5/55                                 2002          Chartered Financial Analyst.
333 W. Wacker Drive
Chicago, IL  60606

Richard A. Huber                  Vice President     Vice President of Nuveen Institutional              136
3/26/63                                2002          Advisory  Corp. (since 1998) and Nuveen
333 W. Wacker Drive                                  Advisory Corp. (since 1997); prior
Chicago, IL  60606                                   thereto, Vice President and Portfolio
                                                     Manager of Flagship Financial, Inc.

Steven J. Krupa                   Vice President     Vice President of Nuveen Advisory Corp.             136
8/21/57                                2002
333 W. Wacker Drive
Chicago, IL 60606

David J. Lamb                     Vice President     Vice President (since 2000) of Nuveen               141
3/22/63                                2002          Investments, LLC, previously Assistant
333 W. Wacker Drive                                  Vice President (since 1999); prior thereto,
Chicago, IL  60606                                   Associate of Nuveen Investments, LLC;
                                                     Certified Public Accountant.
</Table>




                                      S-17
<PAGE>

<Table>
<Caption>
                                   POSITIONS AND
                                   OFFICES WITH                                                       NUMBER OF
                                        THE                                                         PORTFOLIOS IN
                                   FUND AND YEAR               PRINCIPAL OCCUPATIONS                 FUND COMPLEX
       NAME, BIRTHDATE             FIRST ELECTED           INCLUDING OTHER DIRECTORSHIPS             OVERSEEN BY
         AND ADDRESS              OR APPOINTED(2)              DURING PAST FIVE YEARS                  TRUSTEE
       ---------------            ---------------          -----------------------------            -------------
<S>                             <C>                  <C>                                            <C>
Tina M. Lazar                     Vice President     Vice President (since 1999), previously,            141
8/27/61                                2002          Assistant Vice President (since 1993) of
333 W. Wacker Drive                                  Nuveen Investments, LLC.
Chicago, IL  60606

Larry W. Martin                 Vice President and   Vice President, Assistant Secretary and             141
7/27/51                         Assistant Secretary  Assistant General Counsel of Nuveen
333 W. Wacker Drive                    2002          Investments, LLC; Vice President and
Chicago, IL  60606                                   Assistant Secretary of Nuveen Advisory
                                                     Corp. and Nuveen Institutional Advisory
                                                     Corp.; Assistant Secretary of The John Nuveen
                                                     Company and (since 1997) Nuveen Asset
                                                     Management Inc.; Vice President and
                                                     Assistant Secretary (since 1999) of
                                                     Nuveen Senior Loan Asset Management Inc.

Edward F. Neild, IV               Vice President     Managing Director (since 2002) of Nuveen            141
7/7/65                                 2002          Investments, LLC; Managing Director (since
333 W. Wacker Drive                                  1997), formerly Vice President (since
Chicago, IL  60606                                   1996) of Nuveen Advisory Corp. and Nuveen
                                                     Institutional Advisory Corp.; Chartered
                                                     Financial Analyst.

Thomas J. O'Shaughnessy           Vice President     Vice President (since January 2002),                136
9/4/60                                 2002          formerly, Assistant Vice President (since
333 W. Wacker Drive                                  1998), of Nuveen Advisory Corp.; prior
Chicago, IL  60606                                   thereto, portfolio manager.

Thomas C. Spalding                Vice President     Vice President of Nuveen Advisory Corp.             136
7/31/51                                2002          and Nuveen Institutional Advisory Corp.;
333 W. Wacker Drive                                  Chartered Financial Analyst.
Chicago, IL  60606
</Table>



- --------
(1)  Trustees are elected each year by shareholders and serve a one year term
     until his/her successor is elected.
(2)  Officers serve one year terms through July of each year.


         The Board of Trustees has five standing committees: the executive
committee, the audit committee, the nominating and governance committee, the
dividend committee and the valuation committee. Because the Fund is newly
organized, none of the committees have met during the Fund's last fiscal year.
The executive committee met once prior to the commencement of the Fund's
operations.

         Peter R. Sawers 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 Funds, the quality and integrity of the financial statements of
the Funds, compliance by the Funds with legal and regulatory requirements and
the independence and performance of the external and internal auditors. The
members of the audit committee are William J. Schneider, Chair, Robert P.
Bremner, Lawrence H. Brown, Anne E. Impellizzeri, Peter R. Sawers and Judith M.
Stockdale.


                                      S-18
<PAGE>

         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 as to suitable candidates, including
from shareholders of the Fund. Suggestions should be sent in writing to Lorna
Ferguson, Vice President for Board Relations, Nuveen Investments, 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
Anne E. Impellizzeri, Chair, Robert P. Bremner, Lawrence H. Brown, Peter R.
Sawers, William J. Schneider and Judith M. Stockdale.

         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, and Lawrence H. Brown.

         The valuation committee oversees the Fund's Pricing Procedures
including, but not limited to, the review and approval of fair value pricing
determinations made by Nuveen's Valuation Group. The members of the valuation
committee are Judith M. Stockdale and Lawrence H. Brown.


         The trustees of the Fund are also directors or trustees, as the case
may be, of 30 Nuveen open-end funds and 92 Nuveen closed-end funds advised by
Nuveen Advisory Corp. Mr. Schwertfeger is a director or trustee, as the case may
be, of 19 Nuveen open-end and closed-end funds advised by Nuveen Institutional
Advisory Corp. 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, Nuveen Advisory, Nuveen, Salomon Smith Barney Inc. or their
affiliates.


         The holders of common shares of the Fund will elect trustees at the
next annual meeting of common shareholders, unless any MuniPreferred shares are
outstanding at that time, in which event holders of MuniPreferred shares, voting
as a separate class, will elect two trustees and the remaining trustees shall be
elected by common shareholders and holders of MuniPreferred shares, voting
together as a single class. Holders of MuniPreferred shares will be entitled to
elect a majority of the Fund's trustees under certain circumstances.
See "Description of Shares-- MuniPreferred shares-- Voting Rights."


                                      S-19
<PAGE>

         The following table sets forth the dollar range of equity securities
beneficially owned by each trustee as of December 31, 2001:

<Table>
<Caption>
                                                                 AGGREGATE DOLLAR RANGE OF
                                                                  EQUITY SECURITIES IN ALL
                                           DOLLAR RANGE OF         REGISTERED INVESTMENT
                                                EQUITY             COMPANIES OVERSEEN BY
                                              SECURITIES            TRUSTEE IN FAMILY OF
            NAME OF TRUSTEE                  IN THE FUND            INVESTMENT COMPANIES
            ---------------                ---------------       -------------------------
<S>                                        <C>                   <C>
Robert P. Bremner...................               $0                  over $100,000
Lawrence H. Brown...................               $0                  over $100,000
Anne E. Impellizzeri................               $0                  over $100,000
Peter R. Sawers.....................               $0                  over $100,000
William J. Schneider................               $0                  over $100,000
Timothy R. Schwertfeger.............               $0                  over $100,000
Judith M. Stockdale.................               $0                  over $100,000
</Table>


         No trustee who is not an interested person of the Fund owns
beneficially or of record, any security of Nuveen Advisory, Nuveen, Salomon
Smith Barney Inc. or any person (other than a registered investment company)
directly or indirectly controlling, controlled by or under common control with
Nuveen Advisory, Nuveen or Salomon Smith Barney 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 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.


<Table>
<Caption>
                                            ESTIMATED AGGREGATE      TOTAL COMPENSATION        AMOUNT OF TOTAL
                                             COMPENSATION FROM          FROM FUND AND         COMPENSATION THAT
            NAME OF TRUSTEE                      THE FUND*             FUND COMPLEX**         HAS BEEN DEFERRED
            ---------------                 -------------------      ------------------       -----------------
<S>                                         <C>                      <C>                      <C>
Robert P. Bremner....................              $202                   $72,500                 $  8,280
Lawrence H. Brown....................               210                    78,500                        0
Anne E. Impellizzeri.................               202                    72,500                   55,200
Peter R. Sawers......................               202                    73,000                   54,788
William J. Schneider.................               202                    72,500                   55,200
Judith M. Stockdale..................               202                    72,500                   13,800
</Table>


- ----------


*       Based on the estimated compensation to be earned by the independent
        trustees for the 12 month period ending 8/31/04, representing the Fund's
        first full fiscal year end, for services to the Fund.


**      Based on the compensation paid to the trustees for the one year period
        ending 12/31/01 for services to the open-end and closed-end funds
        advised by Nuveen Advisory.


                                      S-20
<PAGE>

         The Fund has no employees. Its officers are compensated by Nuveen
Advisory or an affiliate, or The John Nuveen Company.

                               INVESTMENT ADVISER

         Nuveen Advisory acts as investment adviser to the Fund, with
responsibility for the overall management of the Fund. Its address is 333 West
Wacker Drive, Chicago, Illinois 60606. Nuveen Advisory is also responsible for
managing the Fund's business affairs and providing day-to-day administrative
services to the Fund. For additional information regarding the management
services performed by Nuveen Advisory, see "Management of the Fund" in the
Fund's Prospectus.


         Nuveen Advisory is a wholly owned subsidiary of The John Nuveen
Company. Founded in 1898, The John Nuveen Company brings over a century of
expertise to the municipal bond market. According to data from Thomson Wealth
Management, Nuveen Advisory is the leading sponsor of exchange-traded municipal
bond funds as measured by number of funds (92) and fund assets under management
($33 billion) as of October 31, 2002. Overall, The John Nuveen Company and its
affiliates had over $84 billion in assets under management or surveillance as of
October 31, 2002. The John Nuveen Company is approximately 77% owned by The St.
Paul Companies, Inc. ("St. Paul"). St. Paul is a publicly-traded company located
in St. Paul, Minnesota, and is principally engaged in providing
property-liability insurance through subsidiaries.



         Nuveen Investments, LLC, a unit of The John Nuveen Company, provides
investment management services for advisors, serving high-net-worth clients and
institutional clients. The company today markets its capabilities--which include
tax-free investing, separately managed accounts and market neutral alternative
investment portfolios--under four distinct brands: Nuveen, NWQ, Rittenhouse and
Symphony. The John Nuveen Company and its affiliates had over $77 billion of
assets under management as of October 31, 2002. The John Nuveen Company, an
affiliate of The St. Paul Companies (NYSE: SPC), is listed on The New York Stock
Exchange and trades under the symbol "JNC."


         Pursuant to an investment management agreement between Nuveen Advisory
and the Fund, the Fund has agreed to pay for the services and facilities
provided by Nuveen Advisory an annual management fee, payable on a monthly
basis, according to the following schedule:

<Table>
<Caption>
           AVERAGE DAILY MANAGED ASSETS                MANAGEMENT FEE
           ----------------------------                --------------
<S>                                                    <C>
Up to $125 million.............................             .6500%
$125 million to $250 million...................             .6375
$250 million to $500 million...................             .6250
$500 million to $1 billion.....................             .6125
$1 billion to $2 billion.......................             .6000
$2 billion and over............................             .5750
</Table>

         In addition to the fee of Nuveen Advisory, the Fund pays all other
costs and expenses of its operations, including compensation of its trustees
(other than those affiliated with Nuveen Advisory), custodian, transfer agency
and dividend disbursing expenses, legal fees, expenses of independent auditors,
expenses of repurchasing shares, expenses of issuing MuniPreferred shares,
expenses of preparing, printing and distributing shareholder reports, notices,
proxy statements and reports to governmental agencies and taxes, if any. All
fees and expenses are accrued daily and deducted before payment of dividends to
investors.


                                      S-21
<PAGE>

         For the first eight full years of the Fund's operation, Nuveen Advisory
has contractually agreed to reimburse the Fund for fees and expenses in the
amounts, and for the time periods, set forth below:

<Table>
<Caption>
                              PERCENTAGE                                    PERCENTAGE
                              REIMBURSED                                    REIMBURSED
                           (AS A PERCENTAGE                              (AS A PERCENTAGE
      YEAR ENDING                 OF                YEAR ENDING                 OF
     NOVEMBER 30,           MANAGED ASSETS)         NOVEMBER 30,          MANAGED ASSETS)
     ------------          ----------------         ------------         ----------------
<S>                        <C>                      <C>                  <C>
          2002(1)                  .32%                   2008                   .24%
          2003                     .32                    2009                   .16
          2004                     .32                    2010                   .08
          2005                     .32
          2006                     .32
          2007                     .32
</Table>

- ----------

(1)     From the commencement of operations.

         Reducing Fund expenses in this manner will tend to increase the amount
of income available for the common shareholders. Nuveen Advisory has not agreed
to reimburse the Fund for any portion of its fees and expenses beyond November
30, 2010.


         Unless earlier terminated as described below, the Fund's investment
management agreement with Nuveen Advisory (the "management agreement") will
remain in effect until July 1, 2004. The management agreement continues 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 investment management
agreement, 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 Nuveen Advisory upon 60 days written
notice, and is automatically terminated in the event of its assignment as
defined in the 1940 Act.


         The management agreement has been approved by a majority of the
independent trustees of the Fund and the sole shareholder of the Fund. The
independent trustees have determined that the terms of the Fund's management
agreement are fair and reasonable and that the agreement is in the Fund's best
interests. The independent trustees believe that the management agreement will
enable the Fund to obtain high quality investment management services at a cost
that they deem appropriate, reasonable, and in the best interests of the Fund
and its shareholders. In making such determination, the independent trustees met
independently from the interested trustee of the Fund and any officers of Nuveen
Advisory and its affiliates. The independent trustees also relied upon the
assistance of counsel to the independent trustees.

         In evaluating the investment management agreement, the independent
trustees reviewed materials furnished by Nuveen Advisory at the annual advisory
contract renewal meeting held in April, 2002, including information regarding
Nuveen Advisory, its affiliates and its personnel, operations and financial
condition. The independent trustees also reviewed, among other things, the
nature and quality of services to be provided by Nuveen Advisory, the proposed
fees to be charged by Nuveen Advisory for investment management services, the
profitability to Nuveen Advisory of its relationships with the Fund, fall-out
benefits to Nuveen Advisory from that relationship, economies of scale achieved
by Nuveen Advisory, the experience of the investment advisory and other
personnel providing services to the Fund, the historical quality of the services
provided by Nuveen Advisory and comparative fees and expense ratios of
investment companies with similar objectives and strategies managed by other
investment advisers, and other factors that the independent trustees deemed
relevant.


                                      S-22
<PAGE>

         The independent trustees discussed with representatives of Nuveen
Advisory the Fund's operations and Nuveen Advisory's ability to provide advisory
and other services to the Fund.

         The Fund, Nuveen Advisory, Nuveen, Salomon Smith Barney, Inc., and
other related entities have adopted codes of ethics which essentially prohibit
certain of their personnel, including the Nuveen fund portfolio manager, from
engaging in personal investments which 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, Nuveen Advisory and Nuveen can be
viewed online or downloaded from the EDGAR Database on the SEC's internet web
site at www.sec.gov. You may also review and copy those documents by visiting
the SEC's Public Reference Room in Washington, DC. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at 202-942-8090.
In addition, copies of the codes of ethics may be obtained, after mailing the
appropriate duplicating fee, by writing to the SEC's Public Reference Section,
450 5th Street, N.W., Washington, DC 20549-0102 or by e-mail request at
publicinfo@sec.gov.

                             PORTFOLIO TRANSACTIONS

         Nuveen Advisory is responsible for decisions to buy and sell securities
for the Fund and for the placement of the Fund's securities business, the
negotiation of the prices to be paid for principal trades and the allocation of
its transactions among various dealer firms. Portfolio securities will normally
be purchased directly from an underwriter or in the over-the-counter 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.

         The Fund expects that substantially all portfolio transactions will be
effected on a principal (as opposed to an agency) basis and, accordingly, does
not expect to pay any brokerage commissions. Purchases from underwriters will
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers will include the spread between the bid and asked price.
On occasion, the Fund may clear portfolio transactions through Nuveen. It is the
policy of Nuveen Advisory to seek the best execution under the circumstances of
each trade. Nuveen Advisory evaluates 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 Nuveen Advisory's practice to select dealers which, in addition, furnish
research information (primarily credit analyses of issuers and general economic
reports) and statistical and other services to Nuveen Advisory. 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 Nuveen
Advisory's own research efforts, the receipt of research information is not
expected to reduce significantly Nuveen Advisory's expenses. While Nuveen
Advisory will be primarily responsible for the placement of the business of the
Fund, the policies and practices of Nuveen Advisory 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.

         Nuveen Advisory may manage other investment accounts and investment
companies for other clients which have investment objectives similar to those of
the Fund. Subject to applicable laws and regulations, Nuveen Advisory seeks to
allocate portfolio transactions equitably whenever concurrent decisions are made
to purchase or sell securities by the Fund and another advisory account. In
making such allocations the main factors to be considered will be the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment and the size of
investment commitments generally held. While this procedure could have a


                                      S-23
<PAGE>

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 Nuveen Advisory's organization will outweigh any
disadvantage that may arise from exposure to simultaneous transactions.

                                NET ASSET VALUE

         The Fund's net asset value per share is determined as of the close of
regular session trading (normally 4:00 p.m. eastern time) on each day the New
York Stock Exchange is open for business. Net asset value is calculated by
taking the fair value of the Fund's total assets, including interest or
dividends accrued but not yet collected, less all liabilities, and dividing by
the total number of shares outstanding. The result, rounded to the nearest cent,
is the net asset value per share.

         In determining net asset value, expenses are accrued and applied daily
and securities and other assets for which market quotations are available are
valued at market value. The prices of municipal bonds are provided by a pricing
service and based on the mean between the bid and asked price. When price quotes
are not readily available (which is usually the case for municipal bonds), the
pricing service establishes a fair market value based on prices of comparable
municipal bonds. All valuations are subject to review by the Fund's Board of
Trustees or its delegate, Nuveen Advisory.

                        ADDITIONAL INFORMATION CONCERNING
                         THE AUCTIONS FOR MUNIPREFERRED

GENERAL

         Auction Agency Agreement. The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
Deutsche Bank Trust Company Americas) which provides, among other things, that
the Auction Agent will follow the Auction Procedures for purposes of determining
the Applicable Rate for shares of each series of MuniPreferred 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 shares of MuniPreferred. See "Broker-Dealers"
below.

         Securities Depository. The Depository Trust Company ("DTC") will act as
the Securities Depository for the Agent Members (as defined below) with respect
to shares of each series of MuniPreferred. One certificate for all of the shares
of each series of MuniPreferred will be registered in the name of Cede, 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 shares of MuniPreferred contained in the Statement. The Fund will
also issue stop-transfer instructions to the transfer agent for shares of each
series of MuniPreferred. 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 MuniPreferred Shares -- Voting Rights" in the Prospectus, Cede
will be the holder of record of all shares of each series of MuniPreferred 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 shares of MuniPreferred, whether for its own
account or as a nominee for another person.


                                      S-24
<PAGE>

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 MuniPreferred, 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 MuniPreferred" 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 MuniPreferred 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 364 days, or a percentage agreed to by the Fund and the
Broker-Dealers in the case of any Auction immediately preceding a Rate Period of
364 days or longer, of the purchase price of shares of MuniPreferred placed by
such Broker-Dealer at such Auction. For the purposes of the preceding sentence,
shares of MuniPreferred 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.

         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-25
<PAGE>

                 CERTAIN PROVISIONS IN THE DECLARATION OF TRUST

         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 includes provisions that could limit the ability of
other entities or persons to acquire control of the Fund or to convert the Fund
to open-end status. Specifically, the Declaration requires a vote by holders of
at least two-thirds of the common shares and MuniPreferred 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 or
recapitalization of the Fund, or a series or class of the Fund, (3) a sale,
lease or transfer of all or substantially all of the 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) 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
MuniPreferred 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), the required vote only 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. None of the foregoing provisions may be amended
except by the vote of at least two-thirds of the common shares and MuniPreferred
shares, voting together as a single class. 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 which adversely affects the
holders of MuniPreferred shares, the action in question will also require the
affirmative vote of the holders of at least two-thirds of the Fund's
MuniPreferred 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
Fund's MuniPreferred shares outstanding at the time, voting as a separate class.
The votes required to approve the conversion of the Fund from a closed-end to an
open-end investment company or to approve transactions constituting a plan of
reorganization which adversely affects the holders of MuniPreferred 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.

         Reference should be made to the Declaration on file with the Securities
and Exchange Commission for the full text of these provisions.

         The Declaration provides that the obligations of the Fund are not
binding upon the trustees of the Fund 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


                                      S-26
<PAGE>

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.

         REPURCHASE OF COMMON 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 Fund's common shares will trade in the open market at a price that
will be a function of several factors, including dividend levels (which are in
turn affected by expenses), net asset value, call protection, price, 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 Fund's
MuniPreferred shares are outstanding, the Fund may not purchase, redeem or
otherwise acquire any of its common shares unless (1) all accrued MuniPreferred
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 MuniPreferred shares (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 borrowing 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 the Fund 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 American Stock Exchange, or (b) impair the Fund's status
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (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 American Stock Exchange, (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


                                      S-27
<PAGE>

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 foreign 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 which
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 company would require the approval of the
holders of at least two-thirds of the Fund's common shares and MuniPreferred
shares outstanding at the time, voting together as a single class, and of the
holders of at least two-thirds of the Fund's MuniPreferred 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 Prospectus under "Certain Provisions in the Declaration of Trust" for a
discussion of voting requirements applicable to conversion of the Fund to an
open-end company. If the Fund converted to an open-end company, it would be
required to redeem all MuniPreferred shares then outstanding, and the Fund's
common shares would no longer be listed on the American Stock Exchange.
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) 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 companies typically engage in a continuous offering of
their shares. Open-end 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 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 MuniPreferred shares are outstanding will increase the leverage applicable
to the outstanding common shares then remaining.

         Before deciding whether to take any action if the Fund's common shares
trade below net asset value, the Board of the Fund 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.

                                   TAX MATTERS

         The following is intended to be a general summary of certain U.S.
federal income tax consequences of investing in shares of MuniPreferred. It is
not intended to be a complete discussion of all such federal


                                      S-28
<PAGE>
income tax consequences nor does it purport to deal with all categories of
investors. Investors are advised to consult with their own tax advisors before
investing in the Fund.

FEDERAL INCOME TAX MATTERS


         The Fund intends to elect to be treated, and to qualify each year, as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code") and to satisfy conditions which enable dividends
on common shares or shares of MuniPreferred which are attributable to interest
on municipal obligations to be exempt from regular federal income tax and the
federal alternative minimum tax applicable to individuals.


         To qualify under Subchapter M for tax treatment as a regulated
investment company, the Fund must, among other things: (a) distribute to its
shareholders each year at least 90% of the sum of (i) its investment company
taxable income (as that term is defined in the Code, determined without regard
to the deduction for dividends paid) and (ii) its net tax-exempt income (the
excess of its gross tax-exempt interest income over certain disallowed
deductions) and (b) diversify its holdings so that, at the end of each quarter
of the Fund's taxable year (i) at least 50% of the market value of the Fund's
assets is represented by cash, cash items, U.S. government securities,
securities of other regulated investment companies, and other securities, with
these other securities limited, with respect to any one issuer, to an amount not
greater in value than 5% of the Fund's total assets, and to not more than 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the market value of the Fund's assets is invested in the securities of any one
issuer (other than U.S. government securities or securities of other regulated
investment companies) or two or more issuers controlled by the Fund and engaged
in the same, similar or related trades or businesses. In meeting these
requirements, the Fund may be restricted in the utilization of certain of the
investment techniques described under "Investment Policies and Techniques" and
"Other Investment Policies and Techniques" above.

         If, in any year, the Fund fails to qualify as a regulated investment
company, the Fund would incur a regular federal corporate income tax upon its
taxable income for that year, and distributions to its shareholders would be
taxable to such holders as ordinary income to the extent of the earnings and
profits of the Fund. A regulated investment company that fails to distribute, by
the close of each calendar year, an amount equal to the sum of 98% of its
ordinary taxable income for such year and 98% of its capital gain net income for
the one-year period ending October 31 in such year, plus any shortfalls from the
prior years' required distribution, is liable for a nondeductible 4% excise tax
on the excess of the required distribution for such calendar year over the
distributed amount for such calendar year. To avoid the imposition of this
excise tax, the Fund generally intends to make the required distributions of its
ordinary taxable income, if any, and its capital gain net income, to the extent
possible, by the close of each calendar year.

         The Fund intends to qualify to pay "exempt-interest" dividends, as
defined in the Code, on its common shares and shares of MuniPreferred by
satisfying the requirement that, at the close of each quarter of its taxable
year, at least 50% of the value of its total assets consist of tax-exempt
municipal bonds. Exempt-interest dividends are dividends or any part thereof
(other than a capital gain dividend) paid by the Fund which are attributable to
interest on municipal bonds and are so designated by the Fund. Exempt-interest
dividends will be exempt from federal income tax, subject to the possible
application of the federal alternative minimum tax. Insurance proceeds received
by the Fund under any insurance policies in respect of scheduled interest
payments on defaulted municipal bonds, as described herein, will generally be
excludable from federal gross income under Section 103(a) of the Code. In the
case of non-appropriation by a political subdivision, however, there can be no
assurance that payments made by the issuer representing interest on such
"non-appropriation" municipal lease obligations will be excludable from gross
income for federal income tax purposes. See "Investment Policies and Techniques"
above.


                                      S-29
<PAGE>

         Gains of the Fund that are attributable to market discount on certain
municipal obligations are treated as ordinary income to the extent of accrued
market discount on the bond. Distributions to shareholders of net income
received by the Fund from taxable temporary investments, if any, and of net
short-term capital gains realized by the Fund, if any, will be taxable to its
shareholders as ordinary income. Distributions by the Fund of net capital gain
(i.e., the excess of net long-term capital gain over net short-term capital
loss), if any, are taxable as long-term capital gain, regardless of the length
of time the shareholder has owned common shares or shares of MuniPreferred of
the Fund. The amount of taxable income allocable to the Fund's shares of
MuniPreferred will depend upon the amount of such income realized by the Fund,
but is not generally expected to be significant. Except for dividends paid on
shares of MuniPreferred which include an allocable portion of any net capital
gain or other taxable income, the Fund anticipates that all other dividends paid
on shares of its MuniPreferred will constitute exempt-interest dividends for
federal income tax purposes. Distributions, if any, in excess of the Fund's
earnings and profits will first reduce the adjusted tax basis of a shareholder's
shares and, after that basis has been reduced to zero, will constitute capital
gain to the shareholder (assuming the shares are held as a capital asset). As
long as the Fund qualifies as a regulated investment company under the Code, no
part of its distributions to shareholders will qualify for the
dividends-received deduction available to corporate shareholders.


         The Internal Revenue Service (the "IRS") requires that a regulated
investment company that has two or more classes of shares must designate to each
such class proportionate amounts of each type of its income for each tax year
based upon the percentage of total dividends distributed to each class for such
year. The Fund intends each year to allocate, to the fullest extent practicable,
net tax-exempt interest, net capital gain and other taxable income, if any,
between its common shares and shares of MuniPreferred in proportion to the total
dividends paid to each class with respect to such year. To the extent permitted
under applicable law, the Fund reserves the right to make special allocations of
income within a class, consistent with the objectives of the Fund. The Fund
will, in the case of a Minimum Rate Period or a Special Rate Period of 28 Rate
Period Days or fewer, and may, in the case of any other Special Rate Period,
notify the Auction Agent of the amount of any net capital gain or other income
taxable for regular federal income tax purposes to be included in any dividend
on shares of its MuniPreferred prior to the Auction establishing the Applicable
Rate for such dividend. If (a) in the case of any Minimum Rate Period or any
Special Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net
capital gain or other income taxable for regular federal income tax purposes to
a dividend paid on shares of MuniPreferred without having given advance notice
thereof to the Auction Agent as required by the Statement solely by reason of
the fact that such allocation is made retroactively as a result of the
redemption of all or a portion of the outstanding shares of its MuniPreferred or
the liquidation of the Fund or (b) in the case of any Special Rate Period of
more than 28 Rate Period Days, the Fund allocates any net capital gain or other
taxable income for regular federal income tax purposes to shares of its
MuniPreferred without having given advance notice thereof as described above,
the Fund will make certain payments to owners of shares of its MuniPreferred to
which such allocation was made to offset the federal income tax effect thereof
as described under "Description of MuniPreferred shares -- Dividends and
Dividend Periods -- Gross-up Payments" in the prospectus.

         In order for any distributions to owners of the shares of MuniPreferred
to be eligible to be treated as exempt-interest dividends, such shares of
MuniPreferred must be treated as stock for federal income tax purposes. Nuveen
Advisory believes the shares of MuniPreferred should be treated as stock for
federal income tax purposes.

         If at any time when the Fund's shares of MuniPreferred are outstanding
the Fund fails to meet the MuniPreferred Basic Maintenance Amount or the 1940
Act MuniPreferred Asset Coverage, the Fund will be required to suspend
distributions to holders of its common shares until such maintenance amount or
asset coverage, as the case may be, is restored. See "Description of
MuniPreferred shares -- Dividends and Dividend Periods -- Restrictions on
Dividends and Other Distributions" in the prospectus. This may


                                      S-30
<PAGE>

prevent the Fund from distributing at least 90% of the sum of its investment
company taxable income (as that term is defined in the Code, determined without
regard to the deduction for dividends paid) and its net tax-exempt income, and
may therefore jeopardize the Fund's qualification for taxation as a regulated
investment company or cause the Fund to incur a tax liability or a
non-deductible 4% excise tax on the undistributed taxable income (including
gain), or both. Upon failure to meet the MuniPreferred Basic Maintenance Amount
or the 1940 Act MuniPreferred Asset Coverage, the Fund will be required to
redeem its shares of MuniPreferred in order to maintain or restore such
maintenance amount or asset coverage and avoid the adverse consequences to the
Fund and its shareholders of failing to qualify as a regulated investment
company. There can be no assurance, however, that any such redemption would
achieve such objectives.

         The Code provides that interest on indebtedness incurred or continued
to purchase or carry the Fund's shares to which exempt-interest dividends are
allocated is not deductible. Under rules used by the IRS for determining when
borrowed funds are considered used for the purpose of purchasing or carrying
particular assets, the purchase or ownership of shares may be considered to have
been made with borrowed funds even though such funds are not directly used for
the purchase or ownership of such shares.

         The interest on private activity bonds in most instances is not
federally tax-exempt to a person who is a "substantial user" of a facility
financed by such bonds or a "related person" of such "substantial user." As a
result, the Fund may not be an appropriate investment for a shareholder who is
considered either a "substantial user" or a "related person" within the meaning
of the Code. In general, a "substantial user" of a facility includes a
"nonexempt person who regularly uses a part of such facility in his trade or
business." "Related persons" are in general defined to include persons among
whom there exists a relationship, either by family or business, which would
result in a disallowance of losses in transactions among them under various
provisions of the Code (or if they are members of the same controlled group of
corporations under the Code), including a partnership and each of its partners
(and certain members of their families), an S corporation and each of its
shareholders (and certain members of their families) and various combinations of
these and other relationships. The foregoing is not a complete description of
all of the provisions of the Code covering the definitions of "substantial user"
and "related person."

         The Fund may, at its option, redeem shares of its MuniPreferred in
whole or in part, and is required to redeem shares of its MuniPreferred to the
extent required to maintain the MuniPreferred Basic Maintenance Amount and the
1940 Act MuniPreferred Asset Coverage. Gain or loss, if any, resulting from a
redemption of the shares of MuniPreferred will be taxed as gain or loss from the
sale or exchange of the shares of MuniPreferred under Section 302 of the Code
rather than as a dividend, but only if the redemption distribution (a) is deemed
not to be essentially equivalent to a dividend, (b) is in complete redemption of
an owner's interest in the Fund, (c) is substantially disproportionate with
respect to the owner, or (d) with respect to non-corporate owners, is in partial
liquidation of the Fund. For purposes of (a), (b) and (c) above, an owner's
ownership of common shares will be taken into account. In determining whether
the above conditions are satisfied, shares owned by certain persons related to
the owner will be treated as held by such owner.

         Nonresident alien individuals and certain foreign corporations and
other entities ("foreign investors") generally are subject to U.S. federal
income tax withholding at the rate of 30% (or possibly a lower rate provided by
an applicable tax treaty) on distributions of taxable net investment income and
net short-term capital gain. To the extent received by foreign investors,
exempt-interest dividends, distributions of net long-term capital gain and gain
from the sale or other disposition of the shares of MuniPreferred generally are
exempt from U.S. federal income taxation. Different tax consequences may result
if the owner is engaged in a trade or business in the United States or, in the
case of an individual, is


                                      S-31
<PAGE>

present in the United States for more than 182 days during a taxable year and
certain other conditions are met.

         Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January, will be treated as having been distributed by the Fund (and received by
the shareholders) on December 31 of the year declared.

         Certain of the Fund's investment practices are subject to special
provisions of the Code that, among other things, may defer the use of certain
deductions or losses of the Fund, affect the holding period of securities held
by the Fund, and alter the character of the gains or losses realized by the
Fund. These provisions may also require the Fund to recognize income or gain
without receiving cash with which to make distributions in the amounts necessary
to satisfy the requirements for maintaining regulated investment company status
and for avoiding income and excise taxes. The Fund will monitor its transactions
and may make certain tax elections in order to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment
company.

         The sale or other disposition of common shares or shares of
MuniPreferred of the Fund (other than redemptions, the rules for which are
described above) will normally result in capital gain or loss to shareholders
who hold their shares as capital assets. Present law taxes both long-term and
short-term capital gains of corporations at the rates applicable to ordinary
income. For non-corporate taxpayers, however, long-term capital gains are
generally subject to reduced rates of taxation. Losses realized by a shareholder
on the sale or exchange of shares of the Fund held for six months or less are
disallowed to the extent of any distribution of exempt-interest dividends
received with respect to such shares, and, if not disallowed, such losses are
treated as long-term capital losses to the extent of any distribution of
long-term capital gain received (or designated amounts of undistributed capital
gain that are treated as received) with respect to such shares. Under certain
circumstances, a shareholder's holding period may have to restart after, or may
be suspended for, any periods during which the shareholder's risk of loss is
diminished as a result of holding one or more other positions in substantially
similar or related property, or through certain options or short sales. Any loss
realized on a sale or exchange of shares of the Fund will be disallowed to the
extent those shares of the Fund are replaced by other substantially identical
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the date of disposition of the original shares. In that
event, the basis of the replacement shares of the Fund will be adjusted to
reflect the disallowed loss.


         Federal tax law imposes an alternative minimum tax with respect to
corporations, individuals, trusts and estates. Interest on certain municipal
obligations, such as certain "specified private activity bonds" (as such term is
defined in the Code) is included as an item of tax preference in determining the
amount of an individual taxpayer's alternative minimum taxable income. However,
interest received on "qualified 501(c)(3) bonds" (as such term is defined in the
Code) is not generally included as an item of tax preference in determining an
individual taxpayer's federal alternative minimum taxable income. To the extent
that the Fund receives income from municipal obligations subject to the federal
alternative minimum tax, a portion of the dividends paid by the Fund, although
otherwise exempt from federal income tax, will be taxable to its shareholders to
the extent that their tax liability is determined under the alternative minimum
tax. The Fund will annually supply a report indicating the percentage of the
Fund's income attributable to municipal obligations subject to the federal
alternative minimum tax. In addition, for certain corporations, alternative
minimum taxable income is increased by 75% of the difference between a federal
alternative measure of income ("adjusted current earnings") and the amount
otherwise determined to be the alternative minimum taxable income. Interest on
all municipal obligations, and therefore all distributions by the Fund that
would otherwise be tax-exempt, is included in calculating a corporation's
adjusted current earnings. Certain small corporations are not subject to the
federal alternative minimum tax.



                                      S-32
<PAGE>
         Tax-exempt income, including exempt-interest dividends paid by the
Fund, is taken into account in calculating the amount of social security and
railroad retirement benefits that may be subject to federal income tax.


         The Fund is required in certain circumstances to withhold a portion of
taxable dividends and certain other payments paid to certain holders of the
Fund's shares who do not furnish to the Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain certifications, or who are otherwise subject to backup withholding
under the Code. Backup withholding is not an additional tax. Any amounts
withheld from payments made to a shareholder may be refunded or credited against
such shareholder's U.S. federal income tax liability, provided the required
information is furnished to the IRS.


         The Code provides that every shareholder required to file a tax return
must include for information purposes on such return the amount of tax-exempt
interest received during the taxable year, including any exempt-interest
dividends received from the Fund.

         The value of common shares acquired pursuant to the Fund's Dividend
Reinvestment Plan will generally be excluded from gross income to the extent
that the cash amount reinvested would be excluded from gross income.


         The foregoing is a general summary of certain provisions of the Code
and regulations thereunder presently in effect as they directly govern the
federal income taxation of the Fund and its shareholders. These provisions are
subject to change by legislative or administrative action, and any such change
may be retroactive. Moreover, the foregoing does not address many of the factors
that may be determinative of whether an investor will be liable for the
alternative minimum tax. Shareholders are advised to consult with their own tax
advisors for more detailed information concerning the federal income tax
consequences of purchasing, holding and disposing of Fund shares before making
an investment in such shares.


STATE TAX MATTERS

         Tax matters pertaining to California are set forth in Appendix E.

                                     EXPERTS


         The Financial Statements of the Fund as of November 4, 2002, appearing
in this Statement of Additional Information have been audited by Ernst & Young
LLP, 233 South Wacker Drive, Chicago, Illinois 60602, independent auditors, 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.


                                    CUSTODIAN

         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.

                             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 Securities and Exchange Commission (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


                                      S-33
<PAGE>

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-34
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

The Board of Trustees and Shareholder
Nuveen Insured California Tax-Free Advantage Municipal Fund

We have audited the accompanying statement of assets and liabilities of Nuveen
Insured California Tax-Free Advantage Municipal Fund (the "Fund") as of
November 4, 2002 and the related statement of operations for the period from
July 29, 2002 (date of organization) through November 4, 2002. 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 auditing standards generally accepted
in the 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Fund at November 4, 2002,
and results of its operations for the period from July 29, 2002 (date of
organization) through November 4, 2002, in conformity with accounting
principles generally accepted in the United States.


                                             /s/ ERNST & YOUNG LLP


Chicago, Illinois
November 5, 2002



                                      F-1
<PAGE>



          NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL FUND
                              FINANCIAL STATEMENTS

          Nuveen Insured California Tax-Free Advantage Municipal Fund
                      Statement of Assets and Liabilities
                                November 4, 2002

<Table>
<S>                                                                    <C>
Assets:
    Cash.............................................................  $100,275
    Offering costs...................................................   369,000
    Receivable from Adviser..........................................    11,500
                                                                       --------
       Total assets..................................................   480,775
                                                                       --------

Liabilities:
    Accrued offering costs...........................................   369,000
    Payable for organization costs...................................    11,500
                                                                       --------
       Total liabilities.............................................   380,500
                                                                       --------
MuniPreferred Shares, $25,000 liquidation value; unlimited
    number of shares authorized, no shares outstanding...............         -
                                                                       --------
Net assets applicable to Common Shares...............................  $100,275
                                                                       ========

Net asset value per Common Share outstanding ($100,275 divided
    by 7,000 Common Shares outstanding)..............................  $ 14.325
                                                                       ========
Net Assets Applicable to Common Shares Represent:
    Common Shares, $.01 par value; unlimited number of shares
        authorized, 7,000 shares outstanding.........................        70
    Paid-in surplus..................................................   100,205
                                                                       --------
                                                                       $100,275
                                                                       ========
</Table>


                                      F-2


<PAGE>

          Nuveen Insured California Tax-Free Advantage Municipal Fund
                            Statement of Operations
   Period from July 29, 2002 (date of organization) through November 4, 2002

<Table>
<S>                                                                 <C>
Investment income ................................................  $      -
                                                                    --------
Expenses:
  Organization costs..............................................    11,500
  Expense reimbursement...........................................   (11,500)
                                                                    --------
     Total expenses ..............................................         -
                                                                    --------
Net investment income ............................................  $      -
                                                                    ========
</Table>

Note 1: Organization

The Fund was organized as a Massachusetts business trust on July 29, 2002,
and has been inactive since that date except for matters relating to its
organization and registration as a non-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 7,000 Common Shares to
Nuveen Advisory Corp., the Fund's investment adviser (the "Adviser"), a wholly
owned subsidiary of The John Nuveen Company.

Nuveen Investments, also a wholly owned subsidiary of The John Nuveen Company,
has agreed to reimburse all organization expenses (approximately $11,500) and
pay all Common Share offering costs (other than the sales load) that exceed
$.03 per Common Share.

The Fund seeks to provide current income exempt from regular federal income tax,
the alternative minimum tax applicable to individuals and California income tax.

The Fund is authorized by its Declaration of Trust to issue Preferred Shares
("MuniPreferred Shares") having a liquidation value of $25,000 per share 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.

Note 2: Significant Accounting Policies

The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the use of
management estimates. Actual results may differ from those estimates.

The Fund's share of Common Share offering costs will be recorded as a reduction
of the proceeds from the sale of Common Shares upon the commencement of Fund
operations. The Common Share offering costs reflected in the Statement of
Assets and Liabilities assume the sale of 12,300,000 Common Shares.

If the Fund offers MuniPreferred Shares, the offering costs will be borne by
Common Shareholders as a direct reduction to paid-in capital.

Note 3: Investment Management Agreement

Pursuant to an investment management agreement between the Adviser and the
Fund, the Fund, upon commencement of Fund operations, has agreed to pay a
management fee, payable on a monthly basis, at an annual rate ranging from
..6500% of the first $125 million of the average daily net assets (including net
assets attributable to MuniPreferred Shares ("Managed Assets")) to .5750% of
the average daily Managed Assets in excess of $2 billion.

In addition to the reimbursement and waiver of organization and Common Share
offering costs discussed in Note 1, the Adviser has contractually agreed to
reimburse the Fund for fees and expenses in the amount of .32% of average daily
Managed Assets for the first five full years of the Fund's operations, .24% in
year 6, .16% in year 7 and .08% in year 8. The Adviser has not agreed to
reimburse the Fund for any portion of its fees and expenses beyond November 30,
2010.

Note 4: Income Taxes

The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount realized from investment transactions.


                                      F-3
<PAGE>

STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
December 18, 2002


<Table>
<S>                                                               <C>
ASSETS
Investments in municipal securities, at market value              $76,820,054
Temporary investments in short-term securities, at
  amortized cost, which approximates market value                   8,100,000
Cash                                                               13,617,443
Interest receivable                                                   537,525
                                                                  -----------
  Total assets                                                     99,075,022
                                                                  -----------

LIABILITIES
Payable for investments purchased                                  20,503,988
Accrued expenses:
  Management fees                                                      12,749
  Organization and offering costs                                      11,500
  Other                                                                 6,803
                                                                  -----------
  Total liabilities                                                20,535,040
                                                                  -----------
Net assets applicable to Common shares                            $78,539,982
                                                                  ===========
Common shares outstanding                                           5,457,000
                                                                  ===========
Net asset value per Common share outstanding
  (net assets applicable to Common shares
  divided by Common shares outstanding)                           $     14.39
                                                                  ===========
Net assets applicable to Common shares consist of:

Common shares, $.01 par value per share                           $    54,570
Paid-in surplus                                                    77,953,455
Undistributed net investment income                                    66,118
Accumulated net realized gain from investments                             --
Net unrealized appreciation (depreciation)
  of investments                                                      465,839
                                                                  -----------
Net assets applicable to Common shares                            $78,539,982
                                                                  ===========

Authorized shares:
  Common                                                            Unlimited
  MuniPreferred                                                     Unlimited
                                                                  ===========
</Table>


                See accompanying notes to financial statements.


                                      F-4
<PAGE>


STATEMENT OF OPERATIONS (UNAUDITED)
For the Period November 22, 2002 (commencement of operations) through
December 18, 2002


<Table>
<S>                                                               <C>
INVESTMENT INCOME                                                 $    89,906
                                                                  -----------
EXPENSES
Management fees                                                        33,455
Shareholders' servicing agent fees and expenses                           822
Custodian's fees and expenses                                           1,306
Trustees' fees and expenses                                                72
Professional fees                                                       1,343
Shareholders' reports - printing and mailing expenses                   3,260
                                                                  -----------

Total expenses before expense reimbursement                            40,258
  Expense reimbursement                                               (16,470)
                                                                  -----------
Net expenses                                                           23,788
                                                                  -----------
Net investment income                                                  66,118
                                                                  -----------

REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investments                                         --
Change in net unrealized appreciation (depreciation)
  of investments                                                      465,839
                                                                  -----------
Net gain from investments                                             465,839
                                                                  -----------
Net increase in net assets applicable
  to Common shares from operations                                $   531,957
                                                                  ===========

</Table>

                See accompanying notes to financial statements.


                                      F-5
<PAGE>

STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
For the Period November 22, 2002 (commencement of operations) through
December 18, 2002

<Table>
<S>                                                                 <C>
OPERATIONS
Net investment income                                               $    66,118
Net realized gain from investments                                           --
Change in net unrealized appreciation (depreciation) of investments     465,839
                                                                    -----------
Net increase (decrease) in net assets applicable to Common
shares from operations                                                  531,957
                                                                    -----------

CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of Common shares                              77,907,750
                                                                    -----------
Net increase in net assets applicable to Common shares               78,439,707
Net assets applicable to Common shares at the beginning of period       100,275
                                                                    -----------

Net assets applicable to Common shares at the end of period         $78,539,982
                                                                    ===========

Undistributed net investment income at
  the end of period                                                 $    66,118
                                                                    ===========
</Table>

                See accompanying notes to financial statements.


NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Fund covered in this report and its corresponding Common shares American
Stock Exchange symbol is Nuveen Insured California Tax-Free Advantage Municipal
Fund (NKX) (the "Fund"). Prior to the commencement of operations, the Fund had
no operations other than those related to organizational matters, the initial
capital contribution of $100,275 by Nuveen Advisory Corp. (the "Adviser"), a
wholly owned subsidiary of The John Nuveen Company, and the recording of the
organization expenses ($11,500) and their reimbursement by Nuveen Investments,
also a wholly owned subsidiary of The John Nuveen Company.

The Fund seeks to provide current income exempt from regular federal income tax,
the alternative minimum tax applicable to individuals and California income tax
by investing primarily in a portfolio of municipal obligations issued by state
and local government authorities within the state of California. The Fund is
registered under the Investment Company Act of 1940 as a non-diversified,
closed-end management investment company.

The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with
accounting principles generally accepted in the United States.

Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided by
a pricing service approved by the Fund's Board of Trustees. When price quotes
are not readily available (which is usually the case for municipal securities),
the pricing service establishes fair market value based on yields or prices of
municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications of value from securities dealers and general market
conditions. If it is determined that market prices for a security are
unavailable or inappropriate, the Board of Trustees of the Fund or its designee,
may establish a fair value for the security. Temporary investments in securities
that have variable rate and demand features qualifying them as short-term
securities are valued at amortized cost, which approximates market value.

Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. The securities so purchased are subject to
market fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
December 18, 2002, the Fund had outstanding when-issued purchase commitments of
$15,138,949.

Investment Income
Interest income, which includes the amortization of premiums and accretion of
discounts for financial reporting purposes, is recorded on an accrual basis.

Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its net
investment income to its shareholders. Therefore, no federal income tax
provision is required. Furthermore, the Fund intends to satisfy conditions which
will enable interest from municipal securities, which is exempt from regular
federal income tax, the alternative minimum tax applicable to individuals and
California income tax, to retain such tax-exempt status when distributed to
shareholders of the Fund.

Dividends and Distributions to Common Shareholders
Dividends from tax-exempt net investment income are declared and paid monthly.
Net realized capital gains and/or market discount from investment transactions,
if any, are distributed to shareholders not less frequently than annually.
Furthermore, capital gains are distributed only to the extent they exceed
available capital loss carryforwards.

Distributions to Common shareholders of tax-exempt net investment income, net
realized capital gains and/or market discount, if any, 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 accounting
principles generally accepted in the United States. Accordingly, temporary
over-distributions as a result of these differences may occur and will be
classified as either distributions in excess of net investment income,
distributions in excess of net realized gains and/or distributions in excess of
net ordinary taxable income from investment transactions, where applicable.

The Fund invests at least 80% of its net assets in municipal securities that are
covered by insurance. The Fund may also invest up to 20% of its net assets in
municipal securities which are either (i) backed by an escrow or trust
containing sufficient U.S. Government or U.S. Government agency securities, or
(ii) municipal bonds that are rated, at the time of investment, within the four
highest grades (Baa or BBB or better by Moody's, S&P or Fitch) or unrated but
judged to be of comparable quality by the Adviser.

Each insured municipal security is covered by Original Issue Insurance,
Secondary Market Insurance or Portfolio Insurance. Such insurance does not
guarantee the market value of the municipal securities or the value of the
Fund's Common shares. Original Issue Insurance and Secondary Market Insurance
remain in effect as long as the municipal securities covered thereby remain
outstanding and the insurer remains in business, regardless of whether the Fund
ultimately disposes of such municipal securities. Consequently, the market value
of the municipal securities covered by Original Issue Insurance or Secondary
Market Insurance may reflect value attributable to the insurance. Portfolio
Insurance is effective only while the municipal securities are held by the
Fund. Accordingly, neither the prices used in determining the market value of
the underlying municipal securities nor the net asset value of the Fund's Common
shares include value, if any attributable to the Portfolio Insurance. Each
policy of the Portfolio Insurance does, however, give the Fund the right to
obtain permanent insurance with respect to the municipal security covered by the
Portfolio Insurance policy at the time of its sale.



                                      F-6

<PAGE>

Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap and option contracts, and other financial instruments
with similar characteristics.  Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the period November 22, 2002 (commencement of operations)
through December 18, 2002.

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.

Organization and Offering Costs
Nuveen Investments has agreed to reimburse all organization expenses
(approximately $11,500) and pay all offering costs (other than the sales load)
that exceed $.03 per Common share. The Fund's share of offering costs ($163,500)
were recorded as a reduction of the proceeds from the sale of the Common shares.

If the Fund offers MuniPreferred shares, the offering costs will be borne by
Common shareholders as a direct reduction to paid-in capital.

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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
The Fund sold 5,450,000 Common shares during the period November 22, 2002
(commencement of operations) through December 18, 2002.

3. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in long-term municipal
securities and short-term securities for the period November 22, 2002
(commencement of operations) through December 18, 2002, were as follows:


<Table>
- --------------------------------------------------------------------------------
<S>                                        <C>
Purchases:
  Long-term municipal securities           $ 76,354,352
  Short-term securities                       8,100,000
Sales and maturities:
  Long-term municipal securities                     --
  Short-term securities                              --
                                           ============
- --------------------------------------------------------------------------------
</Table>

4. INCOME TAX INFORMATION
The following information is presented on an income tax basis as of December 18,
2002. Differences between amounts for financial statement and federal income tax
purposes are primarily due to timing differences in recognizing income on
taxable market discount securities and timing differences in recognizing certain
gains and losses on security transactions.


<Table>
- --------------------------------------------------------------------------------
<S>                                                               <C>
Cost of investments                                                 $ 84,454,215
================================================================================

- --------------------------------------------------------------------------------
Gross unrealized:

  appreciation                                                      $   477,499

  depreciation                                                          (11,660)
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments                          $   465,839
================================================================================
</Table>



The Fund made no distributions during the period November 22, 2002
(commencement of operations) through December 18, 2002.

5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Fund's investment management agreement with the Adviser, the Fund pays
an annual management fee, payable monthly, at the rates set forth below, which
are based upon the average daily net assets (including net assets attributable
to MuniPreferred shares) of the Fund as follows:

<Table>
<Caption>
AVERAGE DAILY NET ASSETS (including net assets attributable to MuniPreferred shares) MANAGEMENT FEE
- -----------------------------------------------------------------------------------------------------
<S>                                                                                     <C>
For the first $125 million                                                              .6500%
For the next $125 million                                                               .6375
For the next $250 million                                                               .6250
For the next $500 million                                                               .6125
For the next $1 billion                                                                 .6000
For net assets over $2 billion                                                          .5750
======================================================================================================
</Table>

The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities.  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.

                                      F-7

<PAGE>


For the first eight years of the Fund's operation, the Adviser has agreed to
reimburse the Fund, as a percentage of average daily net assets (including net
assets attributable to MuniPreferred shares), for fees and expenses in the
amounts, and for the time periods set forth below:

<Table>
<Caption>

YEAR ENDING                                          YEAR ENDING
NOVEMBER 30,                                         NOVEMBER 30,
- ------------                                         ------------
<S>                                <C>               <C>                          <C>
2002*........................        .32%            2008 ................          .24%
2003 ........................        .32             2009 ................          .16
2004 ........................        .32             2010 ................          .08
2005 ........................        .32
2006 ........................        .32
2007 ........................        .32
</Table>
- ---------------
* From the commencement of operations.

The Adviser has not agreed to reimburse the Fund for any portion of its fees and
expenses beyond November 30, 2010.


                                      F-8

<PAGE>


PORTFOLIO OF INVESTMENTS (UNAUDITED)

NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL FUND (NKX)
December 18, 2002


<Table>
<Caption>
 PRINCIPAL                                                                   OPTIONAL CALL                 MARKET
AMOUNT (000)                           DESCRIPTION                            PROVISIONS*    RATINGS**      VALUE
- ------------                           -----------                           -------------   ---------   -----------
<C>            <S>                                                           <C>             <C>         <C>
               EDUCATION AND CIVIC ORGANIZATIONS -- 7.7%
  $ 3,500      California Educational Facilities Authority, Revenue Bonds,
               California Institute of Technology, Series 2003A, 5.000%,
               10/01/32 (WI, settling 1/15/03).............................  10/11 at 100        AAA     $ 3,523,975
    2,500      California Statewide Communities Development Authority,
               Student Housing Revenue Bonds, EAH-East Campus Apartment
               LLC, Series 2002A, 5.500%, 8/01/22 (WI, settling
               12/19/02)...................................................   8/12 at 100          A       2,526,800
               HEALTHCARE -- 1.9%
    1,500      California Health Facilities Financing Authority, Revenue
               Bonds (USCF -- Stanford Health Care), 1998 Series A, 5.000%,
               11/15/31....................................................  11/08 at 101        AAA       1,500,420
               LONG-TERM CARE -- 2.5%
    2,000      California Health Facilities Financing Authority, Revenue
               Bonds, Northern California Retired Officers Community
               Corporation -- Paradise Valley Estates, Series 2002, 5.250%,
               1/01/26 (WI, settling 12/19/02).............................   1/13 at 100         A+       2,000,720
               TAX OBLIGATION/GENERAL -- 17.7%
    2,000      Butte-Glenn Community College District, Butte and Glenn
               Counties, California, General Obligation Bonds, Series
               2002A, 5.000%, 8/01/26......................................   8/12 at 101        Aaa       2,023,740
               State of California, General Obligation Bonds, Series 2002
               Refunding:
    3,750      5.000%, 4/01/27.............................................   4/12 at 100        AAA       3,774,638
    3,000      5.250%, 4/01/30.............................................   4/12 at 100        AAA       3,078,480
      450      Fremont Unified School District, Alameda County, California,
               General Obligation Bonds, Series 2002A, 5.000%, 8/01/25.....   8/12 at 101        AAA         456,084
    2,000      City of Los Angeles, California, General Obligation Bonds,
               Series 2002A, 5.000%, 9/01/22...............................   9/12 at 100        AAA       2,039,160
    2,500      City of San Jose, California, General Obligation Bonds,
               Series 2002, Library, Park, and Public Safety Projects,
               5.000%, 9/01/23.............................................   9/12 at 100        AA+       2,539,225
               TAX OBLIGATION/LIMITED -- 45.4%
    4,000      State Publics Work Board of California, Lease Revenue Bonds,
               Department of General Services, Capital East End, Series
               2002A, 5.000%, 12/01/27.....................................  12/12 at 100        AAA       4,033,320
    3,000      Cathedral City Public Financing Authority, California, Tax
               Allocation Bonds, Housing Set-Aside Redevelopment Projects,
               Series 2002D, 5.000%, 8/01/33...............................   8/12 at 102        AAA       3,019,560
    3,000      Cathedral City Public Financing Authority, California, Tax
               Allocation Bonds, Housing Set-Aside Redevelopment Projects,
               Series 2002A, 5.000%, 8/01/33...............................   8/12 at 102        AAA       3,012,960
    1,770      Los Angeles Unified School District, Los Angeles County,
               California, Certificates of Participation, Series 2002C,
               Administration Building Project II, 5.000%, 10/01/27 (WI,
               settling 12/19/02)..........................................  10/12 at 100        AAA       1,784,868
    1,500      Los Osos, California, Community Services Wastewater
               Assessment District No. 1 Improvement Bonds, Series 2002,
               5.000%, 9/02/33.............................................   9/10 at 103        AAA       1,508,835
    1,285      Poway Unified School District, California, Community
               Facilities District No. 6A, 6.050%, 9/01/25 (WI, settling
               12/19/02)...................................................    303 at 102        N/R       1,285,000
    3,350      Puerto Rico Municipal Finance Agency, Series A, 5.250%,
               8/01/20.....................................................   8/12 at 100        AAA       3,516,194
               San Buenaventura, California, Certificates of Participation,
               Golf Course Financing Project, Series 2002D:
    3,000      5.000%, 2/01/27.............................................   2/12 at 100        AAA       3,026,730
    3,300      5.000%, 2/01/32.............................................   2/12 at 100        AAA       3,315,180
    1,220      San Diego Redevelopment Agency, California, Merged Area
               Redevelopment Project Tax Allocation Bonds, Series 2002,
               5.000%, 8/01/32.............................................   8/10 at 101        AAA       1,224,941
    2,390      Solano County, California, Certificates of Participation,
               Series 2002, 5.250%, 11/01/24...............................  11/12 at 100        AAA       2,480,294
               Sweetwater Union High School District, San Diego County,
               California, Certificates of Participation, Series 2002:
    3,245      5.000%, 9/01/23.............................................   9/12 at 102        AAA       3,303,832
    4,015      5.000%, 9/01/24 (WI, settling 12/19/02).....................   9/12 at 102        AAA       4,076,992
               TRANSPORTATION -- 5.7%
    3,135      Airports Commission of the City and County of San Francisco,
               California, San Francisco International Airport, Second
               Series Revenue Bonds, Issue 16B, 5.000%, 5/01/24............   5/08 at 101        AAA       3,162,713
    1,300      Airports Commission of the City and County of San Francisco,
               California, San Francisco International Airport, Second
               Series Revenue Bonds, Issue 26B, 5.000%, 5/01/25............   5/10 at 101        AAA       1,313,000
</Table>


                                       F-9
<PAGE>


<Table>
<Caption>
 PRINCIPAL                                                                   OPTIONAL CALL                 MARKET
AMOUNT (000)                           DESCRIPTION                            PROVISIONS*    RATINGS**      VALUE
- ------------                           -----------                           -------------   ---------   -----------
<C>            <S>                                                           <C>             <C>         <C>
               UTILITIES -- 7.9%
    3,000      Anaheim Public Financing Authority, California, Revenue
               Bonds, Electric System Distribution Facilities, Series
               2002A, 5.000%, 10/01/31.....................................  10/12 at 100        AAA       3,005,520
    3,055      Department of Water and Power of Los Angeles, California,
               Power System Revenue Bonds, 2001 Series A1, 5.250%,
               7/01/22.....................................................   7/11 at 100        AAA       3,186,151
               WATER AND SEWER -- 9.0%
    1,495      Metropolitan Water District of Southern California, Water
               Revenue Bonds, 1997 Authorization, Series A, 5.000%,
               7/01/30.....................................................   1/08 at 101        AAA       1,503,342
               San Diego Public Facilities Financing Authority, California,
               Water Revenue Bonds, Series 2002 Subordinate Lien:
    3,000      5.000%, 8/01/22.............................................   8/12 at 100        AAA       3,058,380
    2,500      5.000%, 8/01/23.............................................   8/12 at 100        AAA       2,539,000
  $75,760      Total Long-Term Investments (cost $76,354,215) -- 97.8%.....                               76,820,054
               SHORT-TERM INVESTMENTS -- 10.3%
  $ 4,000      California Infrastructure and Economic Development
               Authority, Insured Revenue Bonds, The Rand Corporation,
               Series 2002B, Variable Rate Demand Obligations, 0.950%,
               4/01/42.....................................................  No Opt. Call       A-1+       4,000,000
    2,000      California Statewide Communities Development Authority,
               Fremont-Rideout Health Group, Series 2001A, Variable Rate
               Demand Revenue Bonds, 1.000%, 1/01/31.......................  No Opt. Call        A-1       2,000,000
    2,100      Stockton, California, Health Facilities Revenue Bonds,
               Dameron Hospital Association, Series 2002A, Variable Rate
               Demand Obligations, 1.000%, 12/01/32........................  No Opt. Call     VMIG-1       2,100,000
  $ 8,100      Total Short-Term Investments (cost $8,100,000)..............                                8,100,000
               Other Assets Less Liabilities -- (8.1)%.....................                               (6,380,072)
               Net Assets Applicable to Common Shares -- 100%..............                              $78,539,982
</Table>


- ---------------


   * Optional Call Provisions: Dates (month and year) and prices of the earliest
     optional call or redemption. There may be other call provisions at varying
     prices at later dates.


  ** Ratings: Using the higher of Standard & Poor's or Moody's rating.

(WI) Security purchased on a when-issued basis.

                                 See accompanying notes to financial statements.

                                       F-10
<PAGE>


                                                                      APPENDIX A

          NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL FUND
                  STATEMENT ESTABLISHING AND FIXING THE RIGHTS
                               AND PREFERENCES OF
                             MUNICIPAL AUCTION RATE
                  CUMULATIVE PREFERRED SHARES ("MUNIPREFERRED")

          NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL FUND
                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                                PAGE
                                                                                                                ----
<S>                                                                                                             <C>
Definitions
   "AA" Composite Commercial Paper Rate...........................................................................1
   Accountant's Confirmation......................................................................................2
   Affiliate......................................................................................................2
   Agent Member...................................................................................................2
   All Hold Order.................................................................................................2
   Anticipation Notes.............................................................................................2
   Applicable Rate................................................................................................2
   Auction........................................................................................................2
   Auction Agency Agreement.......................................................................................2
   Auction Agent..................................................................................................2
   Auction Date...................................................................................................2
   Auction Procedures.............................................................................................2
   Available MuniPreferred........................................................................................2
   Benchmark Rate.................................................................................................2
   Beneficial Owner...............................................................................................3
   Bid and Bids...................................................................................................3
   Bidder and Bidders.............................................................................................3
   Board of Trustees..............................................................................................3
   Broker-Dealer..................................................................................................3
   Broker-Dealer Agreement........................................................................................3
   Business Day...................................................................................................3
   Code...........................................................................................................3
   Commercial Paper Dealers.......................................................................................3
   Common Shares..................................................................................................3
   Cure Date......................................................................................................3
   Date of Original Issue.........................................................................................3
   Declaration....................................................................................................3
   Deposit Securities.............................................................................................3
   Discounted Value...............................................................................................3
   Dividend Payment Date..........................................................................................4
   Dividend Period................................................................................................4
   Existing Holder................................................................................................4
   Failure to Deposit.............................................................................................4
   Federal Tax Rate Increase......................................................................................4
   Fund...........................................................................................................4
   Gross-Up Payment...............................................................................................4
   Hold Order and Hold Orders.....................................................................................4
</Table>



                                       i
<PAGE>


<Table>
<S>                                                                                                             <C>
   Holder.........................................................................................................4
   Independent Accountant.........................................................................................5
   Initial Rate Period............................................................................................5
   Interest Equivalent............................................................................................5
   Issue Type Category............................................................................................5
   Kenny Index....................................................................................................5
   Late Charge....................................................................................................5
   Liquidation Preference.........................................................................................5
   Market Value...................................................................................................5
   Maximum Potential Gross-Up Payment Liability...................................................................5
   Maximum Rate...................................................................................................5
   Minimum Rate Period............................................................................................6
   Moody's........................................................................................................6
   Moody's Discount Factor........................................................................................6
   Moody's Eligible Asset.........................................................................................6
   Moody's Exposure Period........................................................................................6
   Moody's Volatility Factor......................................................................................6
   Municipal Obligations..........................................................................................7
   MuniPreferred..................................................................................................7
   MuniPreferred Basic Maintenance Amount.........................................................................7
   MuniPreferred Basic Maintenance Cure Date......................................................................8
   MuniPreferred Basic Maintenance Report.........................................................................8
   1940 Act.......................................................................................................9
   1940 Act Cure Date.............................................................................................9
   1940 Act MuniPreferred Asset Coverage..........................................................................9
   Notice of Redemption...........................................................................................9
   Notice of Special Rate Period..................................................................................9
   Order and Orders...............................................................................................9
   Original Issue Insurance.......................................................................................9
   Other Issues...................................................................................................9
   Outstanding....................................................................................................9
   Permanent Insurance............................................................................................9
   Person.........................................................................................................9
   Portfolio Insurance............................................................................................9
   Potential Beneficial Owner.....................................................................................9
   Potential Holder..............................................................................................10
   Preferred Shares..............................................................................................10
   Quarterly Valuation Date......................................................................................10
   Rate Multiple.................................................................................................10
   Rate Period...................................................................................................10
   Rate Period Days..............................................................................................10
   Receivables for Municipal Obligations Sold....................................................................10
   Redemption Price..............................................................................................10
   Reference Rate................................................................................................10
   Registration Statement........................................................................................10
   S&P...........................................................................................................10
   S&P Discount Factor...........................................................................................11
   S&P Eligible Asset............................................................................................11
   S&P Exposure Period...........................................................................................11
   S&P Volatility Factor.........................................................................................11
   Secondary Market Insurance....................................................................................11
   Securities Depository.........................................................................................11
</Table>



                                       ii
<PAGE>

<Table>
<S>                                                                                                             <C>
   Sell Order and Sell Orders...................................................................................11
   Special Rate Period..........................................................................................11
   Special Redemption Provisions................................................................................11
   Submission Deadline..........................................................................................11
   Submitted Bid and Submitted Bids.............................................................................11
   Submitted Hold Order and Submitted Hold Orders...............................................................11
   Submitted Order and Submitted Orders.........................................................................11
   Submitted Sell Order and Submitted Sell Orders...............................................................11
   Subsequent Rate Period.......................................................................................11
   Substitute Commercial Paper Dealer...........................................................................12
   Substitute U.S. Government Securities Dealer.................................................................12
   Sufficient Clearing Bids.....................................................................................12
   Taxable Allocation...........................................................................................12
   Taxable Equivalent of the Short-Term Municipal Bond Rate.....................................................12
   Taxable Income...............................................................................................12
   Treasury Bill................................................................................................12
   Treasury Bill Rate...........................................................................................12
   Treasury Note................................................................................................13
   Treasury Note Rate...........................................................................................13
   U.S. Government Securities Dealer............................................................................13
   Valuation Date...............................................................................................13
   Volatility Factor............................................................................................13
   Voting Period................................................................................................13
   Winning Bid Rate.............................................................................................13

PART I..........................................................................................................14
         1.       Number Of Authorized Shares...................................................................14
         2.       Dividends.....................................................................................14
                  (a)      Ranking..............................................................................14
                  (b)      Cumulative Cash Dividends............................................................14
                  (c)      Dividends Cumulative From Date of Original Issue.....................................14
                  (d)      Dividend Payment Dates and Adjustment Thereof........................................14
                  (e)      Dividend Rates and Calculation of Dividends..........................................15
                  (f)      Curing a Failure to Deposit..........................................................17
                  (g)      Dividend Payments by Fund to Auction Agent...........................................17
                  (h)      Auction Agent as Trustee of Dividend Payments by Fund................................17
                  (i)      Dividends Paid to Holders............................................................17
                  (j)      Dividends Credited Against Earliest Accumulated But Unpaid Dividends.................17
                  (k)      Dividends Designated as Exempt-Interest Dividends....................................17
         3.       Gross-Up Payments.............................................................................17
                  (a)      Minimum Rate Periods and Special Rate Periods of 28 Rate Period Days or Fewer........18
                  (b)      Special Rate Periods of More Than 28 Rate Period Days................................18
                  (c)      No Gross-Up Payments in the Event of a Reallocation..................................18
         4.       Designation of Special Rate Periods...........................................................18
                  (a)      Length of and Preconditions for Special Rate Period..................................18
                  (b)      Adjustment of Length of Special Rate Period..........................................18
                  (c)      Notice of Proposed Special Rate Period...............................................19
                  (d)      Notice of Special Rate Period........................................................19
                  (e)      Failure to Deliver Notice of Special Rate Period.....................................20
         5.       Voting Rights.................................................................................20
</Table>


                                      iii
<PAGE>

<Table>
<S>                                                                                                             <C>
                  (a)      One Vote Per Share of MuniPreferred..................................................20
                  (b)      Voting for Additional Trustees.......................................................20
                  (c)      Holders of MuniPreferred to Vote on Certain Other Matters............................22
                  (d)      Board May Take Certain Actions Without Shareholder Approval..........................23
                  (e)      Voting Rights Set Forth Herein Are Sole Voting Rights................................23
                  (f)      No Preemptive Rights or Cumulative Voting............................................23
                  (g)      Voting For Trustees Sole Remedy For Fund's Failure To Pay Dividends..................24
                  (h)      Holders Entitled To Vote.............................................................24
         6.       1940 Act MuniPreferred Asset Coverage.........................................................24
         7.       MuniPreferred Basic Maintenance Amount........................................................24
         8.       [Reserved]....................................................................................26
         9.       Restrictions on Dividends and Other Distributions.............................................26
                  (a)      Dividends on Preferred Shares Other Than MuniPreferred...............................26
                  (b)      Dividends and Other Distributions With Respect to Common Shares Under the 1940
                           Act..................................................................................26
                  (c)      Other Restrictions on Dividends and Other Distributions..............................26
         10.      Rating Agency Restrictions....................................................................27
         11.      Redemption....................................................................................28
                  (a)      Optional Redemption..................................................................28
                  (b)      Mandatory Redemption.................................................................29
                  (c)      Notice of Redemption.................................................................30
                  (d)      No Redemption Under Certain Circumstances............................................30
                  (e)      Absence of Funds Available For Redemption............................................30
                  (f)      Auction Agent as Trustee of Redemption Payments by Fund..............................31
                  (g)      Shares For Which Notice of Redemption Has Been Given Are No Longer Outstanding.......31
                  (h)      Compliance With Applicable Law.......................................................31
                  (i)      Only Whole Shares of MuniPreferred May Be Redeemed...................................31
         12.      Liquidation Rights............................................................................31
                  (a)      Ranking..............................................................................31
                  (b)      Distributions Upon Liquidation.......................................................31
                  (c)      Pro Rata Distributions...............................................................32
                  (d)      Rights of Junior Shares..............................................................32
                  (e)      Certain Events Not Constituting Liquidation..........................................32
         13.      Miscellaneous.................................................................................32
                  (a)      Amendment of Appendix A to Add Additional Series.....................................32
                  (b)      Appendix A Incorporated By Reference.................................................32
                  (c)      No Fractional Shares.................................................................32
                  (d)      Status of Shares of MuniPreferred Redeemed, Exchanged or Otherwise Acquired by
                           the Fund.............................................................................33
                  (e)      Board May Resolve Ambiguities........................................................33
                  (f)      Headings Not Determinative...........................................................33
                  (g)      Notices..............................................................................33
PART II.........................................................................................................33
         1.       Orders........................................................................................33
         2.       Submission of Orders by Broker-Dealers to Auction Agent.......................................35
         3.       Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate...............37
         4.       Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of
                  Shares........................................................................................38
         5.       Notification of Allocations...................................................................40
         6.       Auction Agent.................................................................................41
         7.       Transfer of Shares of MuniPreferred...........................................................41
         8.       Global Certificate............................................................................41
Appendix A.....................................................................................................A-1
Section 1.    Designation as to Series.........................................................................A-1
Section 2.    Number of Authorized Shares Per Series...........................................................A-1
Section 3.    Exceptions to Certain Definitions................................................................A-1
Section 4.    Certain Definitions..............................................................................A-1
Section 5.    Initial Rate Periods.............................................................................A-6
Section 6.    Date For Purposes of Paragraph (zzz) Contained Under the Heading "Definitions" in This
              Statement........................................................................................A-6
Section 7.    Party Named for Purposes of the Definition of "Rate Multiple" in This Statement..................A-6
Section 8.    Additional Definitions...........................................................................A-6
Section 9.    Dividend Payment Dates...........................................................................A-6
Section 10.   Amount for Purposes of Subparagraph (c)(i) of Section 5 of Part I of this Statement..............A-6
Section 11.   Redemption Provisions Applicable To Initial Rate Periods.........................................A-6
Section 12.   Applicable Rate For Purposes of Subparagraph (B)(III) of Section 3 of Part II of this
              Statement........................................................................................A-7
Section 13.   Certain Other Restrictions and Requirements......................................................A-7
</Table>


                                       iv
<PAGE>


         NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL FUND, a
Massachusetts business trust (the "Fund"), certifies that:

         First: Pursuant to authority expressly vested in the Board of Trustees
of the Fund by Article IV of the Fund's Declaration of Trust (which, as
hereafter restated or amended from time to time is, together with this
Statement, herein called the "Declaration"), the Board of Trustees has, by
resolution, authorized the issuance of shares of the Fund's authorized Preferred
Shares liquidation preference $25,000 per share, having such designation or
designations as to series as is set forth in Section 1 of Appendix A hereto and
such number of shares per such series as is set forth in Section 2 of Appendix A
hereto.

         Second: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of each series of MuniPreferred described in Section 1 of Appendix A hereto are
as follows (each such series being referred to herein as a series of
MuniPreferred, and shares of all such series being referred to herein
individually as a share of MuniPreferred and collectively as shares of
MuniPreferred):

                                   DEFINITIONS

         Except as otherwise specifically provided in Section 3 of Appendix A
hereto, as used in Parts I and 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) "AA" COMPOSITE COMMERCIAL PAPER RATE," on any date for any Rate
Period of shares of a series of MuniPreferred, shall mean (i) (A) in the case of
any Minimum Rate Period or any Special Rate Period of fewer than 49 Rate Period
Days, the interest equivalent of the 30-day rate; provided, however, that if
such Rate Period is a Minimum Rate Period and the "AA" Composite Commercial
Paper Rate is being used to determine the Applicable Rate for shares of such
series when all of the Outstanding shares of such series are subject to
Submitted Hold Orders, then the interest equivalent of the seven-day rate, and
(B) in the case of any Special Rate Period of (1) 49 or more but fewer than 70
Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but
fewer than 85 Rate Period Days, the arithmetic average of the interest
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate
Period Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141
Rate Period Days, the interest equivalent of the 120-day rate; (6) 141 or more
but fewer than 162 Rate Period Days, the arithmetic average of the 120-day and
180-day rates; and (7) 162 or more but fewer than 183 Rate Period Days, the
interest equivalent of the 180-day rate, in each case on commercial paper placed
on behalf of issuers whose corporate bonds are rated "AA" by S&P or the
equivalent of such rating by S&P or another rating agency, as made available on
a discount basis or otherwise by the Federal Reserve Bank of New York for the
Business Day next preceding such date; or (ii) in the event that the Federal
Reserve Bank of New York does not make available any such rate, then the
arithmetic average of such rates, as quoted on a discount basis or otherwise, by
the Commercial Paper Dealers to the Auction Agent for the close of business on
the Business Day next preceding such date. If any Commercial Paper Dealer does
not quote a rate required to determine the "AA" Composite Commercial Paper Rate,
the "AA" Composite Commercial Paper Rate shall be determined on the basis of the
quotation or quotations furnished by the remaining Commercial Paper Dealer or
Commercial Paper Dealers and any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Fund to provide such rate or
rates not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers, as the case may be, or, if the Fund does not select any such Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers, by the remaining
Commercial Paper Dealer or Commercial Paper Dealers. For purposes of this
definition, the "interest equivalent" of a rate stated on a


                                       1
<PAGE>

discount basis (a "discount rate") for commercial paper of a given days'
maturity shall be equal to the quotient (rounded upwards to the next higher
one-thousandth (.001) of 1%) of (A) the discount rate divided by (B) the
difference between (x) 1.00 and (y) a fraction, the numerator of which shall be
the product of the discount rate times the number of days in which such
commercial paper matures and the denominator of which shall be 360.

         (b) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.

         (c) "AFFILIATE" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by, in
control of or under common control with the Fund; provided, however, that no
Broker-Dealer controlled by, in control of or under common control with the Fund
shall be deemed to be an Affiliate nor shall any 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 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.

         (d) "AGENT MEMBER" shall mean a member of or participant in the
Securities Depository that will act on behalf of a Bidder.

         (e) "ALL HOLD ORDER" shall have the meaning specified in Section 12 of
Appendix A of this Statement.

         (f) "ANTICIPATION NOTES" shall mean Tax Anticipation Notes (TANs),
Revenue Anticipation Notes (RANs), Tax and Revenue Anticipation Notes (TRANs),
Grant Anticipation Notes (GANs) that are rated by S&P and Bond Anticipation
Notes (BANs) that are rated by S&P.

         (g) "APPLICABLE RATE" shall have the meaning specified in subparagraph
(e)(i) of Section 2 of Part I of this Statement.

         (h) "AUCTION" shall mean each periodic implementation of the Auction
Procedures.

         (i) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the
Fund and the Auction Agent which provides, among other things, that the Auction
Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for shares of a series of MuniPreferred so long as the
Applicable Rate for shares of such series is to be based on the results of an
Auction.

         (j) "AUCTION AGENT" shall mean the entity appointed as such by a
resolution of the Board of Trustees in accordance with Section 6 of Part II of
this Statement.

         (k) "AUCTION DATE" with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.

         (l) "AUCTION PROCEDURES" shall mean the procedures for conducting
Auctions set forth in Part II of this Statement.

         (m) "AVAILABLE MUNIPREFERRED" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.

         (n) "BENCHMARK RATE" shall have the meaning specified in Section 12 of
Appendix A hereto.


                                       2
<PAGE>

         (o) "BENEFICIAL OWNER" with respect to shares of a series of
MuniPreferred, 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.

         (p) "BID" and "BIDS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.

         (q) "BIDDER" and "BIDDERS" shall have the respective meanings specified
in paragraph (a) of Section 1 of Part II of this Statement; provided, however,
that neither the Fund nor any affiliate thereof shall be permitted to be a
Bidder in an Auction, except that any Broker-Dealer that is an affiliate of the
Fund may be a Bidder in an Auction, but only if the Orders placed by such
Broker-Dealer are not for its own account.

         (r) "BOARD OF TRUSTEES" shall mean the Board of Trustees of the Fund or
any duly authorized committee thereof.

         (s) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or
other entity permitted by law to perform the functions required of a
Broker-Dealer in Part II of this Statement, that is a member of, or a
participant in, the Securities Depository or is an affiliate of such member or
participant, has been selected by the Fund and has entered into a Broker-Dealer
Agreement that remains effective.

         (t) "BROKER-DEALER AGREEMENT" shall mean an agreement among the Fund,
the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
agrees to follow the procedures specified in Part II of this Statement.

         (u) "BUSINESS DAY" shall mean a day on which the New York Stock
Exchange is open for trading and which is neither a Saturday, Sunday nor any
other day on which banks in The City of New York, New York, are authorized by
law to close.

         (v) "CODE" means the Internal Revenue Code of 1986, as amended.

         (w) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper
Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated or, in lieu of any thereof, their respective affiliates or
successors, if such entity is a commercial paper dealer.

         (x) "COMMON SHARES" shall mean the common shares of beneficial
interest, par value $.01 per share, of the Fund.

         (y) "CURE DATE" shall mean the MuniPreferred Basic Maintenance Cure
Date or the 1940 Act Cure Date, as the case may be.


         (z) "DATE OF ORIGINAL ISSUE" with respect to shares of a series of
MuniPreferred, shall mean the date on which the Fund initially issued such
shares.


         (aa) "DECLARATION" shall have the meaning specified on the first page
of this Statement.

         (bb) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations
rated at least A-1+ or SP-1+ by S&P, except that, for purposes of subparagraph
(a)(v) of Section 11 of Part I of this Statement, such Municipal Obligations
shall be considered "Deposit Securities" only if they are also rated P-1, MIG-1
or VMIG-1 by Moody's.

         (cc) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i) with
respect to an S&P Eligible Asset, the quotient of the Market Value thereof
divided by the applicable S&P Discount Factor


                                       3
<PAGE>

and (ii)(a) with respect to a Moody's Eligible Asset that is not currently
callable as of such Valuation Date at the option of the issuer thereof, the
quotient of the Market Value thereof divided by the applicable Moody's Discount
Factor, or (b) with respect to a Moody's Eligible Asset that is currently
callable as of such Valuation Date at the option of the issuer thereof, the
quotient of (1) the lesser of the Market Value or call price thereof, including
any call premium, divided by (2) the applicable Moody's Discount Factor.

         (dd) [Reserved]

         (ee) [Reserved]

         (ff) "DIVIDEND PAYMENT DATE," with respect to shares of a series of
MuniPreferred, shall mean any date on which dividends are payable on shares of
such series pursuant to the provisions of paragraph (d) of Section 2 of Part I
of this Statement.

         (gg) "DIVIDEND PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the Date of Original
Issue of shares of such series to but excluding the initial Dividend Payment
Date for shares of such series and any period thereafter from and including one
Dividend Payment Date for shares of such series to but excluding the next
succeeding Dividend Payment Date for shares of such series.

         (hh) "EXISTING HOLDER," with respect to shares of a series of
MuniPreferred, 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.

         (ii) "FAILURE TO DEPOSIT," with respect to shares of a series of
MuniPreferred, shall mean a failure by the Fund to pay to the Auction Agent, not
later than 12:00 noon, New York City time, (A) on the Business Day next
preceding any Dividend Payment Date for shares of such series, in funds
available on such Dividend Payment Date in The City of New York, New York, the
full amount of any dividend (whether or not earned or declared) to be paid on
such Dividend Payment Date on any share of such series or (B) on the Business
Day next preceding any redemption date in funds available on such redemption
date for shares of such series in The City of New York, New York, the Redemption
Price to be paid on such redemption date for any share of such series after
notice of redemption is mailed pursuant to paragraph (c) of Section 11 of Part I
of this Statement; provided, however, that the foregoing clause (B) shall not
apply to the Fund's failure to pay the Redemption Price in respect of shares of
MuniPreferred when the related Notice of Redemption provides that redemption of
such shares is subject to one or more conditions precedent and any such
condition precedent shall not have been satisfied at the time or times and in
the manner specified in such Notice of Redemption.

         (jj) "FEDERAL TAX RATE INCREASE" shall have the meaning specified in
the definition of "Moody's Volatility Factor."

         (kk) "FUND" shall mean the entity named on the first page of this
Statement, which is the issuer of the shares of MuniPreferred.

         (ll) "GROSS-UP PAYMENT" shall have the meaning specified in Section 4
of Appendix A hereto.

         (mm) "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.

         (nn) "HOLDER," with respect to shares of a series of MuniPreferred,
shall mean the registered holder of such shares as the same appears on the
record books of the Fund.


                                       4
<PAGE>

         (oo) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized
accountant, or firm of accountants, that is with respect to the Fund an
independent public accountant or firm of independent public accountants under
the Securities Act of 1933, as amended from time to time.

         (pp) "INITIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified with respect to shares of such
series in Section 5 of Appendix A hereto.

         (qq) "INTEREST EQUIVALENT" means a yield on a 360-day basis of a
discount basis security which is equal to the yield on an equivalent
interest-bearing security.

         (rr) "ISSUE TYPE CATEGORY," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.

         (ss) "KENNY INDEX" shall have the meaning specified in the definition
of "Taxable Equivalent of the Short-Term Municipal Bond Rate."

         (tt) "LATE CHARGE" shall have the meaning specified in subparagraph
(e)(1)(B) of Section 2 of Part I of this Statement.

         (uu) "LIQUIDATION PREFERENCE," with respect to a given number of shares
of MuniPreferred, means $25,000 times that number.

         (vv) "MARKET VALUE" of any asset of the Fund shall mean the market
value thereof determined by the pricing service designated from time to time by
the Board of Trustees. Market Value of any asset shall include any interest
accrued thereon. The pricing service values portfolio securities at the mean
between the quoted bid and asked price or the yield equivalent when quotations
are readily available. Securities for which quotations are not readily available
are valued at fair value as determined by the pricing service using methods
which include consideration of: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. The pricing service may
employ electronic data processing techniques or a matrix system, or both, to
determine valuations.

         (ww) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any
Valuation Date, shall mean the aggregate amount of Gross-up Payments that would
be due if the Fund were to make Taxable Allocations, with respect to any taxable
year, estimated based upon dividends paid and the amount of undistributed
realized net capital gains and other taxable income earned by the Fund, as of
the end of the calendar month immediately preceding such Valuation Date, and
assuming such Gross-up Payments are fully taxable.

         (xx) "MAXIMUM RATE," for shares of a series of MuniPreferred on any
Auction Date for shares of such series, shall mean:

                  (i) in the case of any Auction Date which is not the Auction
         Date immediately prior to the first day of any proposed Special Rate
         Period designated by the Fund pursuant to Section 4 of Part I of this
         Statement, the product of (A) the Reference Rate on such Auction Date
         for the next Rate Period of shares of such series and (B) the Rate
         Multiple on such Auction Date, unless shares of such series have or had
         a Special Rate Period (other than a Special Rate Period of 28 Rate
         Period Days or fewer) and an Auction at which Sufficient Clearing Bids
         existed has not yet occurred for a Minimum Rate Period of shares of
         such series after such Special Rate Period, in which case the higher
         of:


                                       5
<PAGE>

                           (A) the dividend rate on shares of such series for
                  the then-ending Rate Period; and


                           (B) the product of (1) the higher of (x) the
                  Reference Rate on such Auction Date for a Rate Period equal in
                  length to the then-ending Rate Period of shares of such
                  series, if such then-ending Rate Period was 364 Rate Period
                  Days or fewer, or the Treasury Note Rate on such Auction Date
                  for a Rate Period equal in length to the then-ending Rate
                  Period of shares of such series, if such then-ending Rate
                  Period was more than 364 Rate Period Days, and (y) the
                  Reference Rate on such Auction Date for a Rate Period equal in
                  length to such Special Rate Period of shares of such series,
                  if such Special Rate Period was 364 Rate Period Days or fewer,
                  or the Treasury Note Rate on such Auction Date for a Rate
                  Period equal in length to such Special Rate Period, if such
                  Special Rate Period was more than 364 Rate Period Days and (2)
                  the Rate Multiple on such Auction Date; or



                  (ii) in the case of any Auction Date which is the Auction
         Date immediately prior to the first day of any proposed Special Rate
         Period designated by the Fund pursuant to Section 4 of Part I of this
         Statement, the product of (A) the highest of (1) the Reference Rate on
         such Auction Date for a Rate Period equal in length to the then-ending
         Rate Period of shares of such series, if such then-ending Rate Period
         was 364 Rate Period Days or fewer, or the Treasury Note Rate on such
         Auction Date for a Rate Period equal in length to the then-ending Rate
         Period of shares of such series, if such then-ending Rate Period was
         more than 364 Rate Period Days, (2) the Reference Rate on such Auction
         Date for the Special Rate Period for which the Auction is being held
         if such Special Rate Period is 364 Rate Period Days or fewer or the
         Treasury Note Rate on such Auction Date for the Special Rate Period
         for which the Auction is being held if such Special Rate Period is
         more than 364 Rate Period Days, and (3) the Reference Rate on such
         Auction Date for Minimum Rate Periods and (B) the Rate Multiple on
         such Auction Date.


         (yy) [Reserved]

         (zz) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of 7
Rate Period Days.

         (aaa) "MOODY'S" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.

         (bbb) "MOODY'S DISCOUNT FACTOR" shall have the meaning specified in
Section 4 of Appendix A hereto.

         (ccc) "MOODY'S ELIGIBLE ASSET" shall have the meaning specified in
Section 4 of Appendix A hereto.

         (ddd) "MOODY'S EXPOSURE PERIOD" shall mean the period commencing on a
given Valuation Date and ending 56 days thereafter.

         (eee) "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation Date,
(i) in the case of any Minimum Rate Period, any Special Rate Period of 28 Rate
Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or more,
a multiplicative factor equal to 275%, except as otherwise provided in the last
sentence of this definition; (ii) in the case of any Special Rate Period of more
than 28 but fewer than 36 Rate Period Days, a multiplicative factor equal to
203%; (iii) in the case of any Special Rate Period of more than 35 but fewer
than 43 Rate Period Days, a multiplicative factor equal to 217%; (iv) in the
case of any Special Rate Period of more than 42 but fewer than 50 Rate Period
Days, a multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but


                                       6
<PAGE>

fewer than 57 Rate Period Days, a multiplicative factor equal to 235%. If, as a
result of the enactment of changes to the Code, the greater of the maximum
marginal Federal individual income tax rate applicable to ordinary income and
the maximum marginal Federal corporate income tax rate applicable to ordinary
income will increase, such increase being rounded up to the next five percentage
points (the "Federal Tax Rate Increase"), until the effective date of such
increase, the Moody's Volatility Factor in the case of any Rate Period described
in (i) above in this definition instead shall be determined by reference to the
following table:

<Table>
<Caption>
  FEDERAL TAX          VOLATILITY
 RATE INCREASE          FACTOR
- ----------------       ----------
<S>                    <C>
5%..............           295%
10%.............           317%
15%.............           341%
20%.............           369%
25%.............           400%
30%.............           436%
35%.............           477%
40%.............           525%
</Table>


         (fff) "MUNICIPAL OBLIGATIONS" shall mean debt obligations issued by
states, cities and local authorities, and certain possessions and territories of
the United States, to finance public projects (such as roads and public
buildings), to pay general operating expenses, or to refinance outstanding debt
and may also be used for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial development
and pollution control projects. The two principal diversifications of Municipal
Obligations are "general obligation" or "revenue" bonds. General obligation
bonds are backed by the full faith and credit, or taxing authority, of the
issuer and may be repaid from any revenue source; revenue bonds may be repaid
only from the revenues of a specific facility or source. The Fund will invest
its net assets in a portfolio of municipal bonds that pay interest that is
exempt from regular Federal and California income taxes and the alternative
minimum tax applicable to individuals. As a fundamental policy of the Fund, such
municipal bonds will, under normal circumstances, comprise at least 80% of the
Fund's managed assets.


         (ggg) "MUNIPREFERRED" shall have the meaning set forth on the first
page of this Statement.

         (hhh) "MUNIPREFERRED BASIC MAINTENANCE AMOUNT," as of any Valuation
Date, shall mean the dollar amount equal to the sum of (i)(A) the product of the
number of shares of MuniPreferred outstanding on such date multiplied by $25,000
(plus the product of the number of shares of any other series of Preferred
Shares outstanding on such date multiplied by the liquidation preference of such
shares), plus any redemption premium applicable to shares of MuniPreferred (or
other Preferred Shares) then subject to redemption; (B) the aggregate amount of
dividends that will have accumulated at the respective Applicable Rates (whether
or not earned or declared) to (but not including) the first respective Dividend
Payment Dates for shares of MuniPreferred outstanding that follow such Valuation
Date (plus the aggregate amount of dividends, whether or not earned or declared,
that will have accumulated in respect of other outstanding Preferred Shares to,
but not including, the first respective dividend payment dates for such other
shares that follow such Valuation Date); (C) the aggregate amount of dividends
that


                                       7
<PAGE>

would accumulate on shares of each series of MuniPreferred outstanding from such
first respective Dividend Payment Date therefor through the 56th day after such
Valuation Date, at the Maximum Rate (calculated as if such Valuation Date were
the Auction Date for the Rate Period commencing on such Dividend Payment Date)
for a Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, assuming, solely for purposes of the foregoing, that if on such
Valuation Date the Fund shall have delivered a Notice of Special Rate Period to
the Auction Agent pursuant to Section 4(d)(i) of this Part I with respect to
shares of such series, such Maximum Rate shall be the higher of (a) the Maximum
Rate for the Special Rate Period of shares of such series to commence on such
Dividend Payment Date and (b) the Maximum Rate for a Minimum Rate Period of
shares of such series to commence on such Dividend Payment Date, multiplied by
the Volatility Factor applicable to a Minimum Rate Period, or, in the event the
Fund shall have delivered a Notice of Special Rate Period to the Auction Agent
pursuant to Section 4(d)(i) of this Part I with respect to shares of such series
designating a Special Rate Period consisting of 56 Rate Period Days or more, the
Volatility Factor applicable to a Special Rate Period of that length (plus the
aggregate amount of dividends that would accumulate at the maximum dividend rate
or rates on any other Preferred Shares outstanding from such respective dividend
payment dates through the 56th day after such Valuation Date, as established by
or pursuant to the respective statements establishing and fixing the rights and
preferences of such other Preferred Shares) (except that (1) if such Valuation
Date occurs at a time when a Failure to Deposit (or, in the case of Preferred
Shares other than MuniPreferred, 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 MuniPreferred, in respect of
which the dividend rate or rates in effect immediately prior to such respective
dividend payment dates will remain in effect), the dividend for purposes of
calculation would accumulate at such Applicable Rate (or other rate or rates, as
the case may be) in respect of those days); (D) the amount of anticipated
expenses of the Fund for the 90 days subsequent to such Valuation Date; (E) the
amount of the Fund's Maximum Potential Gross-up Payment Liability in respect of
shares of MuniPreferred (and similar amounts payable in respect of other
Preferred Shares pursuant to provisions similar to those contained in Section 3
of Part I of this Statement) as of such Valuation Date; and (F) any current
liabilities as of such Valuation Date to the extent not reflected in any of
(i)(A) through (i)(E) (including, without limitation, any payables for Municipal
Obligations purchased as of such Valuation Date and any liabilities incurred for
the purpose of clearing securities transactions) less (ii) the value (i.e., for
purposes of current Moody's guidelines, the face value of cash, short-term
Municipal Obligations rated MIG-1, VMIG-1 or P-1, and short-term securities that
are the direct obligation of the U.S. government, provided in each case that
such securities mature on or prior to the date upon which any of (i)(A) through
(i)(F) become payable, otherwise the Moody's Discounted Value) (i.e., for the
purposes of the current S&P guidelines, the face value of cash, short-term
Municipal Obligations rated SP-1 or A-1 or Municipal Obligations rated A,
provided in each case that such securities mature on or prior to the date upon
which any of (i)(A) through (i)(F) become payable, otherwise the S&P Discounted
Value) of any of the Fund's assets irrevocably deposited by the Fund for the
payment of any of (i)(A) through (i)(F).

         (iii) "MUNIPREFERRED BASIC MAINTENANCE CURE DATE," with respect to the
failure by the Fund to satisfy the MuniPreferred Basic Maintenance Amount (as
required by paragraph (a) of Section 7 of Part I of this Statement) as of a
given Valuation Date, shall mean the seventh Business Day following such
Valuation Date.

         (jjj) "MUNIPREFERRED BASIC MAINTENANCE REPORT" shall mean a report
signed by the President, Treasurer or any Senior Vice President or Vice
President of the Fund which sets forth, as of the related Valuation Date, the
assets of the Fund, the Market Value and the Discounted Value thereof (seriatim
and in aggregate), and the MuniPreferred Basic Maintenance Amount.


                                       8
<PAGE>

         (kkk) "1940 ACT" shall mean the Investment Company Act of 1940, as
amended from time to time.

         (lll) "1940 ACT CURE DATE," with respect to the failure by the Fund to
maintain the 1940 Act MuniPreferred Asset Coverage (as required by Section 6 of
Part I of this Statement) as of the last Business Day of each month, shall mean
the last Business Day of the following month.

         (mmm) "1940 ACT MUNIPREFERRED ASSET COVERAGE" shall mean asset
coverage, as defined in Section 18(h) of the 1940 Act, of at least 200% with
respect to all outstanding senior securities of the Fund which are shares of
beneficial interest, including all outstanding shares of MuniPreferred (or such
other asset coverage as may in the future be specified in or under the 1940 Act
as the minimum asset coverage for senior securities which are shares or stock of
a closed-end investment company as a condition of declaring dividends on its
common shares or stock).

         (nnn) "NOTICE OF REDEMPTION" shall mean any notice with respect to the
redemption of shares of MuniPreferred pursuant to paragraph (c) of Section 11 of
Part I of this Statement.

         (ooo) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with
respect to a Special Rate Period of shares of MuniPreferred pursuant to
subparagraph (d)(i) of Section 4 of Part I of this Statement.

         (ppp) "ORDER" and "ORDERS" shall have the respective meanings specified
in paragraph (a) of Section 1 of Part II of this Statement.

         (qqq) "ORIGINAL ISSUE INSURANCE," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.

         (rrr) "OTHER ISSUES," if defined in Section 4 of Appendix A hereto,
shall have the meaning specified in that section.

         (sss) "OUTSTANDING" shall mean, as of any Auction Date with respect to
shares of a series of MuniPreferred, the number of shares of such series
theretofore issued by the Fund except, without duplication, (i) any shares of
such series theretofore cancelled or delivered to the Auction Agent for
cancellation or redeemed by the Fund, (ii) any shares of such series as to which
the Fund or any Affiliate thereof shall be an Existing Holder and (iii) any
shares of such series represented by any certificate in lieu of which a new
certificate has been executed and delivered by the Fund.

         (ttt) "PERMANENT INSURANCE," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.

         (uuu) "PERSON" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.

         (vvv) "PORTFOLIO INSURANCE," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.

         (www) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a series
of MuniPreferred, 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.


                                       9
<PAGE>

         (xxx) "POTENTIAL HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other person as may be
permitted by the Fund) that is not an Existing Holder of shares of such series
or that is an Existing Holder of shares of such series that wishes to become the
Existing Holder of additional shares of such series.

         (yyy) "PREFERRED SHARES" shall mean the preferred shares of the Fund,
and includes the shares of MuniPreferred.

         (zzz) "QUARTERLY VALUATION DATE" shall mean the last Business Day of
each February, May, August and November of each year, commencing on the date set
forth in Section 6 of Appendix A hereto.

         (aaaa) "RATE MULTIPLE" shall have the meaning specified in Section 4 of
Appendix A hereto.


         (bbbb) "RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the Initial Rate Period, and any transitional Rate
Period, of shares of such series and any Subsequent Rate Period, including any
Special Rate Period, of shares of such series.


         (cccc) "RATE PERIOD DAYS," for any Rate Period or Dividend Period,
means the number of days that would constitute such Rate Period or Dividend
Period but for the application of paragraph (d) of Section 2 of Part I of this
Statement or paragraph (b) of Section 4 of Part I of this Statement.

         (dddd) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean (A) for
purposes of calculation of Moody's Eligible Assets as of any Valuation Date, no
more than the aggregate of the following: (i) the book value of receivables for
Municipal Obligations sold as of or prior to such Valuation Date if such
receivables are due within five business days of such Valuation Date, and if the
trades which generated such receivables are (x) settled through clearing house
firms with respect to which the Fund has received prior written authorization
from Moody's or (y) with counterparties having a Moody's long-term debt rating
of at least Baa3; and (ii) the Moody's Discounted Value of Municipal Obligations
sold as of or prior to such Valuation Date which generated receivables, if such
receivables are due within five business days of such Valuation Date but do not
comply with either of the conditions specified in (i) above, and (B) for
purposes of calculation of S&P Eligible Assets as of any Valuation Date, the
book value of receivables for Municipal Obligations sold as of or prior to such
Valuation Date if such receivables are due within five business days of such
Valuation Date.

         (eeee) "REDEMPTION PRICE" shall mean the applicable redemption price
specified in paragraph (a) or (b) of Section 11 of Part I of this Statement.

         (ffff) "REFERENCE RATE" shall mean (i) the higher of the Taxable
Equivalent of the Short-Term Municipal Bond Rate and the "AA" Composite
Commercial Paper Rate in the case of Minimum Rate Periods and Special Rate
Periods of 28 Rate Period Days or fewer, (ii) the "AA" Composite Commercial
Paper Rate in the case of Special Rate Periods of more than 28 Rate Period Days
but fewer than 183 Rate Period Days; and (iii) the Treasury Bill Rate in the
case of Special Rate Periods of more than 182 Rate Period Days but fewer than
365 Rate Period Days.

         (gggg) "REGISTRATION STATEMENT" has the meaning specified in the
definition of "Municipal Obligations."

         (hhhh) "S&P" shall mean Standard & Poor's Corporation, a New York
corporation, and its successors.


                                       10
<PAGE>

         (iiii) "S&P DISCOUNT FACTOR" shall have the meaning specified in
Section 4 of Appendix A hereto.

         (jjjj) "S&P ELIGIBLE ASSET" shall have the meaning specified in Section
4 of Appendix A hereto.

         (kkkk) "S&P EXPOSURE PERIOD" shall mean the maximum period of time
following a Valuation Date that the Fund has under this Statement to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the MuniPreferred Basic Maintenance Amount (as
described in paragraph (a) of Section 7 of Part I of this Statement).

         (llll) "S&P VOLATILITY FACTOR" shall mean, as of any Valuation Date, a
multiplicative factor equal to (i) 305% in the case of any Minimum Rate Period
or any Special Rate Period of 28 Rate Period Days or fewer, (ii) 268% in the
case of any Special Rate Period of more than 28 Rate Period Days but fewer than
183 Rate Period Days; and (iii) 204% in the case of any Special Rate Period of
more than 182 Rate Period Days.

         (mmmm) "SECONDARY MARKET INSURANCE," if defined in Section 4 of
Appendix A hereto, shall have the meaning specified in that section.

         (nnnn) "SECURITIES DEPOSITORY" shall mean The Depository Trust Company
and its successors and assigns or any other securities depository selected by
the Fund which agrees to follow the procedures required to be followed by such
securities depository in connection with shares of MuniPreferred.

         (oooo) "SELL ORDER" and "SELL ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 1 of Part II of this Statement.

         (pppp) "SPECIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified in paragraph (a) of Section 4 of
Part I of this Statement.

         (qqqq) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning specified
in subparagraph (a)(i) of Section 11 of Part I of this Statement.

         (rrrr) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City time,
on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as specified
by the Auction Agent from time to time.

         (ssss) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part II of this Statement.

         (tttt) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall have
the respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.

         (uuuu) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.

         (vvvv) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall have
the respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.

         (wwww) "SUBSEQUENT RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the first day following
the Initial Rate Period of shares of such series to but excluding the next
Dividend Payment Date for shares of such series and any period thereafter from
and including one Dividend Payment Date for shares of such series to but
excluding the next succeeding Dividend Payment Date for shares of such series;
provided, however, that if any Subsequent Rate Period


                                       11
<PAGE>

is also a Special Rate Period, such term shall mean the period commencing on the
first day of such Special Rate Period and ending on the last day of the last
Dividend Period thereof.

         (xxxx) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean The First Boston
Company or Morgan Stanley & Co. Incorporated or their respective affiliates or
successors, if such entity is a commercial paper dealer; provided, however, that
none of such entities shall be a Commercial Paper Dealer.

         (yyyy) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean The
First Boston Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated or
their respective affiliates or successors, if such entity is a U.S. Government
securities dealer; provided, however, that none of such entities shall be a U.S.
Government Securities Dealer.

         (zzzz) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.

         (aaaaa) "TAXABLE ALLOCATION" shall have the meaning specified in
Section 3 of Part I of this Statement.

         (bbbbb) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE," on
any date for any Minimum Rate Period or Special Rate Period of 28 Rate Period
Days or fewer, shall mean 90% of the quotient of (A) the per annum rate
expressed on an interest equivalent basis equal to the Kenny S&P 30 day High
Grade Index or any successor index (the "Kenny Index") (provided, however, that
any such successor index must be approved by Moody's (if Moody's is then rating
the shares of MuniPreferred) and S&P (if S&P is then rating the shares of
MuniPreferred)), made available for the Business Day immediately preceding such
date but in any event not later than 8:30 A.M., New York City time, on such date
by Kenny S&P Evaluation Services or any successor thereto, based upon 30-day
yield evaluations at par of short-term bonds the interest on which is excludable
for regular Federal income tax purposes under the Code of "high grade" component
issuers selected by Kenny S&P Evaluation Services or any such successor from
time to time in its discretion, which component issuers shall include, without
limitation, issuers of general obligation bonds, but shall exclude any bonds the
interest on which constitutes an item of tax preference under Section 57 (a)(5)
of the Code, or successor provisions, for purposes of the "alternative minimum
tax," divided by (B) 1.00 minus the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income (in each case
expressed as a decimal), whichever is greater; provided, however, that if the
Kenny Index is not made so available by 8:30 A.M., New York City time, on such
date by Kenny S&P Evaluation Services or any successor, the Taxable Equivalent
of the Short-Term Municipal Bond Rate shall mean the quotient of (A) the per
annum rate expressed on an interest equivalent basis equal to the most recent
Kenny Index so made available for any preceding Business Day, divided by (B)
1.00 minus the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or the maximum marginal regular Federal corporate
income tax rate applicable to ordinary income (in each case expressed as a
decimal), whichever is greater.

         (ccccc) "TAXABLE INCOME" shall have the meaning specified in Section 12
of Appendix A hereto.

         (ddddd) "TREASURY BILL" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of 364 days or less.

         (eeeee) "TREASURY BILL RATE," on any date for any Rate Period, shall
mean (i) the bond equivalent yield, calculated in accordance with prevailing
industry convention, of the rate on the most recently auctioned Treasury Bill
with a remaining maturity closest to the length of such Rate Period, as


                                       12
<PAGE>

quoted in The Wall Street Journal on such date for the Business Day next
preceding such date; or (ii) in the event that any such rate is not published in
The Wall Street Journal, then the bond equivalent yield, calculated in
accordance with prevailing industry convention, as calculated by reference to
the arithmetic average of the bid price quotations of the most recently
auctioned Treasury Bill with a remaining maturity closest to the length of such
Rate Period, as determined by bid price quotations as of the close of business
on the Business Day immediately preceding such date obtained from the U.S.
Government Securities Dealers to the Auction Agent.

         (fffff) "TREASURY NOTE" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of five years or less but
more than 364 days.

         (ggggg) "TREASURY NOTE RATE," on any date for any Rate Period, shall
mean (i) the yield on the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as quoted in The Wall Street
Journal on such date for the Business Day next preceding such date; or (ii) in
the event that any such rate is not published in The Wall Street Journal, then
the yield as calculated by reference to the arithmetic average of the bid price
quotations of the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as determined by bid price
quotations as of the close of business on the Business Day immediately preceding
such date obtained from the U.S. Government Securities Dealers to the Auction
Agent. If any U.S. Government Securities Dealer does not quote a rate required
to determine the Treasury Bill Rate or the Treasury Note Rate, the Treasury Bill
Rate or the Treasury Note Rate shall be determined on the basis of the quotation
or quotations furnished by the remaining U.S. Government Securities Dealer or
U.S. Government Securities Dealers and any Substitute U.S. Government Securities
Dealers selected by the Fund to provide such rate or rates not being supplied by
any U.S. Government Securities Dealer or U.S. Government Securities Dealers, as
the case may be, or, if the Fund does not select any such Substitute U.S.
Government Securities Dealer or Substitute U.S. Government Securities Dealers,
by the remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers.

         (hhhhh) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman
Government Securities Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc
and Morgan Guaranty Trust Company of New York or their respective affiliates or
successors, if such entity is a U.S. Government securities dealer.

         (iiiii) "VALUATION DATE" shall mean, for purposes of determining
whether the Fund is maintaining the MuniPreferred Basic Maintenance Amount, each
Business Day.

         (jjjjj) "VOLATILITY FACTOR" shall mean, as of any Valuation Date, the
greater of the Moody's Volatility Factor and the S&P Volatility Factor.

         (kkkkk) "VOTING PERIOD" shall have the meaning specified in paragraph
(b) of Section 5 of Part I of this Statement.

         (lllll) "WINNING BID RATE" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.


         Any additional definitions specifically set forth in Section 8 of
Appendix A hereto shall be incorporated herein and made part hereof by reference
thereto.



                                       13
<PAGE>

                                     PART I

         1. NUMBER OF AUTHORIZED SHARES. The number of authorized shares
constituting a series of MuniPreferred shall be as set forth with respect to
such series in Section 2 of Appendix A hereto.

         2. DIVIDENDS.

                  (a) RANKING. The shares of a series of MuniPreferred shall
rank on a parity with each other, with shares of any other series of
MuniPreferred and with shares of any other series of Preferred Shares as to the
payment of dividends by the Fund.

                  (b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of
MuniPreferred of any series shall be entitled to receive, when, as and if
declared by the Board of Trustees, out of funds legally available therefor in
accordance with the Declaration and applicable law, cumulative cash dividends at
the Applicable Rate for shares of such series, determined as set forth in
paragraph (e) of this Section 2, and no more (except to the extent set forth in
Section 3 of this Part I), payable on the Dividend Payment Dates with respect to
shares of such series determined pursuant to paragraph (d) of this Section 2.
Holders of shares of MuniPreferred shall not be entitled to any dividend,
whether payable in cash, property or shares, in excess of full cumulative
dividends, as herein provided, on shares of MuniPreferred. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on shares of MuniPreferred which may be in arrears, and,
except to the extent set forth in subparagraph (e)(i) of this Section 2, no
additional sum of money shall be payable in respect of any such arrearage.

                  (c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE.
Dividends on shares of MuniPreferred of any series shall accumulate at the
Applicable Rate for shares of such series from the Date of Original Issue
thereof.

                  (d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. The
Dividend Payment Dates with respect to shares of a series of MuniPreferred shall
be as set forth with respect to shares of such series in Section 9 of Appendix A
hereto; provided, however, that:

                           (i) (A) in the case of a series of MuniPreferred
         designated as "Series F MuniPreferred" or "Series M MuniPreferred" in
         Section 1 of Appendix A hereto, if the Monday or Tuesday, as the case
         may be, on which dividends would otherwise be payable on shares of such
         series is not a Business Day, then such dividends shall be payable on
         such shares on the first Business Day that falls after such Monday or
         Tuesday, as the case may be, and (B) in the case of a series of
         MuniPreferred designated as "Series T MuniPreferred," "Series W
         MuniPreferred" or "Series TH MuniPreferred" in Section 1 of Appendix A
         hereto, if the Wednesday, Thursday or Friday, as the case may be, on
         which dividends would otherwise be payable on shares of such series is
         not a Business Day, then such dividends shall be payable on such shares
         on the first Business Day that falls prior to such Wednesday, Thursday
         or Friday, as the case may be; and

                           (ii) notwithstanding Section 9 of Appendix A hereto,
         the Fund in its discretion may establish the Dividend Payment Dates in
         respect of any Special Rate Period of shares of a series of
         MuniPreferred consisting of more than 28 Rate Period Days; provided,
         however, that such dates shall be set forth in the Notice of Special
         Rate Period relating to such Special Rate Period, as delivered to the
         Auction Agent, which Notice of Special Rate Period shall be filed with
         the Secretary of the Fund; and further provided that (1) any such
         Dividend Payment Date shall be a Business Day and (2) the last Dividend
         Payment Date in respect of such Special Rate Period shall be the
         Business Day immediately following the last day thereof, as such last
         day is determined in accordance with paragraph (b) of Section 4 of this
         Part I.


                                       14
<PAGE>

                  (e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS.

                           (i) Dividend Rates. The dividend rate on shares of
         MuniPreferred of any series during the period from and after the Date
         of Original Issue of shares of such series to and including the last
         day of the Initial Rate Period of shares of such series shall be equal
         to the rate per annum set forth with respect to shares of such series
         under "Designation" in Section 1 of Appendix A hereto. For each
         Subsequent Rate Period of shares of such series thereafter, the
         dividend rate on shares of such series shall be equal to the rate per
         annum that results from an Auction for shares of such series on the
         Auction Date next preceding such Subsequent Rate Period; provided,
         however, that if:

                                  (A) an Auction for any such Subsequent Rate
                  Period is not held for any reason other than as described
                  below, the dividend rate on shares of such series for such
                  Subsequent Rate Period will be the Maximum Rate for shares of
                  such series on the Auction Date therefor;

                                  (B) any Failure to Deposit shall have occurred
                  with respect to shares of such series during any Rate Period
                  thereof (other than any Special Rate Period consisting of more
                  than 364 Rate Period Days or any Rate Period succeeding any
                  Special Rate Period consisting of more than 364 Rate Period
                  Days during which a Failure to Deposit occurred that has not
                  been cured), but, prior to 12:00 Noon, New York City time, on
                  the third Business Day next succeeding the date on which such
                  Failure to Deposit occurred, such Failure to Deposit shall
                  have been cured in accordance with paragraph (f) of this
                  Section 2 and the Fund shall have paid to the Auction Agent a
                  late charge ("Late Charge") equal to the sum of (1) if such
                  Failure to Deposit consisted of the failure timely to pay to
                  the Auction Agent the full amount of dividends with respect to
                  any Dividend Period of the shares of such series, an amount
                  computed by multiplying (x) 200% of the Reference Rate for the
                  Rate Period during which such Failure to Deposit occurs on the
                  Dividend Payment Date for such Dividend Period by (y) a
                  fraction, the numerator of which shall be the number of days
                  for which such Failure to Deposit has not been cured in
                  accordance with paragraph (f) of this Section 2 (including the
                  day such Failure to Deposit occurs and excluding the day such
                  Failure to Deposit is cured) and the denominator of which
                  shall be 360, and applying the rate obtained against the
                  aggregate Liquidation Preference of the outstanding shares of
                  such series and (2) if such Failure to Deposit consisted of
                  the failure timely to pay to the Auction Agent the Redemption
                  Price of the shares, if any, of such series for which Notice
                  of Redemption has been mailed by the Fund pursuant to
                  paragraph (c) of Section 11 of this Part I, an amount computed
                  by multiplying (x) 200% of the Reference Rate for the Rate
                  Period during which such Failure to Deposit occurs on the
                  redemption date by (y) a fraction, the numerator of which
                  shall be the number of days for which such Failure to Deposit
                  is not cured in accordance with paragraph (f) of this Section
                  2 (including the day such Failure to Deposit occurs and
                  excluding the day such Failure to Deposit is cured) and the
                  denominator of which shall be 360, and applying the rate
                  obtained against the aggregate Liquidation Preference of the
                  outstanding shares of such series to be redeemed, no Auction
                  will be held in respect of shares of such series for the
                  Subsequent Rate Period thereof and the dividend rate for
                  shares of such series for such Subsequent Rate Period will be
                  the Maximum Rate for shares of such series on the Auction Date
                  for such Subsequent Rate Period;

                                  (C) any Failure to Deposit shall have occurred
                  with respect to shares of such series during any Rate Period
                  thereof (other than any Special Rate Period


                                       15
<PAGE>


                  consisting of more than 364 Rate Period Days or any Rate
                  Period succeeding any Special Rate Period consisting of more
                  than 364 Rate Period Days during which a Failure to Deposit
                  occurred that has not been cured), and, prior to 12:00 Noon,
                  New York City time, on the third Business Day next succeeding
                  the date on which such Failure to Deposit occurred, such
                  Failure to Deposit shall not have been cured in accordance
                  with paragraph (f) of this Section 2 or the Fund shall not
                  have paid the applicable Late Charge to the Auction Agent, no
                  Auction will be held in respect of shares of such series for
                  the first Subsequent Rate Period thereof thereafter (or for
                  any Rate Period thereof thereafter to and including the Rate
                  Period during which (1) such Failure to Deposit is cured in
                  accordance with paragraph (f) of this Section 2 and (2) the
                  Fund pays the applicable Late Charge to the Auction Agent (the
                  condition set forth in this clause (2) to apply only in the
                  event Moody's is rating such shares at the time the Fund cures
                  such Failure to Deposit), in each case no later than 12:00
                  Noon, New York City time, on the fourth Business Day prior to
                  the end of such Rate Period), and the dividend rate for shares
                  of such series for each such Subsequent Rate Period shall be a
                  rate per annum equal to the Maximum Rate for shares of such
                  series on the Auction Date for such Subsequent Rate Period
                  (but with the prevailing rating for shares of such series, for
                  purposes of determining such Maximum Rate, being deemed to be
                  "Below "ba3"/BB2"); or

                                  (D) any Failure to Deposit shall have occurred
                  with respect to shares of such series during a Special Rate
                  Period thereof consisting of more than 364 Rate Period Days,
                  or during any Rate Period thereof succeeding any Special Rate
                  Period consisting of more than 364 Rate Period Days during
                  which a Failure to Deposit occurred that has not been cured,
                  and, prior to 12:00 Noon, New York City time, on the fourth
                  Business Day preceding the Auction Date for the Rate Period
                  subsequent to such Rate Period, such Failure to Deposit shall
                  not have been cured in accordance with paragraph (f) of this
                  Section 2 or, in the event Moody's is then rating such shares,
                  the Fund shall not have paid the applicable Late Charge to the
                  Auction Agent (such Late Charge, for purposes of this
                  subparagraph (D), to be calculated by using, as the Reference
                  Rate, the Reference Rate applicable to a Rate Period (x)
                  consisting of more than 182 Rate Period Days but fewer than
                  365 Rate Period Days and (y) commencing on the date on which
                  the Rate Period during which Failure to Deposit occurs
                  commenced), no Auction will be held in respect of shares of
                  such series for such Subsequent Rate Period (or for any Rate
                  Period thereof thereafter to and including the Rate Period
                  during which (1) such Failure to Deposit is cured in
                  accordance with paragraph (f) of this Section 2 and (2) the
                  Fund pays the applicable Late Charge to the Auction Agent (the
                  condition set forth in this clause (2) to apply only in the
                  event Moody's is rating such shares at the time the Fund cures
                  such Failure to Deposit), in each case no later than 12:00
                  Noon, New York City time, on the fourth Business Day prior to
                  the end of such Rate Period), and the dividend rate for shares
                  of such series for each such Subsequent Rate Period shall be a
                  rate per annum equal to the Maximum Rate for shares of such
                  series on the Auction Date for such Subsequent Rate Period
                  (but with the prevailing rating for shares of such series, for
                  purposes of determining such Maximum Rate, being deemed to be
                  "Below "ba3"/BB2") (the rate per annum at which dividends are
                  payable on shares of a series of MuniPreferred for any Rate
                  Period thereof being herein referred to as the "Applicable
                  Rate" for shares of such series).


                           (ii) Calculation of Dividends. The amount of
         dividends per share payable on shares of a series of MuniPreferred on
         any date on which dividends shall be payable on shares of such series
         shall be computed by multiplying the Applicable Rate for shares of such
         series in effect for such Dividend Period or Dividend Periods or part
         thereof for which dividends have not



                                       16
<PAGE>


         been paid by a fraction, the numerator of which shall be the number of
         days in such Dividend Period or Dividend Periods or part thereof and
         the denominator of which shall be 365 if such Dividend Period consists
         of 7 Rate Period Days and 360 for all other Dividend Periods, and
         applying the rate obtained against $25,000.


                  (f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with
respect to shares of a series of MuniPreferred shall have been cured (if such
Failure to Deposit is not solely due to the willful failure of the Fund to make
the required payment to the Auction Agent) with respect to any Rate Period of
shares of such series if, within the respective time periods described in
subparagraph (e)(i) of this Section 2, the Fund shall have paid to the Auction
Agent (A) all accumulated and unpaid dividends on shares of such series and (B)
without duplication, the Redemption Price for shares, if any, of such series for
which Notice of Redemption has been mailed by the Fund pursuant to paragraph (c)
of Section 11 of Part I of this Statement; provided, however, that the foregoing
clause (B) shall not apply to the Fund's failure to pay the Redemption Price in
respect of shares of MuniPreferred when the related Redemption Notice provides
that redemption of such shares is subject to one or more conditions precedent
and any such condition precedent shall not have been satisfied at the time or
times and in the manner specified in such Notice of Redemption.

                  (g) DIVIDEND PAYMENTS BY FUND TO AUCTION AGENT. The Fund shall
pay to the Auction Agent, not later than 12:00 Noon, New York City time, on the
Business Day next preceding each Dividend Payment Date for shares of a series of
MuniPreferred, an aggregate amount of funds available on the next Business Day
in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.

                  (h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY FUND. All
moneys paid to the Auction Agent for the payment of dividends (or for the
payment of any Late Charge) shall be held in trust for the payment of such
dividends (and any such Late Charge) by the Auction Agent for the benefit of the
Holders specified in paragraph (i) of this Section 2. Any moneys paid to the
Auction Agent in accordance with the foregoing but not applied by the Auction
Agent to the payment of dividends (and any such Late Charge) will, to the extent
permitted by law, be repaid to the Fund at the end of 90 days from the date on
which such moneys were so to have been applied.

                  (i) DIVIDENDS PAID TO HOLDERS. Each dividend on shares of
MuniPreferred shall be paid on the Dividend Payment Date therefor to the Holders
thereof as their names appear on the record books of the Fund on the Business
Day next preceding such Dividend Payment Date.

                  (j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID
DIVIDENDS. Any dividend payment made on shares of MuniPreferred shall first be
credited against the earliest accumulated but unpaid dividends due with respect
to such shares. Dividends in arrears for any past Dividend Period may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to the Holders as their names appear on the record books of the Fund on
such date, not exceeding 15 days preceding the payment date thereof, as may be
fixed by the Board of Trustees.

                  (k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS.
Dividends on shares of MuniPreferred shall be designated as exempt-interest
dividends up to the amount of tax-exempt income of the Fund, to the extent
permitted by, and for purposes of, Section 852 of the Code.

         3. GROSS-UP PAYMENTS. Holders of shares of MuniPreferred shall be
entitled to receive, when, as and if declared by the Board of Trustees, out of
funds legally available therefor, dividends in an amount equal to the aggregate
Gross-up Payments as follows:


                                       17
<PAGE>

                  (a) MINIMUM RATE PERIODS AND SPECIAL RATE PERIODS OF 28 RATE
PERIOD DAYS OR FEWER. If, in the case of any Minimum Rate Period or any Special
Rate Period of 28 Rate Period Days or fewer, the Fund allocates any net capital
gains or other income taxable for Federal income tax purposes to a dividend paid
on shares of MuniPreferred without having given advance notice thereof to the
Auction Agent as provided in Section 5 of Part II of this Statement (such
allocation being referred to herein as a "Taxable Allocation") solely by reason
of the fact that such allocation is made retroactively as a result of the
redemption of all or a portion of the outstanding shares of MuniPreferred or the
liquidation of the Fund, the Fund shall, prior to the end of the calendar year
in which such dividend was paid, provide notice thereof to the Auction Agent and
direct the Fund's dividend disbursing agent to send such notice with a Gross-up
Payment to each Holder of such shares that was entitled to such dividend payment
during such calendar year at such Holder's address as the same appears or last
appeared on the record books of the Fund.

                  (b) SPECIAL RATE PERIODS OF MORE THAN 28 RATE PERIOD DAYS. If,
in the case of any Special Rate Period of more than 28 Rate Period Days, the
Fund makes a Taxable Allocation to a dividend paid on shares of MuniPreferred,
the Fund shall, prior to the end of the calendar year in which such dividend was
paid, provide notice thereof to the Auction Agent and direct the Fund's dividend
disbursing agent to send such notice with a Gross-up Payment to each Holder of
shares that was entitled to such dividend payment during such calendar year at
such Holder's address as the same appears or last appeared on the record books
of the Fund.

                  (c) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The
Fund shall not be required to make Gross-up Payments with respect to any net
capital gains or other taxable income determined by the Internal Revenue Service
to be allocable in a manner different from that allocated by the Fund.

         4. DESIGNATION OF SPECIAL RATE PERIODS.

                  (a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD. The
Fund, at its option, may designate any succeeding Subsequent Rate Period of
shares of a series of MuniPreferred as a Special Rate Period consisting of a
specified number of Rate Period Days evenly divisible by seven and not more than
1,820, subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with paragraph (c) and subparagraph
(d)(i) of this Section 4, (B) an Auction for shares of such series shall have
been held on the Auction Date immediately preceding the first day of such
proposed Special Rate Period and Sufficient Clearing Bids for shares of such
series shall have existed in such Auction, and (C) if any Notice of Redemption
shall have been mailed by the Fund pursuant to paragraph (c) of Section 11 of
this Part I with respect to any shares of such series, the Redemption Price with
respect to such shares shall have been deposited with the Auction Agent. In the
event the Fund wishes to designate any succeeding Subsequent Rate Period for
shares of a series of MuniPreferred as a Special Rate Period consisting of more
than 28 Rate Period Days, the Fund shall notify S&P (if S&P is then rating such
series) and Moody's (if Moody's is then rating such series) in advance of the
commencement of such Subsequent Rate Period that the Fund wishes to designate
such Subsequent Rate Period as a Special Rate Period and shall provide S&P (if
S&P is then rating such series) and Moody's (if Moody's is then rating such
series) with such documents as either may request.

                  (b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event
the Fund wishes to designate a Subsequent Rate Period as a Special Rate Period,
but the day following what would otherwise be the last day of such Special Rate
Period is not (a) a Tuesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series M MuniPreferred" in Section 1 of Appendix A
hereto, (b) a Wednesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series T


                                       18
<PAGE>

MuniPreferred" in Section 1 of Appendix A hereto, (c) a Thursday that is a
Business Day in the case of a series of MuniPreferred designated as "Series W
MuniPreferred" in Section 1 of Appendix A hereto, (d) a Friday that is a
Business Day in the case of a series of MuniPreferred designated as "Series TH
MuniPreferred" in Section 1 of Appendix A hereto, or (e) a Monday that is a
Business Day in the case of a series of MuniPreferred designated as "Series F
MuniPreferred" in Section 1 of Appendix A hereto, then the Fund shall designate
such Subsequent Rate Period as a Special Rate Period consisting of the period
commencing on the first day following the end of the immediately preceding Rate
Period and ending (a) on the first Monday that is followed by a Tuesday that is
a Business Day preceding what would otherwise be such last day, in the case of
Series M MuniPreferred, (b) on the first Tuesday that is followed by a Wednesday
that is a Business Day preceding what would otherwise be such last day, in the
case of Series T MuniPreferred, (c) on the first Wednesday that is followed by a
Thursday that is a Business Day preceding what would otherwise be such last day,
in the case of Series W MuniPreferred, (d) on the first Thursday that is
followed by a Friday that is a Business Day preceding what would otherwise be
such last day, in the case of Series TH MuniPreferred, and (e) on the first
Sunday that is followed by a Monday that is a Business Day preceding what would
otherwise be such last day, in the case of Series F MuniPreferred.

                  (c) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Fund
proposes to designate any succeeding Subsequent Rate Period of shares of a
series of MuniPreferred as a Special Rate Period pursuant to paragraph (a) of
this Section 4, not less than 20 (or such lesser number of days as may be agreed
to from time to time by the Auction Agent) nor more than 30 days prior to the
date the Fund proposes to designate as the first day of such Special Rate Period
(which shall be such day that would otherwise be the first day of a Minimum Rate
Period), notice shall be (i) published or caused to be published by the Fund in
a newspaper of general circulation to the financial community in The City of New
York, New York, which carries financial news, and (ii) mailed by the Fund by
first-class mail, postage prepaid, to the Holders of shares of such series. Each
such notice shall state (A) that the Fund may exercise its option to designate a
succeeding Subsequent Rate Period of shares of such series as a Special Rate
Period, specifying the first day thereof and (B) that the Fund will, by 11:00
A.M., New York City time, on the second Business Day next preceding such date
(or by such later time or date, or both, as may be agreed to by the Auction
Agent) notify the Auction Agent of either (x) its determination, subject to
certain conditions, to exercise such option, in which case the Fund shall
specify the Special Rate Period designated, or (y) its determination not to
exercise such option.

                  (d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M.,
New York City time, on the second Business Day next preceding the first day of
any proposed Special Rate Period of shares of a series of MuniPreferred as to
which notice has been given as set forth in paragraph (c) of this Section 4 (or
such later time or date, or both, as may be agreed to by the Auction Agent), the
Fund shall deliver to the Auction Agent either:

                           (i) a notice ("Notice of Special Rate Period")
         stating (A) that the Fund has determined to designate the next
         succeeding Rate Period of shares of such series as a Special Rate
         Period, specifying the same and the first day thereof, (B) the Auction
         Date immediately prior to the first day of such Special Rate Period,
         (C) that such Special Rate Period shall not commence if (1) an Auction
         for shares of such series shall not be held on such Auction Date for
         any reason or (2) an Auction for shares of such series shall be held on
         such Auction Date but Sufficient Clearing Bids for shares of such
         series shall not exist in such Auction, (D) the scheduled Dividend
         Payment Dates for shares of such series during such Special Rate Period
         and (E) the Special Redemption Provisions, if any, applicable to shares
         of such series in respect of such Special Rate Period, such notice to
         be accompanied by a MuniPreferred Basic Maintenance Report showing
         that, as of the third Business Day next preceding such proposed Special
         Rate Period, Moody's Eligible Assets (if Moody's is then rating such
         series) and S&P Eligible Assets


                                       19
<PAGE>

         (if S&P is then rating such series) each have an aggregate Discounted
         Value at least equal to the MuniPreferred Basic Maintenance Amount as
         of such Business Day (assuming for purposes of the foregoing
         calculation that (a) the Maximum Rate is the Maximum Rate on such
         Business Day as if such Business Day were the Auction Date for the
         proposed Special Rate Period, and (b) the Moody's Discount Factors
         applicable to Moody's Eligible Assets are determined by reference to
         the first Exposure Period longer than the Exposure Period then
         applicable to the Fund, as described in the definition of Moody's
         Discount Factor herein); or

                           (ii) a notice stating that the Fund has determined
         not to exercise its option to designate a Special Rate Period of shares
         of such series and that the next succeeding Rate Period of shares of
         such series shall be a Minimum Rate Period.

                  (e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the
Fund fails to deliver either of the notices described in subparagraphs (d)(i) or
(d)(ii) of this Section 4 (and, in the case of the notice described in
subparagraph (d)(i) of this Section 4, a MuniPreferred Basic Maintenance Report
to the effect set forth in such subparagraph (if either Moody's or S&P is then
rating the series in question)) with respect to any designation of any proposed
Special Rate Period to the Auction Agent by 11:00 A.M., New York City time, on
the second Business Day next preceding the first day of such proposed Special
Rate Period (or by such later time or date, or both, as may be agreed to by the
Auction Agent), the Fund shall be deemed to have delivered a notice to the
Auction Agent with respect to such Special Rate Period to the effect set forth
in subparagraph (d)(ii) of this Section 4. In the event the Fund delivers to the
Auction Agent a notice described in subparagraph (d)(i) of this Section 4, it
shall file a copy of such notice with the Secretary of the Fund, and the
contents of such notice shall be binding on the Fund. In the event the Fund
delivers to the Auction Agent a notice described in subparagraph (d)(ii) of this
Section 4, the Fund will provide Moody's (if Moody's is then rating the series
in question) and S&P (if S&P is then rating the series in question) a copy of
such notice.

         5. VOTING RIGHTS.

                  (a) ONE VOTE PER SHARE OF MUNIPREFERRED. Except as otherwise
provided in the Declaration of Trust or as otherwise required by law, (i) each
Holder of shares of MuniPreferred shall be entitled to one vote for each share
of MuniPreferred held by such Holder on each matter submitted to a vote of
shareholders of the Fund, and (ii) the holders of outstanding Preferred Shares,
including each share of MuniPreferred, and of Common Shares shall vote together
as a single class; provided, however, that, at any meeting of the shareholders
of the Fund held for the election of trustees, the holders of outstanding
Preferred Shares, including MuniPreferred, represented in person or by proxy at
said meeting, shall be entitled, as a class, to the exclusion of the holders of
all other securities and classes of shares of beneficial interest of the Fund,
to elect two trustees of the Fund, each Preferred Share, including each share of
MuniPreferred, entitling the holder thereof to one vote. Subject to paragraph
(b) of this Section 5, the holders of outstanding Common Shares and Preferred
Shares, including MuniPreferred, voting together as a single class, shall elect
the balance of the trustees.

                  (b) VOTING FOR ADDITIONAL TRUSTEES.

                           (i) Voting Period. During any period in which any one
         or more of the conditions described in subparagraphs (A) or (B) of this
         subparagraph (b)(i) shall exist (such period being referred to herein
         as a "Voting Period"), the number of trustees constituting the Board of
         Trustees shall be automatically increased by the smallest number that,
         when added to the two trustees elected exclusively by the holders of
         Preferred Shares, including shares of MuniPreferred, would constitute a
         majority of the Board of Trustees as so increased by such smallest
         number; and the holders of Preferred Shares, including MuniPreferred,
         shall be entitled, voting as a class on a one-vote-per-share basis (to
         the exclusion of the holders of all other


                                       20
<PAGE>

         securities and classes of shares of beneficial interest of the Fund),
         to elect such smallest number of additional trustees, together with the
         two trustees that such holders are in any event entitled to elect. A
         Voting Period shall commence:

                                  (A) if at the close of business on any
                  dividend payment date accumulated dividends (whether or not
                  earned or declared) on any outstanding Preferred Share,
                  including MuniPreferred, equal to at least two full years'
                  dividends shall be due and unpaid and sufficient cash or
                  specified securities shall not have been deposited with the
                  Auction Agent for the payment of such accumulated dividends;
                  or

                                  (B) if at any time holders of Preferred Shares
                  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 subparagraph (b)(i) shall cease, subject always, however, to the revesting
of such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).

                           (ii) Notice of Special Meeting. As soon as
         practicable after the accrual of any right of the holders of Preferred
         Shares to elect additional trustees as described in subparagraph (b)(i)
         of this Section 5, the Fund shall notify the Auction Agent and the
         Auction Agent shall call a special meeting of such holders, by mailing
         a notice of such special meeting to such holders, such meeting to be
         held not less than 10 nor more than 20 days after the date of mailing
         of such notice. If the Fund fails to send such notice to the Auction
         Agent or if the Auction Agent does not call such a special meeting, it
         may be called by any such holder on like notice. The record date for
         determining the holders entitled to notice of and to vote at such
         special meeting shall be the close of business on the fifth Business
         Day preceding the day on which such notice is mailed. At any such
         special meeting and at each meeting of holders of Preferred Shares held
         during a Voting Period at which trustees are to be elected, such
         holders, voting together as a class (to the exclusion of the holders of
         all other securities and classes of shares of beneficial interest of
         the Fund), shall be entitled to elect the number of trustees prescribed
         in subparagraph (b)(i) of this Section 5 on a one-vote-per-share basis.

                           (iii) Terms of Office of Existing Trustees. The terms
         of office of all persons who are trustees of the Fund at the time of a
         special meeting of Holders and holders of other Preferred Shares to
         elect trustees shall continue, notwithstanding the election at such
         meeting by the Holders and such other holders of the number of trustees
         that they are entitled to elect, and the persons so elected by the
         Holders and such other holders, together with the two incumbent
         trustees elected by the Holders and such other holders of Preferred
         Shares and the remaining incumbent trustees elected by the holders of
         the Common Shares and Preferred Shares, shall constitute the duly
         elected trustees of the Fund.

                           (iv) Terms of Office of Certain Trustees to Terminate
         Upon Termination of Voting Period. Simultaneously with the termination
         of a Voting Period, the terms of office of the additional trustees
         elected by the Holders and holders of other Preferred Shares pursuant
         to subparagraph (b)(i) of this Section 5 shall terminate, the remaining
         trustees shall constitute the trustees of the Fund and the voting
         rights of the Holders and such other holders to elect additional
         trustees pursuant to subparagraph (b)(i) of this Section 5 shall cease,
         subject to the provisions of the last sentence of subparagraph (b)(i)
         of this Section 5.


                                       21
<PAGE>

                  (c) HOLDERS OF MUNIPREFERRED TO VOTE ON CERTAIN OTHER MATTERS.

                           (i) Increases in Capitalization. So long as any
         shares of MuniPreferred are outstanding, the Fund shall not, without
         the affirmative vote or consent of the Holders of at least a majority
         of the shares of MuniPreferred outstanding at the time, in person or by
         proxy, either in writing or at a meeting, voting as a separate class:
         (a) authorize, create or issue any class or series of shares ranking
         prior to or on a parity with shares of MuniPreferred with respect to
         the payment of dividends or the distribution of assets upon
         dissolution, liquidation or winding up of the affairs of the Fund, or
         authorize, create or issue additional shares of any series of
         MuniPreferred (except that, notwithstanding the foregoing, but subject
         to the provisions of paragraph (c) of Section 10 of this Part I, the
         Board of Trustees, without the vote or consent of the Holders of
         MuniPreferred, may from time to time authorize and create, and the Fund
         may from time to time issue additional shares of, any series of
         MuniPreferred, or classes or series of Preferred Shares ranking on a
         parity with shares of MuniPreferred with respect to the payment of
         dividends and the distribution of assets upon dissolution, liquidation
         or winding up of the affairs of the Fund; provided, however, that if
         Moody's or S&P is not then rating the shares of MuniPreferred, the
         aggregate liquidation preference of all Preferred Shares of the Fund
         outstanding after any such issuance, exclusive of accumulated and
         unpaid dividends, may not exceed the amount set forth in Section 10 of
         Appendix A hereto) or (b) amend, alter or repeal the provisions of the
         Declaration, or this Statement, whether by merger, consolidation or
         otherwise, so as to affect any preference, right or power of such
         shares of MuniPreferred or the Holders thereof; provided, however, that
         (i) none of the actions permitted by the exception to (a) above will be
         deemed to affect such preferences, rights or powers, (ii) a division of
         a share of MuniPreferred will be deemed to affect such preferences,
         rights or powers only if the terms of such division adversely affect
         the Holders of shares of MuniPreferred and (iii) the authorization,
         creation and issuance of classes or series of shares ranking junior to
         shares of MuniPreferred with respect to the payment of dividends and
         the distribution of assets upon dissolution, liquidation or winding up
         of the affairs of the Fund, will be deemed to affect such preferences,
         rights or powers only if Moody's or S&P is then rating shares of
         MuniPreferred and such issuance would, at the time thereof, cause the
         Fund not to satisfy the 1940 Act MuniPreferred Asset Coverage or the
         MuniPreferred Basic Maintenance Amount. So long as any shares of
         MuniPreferred are outstanding, the Fund shall not, without the
         affirmative vote or consent of the Holders of at least 66 2/3% of the
         shares of MuniPreferred outstanding at the time, in person or by proxy,
         either in writing or at a meeting, voting as a separate class, file a
         voluntary application for relief under Federal bankruptcy law or any
         similar application under state law for so long as the Fund is solvent
         and does not foresee becoming insolvent. If any action set forth above
         would adversely affect the rights of one or more series (the "Affected
         Series") of MuniPreferred in a manner different from any other series
         of MuniPreferred, the Fund will not approve any such action without the
         affirmative vote or consent of the Holders of at least a majority of
         the shares of each such Affected Series outstanding at the time, in
         person or by proxy, either in writing or at a meeting (each such
         Affected Series voting as a separate class).

                           (ii) 1940 Act Matters. Unless a higher percentage is
         provided for in the Declaration, (A) the affirmative vote of the
         Holders of at least a majority of the Preferred Shares, including
         MuniPreferred, outstanding at the time, voting as a separate class,
         shall be required to approve any conversion of the Fund from a
         closed-end to an open-end investment company and (B) the affirmative
         vote of the Holders of a "majority of the outstanding Preferred
         Shares," including MuniPreferred, voting as a separate class, shall be
         required to approve any plan of reorganization (as such term is used in
         the 1940 Act) adversely affecting such shares. The affirmative vote of
         the Holders of a "majority of the outstanding Preferred Shares,"
         including MuniPreferred, voting as a separate class, shall be required
         to approve any action not described in


                                       22
<PAGE>

         the first sentence of this Section 5(c)(ii) requiring a vote of
         security holders of the Fund under Section 13(a) of the 1940 Act. For
         purposes of the foregoing, "majority of the outstanding referred
         Shares" means (i) 67% or more of such shares present at a meeting, if
         the Holders of more than 50% of such shares are present or represented
         by proxy, or (ii) more than 50% of such shares, whichever is less. In
         the event a vote of Holders of MuniPreferred is required pursuant to
         the provisions of Section 13(a) of the 1940 Act, the Fund shall, not
         later than ten Business Days prior to the date on which such vote is to
         be taken, notify Moody's (if Moody's is then rating the shares of
         MuniPreferred) and S&P (if S&P is then rating the shares of
         MuniPreferred) that such vote is to be taken and the nature of the
         action with respect to which such vote is to be taken. The Fund shall,
         not later than ten Business Days after the date on which such vote is
         taken, notify Moody's (if Moody's is then rating the shares of
         MuniPreferred) of the results of such vote.

                  (d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER
APPROVAL. The Board of Trustees, without the vote or consent of the shareholders
of the Fund, may from time to time amend, alter or repeal any or all of the
definitions of the terms listed below, or any provision of this Statement viewed
by Moody's or S&P as a predicate for any such definition, and any such
amendment, alteration or repeal will not be deemed to affect the preferences,
rights or powers of shares of MuniPreferred or the Holders thereof; provided,
however, that the Board of Trustees receives written confirmation from Moody's
(such confirmation being required to be obtained only in the event Moody's is
rating the shares of MuniPreferred and in no event being required to be obtained
in the case of the definitions of (x) Deposit Securities, Discounted Value,
Receivables for Municipal Obligations Sold, Issue Type Category and Other Issues
as such terms apply to S&P Eligible Assets and (y) S&P Discount Factor, S&P
Eligible Asset, S&P Exposure Period and S&P Volatility Factor) and S&P (such
confirmation being required to be obtained only in the event S&P is rating the
shares of MuniPreferred and in no event being required to be obtained in the
case of the definitions of (x) Discounted Value, Receivables for Municipal
Obligations Sold, Issue Type Category and Other Issues as such terms apply to
Moody's Eligible Assets, and (y) Moody's Discount Factor, Moody's Eligible
Asset, Moody's Exposure Period and Moody's Volatility Factor) that any such
amendment, alteration or repeal would not impair the ratings then assigned by
Moody's or S&P, as the case may be, to shares of MuniPreferred:

<Table>
<S>                                              <C>
Deposit Securities                               Moody's Volatility Factor
Discounted Value                                 1940 Act Cure Date
Escrowed Bonds                                   1940 Act MuniPreferred Asset Coverage
Issue Type Category                              Other Issues
Market Value                                     Quarterly Valuation Date
Maximum Potential Gross-up Payment Liability     Receivables for Municipal Obligations Sold
MuniPreferred Basic Maintenance Amount           S&P Discount Factor
MuniPreferred Basic Maintenance Cure Date        S&P Eligible Asset
MuniPreferred Basic Maintenance Report           S&P Exposure Period
Moody's Discount Factor                          S&P Volatility Factor
Moody's Eligible Asset                           Valuation Date
Moody's Exposure Period                          Volatility Factor
                                                 Section 13 of Appendix A hereto
</Table>

                  (e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS.
Unless otherwise required by law, the Holders of shares of MuniPreferred shall
not have any relative rights or preferences or other special rights other than
those specifically set forth herein.

                  (f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of
shares of MuniPreferred shall have no preemptive rights or rights to cumulative
voting.


                                       23
<PAGE>

                  (g) VOTING FOR TRUSTEES SOLE REMEDY FOR FUND'S FAILURE TO PAY
DIVIDENDS. In the event that the Fund fails to pay any dividends on the shares
of MuniPreferred, the exclusive remedy of the Holders shall be the right to vote
for trustees pursuant to the provisions of this Section 5.

                  (h) HOLDERS ENTITLED TO VOTE. For purposes of determining any
rights of the Holders to vote on any matter, whether such right is created by
this Statement, by the other provisions of the Declaration, by statute or
otherwise, no Holder shall be entitled to vote any share of MuniPreferred and no
share of MuniPreferred shall be deemed to be "outstanding" for the purpose of
voting or determining the number of shares required to constitute a quorum if,
prior to or concurrently with the time of determination of shares entitled to
vote or shares deemed outstanding for quorum purposes, as the case may be, the
requisite Notice of Redemption with respect to such shares shall have been
mailed as provided in paragraph (c) of Section 11 of this Part I and the
Redemption Price for the redemption of such shares shall have been deposited in
trust with the Auction Agent for that purpose. No share of MuniPreferred held by
the Fund or any affiliate of the Fund (except for shares held by a Broker-Dealer
that is an affiliate of the Fund for the account of its customers) shall have
any voting rights or be deemed to be outstanding for voting or other purposes.

         6. 1940 ACT MUNIPREFERRED ASSET COVERAGE. The Fund shall maintain, as
of the last Business Day of each month in which any share of MuniPreferred is
outstanding, the 1940 Act MuniPreferred Asset Coverage.

         7. MUNIPREFERRED BASIC MAINTENANCE AMOUNT.

                  (a) So long as shares of MuniPreferred are outstanding, the
Fund shall maintain, on each Valuation Date, and shall verify to its
satisfaction that it is maintaining on such Valuation Date, (i) S&P Eligible
Assets having an aggregate Discounted Value equal to or greater than the
MuniPreferred Basic Maintenance Amount (if S&P is then rating the shares of
MuniPreferred) and (ii) Moody's Eligible Assets having an aggregate Discounted
Value equal to or greater than the MuniPreferred Basic Maintenance Amount (if
Moody's is then rating the shares of MuniPreferred).

                  (b) On or before 5:00 P.M., New York City time, on the third
Business Day after a Valuation Date on which the Fund fails to satisfy the
MuniPreferred Basic Maintenance Amount, and on the third Business Day after the
MuniPreferred Basic Maintenance Cure Date with respect to such Valuation Date,
the Fund shall complete and deliver to S&P (if S&P is then rating the shares of
MuniPreferred), Moody's (if Moody's is then rating the shares of MuniPreferred)
and the Auction Agent (if either S&P or Moody's is then rating the shares of
MuniPreferred) a MuniPreferred Basic Maintenance Report as of the date of such
failure or such MuniPreferred Basic Maintenance Cure Date, as the case may be,
which will be deemed to have been delivered to the Auction Agent if the Auction
Agent receives a copy or telecopy, telex or other electronic transcription
thereof and on the same day the Fund mails to the Auction Agent for delivery on
the next Business Day the full MuniPreferred Basic Maintenance Report. The Fund
shall also deliver a MuniPreferred Basic Maintenance Report to (i) the Auction
Agent (if either Moody's or S&P is then rating the shares of MuniPreferred) as
of (A) the fifteenth day of each month (or, if such day is not a Business Day,
the next succeeding Business Day) and (B) the last Business Day of each month,
(ii) Moody's (if Moody's is then rating the shares of MuniPreferred) and S&P (if
S&P is then rating the shares of MuniPreferred) as of any Quarterly Valuation
Date, in each case on or before the third Business Day after such day, and (iii)
S&P, if and when requested for any Valuation Date, on or before the third
Business Day after such request. A failure by the Fund to deliver a
MuniPreferred Basic Maintenance Report pursuant to the preceding sentence shall
be deemed to be delivery of a MuniPreferred Basic Maintenance Report indicating
the Discounted Value for all assets of the Fund is less than the MuniPreferred
Basic Maintenance Amount, as of the relevant Valuation Date.


                                       24
<PAGE>


                  (c) Within ten Business Days after the date of delivery of a
MuniPreferred Basic Maintenance Report in accordance with paragraph (b) of this
Section 7 relating to a Quarterly Valuation Date, the Fund shall cause the
Independent Accountant to confirm in writing to S&P (if S&P is then rating the
shares of MuniPreferred), Moody's (if Moody's is then rating the shares of
MuniPreferred) and the Auction Agent (if either S&P or Moody's is then rating
the shares of MuniPreferred) (i) the mathematical accuracy of the calculations
reflected in such Report (and in any other MuniPreferred Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Fund during the quarter ending on such Quarterly Valuation Date), (ii) that,
in such Report (and in such randomly selected Report), the Fund determined in
accordance with this Statement whether the Fund had, at such Quarterly Valuation
Date (and at the Valuation Date addressed in such randomly-selected Report), S&P
Eligible Assets (if S&P is then rating the shares of MuniPreferred) of an
aggregate Discounted Value at least equal to the MuniPreferred Basic Maintenance
Amount and Moody's Eligible Assets (if Moody's is then rating the shares of
MuniPreferred) of an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount, (iii) with respect to the S&P ratings
on Municipal Obligations, the issuer name, issue size and coupon rate listed in
such Report, that the Independent Accountant has requested that S&P verify such
information and the Independent Accountant shall provide a listing in its letter
of any differences, (iv) with respect to the Moody's ratings on Municipal
Obligations, the issuer name, issue size and coupon rate listed in such Report,
that such information has been verified by Moody's (in the event such
information is not verified by Moody's, the Independent Accountant will inquire
of Moody's what such information is, and provide a listing in its letter of any
differences), (v) with respect to the bid or mean price (or such alternative
permissible factor used in calculating the Market Value) provided by the
custodian of the Fund's assets to the Fund for purposes of valuing securities in
the Fund's portfolio, the Independent Accountant has traced the price used in
such Report to the bid or mean price listed in such Report as provided to the
Fund and verified that such information agrees (in the event such information
does not agree, the Independent Accountant will provide a listing in its letter
of such differences) and (vi) with respect to such confirmation to Moody's and
S&P, that the Fund has satisfied the requirements of Section 13 of this
Statement (such confirmation is herein called the "Accountant's Confirmation").


                  (d) Within ten Business Days after the date of delivery of a
MuniPreferred Basic Maintenance Report in accordance with paragraph (b) of this
Section 7 relating to any Valuation Date on which the Fund failed to satisfy the
MuniPreferred Basic Maintenance Amount, and relating to the MuniPreferred Basic
Maintenance Cure Date with respect to such failure to satisfy the MuniPreferred
Basic Maintenance Amount, the Fund shall cause the Independent Accountant to
provide to S&P (if S&P is then rating the shares of MuniPreferred), Moody's (if
Moody's is then rating the shares of MuniPreferred) and the Auction Agent (if
either S&P or Moody's is then rating the shares of MuniPreferred) an
Accountant's Confirmation as to such MuniPreferred Basic Maintenance Report.

                  (e) If any Accountant's Confirmation delivered pursuant to
paragraph (c) or (d) of this Section 7 shows that an error was made in the
MuniPreferred Basic Maintenance Report for a particular Valuation Date for which
such Accountant's Confirmation was required to be delivered, or shows that a
lower aggregate Discounted Value for the aggregate of all S&P Eligible Assets
(if S&P is then rating the shares of MuniPreferred) or Moody's Eligible Assets
(if Moody's is then rating the shares of MuniPreferred), as the case may be, of
the Fund was determined by the Independent Accountant, the calculation or
determination made by such Independent Accountant shall be final and conclusive
and shall be binding on the Fund, and the Fund shall accordingly amend and
deliver the MuniPreferred Basic Maintenance Report to S&P (if S&P is then rating
the shares of MuniPreferred), Moody's (if Moody's is then rating the shares of
MuniPreferred) and the Auction Agent (if either S&P or Moody's is then rating
the shares of MuniPreferred) promptly following receipt by the Fund of such
Accountant's Confirmation.


                                       25
<PAGE>

                  (f) On or before 5:00 p.m., New York City time, on the first
Business Day after the Date of Original Issue of any shares of MuniPreferred,
the Fund shall complete and deliver to S&P (if S&P is then rating the shares of
MuniPreferred) and Moody's (if Moody's is then rating the shares of
MuniPreferred) a MuniPreferred Basic Maintenance Report as of the close of
business on such Date of Original Issue. Within five Business Days of such Date
of Original Issue, the Fund shall cause the Independent Accountant to confirm in
writing to S&P (if S&P is then rating the shares of MuniPreferred) (i) the
mathematical accuracy of the calculations reflected in such Report and (ii) that
the Discounted Value of S&P Eligible Assets reflected thereon equals or exceeds
the MuniPreferred Basic Maintenance Amount reflected thereon.

                  (g) On or before 5:00 p.m., New York City time, on the third
Business Day after either (i) the Fund shall have redeemed Common Shares or (ii)
the ratio of the Discounted Value of S&P Eligible Assets or the Discounted Value
of Moody's Eligible Assets to the MuniPreferred Basic Maintenance Amount is less
than or equal to 105% or (iii) whenever requested by Moody's and S&P, the Fund
shall complete and deliver to S&P (if S&P is then rating the shares of
MuniPreferred) or Moody's (if Moody's is then rating the shares of
MuniPreferred), as the case may be, a MuniPreferred Basic Maintenance Report as
of the date of either such event.

         8. [RESERVED].

         9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.

                  (a) DIVIDENDS ON PREFERRED SHARES OTHER THAN MUNIPREFERRED.
Except as set forth in the next sentence, no dividends shall be declared or paid
or set apart for payment on the shares of any class or series of shares of
beneficial interest of the Fund ranking, as to the payment of dividends, on a
parity with shares of MuniPreferred for any period unless full cumulative
dividends have been or contemporaneously are declared and paid on the shares of
each series of MuniPreferred through its most recent Dividend Payment Date. When
dividends are not paid in full upon the shares of each series of MuniPreferred
through its most recent Dividend Payment Date or upon the shares of any other
class or series of shares of beneficial interest of the Fund ranking on a parity
as to the payment of dividends with shares of MuniPreferred through their most
recent respective dividend payment dates, all dividends declared upon shares of
MuniPreferred and any other such class or series of shares of beneficial
interest ranking on a parity as to the payment of dividends with shares of
MuniPreferred shall be declared pro rata so that the amount of dividends
declared per share on shares of MuniPreferred and such other class or series of
shares of beneficial interest shall in all cases bear to each other the same
ratio that accumulated dividends per share on the shares of MuniPreferred and
such other class or series of shares of beneficial interest bear to each other
(for purposes of this sentence, the amount of dividends declared per share of
MuniPreferred shall be based on the Applicable Rate for such share for the
Dividend Periods during which dividends were not paid in full).

                  (b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON
SHARES UNDER THE 1940 ACT. The Board of Trustees shall not declare any dividend
(except a dividend payable in Common Shares), or declare any other distribution,
upon the Common Shares, or purchase Common Shares, unless in every such case the
Preferred Shares have, at the time of any such declaration or purchase, an asset
coverage (as defined in and determined pursuant to the 1940 Act) of at least
200% (or such other asset coverage as may in the future be specified in or under
the 1940 Act as the minimum asset coverage for senior securities which are
shares or stock of a closed-end investment company as a condition of declaring
dividends on its common shares or stock) after deducting the amount of such
dividend, distribution or purchase price, as the case may be.

                  (c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
For so long as any share of MuniPreferred is outstanding, and except as set
forth in paragraph (a) of this Section 9 and


                                       26
<PAGE>

paragraph (c) of Section 12 of this Part I, (A) the Fund shall not declare, pay
or set apart for payment any dividend or other distribution (other than a
dividend or distribution paid in shares of, or in options, warrants or rights to
subscribe for or purchase, Common Shares or other shares, if any, ranking junior
to the shares of MuniPreferred as to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up) in respect
of the Common Shares or any other shares of the Fund ranking junior to or on a
parity with the shares of MuniPreferred as to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up, or call for
redemption, redeem, purchase or otherwise acquire for consideration any Common
Shares or any other such junior shares (except by conversion into or exchange
for shares of the Fund ranking junior to the shares of MuniPreferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up), or any such parity shares (except by conversion into
or exchange for shares of the Fund ranking junior to or on a parity with
MuniPreferred as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up), unless (i) full cumulative dividends on
shares of each series of MuniPreferred through its most recently ended Dividend
Period shall have been paid or shall have been declared and sufficient funds for
the payment thereof deposited with the Auction Agent and (ii) the Fund has
redeemed the full number of shares of MuniPreferred required to be redeemed by
any provision for mandatory redemption pertaining thereto, and (B) the Fund
shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, Common Shares or other
shares, if any, ranking junior to shares of MuniPreferred as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up) in respect of Common Shares or any other shares of the Fund ranking
junior to shares of MuniPreferred as to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up, or call for
redemption, redeem, purchase or otherwise acquire for consideration any Common
Shares or any other such junior shares (except by conversion into or exchange
for shares of the Fund ranking junior to shares of MuniPreferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up), unless immediately after such transaction the
Discounted Value of Moody's Eligible Assets (if Moody's is then rating the
shares of MuniPreferred) and S&P Eligible Assets (if S&P is then rating the
shares of MuniPreferred) would each at least equal the MuniPreferred Basic
Maintenance Amount.

         10. RATING AGENCY RESTRICTIONS. For so long as any shares of
MuniPreferred are outstanding and Moody's or S&P, or both, are rating such
shares, the Fund will not, unless it has received written confirmation from
Moody's or S&P, or both, as appropriate, that any such action would not impair
the ratings then assigned by such rating agency to such shares, engage in any
one or more of the following transactions:

                  (a) buy or sell futures or write put or call options except as
provided in Section 13 of Appendix A hereto;

                  (b) borrow money, except that the Fund may, without obtaining
the written confirmation described above, borrow money for the purpose of
clearing securities transactions if (i) the MuniPreferred Basic Maintenance
Amount would continue to be satisfied after giving effect to such borrowing and
(ii) such borrowing (A) is privately arranged with a bank or other person and is
evidenced by a promissory note or other evidence of indebtedness that is not
intended to be publicly distributed or (B) is for "temporary purposes," is
evidenced by a promissory note or other evidence of indebtedness and is in an
amount not exceeding 5 per centum of the value of the total assets of the Fund
at the time of the borrowing; for purposes of the foregoing, "temporary purpose"
means that the borrowing is to be repaid within sixty days and is not to be
extended or renewed;

                  (c) issue additional shares of any series of MuniPreferred or
any class or series of shares ranking prior to or on a parity with shares of
MuniPreferred with respect to the payment of


                                       27
<PAGE>

dividends or the distribution of assets upon dissolution, liquidation or winding
up of the Fund, or reissue any shares of MuniPreferred previously purchased or
redeemed by the Fund;

                  (d) engage in any short sales of securities;

                  (e) lend securities;

                  (f) merge or consolidate into or with any other corporation;

                  (g) change the pricing service (currently J.J. Kenny) referred
to in the definition of Market Value; or

                  (h) enter into reverse repurchase agreements.

         11. REDEMPTION.

                  (a) OPTIONAL REDEMPTION.

                           (i) Subject to the provisions of subparagraph (v) of
         this paragraph (a), shares of MuniPreferred of any series may be
         redeemed, at the option of the Fund, as a whole or from time to time in
         part, on the second Business Day preceding any Dividend Payment Date
         for shares of such series, out of funds legally available therefor, at
         a redemption price per share equal to the sum of $25,000 plus an amount
         equal to accumulated but unpaid dividends thereon (whether or not
         earned or declared) to (but not including) the date fixed for
         redemption; provided, however, that (1) shares of a series of
         MuniPreferred may not be redeemed in Part if after such partial
         redemption fewer than 250 shares of such series remain outstanding; (2)
         unless otherwise provided in Section 11 of Appendix A hereto, shares of
         a series of MuniPreferred are redeemable by the Fund during the Initial
         Rate Period thereof only on the second Business Day next preceding the
         last Dividend Payment Date for such Initial Rate Period; and (3)
         subject to subparagraph (ii) of this paragraph (a), the Notice of
         Special Rate Period relating to a Special Rate Period of shares of a
         series of MuniPreferred, as delivered to the Auction Agent and filed
         with the Secretary of the Fund, may provide that shares of such series
         shall not be redeemable during the whole or any Part of such Special
         Rate Period (except as provided in subparagraph (iv) of this paragraph
         (a)) or shall be redeemable during the whole or any Part of such
         Special Rate Period only upon payment of such redemption premium or
         premiums as shall be specified therein ("Special Redemption
         Provisions").

                           (ii) A Notice of Special Rate Period relating to
         shares of a series of MuniPreferred for a Special Rate Period thereof
         may contain Special Redemption Provisions only if the Fund's Board of
         Trustees, after consultation with the Broker-Dealer or Broker-Dealers
         for such Special Rate Period of shares of such series, determines that
         such Special Redemption Provisions are in the best interest of the
         Fund.

                           (iii) If fewer than all of the outstanding shares of
         a series of MuniPreferred are to be redeemed pursuant to subparagraph
         (i) of this paragraph (a), the number of shares of such series to be
         redeemed shall be determined by the Board of Trustees, and such shares
         shall be redeemed pro rata from the Holders of shares of such series in
         proportion to the number of shares of such series held by such Holders.

                           (iv) Subject to the provisions of subparagraph (v) of
         this paragraph (a), shares of any series of MuniPreferred may be
         redeemed, at the option of the Fund, as a whole but not in part, out of
         funds legally available therefor, on the first day following any
         Dividend Period


                                       28
<PAGE>

         thereof included in a Rate Period consisting of more than 364 Rate
         Period Days if, on the date of determination of the Applicable Rate for
         shares of such series for such Rate Period, such Applicable Rate
         equaled or exceeded on such date of determination the Treasury Note
         Rate for such Rate Period, at a redemption price per share equal to the
         sum of $25,000 plus an amount equal to accumulated but unpaid dividends
         thereon (whether or not earned or declared) to (but not including) the
         date fixed for redemption.

                           (v) The Fund may not on any date mail a Notice of
         Redemption pursuant to paragraph (c) of this Section 11 in respect of a
         redemption contemplated to be effected pursuant to this paragraph (a)
         unless on such date (a) the Fund has available Deposit Securities with
         maturity or tender dates not later than the day preceding the
         applicable redemption date and having a value not less than the amount
         (including any applicable premium) due to Holders of shares of
         MuniPreferred by reason of the redemption of such shares on such
         redemption date and (b) the Discounted Value of Moody's Eligible Assets
         (if Moody's is then rating the shares of MuniPreferred) and the
         Discounted Value of S&P Eligible Assets (if S&P is then rating the
         shares of MuniPreferred) each at least equal the MuniPreferred Basic
         Maintenance Amount, and would at least equal the MuniPreferred Basic
         Maintenance Amount immediately subsequent to such redemption if such
         redemption were to occur on such date. For purposes of determining in
         clause (b) of the preceding sentence whether the Discounted Value of
         Moody's Eligible Assets at least equals the MuniPreferred Basic
         Maintenance Amount, the Moody's Discount Factors applicable to Moody's
         Eligible Assets shall be determined by reference to the first Exposure
         Period longer than the Exposure Period then applicable to the Fund, as
         described in the definition of Moody's Discount Factor herein.

                  (b) MANDATORY REDEMPTION. The Fund shall redeem, at a
redemption price equal to $25,000 per share plus accumulated but unpaid
dividends thereon (whether or not earned or declared) to (but not including) the
date fixed by the Board of Trustees for redemption, certain of the shares of
MuniPreferred, if the Fund fails to have either Moody's Eligible Assets with a
Discounted Value or S&P Eligible Assets with a Discounted Value greater than or
equal to the MuniPreferred Basic Maintenance Amount or fails to maintain the
1940 Act MuniPreferred Asset Coverage, in accordance with the requirements of
the rating agency or agencies then rating the shares of MuniPreferred, and such
failure is not cured on or before the MuniPreferred Basic Maintenance Cure Date
or the 1940 Act Cure Date, as the case may be. The number of shares of
MuniPreferred to be redeemed shall be equal to the lesser of (i) the minimum
number of shares of MuniPreferred, together with all other Preferred Shares
subject to redemption or retirement, the redemption of which, if deemed to have
occurred immediately prior to the opening of business on the Cure Date, would
have resulted in the Fund's having both Moody's Eligible Assets with a
Discounted Value and S&P Eligible Assets with a Discounted Value greater than or
equal to the MuniPreferred Basic Maintenance Amount or maintaining the 1940 Act
MuniPreferred Asset Coverage, as the case may be, on such Cure Date (provided,
however, that if there is no such minimum number of shares of MuniPreferred and
other Preferred Shares the redemption or retirement of which would have had such
result, all shares of MuniPreferred and Preferred Shares then outstanding shall
be redeemed), and (ii) the maximum number of shares of MuniPreferred, together
with all other Preferred Shares subject to redemption or retirement, that can be
redeemed out of funds expected to be legally available therefor in accordance
with the Declaration and applicable law. In determining the shares of
MuniPreferred required to be redeemed in accordance with the foregoing, the Fund
shall allocate the number required to be redeemed to satisfy the MuniPreferred
Basic Maintenance Amount or the 1940 Act MuniPreferred Asset Coverage, as the
case may be, pro rata among shares of MuniPreferred and other Preferred Shares
(and, then, pro rata among each series of MuniPreferred) subject to redemption
or retirement. The Fund shall effect such redemption on the date fixed by the
Fund therefor, which date shall not be earlier than 20 days nor later than 40
days after such Cure Date, except that if the Fund does not have funds legally
available for the redemption of all of the required number of shares of


                                       29
<PAGE>

MuniPreferred and other Preferred Shares which are subject to redemption or
retirement or the Fund otherwise is unable to effect such redemption on or prior
to 40 days after such Cure Date, the Fund shall redeem those shares of
MuniPreferred and other Preferred Shares which it was unable to redeem on the
earliest practicable date on which it is able to effect such redemption. If
fewer than all of the outstanding shares of a series of MuniPreferred are to be
redeemed pursuant to this paragraph (b), the number of shares of such series to
be redeemed shall be redeemed pro rata from the Holders of shares of such series
in proportion to the number of shares of such series held by such Holders.

                  (c) NOTICE OF REDEMPTION. If the Fund shall determine or be
required to redeem shares of a series of MuniPreferred pursuant to paragraph (a)
or (b) of this Section 11, it shall mail a Notice of Redemption with respect to
such redemption by first class mail, postage prepaid, to each Holder of the
shares of such series to be redeemed, at such Holder's address as the same
appears on the record books of the Fund on the record date established by the
Board of Trustees. Such Notice of Redemption shall be so mailed not less than 20
nor more than 45 days prior to the date fixed for redemption. Each such Notice
of Redemption shall state: (i) the redemption date; (ii) the number of shares of
MuniPreferred to be redeemed and the series thereof; (iii) the CUSIP number for
shares of such series; (iv) the Redemption Price; (v) the place or places where
the certificate(s) for such shares (properly endorsed or assigned for transfer,
if the Board of Trustees shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the Redemption Price; (vi) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date; and (vii) the provisions of this Section 11 under which such
redemption is made. If fewer than all shares of a series of MuniPreferred held
by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder
shall also specify the number of shares of such series to be redeemed from such
Holder. The Fund may provide in any Notice of Redemption relating to a
redemption contemplated to be effected pursuant to paragraph (a) of this Section
11 that such redemption is subject to one or more conditions precedent and that
the Fund shall not be required to effect such redemption unless each such
condition shall have been satisfied at the time or times and in the manner
specified in such Notice of Redemption.

                  (d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding
the provisions of paragraphs (a) or (b) of this Section 11, if any dividends on
shares of a series of MuniPreferred (whether or not earned or declared) are in
arrears, no shares of such series shall be redeemed unless all outstanding
shares of such series are simultaneously redeemed, and the Fund shall not
purchase or otherwise acquire any shares of such series; provided, however, that
the foregoing shall not prevent the purchase or acquisition of all outstanding
shares of such series pursuant to the successful completion of an otherwise
lawful purchase or exchange offer made on the same terms to, and accepted by,
Holders of all outstanding shares of such series.

                  (e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent
that any redemption for which Notice of Redemption has been mailed is not made
by reason of the absence of legally available funds therefor in accordance with
the Declaration and applicable law, such redemption shall be made as soon as
practicable to the extent such funds become available. Failure to redeem shares
of MuniPreferred shall be deemed to exist at any time after the date specified
for redemption in a Notice of Redemption when the Fund shall have failed, for
any reason whatsoever, to deposit in trust with the Auction Agent the Redemption
Price with respect to any shares for which such Notice of Redemption has been
mailed; provided, however, that the foregoing shall not apply in the case of the
Fund's failure to deposit in trust with the Auction Agent the Redemption Price
with respect to any shares where (1) the Notice of Redemption relating to such
redemption provided that such redemption was subject to one or more conditions
precedent and (2) any such condition precedent shall not have been satisfied at
the time or times and in the manner specified in such Notice of Redemption.
Notwithstanding the fact that the Fund may not have redeemed shares of
MuniPreferred for which a Notice of Redemption has been


                                       30
<PAGE>

mailed, dividends may be declared and paid on shares of MuniPreferred and shall
include those shares of MuniPreferred for which a Notice of Redemption has been
mailed.

                  (f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY FUND.
All moneys paid to the Auction Agent for payment of the Redemption Price of
shares of MuniPreferred called for redemption shall be held in trust by the
Auction Agent for the benefit of Holders of shares so to be redeemed.

                  (g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE
NO LONGER OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant
to paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next Business Day in The City of New York, New York) of funds
sufficient to redeem the shares of MuniPreferred that are the subject of such
notice, dividends on such shares shall cease to accumulate and such shares shall
no longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate, except
the right of such Holders to receive the Redemption Price, but without any
interest or other additional amount, except as provided in subparagraph (e)(i)
of Section 2 of this Part I and in Section 3 of this Part I. Upon surrender in
accordance with the Notice of Redemption of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board of Trustees
shall so require and the Notice of Redemption shall so state), the Redemption
Price shall be paid by the Auction Agent to the Holders of shares of
MuniPreferred subject to redemption. In the case that fewer than all of the
shares represented by any such certificate are redeemed, a new certificate shall
be issued, representing the unredeemed shares, without cost to the Holder
thereof. The Fund shall be entitled to receive from the Auction Agent, promptly
after the date fixed for redemption, any cash deposited with the Auction Agent
in excess of (i) the aggregate Redemption Price of the shares of MuniPreferred
called for redemption on such date and (ii) all other amounts to which Holders
of shares of MuniPreferred called for redemption may be entitled. Any funds so
deposited that are unclaimed at the end of 90 days from such redemption date
shall, to the extent permitted by law, be repaid to the Fund, after which time
the Holders of shares of MuniPreferred so called for redemption may look only to
the Fund for payment of the Redemption Price and all other amounts to which they
may be entitled. The Fund shall be entitled to receive, from time to time after
the date fixed for redemption, any interest on the funds so deposited.

                  (h) COMPLIANCE WITH APPLICABLE LAW. In effecting any
redemption pursuant to this Section 11, the Fund shall use its best efforts to
comply with all applicable conditions precedent to effecting such redemption
under the 1940 Act and any applicable Massachusetts law, but shall effect no
redemption except in accordance with the 1940 Act and any applicable
Massachusetts law.

                  (i) ONLY WHOLE SHARES OF MUNIPREFERRED MAY BE REDEEMED. In the
case of any redemption pursuant to this Section 11, only whole shares of
MuniPreferred shall be redeemed, and in the event that any provision of the
Declaration would require redemption of a fractional share, the Auction Agent
shall be authorized to round up so that only whole shares are redeemed.

         12. LIQUIDATION RIGHTS.

                  (a) RANKING. The shares of a series of MuniPreferred shall
rank on a parity with each other, with shares of any other series of
MuniPreferred and with shares of any other series of Preferred Shares as to the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Fund.

                  (b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution,
liquidation or winding up of the affairs of the Fund, whether voluntary or
involuntary, the Holders of shares of MuniPreferred then outstanding shall be
entitled to receive and to be paid out of the assets of the Fund available for


                                       31
<PAGE>

distribution to its shareholders, before any payment or distribution shall be
made on the Common Shares or on any other class of shares of the Fund ranking
junior to the MuniPreferred upon dissolution, liquidation or winding up, an
amount equal to the Liquidation Preference with respect to such shares plus an
amount equal to all dividends thereon (whether or not earned or declared)
accumulated but unpaid to (but not including) the date of final distribution in
same day funds, together with any payments required to be made pursuant to
Section 3 of this Part I in connection with the liquidation of the Fund. After
the payment to the Holders of the shares of MuniPreferred of the full
preferential amounts provided for in this paragraph (b), the Holders of
MuniPreferred as such shall have no right or claim to any of the remaining
assets of the Fund.

                  (c) PRO RATA DISTRIBUTIONS. In the event the assets of the
Fund available for distribution to the Holders of shares of MuniPreferred upon
any dissolution, liquidation, or winding up of the affairs of the Fund, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which such Holders are entitled pursuant to paragraph (b) of this Section 12, no
such distribution shall be made on account of any shares of any other class or
series of Preferred Shares ranking on a parity with the shares of MuniPreferred
with respect to the distribution of assets upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on account of
the shares of MuniPreferred, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.

                  (d) RIGHTS OF JUNIOR SHARES. Subject to the rights of the
holders of shares of any series or class or classes of shares ranking on a
parity with the shares of MuniPreferred 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 shares of
MuniPreferred as provided in paragraph (b) of this Section 12, but not prior
thereto, any other series or class or classes of shares ranking junior to the
shares of MuniPreferred with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund shall, subject
to the respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the Holders
of the shares of MuniPreferred shall not be entitled to share therein.

                  (e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the
sale of all or substantially all the property or business of the Fund, nor the
merger or consolidation of the Fund into or with any Massachusetts business
trust or corporation nor the merger or consolidation of any Massachusetts
business trust or corporation into or with the Fund shall be a dissolution,
liquidation or winding up, whether voluntary or involuntary, for the purposes of
this Section 12.

         13. MISCELLANEOUS.

                  (a) AMENDMENT OF APPENDIX A TO ADD ADDITIONAL SERIES. Subject
to the provisions of paragraph (c) of Section 10 of this Part I, the Board of
Trustees may, by resolution duly adopted, without shareholder approval (except
as otherwise provided by this Statement or required by applicable law), amend
Appendix A hereto to (1) reflect any amendments hereto which the Board of
Trustees is entitled to adopt pursuant to the terms of this Statement without
shareholder approval or (2) add additional series of MuniPreferred or additional
shares of a series of MuniPreferred (and terms relating thereto) to the series
and shares of MuniPreferred theretofore described thereon. Each such additional
series and all such additional shares shall be governed by the terms of this
Statement.


                  (b) APPENDIX A INCORPORATED BY REFERENCE. Appendix A hereto is
incorporated in and made a part of this Statement by reference thereto.


                  (c) NO FRACTIONAL SHARES. No fractional shares of
MuniPreferred shall be issued.


                                       32
<PAGE>

                  (d) STATUS OF SHARES OF MUNIPREFERRED REDEEMED, EXCHANGED OR
OTHERWISE ACQUIRED BY THE FUND. Shares of MuniPreferred which are redeemed,
exchanged or otherwise acquired by the Fund shall return to the status of
authorized and unissued Preferred Shares without designation as to series.

                  (e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by
applicable law, the Board of Trustees may interpret or adjust the provisions of
this Statement to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Statement with respect to any series of MuniPreferred
prior to the issuance of shares of such series.

                  (f) HEADINGS NOT DETERMINATIVE. The headings contained in this
Statement are for convenience of reference only and shall not affect the meaning
or interpretation of this Statement.

                  (g) NOTICES. All notices or communications, unless otherwise
specified in the By-Laws of the Fund or this Statement, shall be sufficiently
given if in writing and delivered in person or mailed by first-class mail,
postage prepaid.

                                    PART II

         1. ORDERS.

                  (a) Prior to the Submission Deadline on each Auction Date for
shares of a series of MuniPreferred:

                           (i) each Beneficial Owner of shares of such series
         may submit to its Broker-Dealer by telephone or otherwise information
         as to:

                                  (A) the number of Outstanding shares, if any,
                  of such series held by such Beneficial Owner which such
                  Beneficial Owner desires to continue to hold without regard to
                  the Applicable Rate for shares of such series for the next
                  succeeding Rate Period of such shares;

                                  (B) the number of Outstanding shares, if any,
                  of such series held by such Beneficial Owner which such
                  Beneficial Owner offers to sell if the Applicable Rate for
                  shares of such series for the next succeeding Rate Period of
                  shares of such series shall be less than the rate per annum
                  specified by such Beneficial Owner; and/or

                                  (C) the number of Outstanding shares, if any,
                  of such series held by such Beneficial Owner which such
                  Beneficial Owner offers to sell without regard to the
                  Applicable Rate for shares of such series for the next
                  succeeding Rate Period of shares of such series; and

                           (ii) one or more Broker-Dealers, using lists of
         Potential Beneficial Owners, shall in good faith for the purpose of
         conducting a competitive Auction in a commercially reasonable manner,
         contact Potential Beneficial Owners (by telephone or otherwise),
         including Persons that are not Beneficial Owners, on such lists to
         determine the number of shares, if any, of such series which each such
         Potential Beneficial Owner offers to purchase if the Applicable Rate
         for shares of such series for the next succeeding Rate Period of shares
         of such series shall not be less than the rate per annum specified by
         such Potential Beneficial Owner.

         For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, of information referred to in


                                       33
<PAGE>

clause (i)(A), (i), (B), (i), (C) or (ii) of this paragraph (a) is hereinafter
referred to as an "Order" and collectively as "Orders" and each Beneficial Owner
and each Potential Beneficial Owner placing an Order with a Broker-Dealer, and
such Broker-Dealer placing an Order with the Auction Agent, is hereinafter
referred to as a "Bidder" and collectively as "Bidders"; an Order containing the
information referred to in clause (i)(A) of this paragraph (a) is hereinafter
referred to as a "Hold Order" and collectively as "Hold Orders"; an Order
containing the information referred to in clause (i)(B) or (ii) of this
paragraph (a) is hereinafter referred to as a "Bid" and collectively as "Bids";
and an Order containing the information referred to in clause (i)(C) of this
paragraph (a) is hereinafter referred to as a "Sell Order" and collectively as
"Sell Orders."

                  (b) (i) A Bid by a Beneficial Owner or an Existing Holder of
shares of a series of MuniPreferred 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 MuniPreferred 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 MuniPreferred 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 MuniPreferred subject to an
         Auction on any Auction Date shall constitute an irrevocable offer to
         purchase:


                                       34
<PAGE>

                                  (A) the number of Outstanding shares of such
                  series specified in such Bid if the Applicable Rate for shares
                  of such series determined on such Auction Date shall be higher
                  than the rate specified therein; or

                                  (B) such number or a lesser number of
                  Outstanding shares of such series as set forth in clause (v)
                  of paragraph (a) of Section 4 of this Part II if the
                  Applicable Rate for shares of such series determined on such
                  Auction Date shall be equal to the rate specified therein.

                  (c) No Order for any number of shares of MuniPreferred 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
shares of MuniPreferred 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 MuniPreferred 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


                                       35
<PAGE>

covering all of the Outstanding shares of such series held by any Existing
Holder is not submitted to the Auction Agent prior to the Submission Deadline
for an Auction relating to a Special Rate Period consisting of more than 28 Rate
Period Days, the Auction Agent shall deem a Sell Order to have been submitted by
or on behalf of such Existing Holder covering the number of outstanding shares
of such series held by such Existing Holder and not subject to Orders submitted
to the Auction Agent.

                  (d) If one or more Orders of an Existing Holder is submitted
to the Auction Agent covering in the aggregate more than the number of
Outstanding shares of MuniPreferred 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
MuniPreferred 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.


                                       36
<PAGE>

                  (f) Any Order submitted by a Beneficial Owner or a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date, shall be
irrevocable.

         3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE.

                  (a) Not earlier than the Submission Deadline on each Auction
Date for shares of a series of MuniPreferred, 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 MuniPreferred" 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 higher than the Maximum Rate for
                  shares of such series; and


                                  (C) the number of Outstanding shares of such
                  series subject to Submitted Sell Orders



                  (in the event such excess or such equality exists (other than
                  because the number of shares of such series in subclauses (B)
                  and (C) above is zero because all of the Outstanding shares of
                  such series are subject to Submitted Hold Orders), such
                  Submitted Bids in subclause (A) above being hereinafter
                  referred to collectively as "Sufficient Clearing Bids" for
                  shares of such series); and


                           (iii) if Sufficient Clearing Bids for shares of such
         series exist, the lowest rate specified in such Submitted Bids (the
         "Winning Bid Rate" 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


                                       37
<PAGE>

                  described in subclause (B) above, would equal not less than
                  the Available MuniPreferred of such series.

                  (b) Promptly after the Auction Agent has made the
determinations pursuant to paragraph (a) of this Section 3, the Auction Agent
shall advise the Fund of the Maximum Rate for shares of the series of
MuniPreferred for which an Auction is being held on the Auction Date and, based
on such determination, the Applicable Rate for shares of such series for the
next succeeding Rate Period thereof as follows:

                           (i) if Sufficient Clearing Bids for shares of such
         series exist, that the Applicable Rate for all shares of such series
         for the next succeeding Rate Period thereof shall be equal to the
         Winning Bid Rate for shares of such series so determined;

                           (ii) if Sufficient Clearing Bids for shares of such
         series do not exist (other than because all of the Outstanding shares
         of such series are subject to Submitted Hold Orders), that the
         Applicable Rate for all shares of such series for the next succeeding
         Rate Period thereof shall be equal to the Maximum Rate for shares of
         such series; or

                           (iii) if all of the Outstanding shares of such series
         are subject to Submitted Hold Orders, that the Applicable Rate for all
         shares of such series for the next succeeding Rate Period thereof shall
         be as set forth in Section 12 of Appendix A hereto.

         4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS
AND ALLOCATION OF SHARES. Existing Holders shall continue to hold the shares of
MuniPreferred 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
MuniPreferred 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 shares of MuniPreferred 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 shares of MuniPreferred 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 shares of MuniPreferred subject
         to such Submitted Bid, unless the number of Outstanding shares of
         MuniPreferred subject to all such Submitted Bids shall be greater than
         the number of shares of MuniPreferred ("remaining


                                       38
<PAGE>

         shares") in the excess of the Available MuniPreferred of such series
         over the number of shares of MuniPreferred subject to Submitted Bids
         described in clauses (ii) and (iii) of this paragraph (a), in which
         event such Submitted Bid of such Existing Holder shall be rejected in
         part, and such Existing Holder shall be entitled to continue to hold
         shares of MuniPreferred subject to such Submitted Bid, but only in an
         amount equal to the number of shares of MuniPreferred of such series
         obtained by multiplying the number of remaining shares by a fraction,
         the numerator of which shall be the number of Outstanding shares of
         MuniPreferred held by such Existing Holder subject to such Submitted
         Bid and the denominator of which shall be the aggregate number of
         Outstanding shares of MuniPreferred subject to such Submitted Bids made
         by all such Existing Holders that specified a rate equal to the Winning
         Bid Rate for shares of such series; and

                           (v) each Potential Holder's Submitted Bid for shares
         of such series specifying a rate that is equal to the Winning Bid Rate
         for shares of such series shall be accepted but only in an amount equal
         to the number of shares of such series obtained by multiplying the
         number of shares in the excess of the Available MuniPreferred of such
         series over the number of shares of MuniPreferred 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
         shares of MuniPreferred subject to such Submitted Bid and the
         denominator of which shall be the aggregate number of Outstanding
         shares of MuniPreferred 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
MuniPreferred 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 shares of
         MuniPreferred 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
MuniPreferred are subject to Submitted Hold Orders, all Submitted Bids for
shares of such series shall be rejected.


                                       39
<PAGE>

                  (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
MuniPreferred on any Auction Date, the Auction Agent shall, in such manner as it
shall determine in its sole discretion, round up or down the number of shares of
MuniPreferred 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 MuniPreferred.

                  (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 MuniPreferred on any
Auction Date, the Auction Agent shall, in such manner as it shall determine in
its sole discretion, allocate shares of MuniPreferred of such series for
purchase among Potential Holders so that only whole shares of MuniPreferred 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 shares of MuniPreferred of such series on such Auction
Date.

                  (f) Based on the results of each Auction for shares of a
series of MuniPreferred, 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, shares of
MuniPreferred 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 MuniPreferred 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 MuniPreferred 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 shares of
MuniPreferred of any series or to pay for shares of MuniPreferred of any series
sold or purchased pursuant to the Auction Procedures or otherwise.

         5. NOTIFICATION OF ALLOCATIONS. Whenever the Fund intends to include
any net capital gains or other income taxable for Federal income tax purposes in
any dividend on shares of MuniPreferred, the Fund shall, in the case of a
Minimum Rate Period or a Special Rate Period of 28 Rate Period Days or fewer,
and may, in the case of any other Special Rate Period, notify the Auction Agent
of the amount to be so included not later than the Dividend Payment Date next
preceding the Auction Date on which the Applicable Rate for such dividend is to
be established. Whenever the Auction Agent receives such notice from the Fund,
it will be required in turn to notify each Broker-Dealer, who, on or prior to
such Auction Date, in accordance with its Broker-Dealer Agreement, will be
required to notify its Beneficial Owners and Potential Beneficial Owners of
shares of MuniPreferred believed by it to be interested in submitting an Order
in the Auction to be held on such Auction Date.


                                       40
<PAGE>

         6. AUCTION AGENT. For so long as any shares of MuniPreferred 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 shares of MuniPreferred are
outstanding, the Board of Trustees shall use its best efforts promptly
thereafter to appoint another qualified commercial bank, trust company or
financial institution to act as the Auction Agent. The Auction Agent's registry
of Existing Holders of shares of a series of MuniPreferred shall be conclusive
and binding on the Broker- Dealers. A Broker-Dealer may inquire of the Auction
Agent between 3:00 p.m. on the Business Day preceding an Auction for shares of a
series of MuniPreferred and 9:30 a.m. on the Auction Date for such Auction to
ascertain the number of shares of such series in respect of which the Auction
Agent has determined such Broker-Dealer to be an Existing Holder. If such
Broker-Dealer believes it is the Existing Holder of fewer shares of such series
than specified by the Auction Agent in response to such Broker-Dealer's inquiry,
such Broker-Dealer may so inform the Auction Agent of that belief. Such
Broker-Dealer shall not, in its capacity as Existing Holder of shares of such
series, submit Orders in such Auction in respect of shares of such series
covering in the aggregate more than the number of shares of such series
specified by the Auction Agent in response to such Broker-Dealer's inquiry.

         7. TRANSFER OF SHARES OF MUNIPREFERRED. Unless otherwise permitted by
the Fund, a Beneficial Owner or an Existing Holder may sell, transfer or
otherwise dispose of shares of MuniPreferred only in whole shares and only
pursuant to a Bid or Sell Order placed with the Auction Agent in accordance with
the procedures described in this Part II or to a Broker-Dealer, provided,
however, that (a) a sale, transfer or other disposition of shares of
MuniPreferred from a customer of a Broker-Dealer who is listed on the records of
that Broker-Dealer as the holder of such shares to that Broker-Dealer or another
customer of that Broker-Dealer shall not be deemed to be a sale, transfer or
other disposition for purposes of this Section 7 if such Broker-Dealer remains
the Existing Holder of the shares so sold, transferred or disposed of
immediately after such sale, transfer or disposition and (b) in the case of all
transfers other than pursuant to Auctions, the Broker-Dealer (or other Person,
if permitted by the Fund) to whom such transfer is made shall advise the Auction
Agent of such transfer.

         8. GLOBAL CERTIFICATE. Prior to the commencement of a Voting Period,
(i) all of the shares of a series of MuniPreferred outstanding from time to time
shall be represented by one global certificate registered in the name of the
Securities Depository or its nominee and (ii) no registration of transfer of
shares of a series of MuniPreferred shall be made on the books of the Fund to
any Person other than the Securities Depository or its nominee.

                             SIGNATURE PAGE FOLLOWS


                                       41
<PAGE>


         IN WITNESS WHEREOF, NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE
MUNICIPAL FUND, has caused these presents to be signed on _______________, 2003
in its name and on its behalf by its Vice President 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 INSURED CALIFORNIA TAX-FREE
                                           ADVANTAGE MUNICIPAL FUND


                                           By:
                                                --------------------------------
                                                Jessica R. Droeger
                                                Vice President
ATTEST:


- ----------------------------------
Virginia O'Neal
Assistant Secretary


                                       42
<PAGE>

                                   APPENDIX A

          NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL FUND

         SECTION 1.  DESIGNATION AS TO SERIES.


         SERIES TH: A series of 1,800 Preferred Shares, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Shares, Series TH." Each of the 1,800 shares
of Series TH MuniPreferred issued on _________, 2003 shall, for purposes hereof,
be deemed to have a Date of Original Issue of _______, 2003; have an Applicable
Rate for its Initial Rate Period equal to _______% per annum; have an initial
Dividend Payment Date of _________, 2003; and have such other preferences,
limitations and relative voting rights, in addition to those required by
applicable law or set forth in the Declaration of Trust applicable to Preferred
Shares of the Fund, as set forth in Part I and Part II of this Statement. Any
shares of Series TH MuniPreferred issued thereafter shall be issued on the first
day of a Rate Period of the then outstanding shares of Series ___ MuniPreferred,
shall have, for such Rate Period, an Applicable Rate equal to the Applicable
Rate for shares of such series established in the first Auction for shares of
such series preceding the date of such issuance; and shall have such other
preferences, limitations and relative voting rights, in addition to those
required by applicable law or set forth in the Declaration of Trust applicable
to Preferred Shares of the Fund, as set forth in Part I and Part II of this
Statement. The Series TH MuniPreferred shall constitute a separate series of
Preferred Shares of the Fund, and each share of Series TH MuniPreferred shall be
identical except as provided in Section 11 of Part I of this Statement.

         SECTION 2. NUMBER OF AUTHORIZED SHARES PER SERIES. The number of
authorized shares constituting Series TH MuniPreferred is 1,800.


         SECTION 3. EXCEPTIONS TO CERTAIN DEFINITIONS. Notwithstanding the
definitions contained under the heading "Definitions" in this Statement, the
following terms shall have the following meanings for purposes of this
Statement:

         Not applicable.

         SECTION 4. CERTAIN DEFINITIONS. For purposes of this Statement, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:

         "ESCROWED BONDS" shall mean Municipal Obligations that (i) have been
determined to be legally defeased in accordance with S&P's legal defeasance
criteria, (ii) have been determined to be economically defeased in accordance
with S&P's economic defeasance criteria and assigned a rating of AAA by S&P,
(iii) are not rated by S&P but have been determined to be legally defeased by
Moody's or (iv) have been determined to be economically defeased by Moody's and
assigned a rating no lower than the rating that is Moody's equivalent of S&P's
AAA rating. In the event that a defeased obligation which is an S&P Eligible
Asset does not meet the criteria of an Escrowed Bond, such Municipal Obligation
will be deemed to remain in the Issue Type Category into which it fell prior to
such defeasance.

         "GROSS-UP PAYMENT" means payment to a Holder of shares of MuniPreferred
of an amount which, when taken together with the aggregate amount of Taxable
Allocations made to such Holder to which such Gross-up Payment relates, would
cause such Holder's dividends in dollars (after Federal and California income
tax consequences) from the aggregate of such Taxable Allocations and the related
Gross-up Payment to be equal to the dollar amount of the dividends which would
have been received by such Holder if the amount of such aggregate Taxable
Allocations would have been excludable from the gross income of such Holder.
Such Gross-up Payment shall be calculated (i) without consideration being given


                                      A-1
<PAGE>
to the time value of money; (ii) assuming that no Holder of shares of
MuniPreferred is subject to the Federal alternative minimum tax with respect to
dividends received from the Fund; and (iii) assuming that each Taxable
Allocation and each Gross-up Payment (except to the extent such Gross-up Payment
is designated as an exempt-interest dividend under Section 852(b)(5) of the Code
or successor provisions) would be taxable in the hands of each Holder of shares
of MuniPreferred at the maximum marginal combined regular Federal and California
personal income tax rate applicable to ordinary income (taking into account the
Federal income tax deductibility of state and local taxes paid or incurred) or
net capital gains, as applicable, or the maximum marginal regular Federal
corporate income tax rate applicable to ordinary income or net capital gains, as
applicable, whichever is greater, in effect at the time such Gross-up Payment is
made.

         "INVERSE FLOATER" shall mean trust certificates or other instruments
evidencing interests in one or more Municipal Obligations that qualify as S&P
Eligible Assets, the interest rates on which are adjusted at short-term
intervals on a basis that is inverse to the simultaneous readjustment of the
interest rates on corresponding floating rate trust certificates or other
instruments issued by the same issuer, provided that the ratio of the aggregate
dollar amount of floating rate instruments to inverse floating rate instruments
issued by the same issuer does not exceed one to one at their time of original
issuance unless the floating instruments have only one reset remaining until
maturity.

         "ISSUE TYPE CATEGORY" shall mean, with respect to a Municipal
Obligation acquired by the Fund, (A) for purposes of calculating Moody's
Eligible Assets as of any Valuation Date, one of the following categories into
which such Municipal Obligation falls based upon a good faith determination by
the Fund: health care issues (including issues related to teaching and
non-teaching hospitals, public or private); housing issues (including issues
related to single- and multi-family housing projects) educational facilities
issues (including issues related to public and private schools); student loan
issues; resource recovery issues; transportation issues (including issues
related to mass transit, airports and highways); industrial development bond
issues (including issues related to pollution control facilities); utility
issues (including issues related to the provision of gas, water, sewers and
electricity); general obligation issues; lease obligations (including
certificates of participation); escrowed bonds; and other issues ("Other
Issues") not falling within one of the aforementioned categories; and (B) for
purposes of calculating S&P Eligible Assets as of any Valuation Date, one of the
following categories into which such Municipal Obligation falls based upon a
good faith determination by the Fund: health care issues (including issues
related to teaching and non-teaching hospitals, public or private); housing
issues (including issues related to single- and multi-family housing projects);
educational facilities issues (including issues related to public and private
schools); student loan issues; transportation issues (including issues related
to mass transit, airports and highways); industrial development bond issues
(including issues related to pollution control facilities); public power
utilities issues (including issues related to the provision of electricity,
either singly or in combination with the provision of other utilities, and
issues related only to the provision of gas); water and sewer utilities issues
(including issues related to the provision of water and sewers as well as
combination utilities not falling within the public power utilities category);
special utilities issues (including issues related to resource recovery, solid
waste and irrigation as well as other utility issues not falling within the
public power and water and sewer utilities categories); general obligation
issues; lease obligations (including certificates of participation); Escrowed
Bonds; and other issues ("Other Issues") not falling within one of the
aforementioned categories. The general obligation issue category includes any
issues that is directly or indirectly guaranteed by the State of California or
its political subdivisions. Utility issues are included in the general
obligation issue category if the issue is directly or indirectly guaranteed by
the State of California or its political subdivisions. Municipal Obligations in
the utility issue category will be classified within one of the three following
sub-categories: (i) electric, gas and combination issues (if the combination
issue includes an electric issue); (ii) water and sewer utilities and
combination issues (if the combination issue does not include an electric
issue); and (iii) irrigation, resource recovery, solid waste and other
utilities, provided that Municipal Obligations included in this sub-category
(iii) must be rated by S&P in order to be included in S&P Eligible Assets.
Municipal Obligations in the transportation issue category will be classified
within one of the two following sub-categories: (i) streets and highways, toll
roads, bridges and tunnels, airports and multi-purpose port authorities
(multiple revenue streams generated by toll roads, airports, real estate,
bridges); (ii) mass transit, parking seaports and others.


         "MOODY'S DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined by
reference to (i) (A) in the event such Municipal Obligation is covered by an
Original Issue Insurance policy or a Portfolio Insurance policy which does not
provide the Fund with the option to obtain Permanent Insurance with respect to
such Municipal Obligation, or is not covered by bond insurance, the Moody's or
S&P rating on such Municipal Obligation, (B) in the event such Municipal
Obligation is covered by a Secondary Market Insurance policy, the Moody's
insurance claims-paying ability rating of the issuer of the policy, or (C) in
the event such Municipal Obligation is covered by a Portfolio Insurance policy
which provides the Fund with the option to obtain Permanent Insurance with
respect to such Municipal Obligation, at the Fund's option, the Moody's or S&P
rating on such Municipal Obligation or the Moody's insurance claims-paying
ability rating of the issuer of the Portfolio Insurance policy and (ii) the
shortest Exposure Period set forth opposite such rating that is the same length
as or is longer than the Moody's Exposure Period, in accordance with the table
set forth below:


<Table>
<Caption>
                                                                  RATING CATEGORY
                                  ---------------------------------------------------------------------------------
       EXPOSURE PERIOD            Aaa*   AA*    A*     BAA*    OTHER**    (V)MIG-1***     SP-1+****    UNRATED*****
       ---------------            ----   ---    ---    ----    -------    -----------     ---------    ------------
<S>                               <C>    <C>    <C>    <C>     <C>        <C>             <C>          <C>
7 weeks.........................   151%  159%   166%    173%     187%          136%         148%           225%
8 weeks or less but
   greater than seven weeks.....   154   161    168     176      190           137          149            231
9 weeks or less but
   greater than eight weeks.....   156   163    170     177      192           138          150            240
</Table>

- ----------

*       Moody's rating.

**      Municipal Obligations not rated by Moody's but rated BBB by S&P.

***     Municipal Obligations rated MIG-1 or VMIG-1, which do not mature or have
        a demand feature at par exercisable in 30 days and which do not have a
        long-term rating.

****    Municipal Obligations not rated by Moody's but rated SP-1+ by S&P, which
        do not mature or have a demand feature at par exercisable in 30 days and
        which do not have a long-term rating.

*****   Municipal Obligations rated less than Baa3 by Moody's or less than BBB
        by S&P or not rated by Moody's or S&P.

         If the Moody's Discount Factor used to discount a particular Municipal
Obligation is determined by reference to the insurance claims-paying ability
rating of the insurer of such Municipal Obligation, such Moody's Discount Factor
will be increased by an amount equal to 50% of the difference between (i) the
percentage set forth in the above table under the applicable rating category,
and (ii) the percentage set forth in the above table under the rating category
that is one rating category below the applicable rating category.

         Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or
have a demand feature at par exercisable in 30 days or less or 125% as long as
such Municipal Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and
mature or have a demand feature at par exercisable in 30 days or less and (ii)
no Moody's Discount Factor will be applied to cash or to Receivables for
Municipal Obligations Sold.

         "MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for Municipal
Obligations Sold or a Municipal Obligation that (i) pays interest in cash, (ii)
does not have its Moody's rating, as applicable,


                                      A-2
<PAGE>
suspended by Moody's, and (iii) is Part of an issue of Municipal Obligations of
at least $5,000,000 except for Municipal Obligations rated below A by Moody's
Municipal Obligations within the healthcare Issue Type Category, in which case
the minimum issue size is $10,000,000. Except for general obligation bonds,
Municipal Obligations issued by any one issuer and rated BBB or lower by S&P, Ba
or B by Moody's or not rated by S&P and Moody's ("Other Securities") may
comprise no more than 4% of total Moody's Eligible Assets; such Other
Securities, if any, together with any Municipal Obligations issued by the same
issuer and rated Baa by Moody's or A by S&P, may comprise no more than 6% of
total Moody's Eligible Assets; such Other Securities, Baa and A-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by the same
issuer and rated A by Moody's or AA by S&P, may comprise no more than 10% of
total Moody's Eligible Assets; and such Other Securities, Baa, A and AA-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
the same issuer and rated Aa by Moody's or AAA by S&P, may comprise no more than
20% of total Moody's Eligible Assets. For purposes of the foregoing sentence,
any Municipal Obligation backed by the guaranty, letter of credit or insurance
issued by a third party shall be deemed to be issued by such third party if the
issuance of such third party credit is the sole determinant of the rating on
such Municipal Obligation. Other Securities falling within a particular Issue
Type Category may comprise no more than 12% of total Moody's Eligible Assets;
such Other Securities, if any, together with any Municipal Obligations falling
within a particular Issue Type Category and rated Baa by Moody's or A by S&P,
may comprise no more than 20% of total Moody's Eligible Assets; such Other
Securities, Baa and A-rated Municipal Obligations, if any, together with any
Municipal Obligations falling within a particular Issue Type Category and rated
A by Moody's or AA by S&P, may comprise no more than 40% of total Moody's
Eligible Assets; and such Other Securities, Baa, A and AA-rated Municipal
Obligations, if any, together with any Municipal Obligations falling within
particular Issue Type Category and rated Aa by Moody's or AAA by S&P, may
comprise no more than 60% of total Moody's Eligible Assets. For purposes of this
definition, a Municipal Obligation shall be deemed to be rated BBB by S&P if
rated BBB or BBB+ by S&P. Notwithstanding any other provision of this
definition, (A) in the case of general obligation Municipal Obligations only,
Other Securities issued by issuers located within any one county may comprise no
more than 4% of Moody's Eligible Assets; such Other Securities, if any, together
with any Municipal Obligations issued by issuers located within the same county
and rated Baa by Moody's or A by S&P, may comprise no more than 6% of Moody's
Eligible Assets; such Other Securities, Baa and A-rated Municipal Obligations,
if any, together with any Municipal Obligations issued by issuers located within
the same county and rated A by Moody's or AA by S&P, may comprise no more than
10% of Moody's Eligible Assets; and such Other Securities, Baa, A and AA-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
issuers located within the same county and rated Aa by Moody's or AAA by S&P,
may comprise no more than 20% of Moody's Eligible Assets; and (B) in no event
may (i) student loan Municipal Obligations comprise more than 10% of Moody's
Eligible Assets; (ii) resource recovery Municipal Obligations comprise more than
10% of Moody's Eligible Assets; and (iii) Other Issues comprise more than 10% of
Moody's Eligible Assets. For purposes of applying the foregoing requirements, a
Municipal Obligation rated BBB- by S&P shall not be considered to be rated BBB
by S&P, Moody's Eligible Assets shall be calculated without including cash, and
Municipal Obligations rated MIG-1, VMIG-1 or P-1 or, if not rated by Moody's,
rated A-1+/AA or SP-1+/AA by S&P, shall be considered to have a long-term rating
of A. When the Fund sells a Municipal Obligation and agrees to repurchase such
Municipal Obligation at a future date, such Municipal Obligation shall be valued
at its Discounted Value for purposes of determining Moody's Eligible Assets, and
the amount of the repurchase price of such Municipal Obligation shall be
included as a liability for purposes of calculating the MuniPreferred Basic
Maintenance Amount. When the Fund purchases a Moody's Eligible Asset and agrees
to sell it at a future date, such Eligible Asset shall be valued at the amount
of cash to be received by the Fund upon such future date, provided that the
counterparty to the transaction has a long-term debt rating of at least A2 from
Moody's and the transaction has a term of no more than 30 days, otherwise such
Eligible Asset shall be valued at the Discounted Value of such Eligible Asset.

         Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent it is (i) subject to any material lien,
mortgage, pledge, security interest or security agreement of any kind
(collectively, "Liens"), except for (a) Liens which are being contested in good
faith by appropriate proceedings and which Moody's has indicated to the Fund
will not affect the status of such asset as a Moody's Eligible Asset, (b) Liens
for taxes that are not then due and payable or that can be paid thereafter
without penalty, (c) Liens to secure payment for services rendered or cash
advanced to the Fund by Nuveen Advisory Corp., JPMorgan Chase Bank or the
Auction Agent and (d) Liens by virtue of any repurchase agreement; or (ii)
deposited irrevocably for the payment of any liabilities for purposes of
determining the MuniPreferred Basic Maintenance Amount.

         For purposes of determining as of any Valuation Date whether the Fund
has Moody's Eligible Assets with an aggregate Discounted Value at least equal
to the MuniPreferred Basic Maintenance Amount, the Fund shall include as a
liability in the calculation of the MuniPreferred Basic Maintenance Amount an
amount calculated semi-annually equal to 150% of the estimated cost of
obtaining Permanent Insurance with respect to Moody's Eligible Assets that are
(i) covered by Portfolio Insurance policies which provide the Fund with the
option to obtain such Permanent Insurance and (ii) discounted by a Moody's
Discount Factor determined by reference to the insurance claims-paying ability
rating of the issuer of such Portfolio Insurance policy.


         "ORIGINAL ISSUE INSURANCE" shall mean "Original Issue Insurance" as
defined in the Fund's Registration Statement.


         "OTHER ISSUES" shall have the respective meanings specified in the
definition of "Issue Type Category."


         "PERMANENT INSURANCE" shall mean "Permanent Insurance" as defined in
the Fund's Registration Statement.

         "PORTFOLIO INSURANCE" shall mean "Portfolio Insurance" as defined in
the Fund's Registration Statement.


         "RATE MULTIPLE," for shares of a series of MuniPreferred on any Auction
Date for shares of such series, shall mean the percentage, determined as set
forth below, based on the prevailing rating of shares of such series in effect
at the close of business on the Business Day next preceding such Auction Date:


                                      A-3
<PAGE>

<Table>
<Caption>
            PREVAILING RATING                   PERCENTAGE
            -----------------                   ----------
<S>                                             <C>
"aa3"/AA-- or higher...................            110%
"a3"/A--...............................            125%
"baa3"/BBB--...........................            150%
"ba3"/BB--.............................            200%
Below "ba3"/BB--.......................            250%
</Table>

provided, however, that in the event the Fund has notified the Auction Agent of
its intent to allocate income taxable for Federal income tax purposes to shares
of such series prior to the Auction establishing the Applicable Rate for shares
of such series, the applicable percentage in the foregoing table shall be
divided by the quantity 1 minus the maximum marginal combined regular Federal
and California personal income tax rate applicable to ordinary income (taking
into account the Federal income tax deductibility of local taxes paid or
incurred) or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income, whichever is greater.

         For purposes of this definition, the "prevailing rating" of shares of a
series of MuniPreferred shall be (i) "aa3"/AA-- or higher if such shares have a
rating of "aa3" or better by Moody's and AA-- or better by S&P or the equivalent
of such ratings by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, (ii) if not "aa3"/AA-- or higher,
then "a3"/A-- if such shares have a rating of "a3" or better by Moody's and A--
or better by S&P or the equivalent of such ratings by such agencies or a
substitute rating agency or substitute rating agencies selected as provided
below, (iii) if not "aa3"/AA-- or higher or "a3"/A--, then "baa3"/BBB-- if such
shares have a rating of "baa3" or better by Moody's and BBB-- or better by S&P
or the equivalent of such ratings by such agencies or a substitute rating agency
or substitute rating agencies selected as provided below, (iv) if not "aa3"/AA--
or higher, "a3"/A-- or "baa3"/BBB--, then "ba3"/BB-- if such shares have a
rating of "ba3" or better by Moody's and BB-- or better by S&P or the equivalent
of such ratings by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, and (v) if not "aa3"/AA-- or higher,
"a3"/A--, "baa3"/BBB--, or "ba3"/BB--, then Below "ba3"/BB--; provided, however,
that if such shares are rated by only one rating agency, the prevailing rating
will be determined without reference to the rating of any other rating agency.
The Fund shall take all reasonable action necessary to enable either S&P or
Moody's to provide a rating for shares of MuniPreferred. If neither S&P nor
Moody's shall make such a rating available, the party set forth in Section 7 of
Appendix A or its successor shall select at least one nationally recognized
statistical rating organization (as that term is used in the rules and
regulations of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended from time to time) to act as a substitute
rating agency in respect of shares of the series of MuniPreferred set forth
opposite such party's name in Section 7 of Appendix A and the Fund shall take
all reasonable action to enable such rating agency to provide a rating for such
shares.


         "S&P DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to (i) (A) in the event such Municipal Obligation is covered by an
Original Issue Insurance policy or a Portfolio Insurance policy which does not
provide the Fund with the option to obtain Permanent Insurance with respect to
such Municipal Obligation or is not covered by bond insurance, the S&P or
Moody's rating on such Municipal Obligation, (B) in the event such Municipal
Obligation is covered by a Secondary Market Insurance policy, the S&P insurance
claims-paying ability rating of the issuer of the policy, or (C) in the event
such Municipal Obligation is covered by a Portfolio Insurance policy which
provides the Fund with the option to obtain Permanent Insurance with respect to
such Municipal Obligation, at the Fund's option, the S&P or Moody's rating on
such Municipal Obligation or the S&P insurance claims-paying ability rating of
the issuer of the Portfolio Insurance policy and (ii) the shortest Exposure
Period set forth opposite such rating that is the same length as or is longer
than the S&P Exposure Period, in accordance with the table set forth below:



<Table>
<Caption>
                                                                   RATING CATEGORY
                                                ------------------------------------------------------
                                                                                                  HIGH
             EXPOSURE PERIOD                    AAA*         AA*           A*         BBB*       YIELD
             ---------------                    ----         ---          ---         ----       -----
<S>                                             <C>          <C>          <C>         <C>        <C>
45 Business Days.......................          200%        205%         220%        260%        230%
25 Business Days.......................          180         185          200         240         230
10 Business Days.......................          165         170          185         225         230
7 Business Days........................          160         165          180         220         230
3 Business Days........................          140         145          160         200         230
</Table>


- ----------

*       S&P rating.


                                      A-4
<PAGE>


         Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated A-1+ or SP-1+ by S&P and mature or have a demand feature
exercisable within 30 days or less, or 120% so long as such Municipal
Obligations are rated A-1 or SP-1 by S&P and mature or have a demand feature
exercisable in 30 days or less or 125% if such Municipal Obligations are not
rated by S&P but are rated equivalent to A-1+ or SP-1+ by another nationally
recognized statistical rating organization, on a case by case basis; provided,
however, that any such non-S&P rated short-term Municipal Obligations which have
demand features exercisable within 30 days or less must be backed by a letter of
credit, liquidity facility or guarantee from a bank or other financial
institution with a short-term rating of at least A-1+ from S&P; and further
provided that such non-S&P rated short-term Municipal Obligations may comprise
no more than 50% of short-term Municipal Obligations that qualify as S&P
Eligible Assets; provided, however, that Municipal Obligations not rated by S&P
but rated equivalent to BBB or lower by another nationally recognized
statistical rating organization, rated BB+ or lower by S&P or non-rated (such
Municipal Obligations are hereinafter referred to as "High Yield Securities")
may comprise no more than 20% of the short-term Municipal Obligations that
qualify as S&P Eligible Assets; (ii) the S&P Discount Factor for Receivables for
Municipal Obligations Sold that are due in more than five Business Days from
such Valuation Date will be the S&P Discount Factor applicable to the Municipal
Obligations sold; (iii) no S&P Discount Factor will be applied to cash or to
Receivables for Municipal Obligations Sold if such receivables are due within
five Business Days of such Valuation Date; and (iv) except as set forth in
clause (i) above, in the case of any Municipal Obligation that is not rated by
S&P but qualifies as an S&P Eligible Asset pursuant to clause (iii) of that
definition, such Municipal Obligation will be deemed to have an S&P rating one
full rating category lower than the S&P rating category that is the equivalent
of the rating category in which such Municipal Obligation is placed by a
nationally recognized statistical rating organization. "Receivables for
Municipal Obligations Sold," for purposes of calculating S&P Eligible Assets as
of any Valuation Date, means the book value of receivables for Municipal
Obligations sold as of or prior to such Valuation Date. The Fund may adopt S&P
Discount Factors for Municipal Obligations other than Municipal Obligations
provided that S&P advises the Fund in writing that such action will not
adversely affect its then current rating on the MuniPreferred. For purposes of
the foregoing, Anticipation Notes rated SP-1+ or, if not rated by S&P,
equivalent to A-1+ or SP-1+ by another nationally recognized statistical rating
organization, on a case by case basis, which do not mature or have a demand
feature at par exercisable in 30 days and which do not have a long-term rating,
shall be considered to be short-term Municipal Obligations.


         "S&P ELIGIBLE ASSET" shall mean cash (excluding any cash irrevocably
deposited by the Fund for the payment of any liabilities within the meaning of
MuniPreferred Basic Maintenance Amount), Receivables for Municipal Obligations
Sold or a Municipal Obligation owned by the Fund that (i) is interest bearing
and pays interest at least semi-annually; (ii) is payable with respect to
principal and interest in U.S. Dollars; (iii) is publicly rated BBB or higher by
S&P or, if not rated by S&P but rated equivalent or higher to an A by another
nationally recognized statistical rating organization, on a case by case basis;
(iv) is not subject to a covered call or put option written by the Fund; (v)
except for Inverse Floaters, is not part of a private placement of Municipal
Obligations; and (vi) except for Inverse Floaters, is part of an issue of
Municipal Obligations with an original issue size of at least $5 million. Any
Municipal Obligation that is a part of an original issue size of less than $10
million must carry a rating of at least A by S&P or an equivalent rating by
another nationally recognized statistical rating organization and the Market
Value of such Municipal Obligations may not exceed 20% of the aggregate Market
Value of S&P Eligible Assets. Solely for purposes of this definition, the term
"Municipal Obligation" means any obligation the interest on which is exempt from
regular Federal income taxation and which is issued by any of the fifty United
States, the District of Columbia or any of the territories of the United States,
their subdivisions, counties, cities, towns, villages, school districts and
agencies (including authorities and



                                      A-5
<PAGE>

special districts created by the states), and federally sponsored agencies such
as local housing authorities. Notwithstanding the foregoing limitations:

                  (1) Municipal Obligations (excluding Escrowed Bonds and High
         Yield Securities) of any one issuer or guarantor (excluding bond
         insurers) shall be considered S&P Eligible Assets only to the extent
         the Market Value of such Municipal Obligations (including short-term
         Municipal Obligations) does not exceed 10% of the aggregate Market
         Value of S&P Eligible Assets, provided that 2% is added to the
         applicable S&P Discount Factor for every 1% by which the Market Value
         of such Municipal Obligations exceeds 5% of the aggregate Market Value
         of S&P Eligible Assets. High Yield Securities of any one issuer shall
         be considered S&P Eligible Assets only to the extent the Market Value
         of such Municipal Obligations does not exceed 5% of the aggregate
         Market Value of S&P Eligible Assets;

                  (2) Municipal Obligations (excluding Escrowed Bonds) of any
         one Issue Type Category shall be considered S&P Eligible Assets only to
         the extent the Market Value of such Municipal Obligations does not
         exceed 25% of the aggregate Market Value of S&P Eligible Assets;
         provided, however, that Municipal Obligations falling within the
         utility Issue Type Category will be broken down into three
         sub-categories and such Municipal Obligations will be considered S&P
         Eligible Assets to the extent the Market Value of such Municipal
         Obligations in each such sub-category does not exceed 25% of the
         aggregate Market Value of S&P Eligible Assets per each sub-category
         provided that the total utility Issue Type Category does not exceed 60%
         of the Aggregate Market Value of S&P Eligible Assets; provided,
         however, that Municipal Obligations falling within the transportation
         Issue Type Category will be broken down into two sub-categories and
         such Municipal Obligations will be considered S&P Eligible Assets to
         the extent the Market Value of such Municipal Obligations in both
         sub-categories combined does not exceed 40% of the aggregate Market
         Value of S&P Eligible Assets (exposure to transportation sub-category
         (i) described in the definition of Issue Type Category is limited to
         25% of the aggregate Market Value of S&P Eligible Assets, provided,
         however, exposure to transportation sub-category (ii) can exceed the
         25% limit to the extent that exposure to transportation sub-category
         (i) is reduced, for a total exposure up to and not exceeding 40% of the
         aggregate Market Value of S&P Eligible Assets for the transportation
         Issue Type Category); and provided, however, that the general
         obligation issues will be considered S&P Eligible Assets only to the
         extent the Market Value of such general obligation issues does not
         exceed 50% of the aggregate Market Value of S&P Eligible Assets;

                  (3) Municipal Obligations not rated by S&P shall be considered
         S&P Eligible Assets only to the extent the Market Value of such
         Municipal Obligations does not exceed 50% of the aggregate Market Value
         of S&P Eligible Assets; provided, however, that High Yield Securities
         shall be considered S&P Eligible Assets only to the extent the Market
         Value of such Municipal Obligations does not exceed 20% of the
         aggregate Market Value of S&P Eligible Assets; and

                  (4) Out of State Bonds shall be considered S&P Eligible Assets
         only to the extent that the Market Value of such Municipal Obligations
         does not exceed 20% of the aggregate Market Value of S&P Eligible
         Assets.

         For purposes of determining as of any Valuation Date whether the Fund
has S&P Eligible Assets with an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount, the Fund shall include as a liability in
the calculation of the MuniPreferred Basic Maintenance Amount an amount
calculated semi-annually equal to 150% of the estimated cost of obtaining
Permanent Insurance with respect to S&P Eligible Assets that are (i) covered by
Portfolio Insurance policies which provide the Fund with the option to obtain
such Permanent Insurance and (ii) discounted by an S&P Discount Factor
determined by reference to the insurance claims-paying ability rating of the
issuer of such Portfolio Insurance policy.


         "SECONDARY MARKET INSURANCE" shall mean "Secondary Market Insurance" as
defined in the Fund's Registration Statement.

         SECTION 5. INITIAL RATE PERIODS. The Initial Rate Period for shares of
Series TH MuniPreferred shall be the period from and including the Date of
Original Issue thereof to but excluding ___________, 2003.

         SECTION 6. DATE FOR PURPOSES OF PARAGRAPH (ZZZ) CONTAINED UNDER THE
HEADING "DEFINITIONS" IN THIS STATEMENT. __________, 2003.


         SECTION 7. PARTY NAMED FOR PURPOSES OF THE DEFINITION OF "RATE
MULTIPLE" IN THIS STATEMENT.


<Table>
<Caption>
                     PARTY                             SERIES OF MUNIPREFERRED
                     -----                             -----------------------
<S>                                                    <C>
Salomon Smith Barney..........................                Series TH
</Table>


         SECTION 8. ADDITIONAL DEFINITIONS.

         "OUT OF STATE BONDS" shall mean "Out of State Bonds" as defined in the
Fund's Registration Statement.

         SECTION 9. DIVIDEND PAYMENT DATES. Except as otherwise provided in
paragraph (d) of Section 2 of Part I of this Statement, dividends shall be
payable on shares of:


         Series TH MuniPreferred, for the Initial Rate Period on Thursday,
______________, 2003, and on each Thursday thereafter.


         SECTION 10. AMOUNT FOR PURPOSES OF SUBPARAGRAPH (c)(i) OF SECTION 5 OF
PART I OF THIS STATEMENT.
________________.

         SECTION 11. REDEMPTION PROVISIONS APPLICABLE TO INITIAL RATE PERIODS.
Not applicable.


                                      A-6
<PAGE>


         SECTION 12. APPLICABLE RATE FOR PURPOSES OF SUBPARAGRAPH (B)(III) OF
SECTION 3 OF PART II OF THIS STATEMENT. For purposes of subparagraph (b)(iii) of
Section 3 of Part II of this Statement, the Applicable Rate for shares of such
series for the next succeeding Rate Period of shares of such series shall be
equal to the lesser of the Kenny Index (if such Rate Period consists of fewer
than 183 Rate Period Days) or the product of (A)(I) the "AA" Composite
Commercial Paper Rate on such Auction Date for such Rate Period, if such Rate
Period consists of fewer than 183 Rate Period Days; (II) the Treasury Bill Rate
on such Auction Date for such Rate Period, if such Rate Period consists of more
than 182 but fewer than 365 Rate Period Days; or (III) the Treasury Note Rate on
such Auction Date for such Rate Period, if such Rate Period is more than 364
Rate Period Days (the rate described in the foregoing clause (A)(I), (II) or
(III), as applicable, being referred to herein as the "Benchmark Rate") and (B)
1 minus the maximum marginal combined regular Federal and California personal
income tax rate applicable to ordinary income (taking into account the Federal
income tax deductibility of state and local taxes paid or incurred) or the
maximum marginal regular Federal corporate income tax rate applicable to
ordinary income, whichever is greater; provided, however, that if the Fund has
notified the Auction Agent of its intent to allocate to shares of such series in
such Rate Period any net capital gains or other income taxable for Federal
income tax purposes ("Taxable Income"), the Applicable Rate for shares of such
series for such Rate Period will be (i) if the Taxable Yield Rate (as defined
below) is greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if
the Taxable Yield Rate is less than or equal to the Benchmark Rate, then the
rate equal to the sum of (x) the lesser of the Kenny Index (if such Rate Period
consists of fewer than 183 Rate Period Days) or the product of the Benchmark
Rate multiplied by the factor set forth in the preceding clause (B) and (y) the
product of the maximum marginal combined regular Federal and California
personal income tax rate applicable to ordinary income (taking into account the
Federal income tax deductibility of state and local taxes paid or incurred) or
the maximum marginal regular Federal corporate income tax applicable to
ordinary income, whichever is greater, multiplied by the Taxable Yield Rate.
For purposes of the foregoing, Taxable Yield Rate means the rate determined by
(a) dividing the amount of Taxable Income available for distribution per such
share of MuniPreferred by the number of days in the Dividend Period in respect
of which such Taxable Income is contemplated to be distributed, (b) multiplying
the amount determined in (a) above by 365 (in the case of a Dividend Period of
7 Rate Period Days) or 360 (in the case of any other Dividend Period), and (c)
dividing the amount determined in (b) above by $25,000.


         SECTION 13. CERTAIN OTHER RESTRICTIONS AND REQUIREMENTS.

                  (a) For so long as any MuniPreferred are rated by S&P, the
         Fund will not purchase or sell futures contracts, write, purchase or
         sell options on futures contracts or write put options (except covered
         put options) or call options (except covered call options) on portfolio
         securities unless it receives written confirmation from S&P that
         engaging in such transactions will not impair the ratings then assigned
         to the MuniPreferred by S&P, except that the Fund may purchase or sell
         futures contracts based on the Bond Buyer Municipal Bond Index (the
         "Municipal Index") or United States Treasury Bonds or Notes ("Treasury
         Bonds") and write, purchase or sell put and call options on such
         contracts (collectively, "S&P Hedging Transactions"), subject to the
         following limitations:

                           (i) the Fund will not engage in any S&P Hedging
                  Transaction based on the Municipal Index (other than
                  transactions which terminate a futures contract or option held
                  by the fund by the Fund's taking an opposite position thereto
                  ("Closing Transactions")), which would cause the Fund at the
                  time of such transaction to own or have sold the least of (A)
                  more than 1,000 outstanding futures contracts based on the
                  Municipal Index, (B) outstanding futures contracts based on
                  the Municipal Index exceeding in number 25% of the quotient of
                  the Market Value of the Fund's total assets divided by $1,000
                  or (C) outstanding futures contracts based on the Municipal
                  Index exceeding in number 10% of the average number of daily
                  traded futures contracts based


                                      A-7
<PAGE>

                  on the Municipal Index in the 30 days preceding the time of
                  effecting such transaction as reported by The Wall Street
                  Journal;

                           (ii) the Fund will not engage in any S&P Hedging
                  Transaction based on Treasury Bonds (other than Closing
                  Transactions) which would cause the Fund at the time of such
                  transaction to own or have sold the lesser of (A) outstanding
                  futures contracts based on Treasury Bonds exceeding in number
                  50% of the quotient of the Market Value of the Fund's total
                  assets divided by $100,000 ($200,000 in the case of the
                  two-year United States Treasury Note) or (B) outstanding
                  futures contracts based on Treasury Bonds exceeding in number
                  10% of the average number of daily traded futures contracts
                  based on Treasury Bonds in the 30 days preceding the time of
                  effecting such transaction as reported by The Wall Street
                  Journal.

                           (iii) the Fund will engage in Closing Transactions to
                  close out any outstanding futures contract which the Fund owns
                  or has sold or any outstanding option thereon owned by the
                  Fund in the event (A) the Fund does not have S&P Eligible
                  Assets with an aggregate Discounted Value equal to or greater
                  than the MuniPreferred Basic Maintenance Amount on two
                  consecutive Valuation Dates and (B) the Fund is required to
                  pay Variation Margin on the second such Valuation Date;

                           (iv) the Fund will engage in a Closing Transaction to
                  close out any outstanding futures contract or option thereon
                  in the month prior to the delivery month under the terms of
                  such futures contract or option thereon unless the Fund holds
                  the securities deliverable under such terms; and

                           (v) when the fund writes a futures contract or option
                  thereon, it will either maintain an amount of cash, cash
                  equivalents or high grade (rated A or better by S&P),
                  fixed-income securities in a segregated account with the
                  Fund's custodian, so that the amount so segregated plus the
                  amount of Initial Margin and Variation Margin held in the
                  account of or on behalf of the Fund's broker with respect to
                  such futures contract or option equals the Market Value of the
                  futures contract or option, or, in the event the Fund writes a
                  futures contract or option thereon which requires delivery of
                  an underlying security, it shall hold such underlying security
                  in its portfolio.

         For purposes of determining whether the Fund has S&P Eligible Assets
with a Discounted Value that equals or exceeds the MuniPreferred Basic
Maintenance Amount, the Discounted Value of cash or securities held for the
payment of Initial Margin or Variation Margin shall be zero and the aggregate
Discounted Value of S&P Eligible Assets shall be reduced by an amount equal to
(i) 30% of the aggregate settlement value, as marked to market, of any
outstanding futures contracts based on the Municipal Index which are owned by
the Fund plus (ii) 25% of the aggregate settlement value, as marked to market,
of any outstanding futures contracts based on Treasury Bonds which contracts are
owned by the Fund.

                  (b) For so long as any MuniPreferred are rated by Moody's, the
         Fund will not buy or sell futures contracts, write, purchase or sell
         call options on futures contracts or purchase put options on futures
         contracts or write call options (except covered call options) on
         portfolio securities unless it receives written confirmation from
         Moody's that engaging in such transactions would not impair the ratings
         then assigned to the MuniPreferred by Moody's, except that the Fund may
         purchase or sell exchange-traded futures contracts based on the
         Municipal Index or Treasury Bonds and purchase, write or sell
         exchange-traded put options on such futures contracts and purchase,
         write or sell exchange-traded call options on such futures contracts
         (collectively, "Moody's Hedging Transactions"), subject to the
         following limitations:


                                      A-8
<PAGE>

                           (i) the Fund will not engage in any Moody's Hedging
                  Transaction based on the Municipal Index (other than Closing
                  Transactions), which would cause the Fund at the time of such
                  transaction to own or have sold (A) outstanding futures
                  contracts based on the Municipal Index exceeding in number 10%
                  of the average number of daily traded futures contracts based
                  on the Municipal Index in the 30 days preceding the time of
                  effecting such transaction as reported by The Wall Street
                  Journal or (B) outstanding futures contracts based on the
                  Municipal Index having a Market Value exceeding 50% of the
                  Market Value of all Municipal Bonds constituting Moody's
                  Eligible Assets owned by the Fund (other than Moody's Eligible
                  Assets already subject to a Moody's Hedging Transaction);

                           (ii) the Fund will not engage in any Moody's Hedging
                  Transaction based on Treasury Bonds (other than Closing
                  Transactions) which would cause the Fund at the time of such
                  transaction to own or have sold (A) outstanding futures
                  contracts based on Treasury Bonds having an aggregate Market
                  Value exceeding 20% of the aggregate Market Value of Moody's
                  Eligible Assets owned by the Fund and rated Aa by Moody's (or,
                  if not rated by Moody's but rated by S&P, rated AAA by S&P) or
                  (B) outstanding futures contracts based on Treasury Bonds
                  having an aggregate Market Value exceeding 40% of the
                  aggregate Market Value of all Municipal Bonds constituting
                  Moody's Eligible Assets owned by the Fund (other than Moody's
                  Eligible Assets already subject to a Moody's Hedging
                  Transaction) and rated Baa or A by Moody's (or, if not rated
                  by Moody's but rated by S&P, rated A or AA by S&P) (for
                  purposes of the foregoing clauses (i) and (ii), the Fund shall
                  be deemed to own the number of futures contracts that underlie
                  any outstanding options written by the Fund);

                           (iii) the Fund will engage in Closing Transactions to
                  close out any outstanding futures contract based on the
                  Municipal Index if the amount of open interest in the
                  Municipal Index as reported by The Wall Street Journal is less
                  than 5,000;

                           (iv) the Fund will engage in a Closing Transaction to
                  close out any outstanding futures contract by no later than
                  the fifth Business Day of the month in which such contract
                  expires and will engage in a Closing Transaction to close out
                  any outstanding option on a futures contract by no later than
                  the first Business Day of the month in which such option
                  expires;

                           (v) the Fund will engage in Moody's Hedging
                  Transactions only with respect to futures contracts or options
                  thereon having the next settlement date or the settlement date
                  immediately thereafter;

                           (vi) the Fund will not engage in options and futures
                  transactions for leveraging or speculative purposes and will
                  not write any call options or sell any futures contracts for
                  the purpose of hedging the anticipated purchase of an asset
                  prior to completion of such purchase; and

                           (vii) the Fund will not enter into an option or
                  futures transaction unless, after giving effect thereto, the
                  Fund would continue to have Moody's Eligible Assets with an
                  aggregate Discounted Value equal to or greater than the
                  MuniPreferred Basic Maintenance Amount.

         For purposes of determining whether the Fund has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the
MuniPreferred Basic Maintenance Amount, the Discounted Value of Moody's Eligible
Assets which the Fund is obligated to deliver or receive pursuant to an


                                      A-9
<PAGE>

outstanding futures contract or option shall be as follows: (i) assets subject
to call options written by the Fund which are either exchange-traded and
"readily reversible" or which expire within 49 days after the date as of which
such valuation is made shall be valued at the lesser of (a) Discounted Value and
(b) the exercise price of the call option written by the Fund; (ii) assets
subject to call options written by the Fund not meeting the requirements of
clause (i) of this sentence shall have no value; (iii) assets subject to put
options written by the Fund shall be valued at the lesser of (A) the exercise
price and (B) the Discounted Value of the subject security; (iv) futures
contracts shall be valued at the lesser of (A) settlement price and (B) the
Discounted Value of the subject security, provided that, if a contract matures
within 49 days after the date as of which such valuation is made, where the Fund
is the seller the contract may be valued at the settlement price and where the
Fund is the buyer the contract may be valued at the Discounted Value of the
subject securities; and (v) where delivery may be made to the Fund with any
security of a class of securities, the Fund shall assume that it will take
delivery of the security with the lowest Discounted Value.

         For purposes of determining whether the Fund has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the
MuniPreferred Basic Maintenance Amount, the following amounts shall be
subtracted from the aggregate Discounted Value of the Moody's Eligible Assets
held by the Fund: (i) 10% of the exercise price of a written call option; (ii)
the exercise price of any written put option; (iii) where the Fund is the seller
under a futures contract, 10% of the settlement price of the futures contract;
(iv) where the Fund is the purchaser under a futures contract, the settlement
price of assets purchased under such futures contract; (v) the settlement price
of the underlying futures contract if the Fund writes put options on a futures
contract; and (vi) 105% of the Market Value of the underlying futures contracts
if the Fund writes call options on a futures contract and does not own the
underlying contract.

                  (c) For so long as any MuniPreferred are rated by Moody's, the
          Fund will not enter into any contract to purchase securities for a
          fixed price at a future date beyond customary settlement time (other
          than such contracts that constitute Moody's Hedging Transactions that
          are permitted under Section 13(b) of this Statement), except that the
          Fund may enter into such contracts to purchase newly-issued securities
          on the date such securities are issued ("Forward Commitments"),
          subject to the following limitation:

                           (i) the Fund will maintain in a segregated account
                  with its custodian cash, cash equivalents or short-term,
                  fixed-income securities rated P-1, MTG-1 or VMIG-1 by Moody's
                  and maturing prior to the date of the Forward Commitment with
                  a Market Value that equals or exceeds the amount of the Fund's
                  obligations under any Forward Commitments to which it is from
                  time to time a party or long-term fixed income securities with
                  a Discounted Value that equals or exceeds the amount of the
                  Fund's obligations under any Forward Commitment to which it is
                  from time to time a party; and

                           (ii) the Fund will not enter into a Forward
                  Commitment unless, after giving effect thereto, the Fund would
                  continue to have Moody's Eligible Assets with an aggregate
                  Discounted Value equal to or greater than the MuniPreferred
                  Maintenance Amount.

         For purposes of determining whether the Fund has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the
MuniPreferred Basic Maintenance Amount, the Discounted Value of all Forward
Commitments to which the Fund is a party and of all securities deliverable to
the Fund pursuant to such Forward Commitments shall be zero.


                                      A-10
<PAGE>

                                   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. 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 ratings address 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.

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.

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.


                                      B-1
<PAGE>

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                          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.

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.


                                      B-2
<PAGE>

C                          The 'c' subscript is used to provide additional
                           information to investors that the bank may terminate
                           its obligation to purchase tendered bonds if the
                           long-term credit rating of the issuer is below an
                           investment-grade level and/or the issuer's bonds are
                           deemed taxable.

P                          The letter 'p' indicates that the rating is
                           provisional. A provisional rating assumes the
                           successful completion of the project financed by the
                           debt being rated and indicates that payment of debt
                           service requirements is largely or entirely dependent
                           upon the successful, timely completion of the
                           project. This rating, however, while addressing
                           credit quality subsequent to completion of the
                           project, makes no comment on the likelihood of or the
                           risk of default upon failure of such completion. The
                           investor should exercise his own judgment with
                           respect to such likelihood and risk.

*                          Continuance of the ratings is contingent upon
                           Standard & Poor's receipt of an executed copy of the
                           escrow agreement or closing documentation confirming
                           investments and cash flows.

R                          The 'r' highlights derivative, hybrid, and certain
                           other obligations that Standard & Poor's believes may
                           experience high volatility or high variability in
                           expected returns as a result of noncredit risks.
                           Examples of such obligations are securities with
                           principal or interest return indexed to equities,
                           commodities, or currencies; certain swaps and
                           options; and interest-only and principal-only
                           mortgage securities. The absence of an 'r' symbol
                           should not be taken as an indication that an
                           obligation will exhibit no volatility or variability
                           in total return.

N.R.                       Not rated.

         Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.

         Bond Investment Quality Standards Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ('AAA', 'AA', 'A', 'BBB', commonly known as investment-grade
ratings) generally are regarded as eligible for bank investment. Also, the laws
of various states governing legal investments impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies, and fiduciaries in general.

SHORT-TERM ISSUE CREDIT RATINGS

NOTES

         A Standard & Poor's note ratings reflects the liquidity factors and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment:

         o        Amortization schedule -- the larger the final maturity
                  relative to other maturities, the more likely it will be
                  treated as a note; and


                                      B-3
<PAGE>

         o        Source of payment -- the more dependent the issue is on the
                  market for its refinancing, the more likely it will be treated
                  as a note.

         Note rating symbols are as follows:

         SP-1     Strong capacity to pay principal and interest. An issue
                  determined to possess a very strong capacity to pay debt
                  service is given a plus (+) designation.

         SP-2     Satisfactory capacity to pay principal and interest, with some
                  vulnerability to adverse financial and economic changes over
                  the term of the notes.

         SP-3     Speculative capacity to pay principal and interest.

         A note rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.

COMMERCIAL PAPER

         An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.

         Ratings are graded into several categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:

         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.


                                      B-4
<PAGE>


         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.


         A commercial rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.

         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 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.


                                      B-5
<PAGE>

         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 that 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
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.

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:


         o        Leading market positions in well-established industries.

         o        High rates of return on funds employed.


                                      B-6
<PAGE>

         o        Conservative capitalization structures with moderate reliance
                  on debt and ample asset protection.

         o        Broad margins in earnings coverage of fixed financial charges
                  and high internal cash generation.

         o        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:

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.


                                      B-7
<PAGE>

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.

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.


                                      B-8
<PAGE>

         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.

         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-9
<PAGE>

                                   APPENDIX C

                             DESCRIPTION OF INSURERS

         Set forth below is information about the various municipal bond
insurers with whom the Fund intends to maintain specific insurance policies for
particular municipal bonds or policies of portfolio insurance. The information
in this Appendix is based on information supplied by the insurers, and the Fund
cannot verify its accuracy and completeness.

AMBAC ASSURANCE CORPORATION ("AMBAC ASSURANCE")




<PAGE>






         Ambac Assurance is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in 50 states, the District of Columbia,
the Territory of Guam and the Commonwealth of Puerto Rico, with admitted assets
of approximately $5,802,000,000 (unaudited) and statutory capital of
approximately $3,564,000,000 (unaudited) as of September 30, 2002. Statutory
capital consists of Ambac Assurance's policyholders' surplus and statutory
contingency reserve. Standard & Poor's Credit Markets Services, a division of
The McGraw-Hill Companies, Moody's Investors Service and Fitch, Inc. have each
assigned a triple-A financial strength rating to Ambac Assurance.



         Ambac Assurance has obtained a ruling from the Internal Revenue Service
to the effect that the insuring of an obligation to Ambac Assurance will not
affect the treatment for federal income tax purposes of interest on such
obligation and that insurance proceeds representing maturing interest paid by
Ambac Assurance under policy provisions substantially identical to those
contained in its municipal bond insurance policy shall be treated for federal
income tax purposes in the same manner as if such payments were made by the
issuer of the bonds.


         Ambac Assurance makes no representation regarding the bonds or the
advisability of investing in the bonds and makes no representation regarding,
nor has it participated in the preparation of, the Prospectus and Statement of
Additional Information, other than the information supplied by Ambac Assurance
and presented under this heading "Ambac Assurance Corporation."

AVAILABLE INFORMATION

         The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the
"Company"), is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). These reports, proxy statements
and other information may be inspected and copied at the SEC's public reference
facilities at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference room. The
SEC maintains an internet site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding companies that
file electronically with the SEC, including the Company. In addition, the
aforementioned material may also be inspected at the offices of the New York
Stock Exchange, Inc. (the "NYSE") at 20 Broad Street, New York, New York 10005.

         Copies of Ambac Assurance's financial statements prepared in accordance
with statutory accounting standards are available from Ambac Assurance. The
address of Ambac Assurance's administrative offices and its telephone number are
One State Street Plaza, 19th Floor, New York, New York 10004 and (212) 668-0340.


                                      C-2
<PAGE>

FINANCIAL SECURITY ASSURANCE INC. ("FINANCIAL SECURITY")




         Financial Security is a New York domiciled insurance company and a
wholly owned subsidiary of Financial Security Assurance Holdings Ltd.
("Holdings"). Holdings is an indirect subsidiary of Dexia, S.A., a publicly held
Belgian corporation. Dexia, S.A., through its bank subsidiaries, is primarily
engaged in the business of public finance in France, Belgium and other European
countries. No shareholder of Holdings or Financial Security is liable for the
obligations of Financial Security.


         At September 30, 2002, Financial Security's total policyholders'
surplus and contingency reserves were approximately $1,728,433,000 and its total
unearned premium reserve was approximately $972,390,000 in accordance with
statutory accounting principles. At September 30, 2002, Financial Security's
total shareholders' equity was approximately $1,928,564,000 and its total net
unearned premium reserve was approximately $814,684,000 in accordance with
generally accepted accounting principles.


         The financial statements included as exhibits to the annual and
quarterly reports filed by Holdings with the Securities and Exchange Commission
are hereby incorporated herein by reference. Also incorporated herein by
reference are any such financial statements so filed from the date of this
Statement of Additional Information until the termination of the offering of the
bonds. Copies of materials incorporated by reference will be provided upon
request to Financial Security Assurance Inc.: 350 Park Avenue, New York, New
York 10022, Attention: Communications Department (telephone (212) 826-0100).

         The policy does not protect investors against changes in market value
of the bonds, which market value may be impaired as a result of changes in
prevailing interest rates, changes in applicable ratings or other causes.
Financial Security makes no representation regarding the bonds or the
advisability of investing in the bonds. Financial Security makes no
representation regarding the Prospectus or Statement of Additional Information,
nor has it participated in the preparation thereof, except that Financial
Security has provided to the Fund the information presented under this caption
for inclusion in the Statement of Additional Information.

MBIA INSURANCE CORPORATION ("MBIA")





                                      C-3
<PAGE>

         MBIA is the principal operating subsidiary of MBIA Inc., a New York
Stock Exchange listed company (the "Company"). The Company is not obligated to
pay the debts of or claims against MBIA. MBIA is domiciled in the State of New
York and licensed to do business in and subject to regulation under the laws of
all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. MBIA has three branches, one in the Republic
of France, one in the Republic of Singapore and one in the Kingdom of Spain. New
York has laws prescribing minimum capital requirements, limiting classes and
concentrations of investments and requiring the approval of policy rates and
forms. State laws also regulate the amount of both the aggregate and individual
risks that may be insured, the payment of dividends by MBIA, changes in control
and transactions among affiliates. Additionally, MBIA is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.


         MBIA does not accept any responsibility for the accuracy or
completeness of this Prospectus or Statement of Additional Information or any
information or disclosure contained herein, or omitted herefrom, other than with
respect to the accuracy of the information regarding the policy and MBIA set


                                      C-4
<PAGE>


forth under the heading "MBIA Insurance Corporation".



         The Company files annual, quarterly and special reports, information
statements and other information with the SEC under File No. 1-9583. Copies of
the SEC filings (including (1) the Company's Annual Report on Form 10-K for the
year ended December 31, 2001, and, (2) the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2002), are available (i) over the
Internet at the SEC's web site at http://www.sec.gov; (ii) at the SEC's public
reference room in Washington D.C.; (iii) over the Internet at the Company's web
site at http://www.mbia.com; and (iv) at no cost, upon request to MBIA Insurance
Corporation, 113 King Street, Armonk, New York 10504. The telephone number of
MBIA is (914) 273-4545.



         As of December 31, 2001, MBIA had admitted assets of $8.5 billion
(audited), total liabilities of $5.6 billion (audited), and total capital and
surplus of $2.9 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of September 30, 2002, MBIA had admitted assets of $9.0 billion
(unaudited), total liabilities of $5.9 billion (unaudited), and total capital
and surplus of $3.1 billion (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities.


FINANCIAL STRENGTH RATINGS OF MBIA

         Moody's Investors Service, Inc. rates the financial strength of MBIA
"Aaa."

         Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates
the financial strength of MBIA "AAA."

         Fitch Ratings. rates the financial strength of MBIA "AAA."

         Each rating of MBIA should be evaluated independently. The ratings
reflect the respective rating agency's current assessment of the
creditworthiness of MBIA and its ability to pay claims on its policies of
insurance. Any further explanation as to the significance of the above ratings
may be obtained only from the applicable rating agency.

         The above ratings are not recommendations to buy, sell or hold the
bonds, and such ratings may be subject to revision or withdrawal at any time by
the rating agencies. Any downward revision or withdrawal of any of the above
ratings may have an adverse effect on the market price of the bonds. MBIA does
not guaranty the market price of the bonds nor does it guaranty that the ratings
on the bonds will not be revised or withdrawn.


         In the event the Insurer were to become insolvent, any claims arising
under a policy of financial guaranty insurance are excluded from coverage by
the California Insurance Guaranty Association, established pursuant to Article
14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the
California Insurance Code.


FINANCIAL GUARANTY INSURANCE COMPANY ("FINANCIAL GUARANTY")





                                      C-5
<PAGE>






         Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation
(the "Corporation"), a Delaware holding company. The Corporation is a subsidiary
of General Electric Capital Corporation ("GE Capital"). Neither the Corporation
nor GE Capital is obligated to pay the debts of or the claims against Financial
Guaranty. Financial Guaranty is a monoline financial guaranty insurer domiciled
in the State of New York and subject to regulation by the State of New York
Insurance Department. As of September 30, 2002, the total capital and surplus
of Financial Guaranty was approximately $1.1 billion. Financial Guaranty
prepares financial statements on the basis of both statutory accounting
principles and generally accepted accounting principles. Copies of such
financial statements may be obtained by writing to Financial Guaranty at 125
Park Avenue, New York, New York 10017, Attention: Communications Department
(telephone number: 212-312-3000) or to the New York State Insurance Department
at 25 Beaver Street, New York, New York 10004-2319, Attention: Financial
Condition Property/Casualty Bureau (telephone number: 212-480-5187).



                                      C-6
<PAGE>

RATINGS

         The above municipal bond insurers have insurance claims-paying ability
ratings of AAA from S&P and Aaa from Moody's. Financial Guaranty also has an
insurance claims-paying ability rating of AAA from Fitch. An S&P insurance
claims-paying ability rating is an assessment of an operating insurance
company's financial capacity to meet obligations under an insurance policy in
accordance with its terms. An insurer with an insurance claims-paying ability
rating of AAA has the highest rating assigned by S&P. Capacity to honor
insurance contracts is adjudged by S&P to be extremely strong and highly likely
to remain so over a long period of time. A Moody's insurance claims-paying
ability rating is an opinion of the ability of an insurance company to repay
punctually senior policyholder obligations and claims. An insurer with an
insurance claims-paying ability rating of Aaa is adjudged by Moody's to be of
the best quality. In the opinion of Moody's, the policy obligations of an
insurance company with an insurance claims-paying ability rating of Aaa carry
the smallest degree of credit risk and, while the financial strength of these
companies is likely to change, such changes as can be visualized are most
unlikely to impair the company's fundamentally strong position.

         An insurance claims-paying ability rating by S&P or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment, nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).

         The assignment of ratings by S&P or Moody's to debt issues that are
fully or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.

         S&P's and Moody's ratings are not recommendations to buy, sell or hold
the municipal bonds insured by policies issued by AMBAC Assurance, Financial
Security, MBIA or Financial Guaranty and such ratings may be subject to revision
or withdrawal at any time by the rating agencies. Any downward revision or
withdrawal of either or both ratings may have an adverse effect on the market
price of the municipal bonds insured by policies issued by AMBAC Assurance,
Financial Security, MBIA or Financial Guaranty.


         S&P's ratings of AMBAC Assurance, Financial Security, MBIA and
Financial Guaranty should be evaluated independent of Moody's ratings. Any
further explanation as to the significance of the ratings may be obtained only
from the applicable rating agency. See Appendix B for more information about
ratings by Moody's and S&P.



                                      C-7
<PAGE>

                                   APPENDIX D

                          HEDGING STRATEGIES AND RISKS

         Set forth below is additional information regarding the various
defensive hedging techniques.

FUTURES AND INDEX TRANSACTIONS

FINANCIAL FUTURES

         A financial future is an agreement between two parties to buy and sell
a security for a set price on a future date. They have been designed by boards
of trade which have been designated "contracts markets" by the Commodity Futures
Trading Commission ("CFTC").

         The purchase of financial futures is for the purpose of hedging the
Fund's existing or anticipated holdings of long-term debt securities. When the
Fund purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market. The Fund must make
additional payments to cover debits to its account and has the right to withdraw
credits in excess of the liquidity, the Fund may close out its position at any
time prior to expiration of the financial future by taking an opposite position.
At closing a final determination of debits and credits is made, additional cash
is paid by or to the Fund to settle the final determination and the Fund
realizes a loss or gain depending on whether on a net basis it made or received
such payments.

         The sale of financial futures is for the purpose of hedging the Fund's
existing or anticipated holdings of long-term debt securities. For example, if
the Fund owns long-term bonds and interest rates were expected to increase, it
might sell financial futures. If interest rates did increase, the value of
long-term bonds in the Fund's portfolio would decline, but the value of the
Fund's financial futures would be expected to increase at approximately the same
rate thereby keeping the net asset value of the Fund from declining as much as
it otherwise would have.

         Among the risks associated with the use of financial futures by the
Fund as a hedging device, perhaps the most significant is the imperfect
correlation between movements in the price of the financial futures and
movements in the price of the debt securities which are the subject of the
hedge.

         Thus, if the price of the financial future moves less or more than the
price of the securities which are the subject of the hedge, the hedge will not
be fully effective. To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the financial
futures. Conversely, the Fund may enter into fewer financial futures if the
historical volatility of the price of the securities being hedged is less than
the historical volatility of the financial futures.

         The market prices of financial futures may also be affected by factors
other than interest rates. One of these factors is the possibility that rapid
changes in the volume of closing transactions, whether due to volatile markets
or movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.


                                      D-1
<PAGE>

OPTIONS ON FINANCIAL FUTURES

         The Fund may also purchase put or call options on financial futures
which are traded on a U.S. Exchange or board of trade and enter into closing
transactions with respect to such options to terminate an existing position.
Currently, options can be purchased with respect to financial futures on U.S.
Treasury Bonds on The Chicago Board of Trade. The purchase of put options on
financial futures is analogous to the purchase of put options by the Fund on its
portfolio securities to hedge against the risk of rising interest rates. As with
options on debt securities, the holder of an option may terminate his position
by selling an option of the Fund. There is no guarantee that such closing
transactions can be effected.

INDEX CONTRACTS

INDEX FUTURES

         A tax-exempt bond index which assigns relative values to the tax-exempt
bonds included in the index is traded on the Chicago Board of Trade. The index
fluctuates with changes in the market values of all tax-exempt bonds included
rather than a single bond. An index future is a bilateral agreement pursuant to
which two parties agree to take or make delivery of an amount of cash-rather
than any security-equal to a specified dollar amount times the difference
between the index value at the close of the last trading day of the contract and
the price at which the index future was originally written. Thus, an index
future is similar to traditional financial futures except that settlement is
made in cash.

INDEX OPTIONS

         The Fund may also purchase put or call options on U.S. Government or
tax-exempt bond index futures and enter into closing transactions with respect
to such options to terminate an existing position. Options on index futures are
similar to options on debt instruments except that an option on an index future
gives the purchaser the right, in return for the premium paid, to assume a
position in an index contract rather than an underlying security at a specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
of the writer's futures margin account which represents the amount by which the
market price of the index futures contract, at exercise, is less than the
exercise price of the option on the index future.

         Bond index futures and options transactions would be subject to risks
similar to transactions in financial futures and options thereon as described
above. No series will enter into transactions in index or financial futures or
related options unless and until, in the Adviser's opinion, the market for such
instruments has developed sufficiently.



                                      D-2
<PAGE>
                                   APPENDIX E


                        FACTORS PERTAINING TO CALIFORNIA

         The information set forth below is derived from sources that are
generally available to investors. The information is intended to give recent
historical description and is not intended to indicate future or continuing
trends in the financial or other positions of California. It should be noted
that the creditworthiness of obligations issued by local California issuers may
be unrelated to the creditworthiness of obligations issued by the State of
California, and there is no obligation on the part of the State to make payment
on such local obligations in the event of default.

         OVERVIEW


         During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the State's finances
improved significantly starting in 1995. After several years of very strong
growth, the State's financial condition started to worsen since the start of
2001, with the combination of a mild economic recession and a dramatic decline
in revenue from capital gains and stock option activity resulting from the
decline in stock market levels since mid-2000. The State addressed a budget gap
for its 2002-03 fiscal year of more than $23 billion, over 25% of its General
Fund revenue. See "Recent Financial Results--



                                      E-1
<PAGE>



Fiscal year 2002-03 Budget" below. The Governor reported in December 2002 that
revenues are expected to be substantially below earlier projections, and
estimated that a budget gap of almost $35 billion will have to be addressed for
the balance of the 2002-03 fiscal year and the upcoming 2003-04 fiscal year. See
"Recent Financial Results - Current Budget Shortfall" below. To close this gap,
the 2003-04 budget will require significant spending cuts in virtually all parts
of State government, including aid to local governments and schools. Tax
increases and additional borrowings will also be considered. More detailed and
updated information including economic and revenue projections will be released
on January 10, 2003 when the Governor presents his proposed budget for 2003-4.
The sluggish economy is also adversely affecting local government revenues. In
December, 2002, the ratings of the State's General Obligation bonds were reduced
by Standard & Poor's from "A+" to "A" and by FitchRatings from "AA" to "A" and
both agencies reduced the ratings on the State's short-term Notes. The ratings
of certain related debt of other issuers for which California has an outstanding
lease purchase, guarantee or other contractual obligation (such as for
state-insured hospital bonds) are generally linked directly to California's
rating. Should the financial condition of California continue to deteriorate,
its credit ratings could be reduced further, and the market value and
marketability of all outstanding notes and bonds issued by California, its
public authorities or local governments could be adversely affected.


         ECONOMIC FACTORS


         General


         California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 35 million represents about
12-1/2% of the total United States population and grew by 26% in the 1980s, more
than double the national rate. Population growth slowed to less than 1% annually
in 1994 and 1995, but rose to almost 2% in the final years of the 1990's. The
bulk of population growth in the State is due to births and foreign immigration.

         Total personal income in the State, at an estimated $1,116 billion in
2001, accounts for almost 13% of all personal income in the nation. Total
employment is over 16 million, the majority of which is in the service, trade
and manufacturing sectors.


         Following a severe recession in the early 1990's, California began a
period of strong growth in 1994 in virtually all sectors, particularly in high
technology manufacturing and services, including computer software and other
services, entertainment, tourism, and construction, and also with very strong
growth in exports. The California economy outpaced the nation during this
period. By the end of 2000, unemployment in the State had dropped to under 5%,
its lowest level in three decades. In 2001 the State finally showed the impact
of the nationwide economic slowdown, coupled with a cyclical downturn in the
high technology sector (including Internet-related businesses) and entered a
mild recession, with unemployment rising above 6%. International trade also
slowed since the start of 2001 reflecting weakness in overseas economies
(particularly in Asia). The terrorist attacks on September 11, 2001 resulted in
a further, temporary economic decline in tourism-based areas, but this effect
appears to have ended by the spring of 2002. Modest job growth appeared to have
begun by early 2002, but employment results since summer of 2002 have fluctuated
month to month, and by December 2002 the State Department of Finance reported
that nonfarm employment had fallen by an average 800 per month since January,
and described the State economy as "in a holding pattern". The largest
employment gains have been in government and retail and wholesale trade;
manufacturing and construction continued to lose jobs. The recession, combined
particularly with the decline in the stock markets since mid-2000, will result
in much weaker State revenues than previously projected, as discussed further
below under "Recent Financial Results."



         Widely publicized difficulties in California's energy supplies had been
seen in early 2001 to pose some risks to the economy, but during the summers of
2001 and 2002 there were no electricity blackouts or shortages of natural gas.
Although energy prices have risen from the levels of three years ago, they have
now appeared to have stabilized. Energy difficulties are mitigated by the fact
that California's economy is very energy-efficient. U.S. Department of



                                      E-2
<PAGE>


Energy statistics for 1999 revealed that California ranked 50th of the 50 states
in energy expenditures as a percentage of state domestic product. A number of
investigations and lawsuits are ongoing against energy suppliers seeking refunds
for California customers for alleged co-exchanges during the crisis period in
2000 and 2001.









                                      E-3
<PAGE>



         CONSTITUTIONAL LIMITATIONS ON TAXES, OTHER CHARGES AND APPROPRIATIONS

         Limitation on Property Taxes. Certain California Municipal Obligations
may be obligations of issuers which rely in whole or in part, directly or
indirectly, on ad valorem property taxes as a source of revenue. The taxing
powers of California local governments and districts are limited by Article
XIIIA of the California Constitution, enacted by the voters in 1978 and commonly
known as "Proposition 13." Briefly, Article XIIIA limits the rate of ad valorem
property taxes to 1% of full cash value of real property and generally restricts
the reassessment


                                      E-4
<PAGE>


of property to 2% per year, except upon new construction or change of ownership
(subject to a number of exemptions). Taxing entities may, however, raise ad
valorem taxes above the 1% limit to pay debt service on voter-approved bonded
indebtedness.

         Under Article XIIIA, the basic 1% ad valorem tax levy is applied
against the assessed value of property as of the owner's date of acquisition (or
as of March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits were filed challenging the acquisition-based
assessment system of Proposition 13, but it was upheld by the U.S. Supreme Court
in 1992.

         Article XIIIA prohibits local governments from raising revenues through
ad valorem taxes above the 1% limit; it also requires voters of any governmental
unit to give two-thirds approval to levy any "special tax."

         Limitations on Other Taxes, Fees and Charges. On November 5, 1996, the
voters of the State approved Proposition 218, called the "Right to Vote on Taxes
Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution,
which contain a number of provisions affecting the ability of local agencies to
levy and collect both existing and future taxes, assessments, fees and charges.

         Article XIIIC requires that all new or increased local taxes be
submitted to the electorate before they become effective. Taxes for general
governmental purposes require a majority vote and taxes for specific purposes
require a two-thirds vote.

         Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges", defined for purposes of Article XIIID to mean
"any levy other than an ad valorem tax, a special tax, or an assessment, imposed
by a [local government] upon a parcel or upon a person as an incident of
property ownership, including a user fee or charge for a property related
service." All new and existing property related fees and charges must conform to
requirements prohibiting, among other things, fees and charges which generate
revenues exceeding the funds required to provide the property related service or
are used for unrelated purposes. There are new notice, hearing and protest
procedures for levying or increasing property related fees and charges, and,
except for fees or charges for sewer, water and refuse collection services (or
fees for electrical and gas service, which are not treated as "property related"
for purposes of Article XIIID), no property related fee or charge may be imposed
or increased without majority approval by the property owners subject to the fee
or charge or, at the option of the local agency, two-thirds voter approval by
the electorate residing in the affected area.

         In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments, fees
and charges. Consequently, local voters could, by future initiative, repeal,
reduce or prohibit the future imposition or increase of any local tax,
assessment, fee or charge. It is unclear how this right of local initiative may
be used in cases where taxes or charges have been or will be specifically
pledged to secure debt issues.


                                      E-5
<PAGE>

         The interpretation and application of Proposition 218 will ultimately
be determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainty the outcome of such
determinations.

         Appropriations Limits. The State and its local governments are subject
to an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.

         Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations to
comply with mandates of courts or the federal government, (3) appropriations for
certain capital outlay projects, (4) appropriations by the State of post-1989
increases in gasoline taxes and vehicle weight fees, and (5) appropriations made
in certain cases of emergency.

         The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in the State's economy.

         "Excess" revenues are measured over a two year cycle. Local governments
must return any excess to taxpayers by rate reductions. The State must refund
50% of any excess, with the other 50% paid to schools and community colleges.
With more liberal annual adjustment factors since 1988, and depressed revenues
in the early 1990's because of the recession, few governments have been
operating near their spending limits, but this condition may change over time.
Local governments may by voter approval exceed their spending limits for up to
four years. Because of extraordinary revenue receipts in fiscal year 1999-2000,
State appropriations were estimated to be about $975 million above the limit.
However, since the State was $2.1 billion below its limit in fiscal year
2000-01, resulting in no excess over the two-year period, no refunds were made.
1999-2000 was the only fiscal year since the late 1980's when State
appropriations were above the limit. The State Department of Finance estimates
the State will be about $14.5 billion below its appropriation limit in fiscal
year 2001-02 and $6.3 billion under the limit in 2002-03.

         Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID
of the California Constitution, the ambiguities and possible inconsistencies in
their terms, and the impossibility of predicting future appropriations or
changes in population and cost of living, and the probability of continuing
legal challenges, it is not currently possible to determine fully the impact of
these Articles on California municipal obligations or on the ability of the
State or local


                                      E-6
<PAGE>

governments to pay debt service on such California municipal obligations. It is
not possible, at the present time, to predict the outcome of any pending
litigation with respect to the ultimate scope, impact or constitutionality of
these Articles or the impact of any such determinations upon State agencies or
local governments, or upon their ability to pay debt service on their
obligations. Further initiatives or legislative changes in laws or the
California Constitution may also affect the ability of the State or local
issuers to repay their obligations.

         OBLIGATIONS OF THE STATE OF CALIFORNIA


         Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. As of November
1, 2002, the State had outstanding approximately $25.8 billion of long-term
general obligation bonds, plus $280 million of general obligation commercial
paper notes and $6.4 billion of lease-purchase debt supported by the State
General Fund. As of November 1, the State also had about $15.1 billion of
authorized and unissued long-term general obligation bonds and lease-purchase
debt. In FY 2001-02, debt service on general obligation bonds and lease purchase
debt was approximately 4.5% of General Fund revenues. State voters approved
$18.6 billion in new bond authorizations in November, 2002 (which are not
included in the foregoing figures), and at least another $22 billion, for
education and high-speed rail construction, will be on the ballot in 2004.


         RECENT FINANCIAL RESULTS


         The principal sources of General Fund tax revenues in 2000-01 were the
California personal income tax (59 percent of total tax revenues), the sales tax
(28 percent), corporation taxes (9 percent), and the gross premium tax on
insurance (2 percent). A large portion of personal income tax receipts was
derived from capital gains realizations and stock option income. While these
sources have been extraordinarily strong in the late 1990's and 2000, they are
particularly volatile. In preparing the most recent budget, the State took
account of the recent drop in stock market levels and reduced its estimated
receipts from these revenues as compared to prior years. The Administration
has projected that this source of revenue will drop from 25% of all General Fund
revenues in 2000-01 to 11% in 2001-02 and 9% in 2002-03; this represents the
bulk of the total General Fund revenue shortfall in these two fiscal years.
However, with continued weak stock market levels into 2002 it is now clear that
revenue from capital gains and stock options will fall below projections made in
mid-2002.


         The State maintains a Special Fund for Economic Uncertainties (the
"SFEU"), derived from General Fund revenues, as a reserve to meet cash needs of
the General Fund, but which is required to be replenished as soon as sufficient
revenues are available. Year-end balances in the SFEU are included for financial
reporting purposes in the General Fund balance.

         Throughout the 1980's, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were constrained by Proposition
13 and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative (Proposition 98) was


                                      E-7
<PAGE>

enacted which (subject to suspension by a two-thirds vote of the Legislature and
the Governor) guarantees local school districts and community college districts
a minimum share of State General Fund revenues (currently about 35 percent).

         Recent Budgets


         The economy, and especially the stock markets, grew strongly during the
second half of the 1990's, and as a result, the General Fund took in
substantially greater tax revenues (an aggregate of about $7.9 billion over the
four years 1995-96 through 1998-99, $8.2 billion in 1999-2000 and $4.1 billion
in 2000-01) than were initially planned when the budgets were enacted. These
additional funds were largely directed to school spending as mandated by
Proposition 98, and to make up shortfalls from reduced federal health and
welfare aid in 1995-96 and 1996-97. In 1998-99 through 2000-01, new spending
programs were also enacted, particularly for education, new capital outlay
projects were funded from current receipts, and significant tax reductions were
enacted. The Department of Finance estimates that the State's budget reserve
(the SFEU) totaled $8.7 billion at June 30, 2000 and $6.3 billion at June 30,
2001. However, the SFEU balance at June 30, 2001 included as an asset the $6.1
billion loan to the State Department of Water Resources for power purchases (see
"Cash Flow Requirements" below), and the General Fund's available cash at that
date was considerably less. The balance at June 30, 2002 was estimated as
negative $1.4 billion.


         The growth in General Fund revenues since 1994-95 resulted in
significant increases in State funding for local school districts under
Proposition 98. From the 1994-95 level of about $4,200 per pupil, annual State
funding has increased to over $7,000 per pupil in FY 2001-02. A significant
amount of the new moneys have been directed to specific educational reforms,
including reduction of class sizes in many grade levels. The improved budget
condition also allowed annual increases in support for higher education in the
State, permitting increased enrollment and reduction of student fees.

         Part of the 1997-98 Budget Act was completion of State welfare reform
legislation to implement the new federal law passed in 1996. The new State
program, called "CalWORKs," became effective January 1, 1998, and emphasizes
programs to bring aid recipients into the workforce. As required by federal law,
new time limits are placed on receipt of welfare aid. Generally, health and
welfare costs have been contained even during the recent period of economic
recovery, with the first real increases (after inflation) in welfare support
levels occurring in 1999-2000 and additional increases in 2000-01.


         An important element of recent Budget Acts was agreement on substantial
tax cuts. The largest of these was a phased-in cut in the Vehicle License Fee
(an annual tax on the value of cars registered in the State, the "VLF").
Starting on January 1, 1999, the VLF was reduced by 25 percent, which was
increased in steps to a 67.5% reduction effective January 1, 2001. Under
pre-existing law, VLF funds were automatically transferred to cities and
counties, so the new legislation provided for the General Fund to make up the
reductions. The full 67.5% percent VLF cut was offset by transfers of about $3.6
billion annually from the General Fund. Other miscellaneous business and
personal tax cuts and tax credits were of a much smaller overall amount.



                                      E-8
<PAGE>



         Fiscal Year 2001-02 Budget


         The 2001-02 Budget Act (the "2001 Budget Act") was signed on July 26,
2001. The 2001 Budget Act included $78.8 billion in General Fund expenditures, a
reduction of $1.3 billion from the previous year. General Fund revenues in
fiscal year 2001-02 were projected to drop to $75.1 billion, a decline of almost
4 percent from the prior year, reflecting the economic slowdown and the sharp
drop in capital gains and stock option revenue. The excess of expenditures over
revenues was to be funded by using a part of the budget reserve from the prior
year.


         The 2001 Budget Act provided full funding for K-14 education, and
certain additional funding for low-performing schools, child care and other
programs. Funding for higher education were increased, but less than in previous
years. No fee increases for higher education were imposed. Health care, social
services and prisons were funded for all expected caseload and inflation
increases. Assistance to local governments was reduced from the previous year.


         The 2001 Budget Act was projected to be able to sustain the reduced
revenues without major program reductions because a large part of the previous
2000-01 Budget Act was for one-time spending, which did not have to be
continued. The 2001 Budget Act contained much less one-time spending for capital
outlay. The 2001 Budget Act also extended for two years a six-year
transportation funding program implemented in 2000-01, and used a total of $2.3
billion of those funds for General Fund purposes in 2001-02 and 2002-03, to be
repaid in 2006-08. The shortfall in funding was intended to be made up by
temporary loans from other transportation accounts, so that it was not expected
any projects would be delayed. Part of a compromise to permit this deferral was
agreement to place a constitutional amendment on the next statewide ballot to
permanently dedicate all sales taxes on gasoline and related fuels to
transportation programs. This amendment was approved in March, 2002.




         General Fund revenues in 2001-02 ultimately proved to be far below
projections, totaling only about $64 billion (compared to the 2001 Budget Act
estimate of around $75 billion), largely due to reduced capital gains
realizations and weaker economic activity. To partially offset this reduction,
the Governor proposed, and the Legislature approved, mid-year spending cuts for
2001-02 totaling $2.3 billion. By the time of the May Revision to the
Governor's Budget released in May, 2002, the Governor projected that the
combined shortfall or budget "gap" between expected revenues and projected
expenditures based on existing statutes totaled $23.4 billion for the two
fiscal years, 2001-02 and 2002-03. The Administration also estimated the
balance of the SFEU, or budget reserve, at June 30, 2002, had become a deficit
of $1.4 billion; this figure may be increased when more updated figures are
released on January 10 2003.



                                      E-9
<PAGE>




         Fiscal Year 2002-03 Budget


         The magnitude of the budget gap which had to be addressed led to a
substantial delay in enactment of the 2002-03 Budget Act ("2002 Budget Act")
until September 5, 2002, more than two months into the fiscal year. Despite
delay in approval of the Budget Act, most State operations continued based on
continuing appropriation legislation, constitutional requirements or court
orders. Debt service on State debt was paid, most health and welfare programs
and education payments were funded, and State employees, other than elected
officials and senior management employees, were paid.



         The 2002 Budget Act addressed a $23.6 billion gap between expenditures
and resources through a combination of program reductions, internal loans, bond
issuances, fund shifts, accelerations and transfers, and modest tax changes. The
principal components were:



         1. Program cost savings in the 2001-02 and 2002-03 fiscal years
totaling about $7.458 billion. This included the $2.3 billion of mid-year budget
reductions proposed by the Governor in November 2001, which were substantially
enacted by the Legislature. The largest savings occurred in education, health,
social services and State operations, and include deferral or elimination of
previously enacted program expansions and elimination of workload and cost of
living adjustments in numerous programs. The cost savings include $750 million
in unallocated reductions to State operations, which the Administration was
directed to implement after Budget enactment. The reductions also include a
projected saving of $285 million from early retirement incentives and $75
million from the elimination of vacant positions. As of mid-December, 2002, it
appears some of these savings will not be achieved, including those expected
from the early retirement program.



         2. The receipt of $4.5 billion in 2002-03 from the securitization
(sale) of a large portion of the State's future receipt of payment from tobacco
companies from the settlement of litigation against those companies. This sale
is scheduled to close in two segments, with $2.25 billion in February 2003 and
$2.25 billion in April 2003.

         3. A total of $2.028 billion in loans from various funds, including
$1.218 billion from transportation funds.

         4. The shift of $1.328 billion of expenditures from the General Fund to
other funding sources, such as special funds and proposed future bond funds.

         5. The receipt of $1.2 billion additional revenues in 2002-03 from a
two-year suspension of the deductibility of net operating losses provided in
current law.

         6. General Fund savings of $1.728 billion from the deferral of $1.047
billion of education expenditures from 2001-02 to early 2002-03 and $681 million
of education expenditures from 2002-03 to early 2003-04. These deferrals are not
expected to significantly impact underlying programs.

         7. General Fund savings of $1.083 billion ($223 million in 2001-02 and
$860 million in 2002-03) from the Treasurer's Debt Restructuring Plan to
amortize the State's long-term debt to more closely approximate level annual
debt service costs rather than the level annual principal.


                                      E-10
<PAGE>

The plan also includes the issuance of refunding debt to pay selected maturities
of general obligation bonds due between February 2002 and June 2004.


         8. Anticipated increases in federal funding for health and human
services programs, security/bioterrorism and other areas totaling about $1.081
billion. There can be no assurance of this funding, and the Administration has
more recently estimated only about $400 million will be received.



         9. Additional revenue of $1.651 billion in 2002-03 due to Federal Tax
Conformity and Tax Compliance ($1.081 billion); increasing the withholding on
stock option and bonus income from 6 percent to 9.3 percent ($400 million); and
suspending the teacher retention credit for one year ($170 million).


         10. Accelerations and transfers from other funds to the General Fund
totaling $1.585 billion.


         Despite the challenge represented by the severe revenue decline and the
budget gap, the 2002 Budget as enacted contained the following major components.
As noted in the caption "Current Budget Shortfall" below, many of these budget
elements are likely to be cut.



         1. Total K-12 spending increased 2.8 percent from the revised 2001-02
estimates. Total K-12 spending per pupil increases from $6,610 in 2001-02 to
$7,067 in 2002-03.



         2. Funding for higher education decreases by a modest 0.2 percent in
2002-03 compared to the revised 2001-02 estimates.






         3. The Budget continued to limit the growth in State government with
the elimination of positions and the reduction of State operations expenditures.
In addition to the 6,600 positions eliminated by the Administration since 1999,
7,000 State government positions will be eliminated (6,000 in 2002-03 and 1,000
by June 30, 2004).



                                      E-11
<PAGE>

         4. Although funding for youth and adult corrections decreased by 4.7
percent from the previous year, the Budget sustained funding for public safety.
While total funding for health and human services decreased by 2.1 percent, the
Budget funded health insurance coverage for children and critical care programs
for seniors.

         5. There were no significant tax increases, and no significant
reductions in support for local governments. A one-time shift of $75 million in
property taxes from redevelopment agencies to schools will reduce State aid to
schools by a like amount.



         Current Budget Shortfall




         In mid-November, 2002, the Legislative Analyst (an independent office
under the State Legislature) issued a report the ("LAO Report") indicating the
State faced dire fiscal conditions. The principal causes of the continuing
fiscal difficulty were identified as (i) the use of so many one-time budget
solutions, such as bond sales, interfund borrowings and deferrals, to solve the
$23.6 billion gap in the 2002-03 Budget, without enough emphasis on closing the
structural imbalance between ongoing revenue sources (taxes) and ongoing
expenditure commitments, (ii) the likelihood that some of the assumptions in the
2002 Budget would not be met, and (iii) a significant downward revision in
revenue estimates deriving from the continued sluggishness of the State economy
and stock market.  The LAO Report estimated that items (i) and (ii) above would
result in a cumulative $10 billion gap between revenues and expenditures (absent
further actions) by the end of the 2003-04 fiscal year. The report further
estimated that item (iii) would result in reduced revenues of over $11 billion
for the 2002-03 and 2003-04 fiscal years combined, as compared to earlier
estimates.

         The LAO Report predicted the State General Fund would have a deficit of
about $6.1 billion by the end of the 2002-03 fiscal year (compared to the
2002-03 Budget which predicted a reserve balance of $1 billion).  Absent
corrective action, the cumulative deficit could reach $21 billion by the end of
the 2003-04 fiscal year.  Furthermore, even given accelerating economic growth
in 2003 and beyond (which is not assured), there would, unless corrective
actions were taken, continue to be a substantial deficit between revenues and
expenditures, in a potential range for $12-16 billion annually, for years after
2003-04.

         Shortly after the LAO Report was released, the Governor announced that
the Administration also projected a substantial budget gap in 2002-03 and
2003-04, in fact very likely higher than the LAO estimate. The Governor then
called a special session of the Legislature to begin on December 9, 2002 to
take up legislation for mid-year spending cuts and other budgetary actions.

         On December 6, 2002, the Governor released proposals for immediate
actions to reduce the budget gap by about $10.2 billion, of which $3.4 billion
would be seen in 2002-03 and the balance in 2003-04. The proposal contains
about $7.2 billion of spending reductions, $2.3 billion of transfers, loans and
reversions of prior appropriations, and $0.7 of funding shifts, primarily to
bond funds. In terms of programs, the largest cuts are from education at all
levels ($3.4 billion), health and social services ($2.0 billion), general and
local government assistance ($2.6 billion) and transportation ($2.1 billion).
Significantly, the Governor proposed to reduce the Proposition 98 guaranty and
funding for school districts in 2002-03 to reflect the reduced revenues in the
year. The Legislature took no action on these proposals as its special session
began, and will consider these and other necessary actions after the release of
the full Governor's Budget proposal.

         Fiscal Year 2003-04 Budget

         In late December, 2002, the Governor released further budget
projections, indicating that for the combined 2002-03 and 2003-04 period, the
nominal budget "gap" to be addressed was in the neighborhood of $35 billion.
This consisted of about $17.7 billion of reduced revenues compared to earlier
projections, $4.5 billion of additional expenditures, and the "loss" of $12.6
billion in budgetary resources allocated to one-time budgetary actions taken in
the 2002 Budget Act which could not be duplicated (such as the sale of future
tobacco settlement receipts).

         The Governor will release his proposed 2003-04 Budget on January 10,
2003. By law, the Governor is required to propose a balanced budget. In
addition to the $10.2 billion of spending reductions already proposed, the
Governor will have to make additional proposals. It is likely these will
include some revenue increases and additional one-time actions which can be
identified. The Governor's Budget Proposal will also include updated estimates
of revenues and economic projections for 2003 and beyond.

         Cash Flow Requirements

         The State typically funds its day-to-day operating requirements of the
General Fund from revenue receipts, interfund borrowing from special funds, and
external borrowing in the form of revenue anticipation notes ("RANs") and
warrants. In the first half of calendar 2001, the State Department of Water
Resources ("DWR") had taken over the responsibility of purchasing electricity
to meet certain needs of the customers of investor-owned utilities ("IOUs"),
because factors deriving from a failed deregulation program and unusual market
conditions which had driven up the spot prices of electricity and natural gas
had combined to make the State's two largest IOUs insolvent. To fund these
purchases, the DWR borrowed over $6 billion from the General Fund. Repayment of
this loan was planned to be made from proceeds of power revenue bonds to be
issued by the DWR which will be secured by a portion of retail customers'
electricity bills.

         The State issued a then-record $5.7 billion of RANs in October 2001 to
fund its cash management needs in 2001-02, with a maturity date of June 28,
2002. It had been assumed that the DWR power revenue bonds would be issued by
that time, to repay a net loan of $6.1 billion plus interest. When the DWR bond
sale was delayed, and revenues were falling below projections, as reported
above, the State Controller initiated steps to issue revenue anticipation
warrants ("RAWs"), a form of cash flow borrowing which could extend beyond the
end of the fiscal year. In June, 2002 the State issued $7.5 billion of RAWs
which matured in three tranches from October 2002 to January 2003. The RAWs were
designed to assure adequate cash resources for State operating needs in June
2002 and for the start of the next fiscal year.

         The Administration assumed that the State would meet its cash
management requirements in 2002-03 by a combination of the issuance of about $7
billion of revenue anticipation notes in the fall of 2002, and reimbursement of
the General Fund for the DWR energy loans by October 2002. In addition,
proceeds of the securitization of future tobacco litigation settlement payments
were assumed in early 2003. Because of weaker receipts, delay in enactment of
the budget, and uncertainty about the schedule for issuance of the DWR power
revenue bonds, in September, 2002 the State Controller determined that it was
prudent to issue $12.5 billion of RANs for cash management purposes in the
2002-03 fiscal year. This record borrowing was completed, in two parts, by
early November, 2002, with all of the notes due on June 20 or June 27, 2003.
The DWR power revenue bonds were finally successfully issued in mid-November,
2002, providing an infusion of $6.5 billion to the General Fund, which was a
significant assumption in the State's cash flow projections for repayment of
the 2002-03 RANs. As noted above, revenues to be received during 2002-03
(including final adjustments for 2001-02) are now projected by the
Administration to be some $8.5 billion less than projections made when the 2002
Budget was adopted. Even with successful issuance of the tobacco securitization
bonds, there is a possibility the State will once again have to issue RAWs near
the end of the fiscal year to assure repayment of the 2002 RANs. Until the
State brings the "structural imbalance" between its revenue sources and
spending obligations into balance, it may continue to depend on having access to
the public debt markets in order to fund its ongoing cash obligations and to
repay cash flow borrowings.


         BOND RATING


         The ratings on California's long-term general obligation bonds were
reduced in the early 1990's from "AAA" levels which had existed prior to the
recession. After 1996, through the end of 2000, the three major rating agencies
raised their ratings of California's general obligation bonds as high as "AA"
from Standard & Poor's, "Aa2" from Moody's and "AA" from Fitch. As of January 1,
2003, Standard & Poor's had reduced California's senior ratings to "A", Fitch
had reduced the ratings to "A" and



                                      E-12
<PAGE>

Moody's had reduced its ratings to "A1" and Moody's maintained the State's
credit ratings on watch with negative implications. S&P and Fitch made rating
reductions in December 2002 after the Governor released his $35 billion budget
gap estimate.


         There can be no assurance that current ratings will be maintained in
the future. It should be noted that the creditworthiness of obligations issued
by local California issuers may be unrelated to creditworthiness of obligations
issued by the State of California, and that there is no obligation on the part
of the State to make payment on such local obligations in the event of default.

         LEGAL PROCEEDINGS

         The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues. If the State eventually loses any of these cases, the final
remedies may not have to be implemented in one year.

         OBLIGATIONS OF OTHER ISSUERS

         Other Issuers of California Municipal Obligations. There are a number
of State agencies, instrumentalities and political subdivisions of the State
that issue Municipal Obligations, some of which may be conduit revenue
obligations payable from payments from private borrowers. These entities are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.

         State Assistance. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of the
State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Total
local assistance from the State's General Fund was budgeted at approximately 75%
of General Fund expenditures in recent years, including the effect of
implementing reductions in certain aid programs. To reduce State General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts caused local
governments to transfer $3.9 billion of property tax revenues to school
districts, representing loss of the post-Proposition 13 "bailout" aid. Local
governments have in return received greater revenues and greater flexibility to
operate health and welfare programs.


         In 1997, a new program provided for the State to substantially take
over funding for local trial courts (saving cities and counties some $400
million annually). For 2001-02, the State has provided over $350 million to
support local law enforcement costs. The current fiscal crisis may result in
some reductions in these payments in 2002-03 and beyond.


         To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such reductions
in State aid could compound the serious fiscal constraints already experienced
by many local governments, particularly counties. Los Angeles County, the
largest in the State,


                                      E-13
<PAGE>

was forced to make significant cuts in services and personnel, particularly in
the health care system, in order to balance its budget in FY1995-96 and
FY1996-97 and is facing a new health care funding crisis in 2002-03. Orange
County, which emerged from Federal Bankruptcy Court protection in June 1996, has
significantly reduced county services and personnel, and faces strict financial
conditions following large investment fund losses in 1994 which resulted in
bankruptcy. The recent economic slowdown in the State, with its corresponding
reduction in State and local revenues, will put additional pressure on local
government finances in the coming years. See "Recent Financial Results --
Current Budget Shortfall."





         Counties and cities may face further budgetary pressures as a result of
changes in welfare and public assistance programs, which were enacted in August,
1997 in order to comply with the federal welfare reform law. Generally, counties
play a large role in the new system, and are given substantial flexibility to
develop and administer programs to bring aid recipients into the workforce.
Counties are also given financial incentives if either at the county or
statewide level, the "Welfare-to-Work" programs exceed minimum targets; counties
are also subject to financial penalties for failure to meet such targets.
Counties remain responsible to provide "general assistance" for able-bodied
indigents who are ineligible for other welfare programs. The long-term financial
impact of the new CalWORKs system on local governments is still unknown.

         Assessment Bonds. California Municipal Obligations which are assessment
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.

         California Long Term Lease Obligations. Based on a series of court
decisions, certain long-term lease obligations, though typically payable from
the general fund of the State or a municipality, are not considered
"indebtedness" requiring voter approval. Such leases, however, are subject to
"abatement" in the event the facility being leased is unavailable for beneficial
use and occupancy by the municipality during the term of the lease. Abatement is
not a default, and there may be no remedies available to the holders of the
certificates evidencing the lease obligation in the event abatement occurs. The
most common cases of abatement are failure to complete construction of the
facility before the end of the period during which lease payments have been
capitalized and uninsured casualty losses to the facility (e.g., due to
earthquake). In the event abatement occurs with respect to a lease obligation,
lease payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due. Although
litigation is brought from time to time which challenges the constitutionality
of such lease arrangements, the California Supreme Court issued a ruling in
August, 1998 which reconfirmed the legality of these financing methods.


                                      E-14
<PAGE>

         OTHER CONSIDERATIONS

         The repayment of industrial development securities secured by real
property may be affected by California laws limiting foreclosure rights of
creditors. Securities backed by health care and hospital revenues may be
affected by changes in State regulations governing cost reimbursements to health
care providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.

         Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.

         Proposition 87, approved by California voters in 1988, requires that
all revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay that entity's general obligation
indebtedness. As a result, redevelopment agencies (which, typically, are the
issuers of tax allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter-approved bonded indebtedness.

         The effect of these various constitutional and statutory changes upon
the ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not possible, at present, to predict the extent to which
any such legislation will be enacted. Nor is it possible, at present, to
determine the impact of any such legislation on California Municipal Obligations
in which the Fund may invest, future allocations of state revenues to local
governments or the abilities of state or local governments to pay the interest
on, or repay the principal of, such California Municipal Obligations.

         Substantially all of California is within an active geologic region
subject to major seismic activity. Northern California in 1989 and Southern
California in 1994 experienced major earthquakes causing billions of dollars in
damages. The federal government provided more than $13 billion in aid for both
earthquakes, and neither event has had any long-term negative economic impact.
Any California Municipal Obligation in the Fund could be affected by an
interruption of revenues because of damaged facilities, or, consequently, income
tax deductions for casualty losses or property tax assessment reductions.
Compensatory financial assistance could be constrained by the inability of (i)
an issuer to have obtained earthquake insurance coverage rates; (ii) an insurer
to perform on its contracts of insurance in the event of widespread


                                      E-15
<PAGE>

losses; or (iii) the federal or State government to appropriate sufficient funds
within their respective budget limitations.

CALIFORNIA TAX MATTERS


         The following is based upon the advice of Orrick, Herrington &
Sutcliffe LLP, special California counsel to the Fund. The following is a
general, abbreviated summary of certain provisions of the applicable California
tax law as presently in effect as it directly governs the taxation of resident
individual and corporate shareholders of the Fund. This summary does not
address the taxation of other shareholders nor does it discuss any local taxes
that may be applicable. These provisions are subject to change by legislative
or administrative action, and any such change may be retroactive with respect
to transactions of the Fund.


         The following is based on the assumptions that the Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause distributions of the Fund to qualify as
exempt-interest dividends to shareholders for federal and California purposes,
and that it will distribute all interest and dividends it receives to the
shareholders.

         The Fund will be subject to the California corporate franchise and
corporation income tax only if it has a sufficient nexus with California. If it
is subject to the California franchise or corporation income tax, the Fund does
not expect to pay a material amount of such tax.

         If at the close of each quarter of the Fund's taxable year at least 50%
of the value of its total assets consists of obligations that, when held by
individuals, pay interest that is exempt from tax by California under California
or federal law, then distributions by the Fund that are attributable to interest
on any such obligation will not be subject to the California personal income
tax. All other distributions, including distributions attributable to capital
gains, will be includable in gross income for purposes of the California
personal income tax.

         Interest on indebtedness incurred or continued for the purpose of
acquiring or maintaining an investment in the MuniPreferred Shares will not be
deductible for purposes of the California personal income tax.

         All distributions of the Fund, regardless of source, to corporate
shareholders that are subject to the California corporate franchise tax will be
included in gross income for purposes of such tax.

         Gain on the sale, exchange, or other disposition of MuniPreferred
Shares will be subject to the California personal income and corporate franchise
tax. In addition, any loss realized by a holder of MuniPreferred Shares upon the
sale of shares held for six months or less may be disallowed to the extent of
any exempt interest dividends received with respect to such shares. Moreover,
any loss realized upon the sale of MuniPreferred Shares within thirty days
before or after the acquisition of other MuniPreferred Shares may be disallowed
under the "wash sale" rules.


         MuniPreferred Shares may be subject to the California estate tax if
held by a California decedent at the time of death.



                                      E-16
<PAGE>

         Shareholders are advised to consult with their own tax advisors for
more detailed information concerning California tax matters.


                                      E-17
<PAGE>

          Nuveen Insured California Tax-Free Advantage Municipal Fund







                      ------------------------------------

                       STATEMENT OF ADDITIONAL INFORMATION

                      ------------------------------------







                                             , 2003




<PAGE>


                           PART C - OTHER INFORMATION

ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS

         1. Financial Statements:


         Statement of Assets and Liabilities, November 4, 2002 (audited)

         Statement of Operations from July 29, 2002 (date of
         organization) through November 4, 2002 (audited)

         Statement of Assets and Liabilities, December 18, 2002
         (unaudited)

         Statement of Operations from November 22, 2002 (commencement of
         operations) through December 18, 2002 (unaudited)

         Statement of Changes in Net Assets from November 22, 2002
         (commencement of operations) through December 18, 2002 (unaudited)

         Portfolio of Investments, December 18, 2002 (unaudited)


         2. Exhibits:


a        Declaration of Trust dated July 29, 2002. Filed on October 4, 2002 as
         exhibit a to Registrant's Registration Statement on Form N-2 (File No.
         333-100323) and incorporated herein by reference.*




b.1      By-Laws of Registrant. Filed on October 4, 2002 as exhibit b to
         Registrant's Registration Statement on Form N-2 (File No. 333-100323)
         and incorporated herein by reference.*



b.2      By-Laws of Registrant as amended and restated on October 22, 2002.
         Filed on November 25, 2002 as exhibit b.2 to Post-Effective Amendment
         No. 1 to Registrant's Registration Statement on Form N-2 (File No.
         333-100323) and incorporated herein by reference.*


c        None.


d        Form of Share Certificate.



e        Terms and Conditions of the Dividend Reinvestment Plan. Filed on
         November 20, 2002 as exhibit e to Pre-Effective Amendment No. 2 to
         Registrant's Registration Statement on Form N-2 (File No. 333-100323)
         and incorporated herein by reference.*


f        None.


g        Investment Management Agreement between Registrant and Nuveen Advisory
         Corp. dated November 14, 2002. Filed on November 20, 2002 as exhibit g
         to Pre-Effective Amendment No. 2 to Registrant's Registration Statement
         on Form N-2 (File No. 333-100323) and incorporated here by reference.*



h.1      Form of Underwriting Agreement.



h.2      Form of Salomon Smith Barney Master Selected Dealer Agreement.



h.3      Form of Master Agreement Among Underwriters.



i.       Nuveen Open-End and Closed-End Funds Deferred Compensation Plan for
         Independent Directors and Trustee. Filed on November 20, 2002 as
         exhibit i to Pre-Effective Amendment No. 2 to Registrant's Registration
         Statement on Form N-2 (File No. 333-100323) and incorporated herein by
         reference.*



j.       Master Custodian Agreement between Registrant and State Street Bank
         and Trust Company dated November 4, 2002. Filed on November 20, 2002 as
         exhibit j to Pre-Effective Amendment No. 2 to Registrant's Registration
         Statement on Form N-2 (File No. 333-100323) and incorporated herein by
         reference.*



k.1      Transfer Agency and Service Agreement between Registrant and State
         Street Bank and Trust Company dated October 7, 2002. Filed on November
         20, 2002 as exhibit k.1 to Pre-Effective Amendment No. 2 to
         Registrant's Registration Statement on Form N-2 (File No. 333-100323)
         and incorporated here by reference.*



k.2      Expense Reimbursement Agreement between Registrant and Nuveen Advisory
         Corp. dated November 14, 2002. Filed on November 20, 2002 as exhibit
         k.2 to Pre-Effective Amendment No. 2 to Registrant's Registration
         Statement on Form N-2 (File No. 333-100323) and incorporated here by
         reference.*



k.3      Form of Auction Agency Agreement between the Registrant and Deutsche
         Bank Trust Company Americas as to the Registrant's MuniPreferred
         shares.



k.4      Form of Broker-Dealer Agreement as to the Registrant's MuniPreferred
         shares.



k.5      Form of DTC Representation Letter as to the Registrant's MuniPreferred
         shares.



l.1      Opinion and consent of Vedder, Price, Kaufman & Kammholz.



l.2      Opinion and consent of Bingham McCutchen LLP.


m        None.


n.1      Consent of Ernst & Young LLP.



n.2      Consent of Orrick, Herrington & Sutcliffe, LLP.


o        None.


p        Subscription Agreement of Nuveen Advisory Corp. dated November 4,
         2002. Filed on November 20, 2002 as exhibit p to Pre-Effective
         Amendment No. 2 to Registrant's Registration Statement on Form N-2
         (File No. 333-100323) and incorporated here by reference.*


q        None.


r        Code of Ethics of Nuveen Advisory Corp. Filed on October 24, 2002 as
         exhibit r to Pre-Effective Amendment No. 1 to Registrant's Registration
         Statement on Form N-2 (File No. 333-100323) and incorporated herein by
         reference.*



s        Power of Attorney. Filed on November 20, 2002 as exhibit s to
         Pre-Effective Amendment No. 2 to Registrant's Registration Statement on
         Form N-2 (File No. 333-100323) and incorporated herein by reference.*


- -----------

 *       Previously filed.




                                    Part C-1
<PAGE>

ITEM 25: MARKETING ARRANGEMENTS


         See Sections 2,3 and 5(n) of the Form of Underwriting Agreement filed
as Exhibit h.1 to this Registration Statement.

         See the Introductory Paragraph and Sections 2 and 3(d) of the Form of
Master Selected Dealer Agreement filed as Exhibit h.2 to this Registration
Statement.

         See the Introductory Paragraph and 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 Master Agreement Among
Underwriters filed as Exhibit h.3 to this Registration Statement.


ITEM 26: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION


<Table>
<S>                                                          <C>
Securities and Exchange Commission fees.................      $  4,140
Printing and engraving expenses.........................        50,000
Legal Fees..............................................        49,000
Accounting expenses.....................................         6,500
Rating agency fees......................................        27,000
Miscellaneous expenses..................................         7,860
                                                              --------
   Total................................................      $144,500
                                                              ========
</Table>




ITEM 27: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

         Not applicable.

ITEM 28: NUMBER OF HOLDERS OF SECURITIES


         At November 18, 2003:



<Table>
<Caption>
                                                                  NUMBER OF
                   TITLE OF CLASS                              RECORD HOLDERS
                   --------------                              --------------
<S>                                                            <C>
Common Shares, $0.01 par value..........................              1
</Table>


ITEM 29: 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;


                                    Part C-2
<PAGE>

         (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:

                  (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.


                                    Part C-3
<PAGE>

         The trustees and officers of the Registrant are covered by Investment
Trust Directors and officers and Errors and Omission 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, except for matters which
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 Registrant or where he or she
had reasonable cause to believe this conduct was unlawful). The policy has a
$500,000 deductible, which does not apply to individual trustees or officers.

         Section 8 of the 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
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 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 of 1933 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 will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

ITEM 30: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

         Nuveen Advisory Corp. serves as investment adviser 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 and Nuveen Municipal Trust. Nuveen Advisory Corp. also serves as investment
adviser to the following closed-end management type investment companies other
than the Registrant: Nuveen Municipal Value Fund, Inc., Nuveen California
Municipal Value Fund, Inc., Nuveen New York Municipal Value Fund, Inc., Nuveen
Municipal Income Fund, Inc., Nuveen Premium Income Municipal Fund, Inc., Nuveen
Performance Plus Municipal Fund, Inc., Nuveen California Performance Plus
Municipal Fund, Inc., Nuveen New York Performance Plus Municipal Fund, Inc.,
Nuveen Municipal Advantage Fund, Inc., Nuveen Municipal Market Opportunity Fund,
Inc., Nuveen California Municipal Market Opportunity Fund, Inc., Nuveen New York
Municipal Market Opportunity Fund, Inc., Nuveen Investment Quality Municipal
Fund, Inc., Nuveen California Investment Quality Municipal Fund, Inc., Nuveen
New York Investment Quality Municipal Fund, Inc., Nuveen Insured Quality
Municipal Fund, Inc., Nuveen Florida Investment Quality Municipal Fund, Nuveen
New Jersey Investment Quality Municipal Fund, Inc., Nuveen Pennsylvania
Investment Quality Municipal Fund, Nuveen Select Quality Municipal Fund, Inc.,
Nuveen California Select Quality Municipal Fund, Inc., Nuveen New York Select
Quality Municipal Fund, Inc., Nuveen Quality Income Municipal Fund, Inc., Nuveen
Insured Municipal Opportunity Fund, Inc., Nuveen Florida Quality Income
Municipal Fund, Nuveen Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio
Quality Income Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund,
Nuveen California Quality Income Municipal Fund, Inc., Nuveen New York Quality
Income Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen
Premier Insured Municipal Income Fund, Inc., Nuveen Insured California Premium
Income Municipal Fund, Inc., Nuveen Insured New York Premium Income Municipal
Fund, Inc., Nuveen Premium Income Municipal Fund 2, Inc., Nuveen Select
Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal


                                    Part C-4
<PAGE>

Fund, Inc., Nuveen Insured Florida Premium Income Municipal Fund, Nuveen
Michigan Premium Income Municipal Fund, Inc., Nuveen Michigan Premium Income
Municipal Fund, Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen
Insured California Premium Income Municipal Fund 2, Inc., Nuveen Insured New
York Premium Income Municipal Fund 2, Nuveen Michigan Premium Income Municipal
Fund 2, Nuveen Pennsylvania Premium Income Municipal Fund 2, Nuveen Maryland
Premium Income Municipal Fund, Nuveen Massachusetts Premium Income Municipal
Fund, Nuveen Virginia Premium Income Municipal Fund, Nuveen Connecticut Premium
Income Municipal Fund, Nuveen Georgia Premium Income Municipal Fund, Nuveen
Missouri Premium Income Municipal Fund, Nuveen North Carolina Premium Income
Municipal Fund, Nuveen California Premium Income Municipal Fund, Nuveen Insured
Premium Income Municipal Fund 2, Nuveen New York Dividend Advantage Municipal
Fund, Nuveen California Dividend Advantage Municipal Fund, Nuveen Dividend
Advantage Municipal Fund, Nuveen Arizona Dividend Advantage Municipal Fund,
Nuveen Connecticut Dividend Advantage Municipal Fund, Nuveen Maryland Dividend
Advantage Municipal Fund, Nuveen Massachusetts Dividend Advantage Municipal
Fund, Nuveen North Carolina Dividend Advantage Municipal Fund, Nuveen Virginia
Dividend Advantage Municipal Fund, Nuveen Dividend Advantage Municipal Fund 2,
Nuveen California Dividend Advantage Municipal Fund 2, Nuveen New York Dividend
Advantage Municipal Fund 2, Nuveen New Jersey Dividend Advantage Municipal Fund,
Nuveen Ohio Dividend Advantage Municipal Fund, Nuveen Pennsylvania Dividend
Advantage Municipal Fund, Nuveen Dividend Advantage Municipal Fund 3, Nuveen
California Dividend Advantage Municipal Fund 3, Nuveen Georgia Dividend
Advantage Municipal Fund, Nuveen Maryland Dividend Advantage Municipal Fund 2,
Nuveen Michigan Dividend Advantage Municipal Fund, Nuveen Ohio Dividend
Advantage Municipal Fund 2, Nuveen North Carolina Dividend Advantage Municipal
Fund 2, Nuveen Virginia Dividend Advantage Municipal Fund 2, Nuveen Insured
Dividend Advantage Municipal Fund, Nuveen Insured California Dividend Advantage
Municipal Fund, Nuveen Insured New York Dividend Advantage Municipal Fund,
Nuveen Arizona Dividend Advantage Municipal Fund 2, Nuveen Connecticut Dividend
Advantage Municipal Fund 2, Nuveen New Jersey Dividend Advantage Municipal Fund
2, Nuveen Pennsylvania Dividend Advantage Municipal Fund 2, Nuveen Ohio Dividend
Advantage Municipal Fund 3, Nuveen Ohio Dividend Advantage Municipal Fund 3,
Nuveen Arizona Dividend Advantage Municipal Fund 3, Nuveen Connecticut Dividend
Advantage Municipal Fund 3, Nuveen Georgia Dividend Advantage Municipal Fund 2,
Nuveen Maryland Dividend Advantage Municipal Fund 3 and Nuveen North Carolina
Dividend Advantage Municipal Fund 3.


         Nuveen Advisory Corp. has no other clients or business at the present
time. For a description of other business, profession, vocation or employment of
a substantial nature in which any director or officer of the investment adviser
has engaged during the last two years for his 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 senior officers of Nuveen Advisory Corp., all of
whom's business address is 333 West Wacker Drive, Chicago, Illinois 60606,
appears below:



                                    Part C-5
<PAGE>

<Table>
<Caption>
                                                                  OTHER BUSINESS PROFESSION, VOCATION
           NAME AND POSITION WITH NAC                             OR EMPLOYMENT DURING PAST TWO YEARS
           --------------------------                             -----------------------------------
<S>                                                <C>
John P. Amboian,
   President..................................     President, formerly Executive Vice President of The John Nuveen
                                                   Company, Nuveen Investments, Nuveen Institutional Advisory Corp.,
                                                   Nuveen Asset Management, Inc. and Nuveen Senior Loan Asset
                                                   Management, Inc. and Executive Vice President and Director of
                                                   Rittenhouse Financial Services, Inc.
Alan G. Berkshire, Senior Vice President,
   Secretary and General Counsel..............     Senior Vice President, General Counsel and Secretary of The John
                                                   Nuveen Company, Nuveen Investments, and Nuveen Institutional
                                                   Advisory Corp. Senior Vice President and Secretary (since 1999)
                                                   of Nuveen Senior Loan Asset Management Inc., prior thereto,
                                                   Partner in the law firm of Kirkland & Ellis.
Margaret E. Wilson,
   Senior Vice President, Finance.............     Senior Vice President, Finance, of the John Nuveen Company,
                                                   Nuveen Investments and Nuveen Institutional Advisory Corp. and
                                                   Senior Vice President and Controller of Nuveen Senior Loan Asset
                                                   Management, Inc.; formerly CFO of Sara Lee Corp., Bakery
                                                   Division.
</Table>

ITEM 31: LOCATION OF ACCOUNTS AND RECORDS

         Nuveen Advisory Corp., 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.

         State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, maintains all general and subsidiary ledgers, journals,
trial balances, records of all portfolio purchases and sales, and all other
required records not maintained by Nuveen Advisory Corp.

ITEM 32: MANAGEMENT SERVICES

         Not applicable.

ITEM 33: 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.


                                    Part C-6
<PAGE>

         5.       The Registrant undertakes that:


                  a.       for purposes of determining any liability under the
                           Securities Act of 1933, the information omitted from
                           the form of prospectus filed as part of a
                           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
                           of 1933 shall be deemed to be part of the
                           Registration Statement as of the time it was declared
                           effective; and

                  b.       for the purpose of determining any liability under
                           the Securities Act of 1933, each post-effective
                           amendment that contains a form of prospectus shall be
                           deemed to be a new registration statement relating to
                           the securities offered therein, and the offering of
                           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.


                                    Part C-7
<PAGE>

                                   SIGNATURES


         Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, 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 8th day of
January, 2003.


                                               NUVEEN INSURED CALIFORNIA TAX-
                                               FREE ADVANTAGE MUNICIPAL FUND

                                               /s/ Jessica R. Droeger
                                               ---------------------------------
                                               Jessica R. Droeger,
                                               Vice President and Secretary

         Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.


<Table>
<Caption>
               Signature                                 Title                                       Date
               ---------                                 -----                                       ----
<S>                                      <C>                                                   <C>
/s/ Stephen D. Foy                       Vice President and Controller (Principal              January 8th, 2003
- ----------------------------------       Financial and Accounting Officer)
Stephen D. Foy

/s/ Gifford R. Zimmerman                 Chief Administrative Officer (Principal               January 8th, 2003
- ----------------------------------       Executive Officer)
Gifford R. Zimmerman

Timothy R. Schwertfeger*                 Chairman of the Board and Trustee

Robert P. Bremner*                       Trustee

Lawrence H. Brown*                       Trustee

Anne E. Impellizzeri*                    Trustee

Peter R. Sawers*                         Trustee

William J. Schneider*                    Trustee

Judith M. Stockdale*                     Trustee

By: /s/ Gifford R. Zimmerman
    ------------------------------
Gifford R.  Zimmerman
Attorney-In-Fact

January 8th, 2003
</Table>



- ------------------

*       Original powers of attorney authorizing Jessica R. Droeger and Gifford
        R. Zimmerman, among others, to execute this Registration Statement, and
        amendments thereto, for each of the trustees of Registrant on whose
        behalf this Registration Statement is filed, have been executed and
        filed on November 20, 2002 as exhibits to Pre-Effective Amendment No. 2
        to Registrant's Registration Statement on Form N-2 (File No.
        333-100323) and are incorporated by reference herein.



                                    Part C-8
<PAGE>

                                INDEX TO EXHIBITS

a        Declaration of Trust dated July 29, 2002. Filed on October 4, 2002 as
         exhibit a to Registrant's Registration Statement on Form N-2 (File No.
         333-100323) and incorporated herein by reference.*

b.1      By-Laws of Registrant. Filed on October 4, 2002 as exhibit b to
         Registrant's Registration Statement on Form N-2 (File No. 333-100323)
         and incorporated herein by reference.*

b.2      By-laws of Registrant as amended and restated on October 22,
         2002. Filed on November 25, 2002 as exhibit b.2 to Post-Effective
         Amendment No. 1 to Registrant's Registration Statement on Form N-2
         (File No. 333-100323) and incorporated herein by reference.*

c        None.

d        Form of Share Certificate.

e        Terms and Conditions of the Dividend Reinvestment Plan. Filed on
         November 20, 2002 as exhibit e to Pre-Effective Amendment No. 2 to
         Registrant's Registration Statement on Form N-2 (File No. 333-100323)
         and incorporated herein by reference.*

f        None.

g        Investment Management Agreement between Registrant and Nuveen Advisory
         Corp. dated November 14, 2002. Filed on November 20, 2002 as exhibit g
         to Pre-Effective Amendment No. 2 to Registrant's Registration Statement
         on Form N-2 (File No. 333-100323) and incorporated herein by
         reference.*

h.1      Form of Underwriting Agreement.

h.2      Form of Salomon Smith Barney Master Selected Dealer Agreement.

h.3      Form of Master Agreement Among Underwriters.

i        Nuveen Open-End and Closed-End Funds Deferred Compensation Plan for
         Independent Directors and Trustees. Filed on November 20, 2002 as
         exhibit i to Pre-Effective Amendment No. 2 to Registrant's Registration
         Statement on Form N-2 (File No. 333-100323) and incorporated herein by
         reference.*

j        Master Custodian Agreement between Registrant and State Street Bank and
         Trust Company dated November 4, 2002. Filed on November 20, 2002 as
         exhibit j to Pre-Effective Amendment No. 2 to Registrant's Registration
         Statement on Form N-2 (File No. 333-100323) and incorporated herein by
         reference.*

k.1      Transfer Agency and Service Agreement between Registrant and State
         Street Bank and Trust Company dated October 7, 2002. Filed on November
         20, 2002 as exhibit k.1 to Pre-Effective Amendment No. 2 to
         Registrant's Registration Statement on Form N-2 (File No. 333-100323)
         and incorporated herein by reference.*

k.2      Expense Reimbursement Agreement between Registrant and Nuveen Advisory
         Corp. dated November 14, 2002. Filed on November 20, 2002 as exhibit
         k.2 to Pre-Effective Amendment No. 2 to Registrant's Registration
         Statement on Form N-2 (File No. 333-100323) and incorporated herein by
         reference.*

k.3      Form of Auction Agency Agreement between the Registrant and Deutsche
         Bank Trust Company Americas as to the Registrant's MuniPreferred
         shares.

k.4      Form of Broker-Dealer Agreement as to the Registrant's MuniPreferred
         shares.

k.5      Form of DTC Representation Letter as to the Registrant's MuniPreferred
         shares.

l.1      Opinion and consent of Vedder, Price, Kaufman & Kammholz.

l.2      Opinion and consent of Bingham McCutchen LLP.

m        None.

n.1      Consent of Ernst & Young LLP.

n.2      Consent of Orrick, Herrington & Sutcliffe, LLP.

o        None.

p        Subscription Agreement of Nuveen Advisory Corp. dated November 4, 2002.
         Filed on November 20, 2002 as exhibit p to Pre-Effective Amendment No.
         2 to Registrant's Registration Statement on Form N-2 (File No.
         333-100323) and incorporated herein by reference.*

q        None.

r        Code of Ethics of Nuveen Advisory Corp. Filed on October 24, 2002 as
         exhibit r to Pre-Effective Amendment No. 1 to Registrant's Registration
         Statement on Form N-2 (File No. 333-100323) and incorporated herein by
         reference.*

s        Power of Attorney. Filed on November 20, 2002 as exhibit s to
         Pre-Effective Amendment No. 2 to Registrant's Registration Statement on
         Form N-2 (File No. 333-100320) and incorporated herein by reference.*

- -----------
 *       Previously filed.

                                    Part C-9

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2D
<SEQUENCE>3
<FILENAME>c72644a1exv99w2d.txt
<DESCRIPTION>FORM OF SHARE CERTIFICATE
<TEXT>
<PAGE>
                                                                      EXHIBIT d.

CERTIFICATE                                                           NUMBER OF
  NUMBER                                                               SHARES


___________


                                 [NAME OF FUND]
         Organized Under the Laws of the Commonwealth of Massachusetts
                     [Title of Preferred Shares], Series __
                            $.01 Par Value Per Share
                   $________ Liquidation Preference Per Share

                                                              Cusip No. [      ]

This Certifies that _________________________________________________ is the
owner of _(____)_ fully paid and non-assessable shares of beneficial interest of
[Title of Preferred Shares], Series ______, $.01 par value per share, $ _______
liquidation preference per share, of [NAME OF FUND] (the "Fund") transferable
only on the books of the Fund by the holder thereof in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid unless countersigned by the transfer agent and
registrar.

A statement in full, of all the designations, preferences, qualifications,
limitations, restrictions and special or relative rights of the shares of
beneficial interest of each class authorized to be issued, will be furnished by
the Fund to any shareholders upon request and without charge. The Fund is
organized as a Massachusetts business trust.

This Certificate is executed on behalf of the Fund by the officers as officers
and not individually and the obligations hereof are not binding upon any of the
trustees, officers, or shareholders individually but are binding only upon the
assets and property of the Fund.

IN WITNESS WHEREOF, the Fund has caused this Certificate to be signed by its
duly authorized officers this _____ day of _________ A.D. 20___.


DEUTSCHE BANK TRUST COMPANY AMERICAS
As Transfer Agent and Registrar                   [NAME OF FUND]

By: __________________________                    By:
       Authorized Signature                                  Vice President

                                                  Attest:
                                                             Assistant Secretary
<PAGE>
FOR VALUE RECEIVED, _____ hereby sell, assign and transfer unto _______________
_____________ Shares of beneficial interest represented by the within
Certificate, and do hereby irrevocably constitute and appoint ____________
Attorney to transfer the said Shares on the books of the within named Fund with
full power of substitution in the premises.
Dated _____________, ______

In presence of
___________________  ______________


          Shares of Municipal Auction Rate Cumulative Preferred Shares evidenced
          by this Certificate may be sold, transferred, or otherwise disposed of
          only pursuant to the provisions of the Fund's Statement Establishing
          and Fixing the Rights and Preferences of such Shares, copies of which
          will be furnished by the Fund to any shareholders upon request and
          without charge.

          The Fund will furnish to any shareholder, upon request and without
          charge, a full statement of the designations, preferences, limitations
          and relative rights of the shares of each class or series of the Fund
          authorized to be issued, so far as they have been determined, and the
          authority of the Board of Trustees to determine the relative rights
          and preferences of subsequent classes or series. Any such request
          should be addressed to the Secretary of the Fund.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2H.1
<SEQUENCE>4
<FILENAME>c72644a1exv99w2hw1.txt
<DESCRIPTION>FORM OF UNDERWRITING AGREEMENT
<TEXT>
<PAGE>
                                                                     EXHIBIT h.1


               Municipal Auction Rate Cumulative Preferred Shares

           NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL FUND

                             1,800 Shares, Series TH


                    Liquidation Preference $25,000 Per Share

                             UNDERWRITING AGREEMENT



                                                               January ___, 2003


SALOMON SMITH BARNEY INC.
NUVEEN INVESTMENTS, LLC
A.G. EDWARDS & SONS, INC.
PRUDENTIAL SECURITIES INCORPORATED

c/o      Salomon Smith Barney Inc.
         388 Greenwich Street
         New York, New York 10013


Ladies and Gentlemen:

                  Nuveen Insured California Tax-Free Advantage Municipal Fund, a
Massachusetts business trust (the "Fund"), proposes, upon the terms and
conditions set forth herein, to issue and sell an aggregate of 1,800 shares of
its Series TH Municipal Auction Rate Cumulative Preferred Shares (the
"MuniPreferred shares"), par value $.01 per share, with a liquidation preference
of $25,000 per share (the shares of MuniPreferred shares to be sold hereby are
referred to herein, collectively, as the "Shares"). The Shares will be
authorized by, and subject to the terms and conditions of, the Statement
Establishing and Fixing the Rights and Preferences of Municipal Auction Rate
Cumulative Preferred Shares (the "Statement") in the form filed as an exhibit to
the registration statement referred to in Section 1 of this Underwriting
Agreement (the "Agreement"). Nuveen Advisory Corp., a Delaware corporation (the
"Adviser"), is the Fund's investment adviser. This is to confirm the agreement
concerning the purchase of the Shares from the Fund by Salomon Smith Barney Inc.
(the "Representative"), Nuveen Investments, LLC, A.G. Edwards & Sons, Inc. and
Prudential Securities Incorporated (each, an "Underwriter", and together with
the Representative, the "Underwriters"). We understand that the Representative
has been duly authorized by each of the Underwriters to execute this Agreement
on behalf of such Underwriters and has been duly authorized to act hereunder on
behalf of each of the Underwriters.

                  The Fund has entered into an investment management agreement
with the Adviser dated November 14, 2003, a master custodian agreement with
State Street Bank & Trust





<PAGE>
                                                                               2


Company dated November 4, 2002, a transfer agency and service agreement with
State Street Bank & Trust Company dated October 7, 2002, and an auction agency
agreement, including the Basic Terms in respect thereof, with The Bank of New
York to be dated as of the Closing Date and substantially in the form as filed
with the Registration Statement. Such agreements are hereinafter referred to as
the "Investment Management Agreement", the "Custodian Agreement", the "Transfer
Agency Agreement" and the "Auction Agency Agreement", respectively, and are
hereinafter collectively referred to as the "Fund Agreements".

                  1. Registration Statement and Prospectus. The Fund has
prepared and filed with the Securities and Exchange Commission (the
"Commission"), in accordance with the provisions of the Securities Act of 1933,
as amended (the "1933 Act"), the Investment Company Act of 1940, as amended (the
"1940 Act"), and the rules and regulations of the Commission promulgated under
the 1933 Act (the "1933 Act Rules and Regulations") and the 1940 Act (the "1940
Act Rules and Regulations" and, together with the 1933 Act Rules and
Regulations, the "Rules and Regulations"), a registration statement on Form N-2
under the 1933 Act and the 1940 Act (the "registration statement"), including a
prospectus (including any statement of additional information) relating to the
Shares. The Fund also has filed a notification of registration of the Fund as an
investment company under the 1940 Act on Form N-8A (the "1940 Act
Notification"). The term "Registration Statement" as used in this Agreement
means the registration statement (including all financial schedules and
exhibits), as amended at the time it becomes effective under the 1933 Act, or,
if the registration statement became effective under the 1933 Act prior to the
execution of this Agreement, as amended or supplemented at the time it became
effective, prior to the execution of this Agreement, and includes any
information deemed to be included by Rule 430A under the 1933 Act Rules and
Regulations. If it is contemplated, at the time this Agreement is executed, that
a post-effective amendment to the registration statement will be filed under the
1933 Act and must be declared effective before the offering of the Shares may
commence, the term "Registration Statement" as used in this Agreement means the
registration statement as amended by said post-effective amendment. If the Fund
has filed an abbreviated registration statement to register an additional amount
of Shares pursuant to Rule 462(b) under the 1933 Act (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration Statement"
shall include such Rule 462 Registration Statement. The term "Prospectus" as
used in this Agreement means the prospectus and statement of additional
information in the forms included in the Registration Statement or, if the
prospectus or statement of additional information included in the Registration
Statement omits information in reliance on Rule 430A under the 1933 Act, all
references to the Prospectus shall be deemed to include, without limitation, the
prospectus, the statement of additional information and the term sheet, taken
together, provided to the Underwriters by the Fund in reliance on Rule 434 under
the 1933 Act and filed with the Commission pursuant to Rule 497(h) under the
1933 Act. The term "Prepricing Prospectus" as used in this Agreement means the
prospectus (including the statement of additional information) subject to
completion in the form included in the Registration Statement at the time of the
initial filing of the Registration Statement with the Commission and as such
prospectus (including the statement of additional information) shall have been
amended from time to time prior to the date of the Prospectus, together with any
other prospectus (including any other statement of additional information)
relating to the Fund other than the Prospectus approved in writing by or
directly or indirectly prepared by the Fund or the Adviser; it being understood
that the definition of Prepricing Prospectus above shall not include any



<PAGE>
                                                                               3


Prepricing Prospectus prepared by the Underwriters unless approved in writing by
the Fund or Adviser.

                  The Fund has furnished the Representative with copies of such
Registration Statement, each amendment to such Registration Statement filed with
the Commission and each Prepricing Prospectus.

                  2. Agreements to Sell and Purchase. The Fund hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
the Underwriters, and, upon the basis of the representations, warranties and
agreements of the Fund and the Adviser herein contained and subject to all the
terms and conditions set forth herein, each Underwriter agrees, severally and
not jointly, to purchase from the Fund, at a purchase price of $______ per
Share, the number of Series TH Shares set forth opposite the name of each such
Underwriter in Schedule I hereto.

                  3. Terms of Public Offering. The Fund and the Adviser have
been advised by the Underwriters that the Underwriters propose to make a public
offering of the Shares as soon after the Registration Statement and this
Agreement have become effective as in the Underwriters' judgment is advisable
and initially to offer the Shares upon the terms set forth in the Prospectus.

                  4. Delivery of the Shares and Payment Therefor. Delivery to
the Underwriters of and payment to the Fund for the Shares shall be made at the
office of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, NY 10017
or through the facilities of The Depository Trust Company ("DTC") or another
mutually agreeable facility at 9:30 A.M., New York City time, on January [ ],
2003 (the "Closing Date"). The place of closing for the Shares and the Closing
Date may be varied by agreement between the Representative and the Fund.

                  A certificate evidencing the Shares shall be delivered to and
registered at DTC, against payment of the purchase price therefor in immediately
available funds.

                  5. Agreements of the Fund and the Adviser. The Fund and the
Adviser, jointly and severally, agree with the Underwriters as follows:

                  (a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective under the 1933 Act before the offering of the
Shares may commence, the Fund will use its reasonable best efforts to cause the
Registration Statement or such post-effective amendment to become effective
under the 1933 Act as soon as possible and will advise the Representative
promptly and, if requested by the Representative, will confirm such advice in
writing when the Registration Statement or such post-effective amendment has
become effective.

                  (b) The Fund will advise the Representative promptly and, if
requested by the Representative, will confirm such advice in writing: (i) of any
request made by the Commission for amendment of or a supplement to the
Registration Statement, any Prepricing Prospectus or the Prospectus (or any
amendment or supplement to any of the foregoing) or for additional information,
(ii) of the issuance by the Commission, the National Association of Securities
Dealers, Inc. (the "NASD"), any state securities commission, any national
securities exchange, any arbitrator, any court or any other governmental,
regulatory, self-regulatory or administrative agency or any official of any
order suspending the effectiveness of the Registration Statement,




<PAGE>
                                                                               4



prohibiting or suspending the use of the Prospectus, any Prepricing Prospectus
or any sales material (as hereinafter defined), of any notice pursuant to
Section 8(e) of the 1940 Act, of the suspension of qualification of the Shares
for offering or sale in any jurisdiction, or the initiation or contemplated
initiation of any proceeding for any such purposes, (iii) of receipt by the
Fund, the Adviser, any affiliate of the Fund or the Adviser or any
representative or attorney of the Fund or the Adviser of any other material
communication from the Commission, the NASD, any state securities commission,
any national securities exchange, any arbitrator, any court or any other
governmental, regulatory, self-regulatory or administrative agency or any
official relating to the Fund (if such communication relating to the Fund is
received by such person within three years after the date of this Agreement),
the Registration Statement, the 1940 Act Notification, the Prospectus, any
Prepricing Prospectus, any sales material (as hereinafter defined) (or any
amendment or supplement to any of the foregoing) or this Agreement or any of the
Fund Agreements and (iv) within the period of time referred to in paragraph (f)
below, of any material adverse change in the condition (financial or other),
business, prospects, properties, net assets or results of operations of the Fund
or the Adviser or of the happening of any other event which makes any statement
of a material fact made in the Registration Statement or the Prospectus or any
sales material (as hereinafter defined) (or any amendment or supplement to any
of the foregoing), untrue or which requires the making of any additions to or
changes in the Registration Statement, the Prospectus or any Prepricing
Prospectus or any sales material (as hereinafter defined) (or any amendment or
supplement to any of the foregoing) in order to state a material fact required
by the 1933 Act, the 1940 Act or the Rules and Regulations to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or of the necessity to
amend or supplement the Registration Statement, the Prospectus, or any
Prepricing Prospectus or any sales material (as hereinafter defined) (or any
amendment or supplement to any of the foregoing) to comply with the 1933 Act,
the 1940 Act, the Rules and Regulations or any other law or order of any court
or regulatory body. If at any time the Commission, the NASD, any state
securities commission, any national securities exchange, any arbitrator, any
court or any other governmental, regulatory, self-regulatory or administrative
agency or any official shall issue any order suspending the effectiveness of the
Registration Statement, prohibiting or suspending the use of the Prospectus, any
Prepricing Prospectus or any sales material (as hereinafter defined) (or any
amendment or supplement to any of the foregoing) or suspending the qualification
of the Shares for offering or sale in any jurisdiction, the Fund will use its
reasonable best efforts to obtain the withdrawal of such order at the earliest
possible time.

                  (c) The Fund will furnish to the Representative, without
charge, three signed copies of the Registration Statement as originally filed
with the Commission and of each amendment thereto, including financial
statements and all exhibits thereto, and will also furnish to the
Representative, without charge, such number of conformed copies of the
Registration Statement as originally filed and of each amendment thereto, but
without exhibits, as the Representative may reasonably request.

                  (d) The Fund will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus,
any Prepricing Prospectus or any sales material (as hereinafter defined) of
which the Representative shall not previously have been advised or to which the
Representative shall reasonably object after being so advised or (ii) so long
as, in the opinion of counsel for the Underwriters, a Prospectus is required by
the 1933 Act




<PAGE>
                                                                               5


to be delivered in connection with sales by any Underwriter or any dealer, file
any information, documents or reports pursuant to the Securities Exchange Act of
1934, as amended (the "1934 Act") or the 1940 Act, without delivering a copy of
such information, documents or reports to the Underwriters prior to or
concurrently with such filing.

                  (e) Prior to the execution and delivery of this Agreement, the
Fund has delivered to the Representative, without charge, in such quantities as
the Representative has reasonably requested, copies of each form of any
Prepricing Prospectus. The Fund consents to the use, in accordance with the
provisions of the 1933 Act and with the state securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters and by
dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so
furnished by the Fund.

                  (f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a Prospectus is required by the 1933 Act to be
delivered in connection with sales of Shares by the Underwriters or any dealer,
the Fund will expeditiously deliver to the Underwriters and each dealer, without
charge, as many copies of the Prospectus (and of any amendment or supplement
thereto) as the Representative may reasonably request. The Fund consents to the
use of the Prospectus (and of any amendment or supplement thereto) in accordance
with the provisions of the 1933 Act and with the state securities or Blue Sky
laws of the jurisdictions in which the Shares are offered by the Underwriters
and by all dealers to whom the Shares may be sold, both in connection with the
offering or sale of the Shares and for such period of time thereafter as the
Prospectus is required by the 1933 Act to be delivered in connection with sales
of the Shares by the Underwriters or any dealer. If during such period of time
any event shall occur that in the judgment of the Fund or in the opinion of
counsel for the Underwriters is required to be set forth in the Registration
Statement or the Prospectus (as then amended or supplemented) or should be set
forth therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Registration Statement or the Prospectus to comply
with the 1933 Act, the 1940 Act, the Rules and Regulations or any other federal
law, rule or regulation, or any state securities or Blue Sky disclosure laws,
rules or regulations, the Fund will forthwith prepare and, subject to the
provisions of paragraph (d) above, promptly file with the Commission an
appropriate supplement or amendment thereto, and will promptly furnish to the
Underwriters and dealers, without charge, such number of copies thereof as they
shall reasonably request. In the event that the Registration Statement or the
Prospectus should be amended or supplemented, the Fund, if requested by the
Representative and to the extent consistent with applicable law, will promptly
issue a press release announcing or disclosing the matters to be covered by the
proposed amendment or supplement.

                  (g) The Fund will cooperate with the Representative and with
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offering and sale by the Underwriters and by
dealers under the securities or Blue Sky laws of such jurisdictions as the
Representative may designate and will file such consents to service of process
or other documents necessary or appropriate in order to effect such registration
or qualification; provided that in no event shall the Fund be obligated to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to service of process




<PAGE>
                                                                               6


in suits, other than those arising out of the offering or sale of the Shares, in
any jurisdiction where it is not now so subject.

                  (h) The Fund will make generally available to its security
holders an earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which earnings statement shall satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158 of the 1933 Act Rules
and Regulations.

                  (i) The Fund will comply with the undertaking set forth in
paragraph 6 of Item 33 of Part C of the Registration Statement.

                  (j) During the period of five years hereafter, the Fund will
furnish to the Underwriters (i) as soon as available, a copy of each report of
the Fund mailed to stockholders or filed with the Commission or furnished to the
American Stock Exchange (the "AMEX") other than reports on Form N-SAR, and (ii)
from time to time such other information concerning the Fund as the
Representative may reasonably request.

                  (k) The Fund will direct the investment of the net proceeds
from the sale of the Shares in accordance with the description set forth in the
Prospectus and in such a manner as to comply with the investment objectives,
policies and restrictions of the Fund as described in the Prospectus.

                  (l) The Fund will file the requisite copies of the Prospectus
with the Commission in a timely fashion pursuant to Rule 497(c) or Rule 497(h)
of the 1933 Act Rules and Regulations, whichever is applicable or, if
applicable, will timely file the certification permitted by Rule 497(j) of the
1933 Act Rules and Regulations and will advise the Representative of the time
and manner of such filing.

                  (m) Except as provided in this Agreement, the Fund will not
sell, contract to sell, or otherwise dispose of any senior securities (as
defined in the 1940 Act) of the Fund or any securities convertible into or
exercisable or exchangeable for senior securities or grant any options or
warrants to purchase senior securities of the Fund for a period of 180 days
after the date of the Prospectus other than MuniPreferred shares, without the
prior written consent of the Representative.

                  (n) Except as stated in this Agreement and in the Prospectus,
neither the Fund nor the Adviser has taken, nor will it take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of any securities issued
by the Fund to facilitate the sale or resale of the Shares.

                  (o) The Fund will use its reasonable best efforts to cause the
Shares, prior to the Closing Date, to be assigned a rating of 'Aaa' by Moody's
Investors Service ("Moody's") and 'AAA' by Standard & Poor's Investors Services,
a division of The McGraw-Hill Companies, Inc. ("S&P" and, together with Moody's,
the "Rating Agencies").



<PAGE>
                                                                               7


                  (p) The Fund and the Adviser will use their reasonable efforts
to perform all of the agreements required of them and discharge all conditions
to closing as set forth in this Agreement.

                  6. Representations and Warranties of the Fund and the Adviser.
The Fund and the Adviser, jointly and severally, represent and warrant to the
Underwriters that, as of the date hereof or at such other time or times
identified below:

                  (a) Each Prepricing Prospectus included as part of the
Registration Statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 497 of the 1933 Act Rules and
Regulations, complied when so filed in all material respects with the provisions
of the 1933 Act, the 1940 Act and the Rules and Regulations. The Commission has
not issued any order preventing or suspending the use of any Prepricing
Prospectus.

                  (b) The Registration Statement in the form in which it became
or becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 497 of the 1933
Act Rules and Regulations and the 1940 Act Notification when originally filed
with the Commission and any amendment or supplement thereto when filed with the
Commission, complied or will comply in all material respects with the provisions
of the 1933 Act, the 1940 Act and the Rules and Regulations and did not or will
not at any such times contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in the light of the
circumstances under which they were made) not misleading, except that this
representation and warranty does not apply to statements in or omissions from
the Registration Statement or the Prospectus (or any amendment or supplement
thereto) made in reliance upon and in conformity with information relating to
the Underwriters furnished to the Fund in writing by or on behalf of the
Underwriters expressly for use therein.

                  (c) All the outstanding shares of beneficial interest of the
Fund have been duly authorized and validly issued, are fully paid and
nonassessable and are free of any preemptive or similar rights, except that, as
set forth in the Registration Statement, shareholders of a Massachusetts
business trust may under certain circumstances be held personally liable for its
obligations; the Shares have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and free of any
preemptive or similar rights that entitle or will entitle any person to acquire
any Shares upon issuance thereof by the Fund, except as stated above, and will
conform to the description thereof in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them); and the shares
of beneficial interest of the Fund conform to the description thereof in the
Registration Statement and the Prospectus (and any amendment or supplement to
either of them).

                  (d) The Fund has been duly established and is validly existing
and in good standing as a voluntary association (commonly referred to as a
"Massachusetts business trust") under the laws of the Commonwealth of
Massachusetts, with full power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement to either of
them), and is duly




<PAGE>
                                                                               8


registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification except where the failure to
so register or to qualify does not have a material adverse effect on the
condition (financial or otherwise), business, properties, prospects, net assets
or results of operations of the Fund; and the Fund has no subsidiaries.

                  (e) There are no legal or governmental proceedings pending or,
to the knowledge of the Fund, threatened, against the Fund, or to which the Fund
or any of its properties is subject, that are required to be described in the
Registration Statement or the Prospectus (or any amendment or supplement to
either of them), but are not described as required by the 1933 Act, the 1940 Act
or the Rules and Regulations, and there are no agreements, contracts,
indentures, leases or other instruments that are required to be described in the
Registration Statement or the Prospectus (or any amendment or supplement to
either of them), or to be filed as an exhibit to the Registration Statement that
are not described or filed as required by the 1933 Act, the 1940 Act or the
Rules and Regulations.

                  (f) The Fund is not in violation of its Declaration of Trust,
as it may be amended (the "Declaration"), the Statement or by-laws (the
"By-Laws"), or other organizational documents (together, the "Organizational
Documents") of the Fund or of any material law, ordinance, administrative or
governmental rule or regulation applicable to the Fund or any material decree of
the Commission, the NASD, any state securities commission, any national
securities exchange, any arbitrator, any court or other governmental,
regulatory, self-regulatory or administrative agency, body or official having
jurisdiction over the Fund, or in breach or default in any material respect in
the performance of any obligation, agreement or condition contained in any
material bond, debenture, note or any other evidence of indebtedness or in any
material agreement, indenture, lease or other instrument to which the Fund is a
party or by which it or any of its properties may be bound.

                  (g) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement nor any of the Fund
Agreements by the Fund nor the consummation by the Fund of the transactions
contemplated hereby or thereby (A) requires any consent, approval, authorization
or other order of or registration or filing with, the Commission, the NASD, any
state securities commission, any national securities exchange, any arbitrator,
any court, regulatory body, administrative agency or other governmental body,
agency or official (except such as may have been obtained or made prior to the
date hereof and such as may be required for compliance with the state securities
or Blue Sky laws of various jurisdictions and the filing of the Statement with
the Secretary of State of the Commonwealth of Massachusetts which have been or
will be effected in accordance with this Agreement) or conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
the Organizational Documents of the Fund or (B) conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, any
agreement, indenture, lease or other instrument to which the Fund is a party or
by which it or any of its properties may be bound, or violates or will violate
any statute, law, regulation, filing, judgment, injunction, order or decree
applicable to the Fund or any of its properties, or will result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Fund pursuant to the terms of any agreement or instrument to which it is a
party or by which it may be bound or to which any of its property or assets is
subject, except where such conflict, breach, default, violation, creation or
imposition





<PAGE>
                                                                               9


would not have a material adverse effect on the condition (financial or
otherwise), business, properties, prospects net assets or results of operations
of the Fund or on the ability of the Fund to perform its obligations under this
Agreement and the Fund Agreements. The Fund is not subject to any order of any
court or of any arbitrator, governmental authority or administrative agency,
except such orders which do not have a material adverse effect on the condition
(financial or otherwise), business, properties, prospects, net assets or results
of operations of the Fund or on the ability of the Fund to perform its
obligations under this Agreement and the Fund Agreements.

                  (h) Since the date as of which information is given in the
Registration Statement and the Prospectus (and any amendment or supplement to
either of them), except as otherwise stated therein, (A) there has been no
material, adverse change in the condition (financial or other), business,
properties, net assets or results of operations of the Fund or business
prospects (other than as a result of a change in the financial markets
generally) of the Fund, whether or not arising in the ordinary course of
business, and (B) there have been no transactions entered into by the Fund which
are material to the Fund other than those in the ordinary course of its
business.

                  (i) The accountants, Ernst & Young LLP, who have certified or
shall certify the statement of assets and liabilities and statement of
operations included or incorporated by reference in the Registration Statement
and the Prospectus (or any amendment or supplement to either of them), are an
independent public accounting firm as required by the 1933 Act, the 1940 Act and
the Rules and Regulations.

                  (j) The financial statements, together with related schedules
and notes, included or incorporated by reference in the Registration Statement
and the Prospectus (and any amendment or supplement to either of them), present
fairly the financial position, results of operations and changes in financial
position of the Fund on the basis stated or incorporated by reference in the
Registration Statement and the Prospectus at the respective dates or for the
respective periods to which they apply; such statements and related schedules
and notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed therein; and the other financial and statistical information and data
included in the Registration Statement and the Prospectus (and any amendment or
supplement thereto), are accurately derived from such financial statements and
the books and records of the Fund.

                  (k) The execution and delivery of, and the performance by the
Fund of its obligations under, this Agreement and the Fund Agreements have been
duly and validly authorized by the Fund, and this Agreement and the Fund
Agreements have been duly executed and delivered by the Fund and constitute the
valid and legally binding agreements of the Fund, enforceable against the Fund
in accordance with their terms, except as rights to indemnity and contribution
hereunder and thereunder may be limited by federal or state securities laws and
subject to the qualification that the enforceability of the Fund's obligations
hereunder and thereunder may be limited to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and by general equitable principles.




<PAGE>
                                                                              10


                  (l) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
the Fund has not incurred any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that is
material to the Fund, and there has not been any change in the shares of
beneficial interest, or material increase in the short-term debt or long-term
debt, of the Fund, or any material adverse change, or any development involving
or which would reasonably be expected to involve, a prospective material adverse
change in the condition (financial or other), business, prospects, properties,
net assets or results of operations of the Fund, whether or not arising in the
ordinary course of business.

                  (m) The Fund has filed all tax returns required to be filed,
which returns are complete and correct in all material respects, and the Fund is
not in material default in the payment of any taxes which were payable pursuant
to said returns or any assessments with respect thereto.

                  (n) The Fund is registered under the 1940 Act as a closed-end
non-diversified management investment company, and the 1940 Act Notification has
been duly filed with the Commission and, at the time of filing thereof and any
amendment or supplement thereto, conformed in all material respects with all
applicable provisions of the 1940 Act and the Rules and Regulations. The Fund
is, and at all times through the completion of the transactions contemplated
hereby, will be, in compliance in all material respects with the terms and
conditions of the 1933 Act and the 1940 Act. No person is serving or acting as
an officer, director or investment adviser of the Fund except in accordance with
the provisions of the 1940 Act and the 1940 Act Rules and Regulations and the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the rules
and regulations of the Commission promulgated under the Advisers Act (the
"Advisers Act Rules and Regulations").

                  (o) As required by Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), the Fund is currently in compliance with the
requirements to qualify as a regulated investment company under the Code.

                  (p) The Fund's Common Shares (as defined in the Prospectus)
are duly listed on the AMEX.

                  (q) The Fund has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute to the public any offering material in connection
with the offering and sale of the Shares other than the Registration Statement,
any Prepricing Prospectus, the Prospectus or other materials, if any, permitted
by the 1933 Act, the 1940 Act or the Rules and Regulations.

                  (r) The Fund has such licenses, permits, and authorizations of
governmental or regulatory authorities ("permits") as are necessary to own its
property and to conduct its business in the manner described in the Prospectus
(and any amendment or supplement thereto); the Fund has fulfilled and performed
all its material obligations with respect to such permits and no event has
occurred which allows or, after notice or lapse of time, would allow revocation
or




<PAGE>
                                                                              11


termination thereof or results in any other material impairment of the rights of
the Fund under any such permit, subject in each case to such qualification as
may be set forth in the Prospectus (and any amendment or supplement thereto);
and, except as described in the Prospectus (and any amendment or supplement
thereto), none of such permits contains any restriction that is materially
burdensome to the Fund.

                  (s) The Fund maintains and will maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization and with the investment policies and restrictions of the Fund and
the applicable requirements of the 1940 Act, the 1940 Act Rules and Regulations
and the Code; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles, to calculate net asset value, to maintain accountability for assets
and to maintain material compliance with the books and records requirements
under the 1940 Act and the 1940 Act Rules and Regulations; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded account for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

                  (t) No holder of any security of the Fund has any right to
require registration of shares of beneficial interest, MuniPreferred shares or
any other security of the Fund because of the filing of the Registration
Statement or consummation of the transactions contemplated by this Agreement.

                  (u) The conduct by the Fund of its business (as described in
the Prospectus) does not require it to be the owner, possessor or licensee of
any patents, patent licenses, trademarks, service marks or trade names which it
does not own, possess or license.

                  (v) Except as stated in this Agreement and in the Prospectus
(and any amendment or supplement thereto), the Fund has not taken, nor will it
take, directly or indirectly, any action designed to or which would reasonably
be expected to cause or result in stabilization or manipulation of the price of
any securities issued by the Fund to facilitate the sale or resale of the
Shares, and the Fund is not aware of any such action taken or to be taken by any
affiliates of the Fund.

                  (w) The Fund has filed in a timely manner each document or
report required to be filed by it pursuant to the 1940 Act, the 1940 Act Rules
and Regulations, the 1934 Act and the rules and regulations of the Commission
promulgated thereunder (the "1934 Act Rules and Regulations"); each such
document or report at the time it was filed conformed in all material respects
with all applicable requirements of the 1934 Act and the 1934 Act Rules and
Regulations; and none of such documents or reports contained an untrue statement
of any material fact or omitted to state any material fact required to be stated
therein, in the light of the circumstances under which they were made, not
misleading. The Fund has not received any notice from the Commission pursuant to
Section 8(e) of the 1940 Act with respect to the 1940 Act Notification or the
Registration Statement (or any amendment or supplement to either of them).



<PAGE>
                                                                              12


                  (x) All advertising, sales literature or other promotional
material (including "prospectus wrappers," "broker kits," "road show slides" and
"road show scripts") authorized in writing by or prepared by the Fund or the
Adviser for use in connection with the offering and sale of the Shares
(collectively, "sales material") complied and comply in all material respects,
to the Fund's and Adviser's best knowledge, with the applicable requirements of
the 1933 Act, the 1940 Act, the Rules and Regulations and the rules and
interpretations of the NASD and, if required to be filed with the NASD under the
NASD's conduct rules, all sales material were so filed, and no such sales
material contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.

                  (y) This Agreement and each of the Fund Agreements complies in
all material respects with all applicable provisions of the 1940 Act, the 1940
Act Rules and Regulations, the Advisers Act and the Advisers Act Rules and
Regulations.

                  (z) The Fund intends to direct the investment of the proceeds
of the offering of the Shares in such a manner as to comply with the
requirements of Subchapter M of the Code.

                  7. Representations and Warranties of the Adviser. The Adviser
represents and warrants to each Underwriter that, as of the date hereof or at
such other time or times identified below:

                  (a) The Adviser is a corporation duly organized and validly
existing in good standing under the laws of its jurisdiction of incorporation,
with full corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them), and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification except where the failure so
to register or to qualify would not have a material adverse effect on the
condition (financial or other), business, prospects, properties, net assets or
results of operations of such Adviser.

                  (b) The Adviser has such licenses, permits and authorizations
of governmental or regulatory authorities ("permits") as are necessary to own
its property and to conduct its business in the manner described in the
Prospectus; the Adviser has fulfilled and performed all its material obligations
with respect to such permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the Adviser under any
such permit.

                  (c) The Adviser is duly registered with the Commission as an
investment adviser under the Advisers Act and is not prohibited by the Advisers
Act, the Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules
and Regulations from acting under the Investment Management Agreement or the
Sub-Advisory Agreement for the Fund as contemplated by the Prospectus (or any
amendment or supplement thereto). There does not exist any proceeding, to the
best of the Adviser's knowledge after reasonable investigation, or any facts or
circumstances the existence of which could lead to any proceeding which would



<PAGE>
                                                                              13


reasonably be expected to adversely affect the registration of the Adviser as an
investment adviser with the Commission.

                  (d) There are no legal or governmental proceedings pending or,
to the knowledge of the Adviser, threatened against the Adviser, or to which the
Adviser or any of its properties is subject, that are required to be described
in the Registration Statement or the Prospectus (or any amendment or supplement
to either of them), but are not described as required or that would reasonably
be expected to involve a prospective material adverse change in the condition
(financial or other), business, prospects, properties, assets or results of
operations of the Adviser or on the ability of the Adviser to perform its
obligations under this Agreement or under the Fund Agreements to which it is a
party.

                  (e) The Adviser is not in violation of its corporate charter
or by-laws, or other organizational documents, in default under any material
agreement, indenture or instrument or in breach or violation of any judgment,
decree, order, rule or regulation of any court or governmental or
self-regulatory agency or body except where such violation would not have a
material adverse effect on the condition (financial or other), business,
prospects, properties, net assets or results of operations of such Adviser or on
the ability of the Adviser to perform its obligations under this Agreement or
under the Fund Agreements to which it is a party.

                  (f) Neither the execution, delivery or performance of this
Agreement or the Fund Agreements to which it is a party by the Adviser, nor the
consummation by the Adviser of the transactions contemplated hereby or thereby
(A) requires the Adviser to obtain any consent, approval, authorization or other
order of or registration or filing with, the Commission, the NASD, any state
securities commission, any national securities exchange, any arbitrator, any
court, regulatory body, administrative agency or other governmental body, agency
or official (except such as may have been obtained or made prior to the date
hereof) or conflicts or will conflict with or constitutes or will constitute a
breach of or a default under, the corporate charter or by-laws, or other
organizational documents, of the Adviser, except where the failure to obtain
such consent, approval, authorization or other order of, or make such
registration or filing, or such conflict, breach or default would not have a
material adverse effect on the condition (financial or otherwise), business,
prospects, properties, net assets or result of operations of the Adviser or on
the ability of the Adviser to perform its obligations under this Agreement and
the Fund Agreements to which it is a party or (B) conflicts or will conflict
with or constitutes or will constitute a breach of or a default under, any
agreement, indenture, lease or other instrument to which the Adviser is a party
or by which it or any of its properties may be bound, or violates or will
violate any statute, law, regulation or filing or judgment, injunction, order or
decree applicable to the Adviser or any of its properties or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Adviser pursuant to the terms of any agreement or instrument to
which it is a party or by which it may be bound or to which any of the property
or assets of the Adviser is subject, except where such conflict, breach, default
or violation would not have a material adverse effect on the condition
(financial or otherwise), prospects, business, properties, net assets or results
of operations of the Adviser or on the ability of the Adviser to perform its
obligations under this Agreement and the Fund Agreements to which it is a party.
The Adviser is not subject to any order of any court or of any arbitrator,
governmental authority or administrative agency, except such orders which do not
have a material adverse effect on the condition (financial or otherwise),
business, prospects, properties,



<PAGE>
                                                                              14


net assets or results of operations of the Adviser or on the ability of the
Adviser to perform its obligations under this Agreement and the Fund Agreements
to which it is a party.

                  (g) The Adviser has full power and authority to enter into
this Agreement and the Fund Agreements to which it is a party, the execution and
delivery of, and the performance by the Adviser of its obligations under, this
Agreement and the Fund Agreements to which it is a party have been duly and
validly authorized by the Adviser, and this Agreement and the Fund Agreements to
which it is a party have been duly executed and delivered by the Adviser and
each constitutes the valid and legally binding agreement of the Adviser,
enforceable against the Adviser in accordance with its terms, except as rights
to indemnity and contribution hereunder may be limited by federal or state
securities laws and subject to the qualification that the enforceability of the
Adviser's obligations hereunder and thereunder may be limited to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and by general equitable principles.

                  (h) The Adviser has the financial resources available to it
necessary for the performance of its services and obligations as contemplated in
the Prospectus (or any amendment or supplement thereto) and under this Agreement
and the Fund Agreements to which it is a party.

                  (i) The description of the Adviser, its business and the
statements attributable to the Adviser in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) complied and comply in all
material respects with the provisions of the 1933 Act, the 1940 Act, the
Advisers Act, the Rules and Regulations and the Advisers Act Rules and
Regulations and did not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.

                  (j) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
the Adviser has not incurred any liability or obligation, direct or contingent,
or entered into any transaction, not in the ordinary course of business, that is
material to the Adviser or the Fund and that is required to be disclosed by the
1933 Act, the 1940 Act or the Rules and Regulations in the Registration
Statement or the Prospectus and there has not been any material adverse change,
or any development involving or which would reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties, assets or results of operations of the Adviser,
whether or not arising in the ordinary course of business, or which, in each
case, could have a material adverse effect on the ability of the Adviser to
perform its obligations under this Agreement and the Fund Agreements to which it
is a party.

                  (k) In the event that the Fund or the Adviser makes available
any promotional materials intended for use only by qualified broker-dealers and
registered representatives thereof by means of an Internet web site or similar
electronic means, the Adviser will install and maintain pre-qualification and
password-protection or similar procedures which are reasonably





<PAGE>
                                                                              15


designed to effectively prohibit access to such promotional materials by persons
other than qualified broker-dealers and registered representatives thereof.

                  8. Indemnification and Contribution.

                  (a) The Fund and the Adviser, jointly and severally, agree to
indemnify and hold harmless each of the Underwriters and each person, if any,
who controls the Underwriters within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act from and against any and all losses, claims,
damages, liabilities and expenses, (including reasonable costs of
investigation), joint or several, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Prepricing Prospectus or in the Registration Statement or the Prospectus or any
sales material or in any amendment or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to the
Underwriters furnished in writing to the Fund by or on behalf of the
Underwriters expressly for use in connection therewith; provided, however, that
the indemnification contained in this paragraph (a) with respect to the
Registration Statement, the Prospectus or any Prepricing Prospectus (or any
amendment or supplement to any of the foregoing) shall not inure to the benefit
of the Underwriters (or to the benefit of any person controlling the
Underwriters) on account of any such loss, claim, damage, liability or expense
arising from the sale of the Shares by the Underwriters to any person if it is
shown that a copy of the Prospectus, as then amended or supplemented, was not
delivered or sent to such person by or on behalf of the Underwriters within the
time required by the 1933 Act and the 1933 Act Rules and Regulations, and the
untrue statement or alleged untrue statement or omission or alleged omission of
a material fact was corrected in the Prospectus, provided that the Fund has
delivered the Prospectus to the Underwriters in the requisite quantity and on a
timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which the Fund or the Adviser
may otherwise have.

                  (b) If any action, suit or proceeding shall be brought against
the Underwriters or any person controlling any Underwriter in respect of which
indemnity may be sought against the Fund or the Adviser, the Underwriters or
such controlling person shall promptly notify the Fund or the Adviser, and the
Fund or the Adviser shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. The Underwriters or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of the Underwriters or
such controlling person unless (i) the Fund or the Adviser has agreed in writing
to pay such fees and expenses, (ii) the Fund and the Adviser have failed within
a reasonable time to assume the defense and employ counsel, or (iii) the named
parties to any such action, suit or proceeding (including any impleaded parties)
include both the Underwriters or such controlling person and the Fund or the
Adviser and the Underwriters or such controlling person shall have been advised
by its counsel that representation of such indemnified party and the Fund or the
Adviser by the same counsel would be inappropriate under





<PAGE>
                                                                              16


applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the Fund and the Adviser shall not have
the right to assume the defense of such action, suit or proceeding on behalf of
the Underwriters or such controlling person). It is understood, however, that
the Fund and the Adviser shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel if there is any
action, suit or proceeding in more than one jurisdiction) at any time for the
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by the Representative, and that all such fees and expenses shall be
reimbursed promptly as they are incurred. The Fund and the Adviser shall not be
liable for any settlement of any such action, suit or proceeding effected
without its written consent, but if settled with such written consent, or if
there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Fund and the Adviser agree to indemnify and hold harmless the
Underwriters, to the extent provided in the preceding paragraph, and any such
controlling person from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.

                  (c) The Underwriters agree, severally and not jointly, to
indemnify and hold harmless the Fund and the Adviser, their trustees, directors,
any officers who sign the Registration Statement, and any person who controls
the Fund or the Adviser within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, to the same extent as the foregoing indemnity from
the Fund and the Adviser to the Underwriters, but only with respect to
information relating to the Underwriters furnished in writing by or on behalf of
the Underwriters expressly for use in the Registration Statement, the Prospectus
or any Prepricing Prospectus, or any amendment or supplement thereto. If any
action, suit or proceeding shall be brought against the Fund or the Adviser, any
of their trustees, directors, any such officer, or any such controlling person
based on the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against the Underwriters pursuant to this paragraph (c),
the Underwriters shall have the rights and duties given to the Fund and the
Adviser by paragraph (b) above (except that if the Fund or the Adviser shall
have assumed the defense thereof the Underwriters shall not be required to do
so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the Underwriters'
expense), and the Fund and the Adviser, their directors, any such officer, and
any such controlling person shall have the rights and duties given to the
Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be
in addition to any liability which the Underwriters may otherwise have.

                  (d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Fund and the Adviser on the one hand (treated jointly for this purpose as one
person) and the Underwriters on the other hand from the offering of the Shares,
or (ii) if the allocation provided by clause (i) above is not permitted by




<PAGE>
                                                                              17


applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Fund and the Adviser on the one hand (treated jointly for this purpose as
one person) and the Underwriters on the other in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Fund and the Adviser on the one hand (treated jointly
for this purpose as one person) and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Fund bear to the total sales load
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Fund and the Adviser on
the one hand (treated jointly for this purpose as one person) and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Fund and the Adviser on the one hand (treated jointly for this
purpose as one person) or by the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.

                  (e) The Fund, the Adviser and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 8 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in paragraph
(d) above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 8, the Underwriters
shall not be required to contribute any amount in excess of the amount by which
the total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which the Underwriters have otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 8 are several
in proportion to the respective number of Shares set forth opposite their names
in Schedule I and not joint.

                  (f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.

                  (g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Fund and the Adviser set forth in this
Agreement





<PAGE>
                                                                              18


shall remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of the Underwriters or any person controlling
the Underwriters, the Fund, the Adviser, their trustees, directors or officers,
or any person controlling the Fund or the Adviser, (ii) acceptance of any Shares
and payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to the Underwriters or any person controlling any Underwriter, or to
the Fund, the Adviser, their trustees, directors or officers, or any person
controlling the Fund or the Adviser, shall be entitled to the benefits of the
indemnity, contribution, and reimbursement agreements contained in this Section
8.

                  (h) Any indemnification by the Fund shall be subject to the
requirements and limitations of Section 17(i) of the 1940 Act.

                  9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase any Shares hereunder are subject to,
in the good faith judgment of the Underwriters, the accuracy of and compliance
with the representations, warranties and agreements of and by the Fund and the
Adviser contained herein on and as of the date hereof, the date on which the
Registration Statement becomes or became effective, the date of the Prospectus
(and of any amendment or supplement thereto) and the Closing Date; to the
accuracy and completeness of all statements made by the Fund, the Adviser or any
of their officers in any certificate delivered to the Underwriters or their
counsel pursuant to this Agreement and to the following conditions:

                  (a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the Registration Statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by the
Underwriters, and all filings, if any, required by Rules 497 and 430A under the
1933 Act and the 1933 Act Rules and Regulations shall have been timely made; no
stop order suspending the effectiveness of the Registration Statement or order
pursuant to Section 8(e) of the 1940 Act shall have been issued and no
proceeding for those purposes shall have been instituted or, to the knowledge of
the Fund, the Adviser or the Underwriters, threatened by the Commission, and any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the Underwriters' satisfaction.

                  (b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change or any development involving a
prospective change in or affecting the condition (financial or other), business,
prospects, properties, net assets, or results of operations of the Fund or the
Adviser not contemplated by the Prospectus, which in the Underwriters' opinion
would materially and adversely affect the market for the Shares, or (ii) any
event or development relating to or involving the Fund or the Adviser or any
officer, trustee or director of the Fund or the Adviser which makes any
statement of a material fact made in the Prospectus untrue or which, in the
opinion of the Fund and its counsel or the Underwriters and their counsel,
requires the making of any addition to or change in the Prospectus in order to
state a material fact required by the 1933 Act, the 1940 Act or the Rules and
Regulations or any other law to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, if amending or supplementing the





<PAGE>
                                                                              19


Prospectus to reflect such event or development would, in the Underwriters'
opinion, materially adversely affect the market for the Shares.

                  (c) The Fund shall have furnished to the Representative as
soon as practicable from the Closing Date a report showing compliance with the
asset coverage requirements of the 1940 Act and a Basic Maintenance Report (as
defined in the Statement), in form and substance reasonably satisfactory to the
Representative.

                  (d) Vedder, Price, Kaufman & Kammholz, counsel to the Fund,
shall have furnished to the Representative on the Closing Date its opinion
addressed to the Underwriters and dated the Closing Date, to the effect that:

                           (i) The Fund is (A) duly established and validly
                  existing under the Fund's Declaration and the laws of the
                  Commonwealth of Massachusetts as a voluntary association with
                  transferable shares of beneficial interest, commonly referred
                  to as a "Massachusetts business trust," (B) is in good
                  standing with the Secretary of the Commonwealth of
                  Massachusetts, (C) has full power and authority as a business
                  trust, to own, lease and operate its properties and to conduct
                  its business, in each case as described in the Registration
                  Statement and the Prospectus (and any amendment or supplement
                  to either of them through the date of the opinion);

                           (ii) The Shares have been duly authorized by the Fund
                  for issuance and sale to the Underwriters pursuant to the
                  Underwriting Agreement and, when issued and delivered to the
                  Underwriters against payment therefor in accordance with the
                  terms of the Underwriting Agreement, will be validly issued,
                  fully paid and nonassessable, except that, as set forth in the
                  Registration Statement, shareholders of a Massachusetts
                  business trust may under certain circumstances be held liable
                  for its obligations, and are free of any statutory preemptive
                  rights. Except as set forth in the Declaration and the
                  Statement, there are no restrictions upon the transfer of any
                  Shares pursuant to the Declaration or By-Laws of the Fund or,
                  to the best knowledge of such counsel, any agreement or other
                  outstanding instrument to which the Fund is a party. The form
                  of certificate evidencing the Shares complies as to form with
                  all requirements of Massachusetts law;

                           (iii) The description of the authorized shares of
                  beneficial interest of the Fund contained under the caption
                  "Description of Common Shares" in the Prospectus conforms in
                  all material respects as to legal matters to the terms thereof
                  contained in the Fund's Declaration. The statements in the
                  first two paragraphs under the caption "Certain Provisions in
                  the Declaration of Trust" in the Prospectus, to the extent
                  that they constitute descriptions of Massachusetts law, are in
                  summary form accurate in all material respects. The
                  description of the Shares contained under the captions
                  "Description of MuniPreferred Shares" and "The Auction" in the
                  Prospectus conforms in all material respects as to legal
                  matters to the terms thereof contained in the Fund's
                  Declaration and Statement;



<PAGE>
                                                                              20


                           (iv) All of the outstanding shares of the Fund have
                  been duly authorized by the Fund and validly issued, are fully
                  paid and nonassessable, except that, as set forth in the
                  Registration Statement, shareholders of a Massachusetts
                  business trust may under certain circumstances be held liable
                  for its obligations, and are free of any statutory preemptive
                  rights;

                           (v) The Registration Statement is effective under the
                  1933 Act and was filed under the 1940 Act; any required filing
                  of the Prospectus pursuant to Rule 497 of the 1933 Act Rules
                  and Regulations has been made within the time periods required
                  by Rule 497; no stop-order suspending the effectiveness of the
                  Registration Statement or order pursuant to Section 8(e) of
                  the 1940 Act has been issued and to the best of such counsel's
                  knowledge, no proceeding for any such purpose has been
                  instituted or is pending or threatened in writing by the
                  Commission;

                           (vi) The Fund's notification of registration as an
                  investment company under the 1940 Act on Form N-8A (the "1940
                  Act Notification"), the Registration Statement and the
                  Prospectus and each amendment or supplement to the
                  Registration Statement and the Prospectus as of their
                  respective issue dates (except the financial statements and
                  other financial data contained therein, as to which we express
                  no opinion) complies as to form in all material respects with
                  the requirements of the 1933 Act, the 1940 Act and the Rules
                  and Regulations;

                           (vii) The statements made in the Prospectus under the
                  captions "The Auction," "Description of MuniPreferred Shares"
                  and "Additional Information Concerning The Auctions for
                  MuniPreferred Shares," insofar as they purport to summarize
                  the provisions of the Statement or other documents or
                  agreements specifically referred to therein, constitute
                  accurate summaries of the terms of the Statement or such other
                  documents, in all material respects;

                           (viii) The statements made in the Prospectus under
                  the captions "Prospectus Summary -- Taxation" and "Tax Matters
                  -- Federal Income Tax Matters", insofar as they constitute
                  matters of law or legal conclusions, have been reviewed by
                  such counsel and constitute accurate statements of any such
                  matters of law or legal conclusions, and fairly present the
                  information called for with respect thereto by Form N-2, in
                  all material respects;

                           (ix) To the best of such counsel's knowledge, there
                  are no legal or governmental proceedings pending or threatened
                  in writing against the Fund, or to which the Fund or any of
                  its properties is subject, that are required to be described
                  in the Registration Statement or the Prospectus, but are not
                  described therein as required;

                           (x) The Underwriting Agreement and the Fund
                  Agreements have each been duly and validly authorized,
                  executed and delivered by the Fund, each complies with all
                  applicable provisions of the 1940 Act and the 1940 Act Rules
                  and Regulations and the Advisers Act and the rules and
                  regulations thereunder,




<PAGE>
                                                                              21


                  and each constitutes the valid and binding agreement of the
                  Fund, enforceable against the Fund in accordance with its
                  terms;

                           (xi) The Fund is registered under the 1940 Act as a
                  closed-end non-diversified management investment company; the
                  provisions of the Declaration, Statement and By-Laws of the
                  Fund and the investment policies and restrictions described in
                  the Prospectus do not violate the requirements of the 1940 Act
                  in any material respect;

                           (xii) None of the issuance and sale of the Shares by
                  the Fund pursuant to the Underwriting Agreement, the execution
                  and delivery of the Underwriting Agreement or any of the Fund
                  Agreements by the Fund, or the performance by the Fund of its
                  agreements under the Underwriting Agreement or any of the Fund
                  Agreements (A) requires any consent, approval, authorization
                  or other order of or registration or filing with, the
                  Commission, the National Association of Securities Dealers,
                  Inc., or any national securities exchange or governmental body
                  or agency or arbitrator or court of the United States, State
                  of Illinois or the Commonwealth of Massachusetts (except (1)
                  any, the absence of which, either individually or in the
                  aggregate, would not have a material adverse effect on the
                  Fund; (2) such as may have been obtained prior to the date
                  hereof; and (3) such as may be required for compliance with
                  the AMEX or state securities or Blue Sky laws of various
                  jurisdictions in accordance with the Underwriting Agreement)
                  or violates or will violate or constitutes or will constitute
                  a breach of any of the provisions of the Organizational
                  Documents of the Fund or (B) violates or will violate or
                  constitutes or will constitute a breach of, or a default
                  under, any material agreement, indenture, lease or other
                  instrument known to such counsel to which the Fund is party or
                  by which it or any of its properties may be bound, or violates
                  any material United States, State of Illinois or the
                  Commonwealth of Massachusetts statute, law, regulation
                  (assuming compliance with all applicable state securities and
                  Blue Sky laws), judgment, injunction, order or decree
                  applicable to the Fund or any of its properties, or will
                  result in the creation or imposition of any material lien,
                  charge or encumbrance upon any property or assets of the Fund
                  pursuant to the terms of any agreement or instrument known to
                  such counsel to which the Fund is a party or by which any of
                  its property or assets is bound. To the best of such counsel's
                  knowledge, the Fund is not subject to any order of any court
                  or of any arbitrator, governmental authority or administrative
                  agency of the United States of America, the State of Illinois
                  or the Commonwealth of Massachusetts;

                           (xiii) No holder of any security of the Fund has any
                  right pursuant to any agreement known to such counsel to which
                  the Fund is a party to require registration of shares of
                  beneficial interest, MuniPreferred shares or any other
                  security of the Fund because of the filing of the Registration
                  Statement or consummation of the transactions contemplated by
                  the Underwriting Agreement;

                           (xiv) To the best of such counsel's knowledge, there
                  are no agreements, contracts, indentures, leases or other
                  instruments that are required to be described




<PAGE>
                                                                              22


                  in the Registration Statement or the Prospectus, or to be
                  filed as an exhibit to the Registration Statement that are not
                  described or filed as required by the 1933 Act, the 1940 Act
                  or the Rules and Regulations; and

                           (xv) Such counsel shall state that it has
                  participated in conferences with officers and employees of the
                  Fund and the Adviser, representatives of the independent
                  accountants for the Fund, Massachusetts counsel to the Fund,
                  the Underwriters and counsel for the Underwriters at which the
                  contents of the Registration Statement and the Prospectus and
                  related matters were discussed and, although it is not passing
                  upon, and does not assume any responsibility for the accuracy,
                  completeness or fairness of the statements contained in the
                  Registration Statement or the Prospectus, except to the
                  limited extent otherwise covered by paragraphs (iii), (vii)
                  and (viii) above, and has made no independent check or
                  verification thereof, on the basis of the foregoing, no facts
                  have come to its attention that would have led it to believe
                  that (A) the Registration Statement, at the time it became
                  effective, contained an untrue statement of a material fact or
                  omitted to state any material fact required to be stated
                  therein or necessary to make the statements contained therein
                  not misleading, (B) the Prospectus, as of its date contained
                  or as of the Closing Date contains, an untrue statement of a
                  material fact or omitted or omits to state a material fact
                  required to be stated therein or necessary to make the
                  statements contained therein, in the light of the
                  circumstances under which they were made, not misleading, or
                  (C) the 1940 Act Notification as of its date contained any
                  untrue statement of a material fact or omitted to state any
                  material fact required to be stated therein or necessary in
                  order to make the statements therein not misleading, except
                  that in each case it expresses no opinion with respect to the
                  financial statements, schedules and other financial
                  information and statistical data included therein or excluded
                  therefrom or the exhibits to the Registration Statement.

                  In giving such opinion, Vedder, Price, Kaufman & Kammholz may
rely on the opinion of Bingham McCutchen LLP as to matters of Massachusetts law,
provided that Vedder, Price, Kaufman & Kammholz furnish a copy thereof to the
Underwriters and state that such opinion is satisfactory in substance and form
and that the Underwriters and counsel for the Underwriters are entitled to rely
thereon.

                  (e) Gifford R. Zimmerman, Esq., Managing Director, Assistant
Secretary and General Counsel for the Adviser, shall have furnished to the
Representative on the Closing Date his opinion addressed to the Underwriters and
dated the Closing Date, to the effect that:

                           (i) The Adviser has been duly organized and is
                  validly existing and in good standing as a corporation under
                  the laws of the State of Delaware, with full corporate power
                  and authority to own, lease and operate its properties and to
                  conduct its business as described in the Registration
                  Statement and the Prospectus (and any amendment or supplement
                  to either of them), and is duly registered and qualified to
                  conduct its business and is in good standing in each
                  jurisdiction or place where the nature of its properties or
                  the conduct of its business requires such registration or
                  qualification, except where the failure so to register or to
                  qualify



<PAGE>
                                                                              23


                  does not have a material, adverse effect on the condition
                  (financial or other), business, properties, prospects, net
                  assets or results of operations of the Adviser;

                           (ii) The Adviser is duly registered and in good
                  standing with the Commission as an investment adviser under
                  the Advisers Act and is not prohibited by the Advisers Act,
                  the Advisers Act Rules and Regulations, the 1940 Act or the
                  1940 Act Rules and Regulations from acting under the
                  Investment Management Agreement for the Fund as contemplated
                  by the Prospectus (or any amendment or supplement thereto);
                  there does not exist any proceeding or, to the best of such
                  counsel's knowledge after reasonable investigation, any facts
                  or circumstances the existence of which could lead to any
                  proceeding which would materially and adversely affect the
                  registration of the Adviser with the Commission;

                           (iii) To the best of such counsel's knowledge, there
                  are no legal or governmental proceedings pending or threatened
                  against the Adviser, or to which the Adviser or any of its
                  properties is subject, that are required to be described in
                  the Registration Statement or the Prospectus (or any amendment
                  or supplement to either of them), but are not described as
                  required or that would reasonably be expected to involve a
                  prospective material adverse change, in the condition
                  (financial or other), business, prospects, properties, assets
                  or results of operations of the Adviser or on the ability of
                  the Adviser to perform its obligations under the Underwriting
                  Agreement and the Investment Management Agreement;

                           (iv) To the best of such counsel's knowledge, the
                  Adviser is not in violation of its corporate charter or
                  by-laws or other organizational documents, nor is the Adviser
                  in default under any material agreement, indenture or
                  instrument or in breach or violation of any judgment, decree,
                  order, rule or regulation of any court or governmental or
                  self-regulatory agency or body;

                           (v) The Adviser has corporate power and authority to
                  enter into this Agreement and the Investment Management
                  Agreement and this Agreement have each been duly and validly
                  authorized, executed and delivered by the Adviser, each
                  complies with all applicable provisions of the 1940 Act and
                  the Advisers Act and the 1940 Act Rules and Regulations and
                  the Advisers Act Rules and Regulations and each constitutes
                  the valid and legally binding agreement of the Adviser,
                  enforceable against the Adviser in accordance with its terms,
                  subject as to enforcement to bankruptcy, insolvency,
                  reorganization and other laws of general applicability
                  relating to or affecting creditors' rights and to general
                  equity principles;

                           (vi) The description of the Adviser in the
                  Registration Statement and the Prospectus (and any amendment
                  or supplement thereto) complies in all material respects with
                  the provisions of the 1933 Act, the 1940 Act, the Advisers
                  Act, the Rules and Regulations and the Advisers Act Rules and
                  Regulations and does not contain an untrue statement of a
                  material fact or omit to state a material fact





<PAGE>
                                                                              24


                  required to be stated therein or necessary to make the
                  statements therein, in light of the circumstances under which
                  they were made, not misleading;

                           (vii) To the best knowledge of such counsel after
                  reasonable inquiry, other than as described or contemplated in
                  the Registration Statement and the Prospectus (or any
                  amendment or supplement to either of them), subsequent to the
                  respective dates as of which such information is given in the
                  Registration Statement and the Prospectus (or any amendment or
                  supplement to either of them), the Adviser has not incurred
                  any liability or obligation, direct or contingent, or entered
                  into any transaction, not in the ordinary course of business,
                  that is material to the Adviser or the Fund and that is
                  required to be disclosed in the Registration Statement or the
                  Prospectus and there has not been any material adverse change,
                  or any development involving or which may reasonably be
                  expected to involve, a prospective material adverse change, in
                  the condition (financial or other), business, prospects,
                  properties, assets or results of operations of the Adviser,
                  whether or not arising in the ordinary course of business, or
                  which, in each case, could have a material adverse effect on
                  the ability of the Adviser to perform its obligations under
                  the Underwriting Agreement and the Investment Management
                  Agreement; and

                           (viii) Neither the execution, delivery or performance
                  of the Underwriting Agreement or the Investment Management
                  Agreement by the Adviser, nor the consummation by the Adviser
                  of the transactions contemplated in the Underwriting Agreement
                  or the Investment Management Agreement (A) requires the
                  Adviser to obtain any consent, approval, authorization or
                  other order of or registration or filing with, the Commission,
                  the NASD, any state securities commission, any national
                  securities exchange, any arbitrator, any court, regulatory
                  body, administrative agency or other governmental body, agency
                  or official (except such as may have been obtained prior to
                  the date hereof and such as may be required for compliance
                  with the state securities or Blue Sky laws of various
                  jurisdictions in accordance with the Underwriting Agreement)
                  or conflicts or will conflict with or constitutes or will
                  constitute a breach of or a default under, the corporate
                  charter or by-laws, or other organizational documents, of the
                  Adviser or (B) conflicts or will conflict with or constitutes
                  or will constitute a breach of or a default under its
                  corporate charter or by-laws or any material agreement,
                  indenture, lease or other instrument to which the Adviser is a
                  party or by which it or any of its properties may be bound, or
                  violates or will violate any material statute, law, regulation
                  or filing or judgment, injunction, order or decree applicable
                  to the Adviser or any of its properties or will result in the
                  creation or imposition of any material lien, charge or
                  encumbrance upon any property or assets of the Adviser
                  pursuant to the terms of any agreement or instrument to which
                  it is a party or by which it may be bound or to which any of
                  the property or assets of the Adviser is subject. The Adviser
                  is not subject to any order of any court or of any arbitrator,
                  governmental authority or administrative agency, except such
                  orders which do not have a material adverse effect on the
                  condition (financial or otherwise), business, properties,
                  prospects, net assets or results of




<PAGE>
                                                                              25


                  operations of the Fund or on the ability of the Fund to
                  perform its obligations under this Agreement and the Fund
                  Agreements.

                  Such counsel shall also state that although counsel has not
         undertaken, except as otherwise indicated in its opinion, to determine
         independently and does not assume any responsibility for, the accuracy
         or completeness of the statements in the Registration Statement, such
         counsel has participated in the preparation of the Registration
         Statement and the Prospectus, including review and discussion of the
         contents thereof and nothing has come to its attention that has caused
         it to believe that the Registration Statement at the time it became
         effective or the Prospectus, as of its date and as of the Closing Date,
         as the case may be, contained an untrue statement of a material fact or
         omitted to state a material fact required to be stated therein or
         necessary to make the statements therein (in the case of a prospectus,
         in light of the circumstances under which they were made) not
         misleading or that any amendment or supplement to the Prospectus, as of
         its date and as of the Closing Date, contained an untrue statement of a
         material fact or omitted to state a material fact necessary in order to
         make the statements therein, in light of the circumstances under which
         they were made, not misleading (it being understood that such counsel
         need express no opinion with respect to the financial statements and
         the notes thereto and the schedules and other financial and statistical
         data included in the Registration Statement or the Prospectus).

                  In rendering such opinion, counsel may limit such opinion to
         matters involving the application of the laws of the State of Illinois,
         the Delaware General Corporation Law statute and the laws of the United
         States and may rely upon an opinion or opinions, each dated the Closing
         Date, of other counsel retained by the Adviser as to laws of any
         jurisdiction other than the United States, the State of Illinois and
         the Delaware General Corporation Law statute, provided that (X) each
         such local counsel is acceptable to the Representative, (Y) such
         reliance is expressly authorized by each opinion so relied upon and a
         copy of each such opinion is delivered to the Representative and is, in
         form and substance satisfactory to it and its counsel and (Z) counsel
         shall state in their view that they believe that they and the
         Underwriters are justified in relying thereon.

                  (f) (i) The Representative shall have received on the Closing
Date an opinion of Orrick, Herrington & Sutcliffe, LLP, special California
counsel to the Fund, dated the Closing Date and addressed to the Representatives
of the several Underwriters, to the effect that:

                  The statements contained in the Prospectus under the headings
                  "Risk Factors - Concentration in California Issuers", "The
                  Fund's Investments--Municipal Bonds - Special Considerations
                  Relating to California Municipal Bonds" and "Tax Matters -
                  California Tax Matters", in the column titled "State Tax Rate"
                  under the caption "Taxable Equivalent Yield Table--
                  California" in Appendix A to the Prospectus and in Appendix D
                  to the statement of additional information, to the extent that
                  such statements constitute matters of law or legal
                  conclusions, provide a fair and accurate summary of such law
                  or conclusions and fairly present the information called for
                  with respect thereto by Form N-2 on the dates such statements
                  were made and as of the Closing Date. Such statements are
                  based on





<PAGE>
                                                                              26


                  current law and special counsel's understanding of the Fund's
                  proposed operations, as disclosed in the Prospectus.

                  Such counsel shall also state that although special counsel
       does not pass upon or assume any responsibility for the accuracy,
       completeness or fairness of the statements contained in the Registration
       Statement or the Prospectus (other than to the extent set forth above),
       and has not made any independent check or verification thereof, no facts
       have come to the attention of such special counsel which would lead it to
       believe that the material contained in the Registration Statement and the
       Prospectus under the headings "Risk Factors - Concentration in California
       Issuers", "The Fund's Investments -- Municipal Bonds - Special
       Considerations Relating to California Municipal Bonds", "Tax Matters -
       California Tax Matters", in the column titled "State Tax Rate" under the
       caption "Taxable Equivalent Yield Table -- California" in Appendix A to
       the Prospectus and in Appendix D to the statement of additional
       information, at the time the Registration Statement became effective, or
       in the Prospectus, as of its date and as of the Closing Date, as the case
       may be, contained an untrue statement of a material fact or omitted to
       state a material fact required to be stated therein or necessary to make
       the statements therein (in the case of a prospectus, in light of the
       circumstances under which they were made) not misleading or that the
       material contained under such headings in any amendment or supplement to
       the Prospectus, as of the Closing Date, contained an untrue statement of
       a material fact or omitted to state a material fact necessary in order to
       make the statements therein, in light of the circumstances under which
       they were made, not misleading.

                  In rendering such opinion, such special counsel may rely as to
       matters of fact, to the extent such special counsel deems proper, on
       certificates of responsible officers of the Fund and of the Manager, and
       of public officials.

                  (ii) The Representative shall have received on the Closing
Date a comfort letter, substantially in the form heretofore approved by you,
from Chapman and Cutler, special counsel to the Fund, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the information presented in Appendix A to the Prospectus under the heading
"Taxable Equivalent Yield Table".

                  (g) The Representative shall have received on the Closing Date
an opinion of Simpson Thacher & Bartlett, counsel for the Underwriters, dated
the Closing Date and addressed to the Underwriters, with respect to such matters
as the Underwriters may reasonably request and the Fund, the Adviser and their
respective counsels shall have furnished to such counsel such documents as they
may request for the purpose of enabling them to pass upon such matters.

                  (h) The Fund shall have furnished to the Representative on the
Closing Date a certificate, dated the Closing Date, of its President or a Vice
President and its Controller or Treasurer stating that:

                            (i) the signers have carefully examined the
                  Registration Statement, the Prospectus (and any amendments or
                  supplements to either of them) and this Agreement, (ii) the
                  representations and warranties of the Fund in this Agreement



<PAGE>
                                                                              27


                  are true and correct on and as of the date of the certificate
                  as if made on such date, (iii) since the date of the
                  Prospectus (and any amendment or supplement thereto) there has
                  not been any material, adverse change in the condition
                  (financial or other), business, prospects (other than as a
                  result of a change in the financial markets generally),
                  properties, net assets or results of operations of the Fund,
                  (iv) to the knowledge of such officers after reasonable
                  investigation, no order suspending the effectiveness of the
                  Registration Statement or prohibiting the sale of any of the
                  Shares or having a material, adverse effect on the Fund has
                  been issued and no proceedings for any such purpose are
                  pending before or threatened by the Commission or any court or
                  other regulatory body, the NASD, any state securities
                  commission, any national securities exchange, any arbitrator,
                  any court or any other governmental, regulatory,
                  self-regulatory or administrative agency or any official, (v)
                  the Fund has performed and complied in all material respects
                  with all agreements that this Agreement requires it to perform
                  by such Closing Date, (vi) the Fund has not sustained any
                  material loss or interference with its business from any court
                  or from legislative or other governmental action, order or
                  decree or from any other occurrence not described in the
                  Registration Statement and the Prospectus and any amendment or
                  supplement to either of them and (vii) there has not been any
                  change in the capital stock of the Fund nor any material
                  increase in the debt of the Fund from that set forth in the
                  Prospectus (and any amendment or supplement thereto) and the
                  Fund has not sustained any material liabilities or
                  obligations, direct or contingent, other than those reflected
                  in the Prospectus (and any amendment or supplement thereto).

                  (i) The Adviser shall have furnished to the Representative on
the Closing Date a certificate, dated the Closing Date, of its Chairman of the
Board, President or a Vice President and its Controller or Treasurer stating
that:

                             (i) the signers have carefully examined the
                  Registration Statement, the Prospectus (and any amendments or
                  supplements to either of them) and this Agreement, (ii) the
                  representations and warranties of the Adviser in this
                  Agreement are true and correct on and as of the date of the
                  certificate as if made on such date, (iii) since the date of
                  the Prospectus (and any amendment or supplement thereto) there
                  has not been any material, adverse change in the condition
                  (financial or other), business, prospects (other than as a
                  result of a change in the financial markets generally),
                  properties, net assets or results of operations of the
                  Adviser, (iv) to the knowledge of such officers after
                  reasonable investigation, no order suspending the
                  effectiveness of the Registration Statement or prohibiting the
                  sale of any of the Shares or having a material, adverse effect
                  on the Adviser has been issued and no proceedings for any such
                  purpose are pending before or threatened by the Commission or
                  any court or other regulatory body, the NASD, any state
                  securities commission, any national securities exchange, any
                  arbitrator, any court or any other governmental, regulatory,
                  self-regulatory or administrative agency or any official, (v)
                  the Adviser has performed and complied in all material
                  respects with all agreements that this Agreement requires it
                  to perform by such Closing Date, and (vi) the Adviser has not
                  sustained any material loss or interference with its business
                  from any court or from legislative or




<PAGE>
                                                                              28


                  other governmental action, order or decree or from any other
                  occurrence not described in the Registration Statement and the
                  Prospectus and any amendment or supplement to either of them.

                  (j) The Representative shall have received letters addressed
to the Underwriters, and dated the date hereof and the Closing Date from Ernst &
Young LLP, independent certified public accountants, substantially in the forms
heretofore approved by the Representative.

                  (k) (i) No order suspending the effectiveness of the
Registration Statement or prohibiting or suspending the use of the Prospectus
(or any amendment or supplement thereto) or any Prepricing Prospectus or any
sales material shall have been issued and no proceedings for such purpose or for
the purpose of commencing an enforcement action against the Fund, the Adviser
or, with respect to the transactions contemplated by the Prospectus (or any
amendment or supplement thereto) and this Agreement, the Underwriters, may be
pending before or, to the knowledge of the Fund, the Adviser or the Underwriters
or in the reasonable view of counsel to the Underwriters, shall be threatened or
contemplated by the Commission at or prior to the Closing Date and that any
request for additional information on the part of the Commission (to be included
in the Registration Statement, the Prospectus or otherwise) be complied with to
the satisfaction of the Representative ; (ii) there shall not have been any
change in the shares of beneficial interest of the Fund nor any material
increase in the short-term or long-term debt of the Fund (other than in the
ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto); (iii) there shall not have been, subsequent to the respective dates as
of which information is given in the Registration Statement and the Prospectus
(or any amendment or supplement thereto), except as may otherwise be stated in
the Registration Statement and Prospectus (or any amendment or supplement
thereto), any material adverse change in the condition (financial or other),
business, prospects, properties, net assets or results of operations of the Fund
or the Adviser; (iv) the Fund shall not have any liabilities or obligations,
direct or contingent (whether or not in the ordinary course of business), that
are material to the Fund, other than those reflected in the Registration
Statement or the Prospectus (or any amendment or supplement to either of them);
and (v) all the representations and warranties of the Fund and the Adviser
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date.

                  (l) Neither the Fund nor the Adviser shall have failed at or
prior to the Closing Date to have performed or complied in all material respects
with any of its agreements herein contained and required to be performed or
complied with by it hereunder at or prior to the Closing Date.

                  (m) The Fund shall have delivered and the Underwriters shall
have received evidence satisfactory to the Representative that the shares of
MuniPreferred shares are rated 'Aaa' by Moody's and 'AAA' by S&P as of the
Closing Date, and there shall not have been given any notice of any intended or
potential downgrading, or of any review for a potential downgrading, in the
rating accorded to any outstanding shares of beneficial interest of the Fund by
any rating agency.



<PAGE>
                                                                              29


                  (n) The Fund and the Adviser shall have furnished or caused to
be furnished to the Underwriters such further certificates, documents and
opinions of counsel as the Representative shall have requested (including
certificates of officers of the Fund and the Adviser).

                  All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are satisfactory
in form and substance to the Representative and the Underwriters' counsel.

                  Any certificate or document signed by any officer of the Fund
or the Adviser and delivered to the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Fund or the
Adviser to the Underwriters as to the statements made therein.

                  10. Expenses. The Fund agrees to pay the costs incident to the
authorization, issuance, sale and delivery of the Shares to be sold by the Fund
to the Underwriters and any taxes payable in that connection; the costs incident
to the preparation, printing and filing under the 1933 Act and 1940 Act of the
Registration Statement and any amendments and exhibits thereto; the costs of
preparing, printing and distributing the Registration Statement as originally
filed and each amendment and any post-effective amendment thereto (including
exhibits), any Prepricing Prospectus, the Prospectus and any amendment or
supplement to the Prospectus; the costs of printing this Agreement and
distributing the terms of agreements relating to the organization of any
underwriting syndicate by mail, telex or other means of communication; the fees
paid to Rating Agencies in connection with the rating of the Shares; the fees
and expenses of qualifying the Shares under the securities laws of the several
jurisdictions as provided in this Section and of preparing and printing a Blue
Sky survey (including related fees and expenses of counsel to the Underwriters);
the fees and expenses of the Auction Agent as set forth in the Auction Agency
Agreement; and all other costs and expenses incident to the performance of the
obligations of the Fund under this Agreement; provided (i) the Fund, the Adviser
and each Underwriter shall pay its own costs and expenses in attending any
information meeting relating to the Fund, (ii) each Underwriter shall pay the
costs and expenses of preparing and distributing any sales material prepared by
it in connection with the public offering of the Shares, (iii) the Underwriters
shall pay the costs and expenses of any "tombstone advertisements and (iv)
except as provided in this Section and in Section 5 hereof, the Underwriters
shall pay their own costs and expenses, including the fees and expenses of their
counsel and any transfer taxes on the Shares which they may sell.

                  If notice shall have been given pursuant to Paragraph 12
terminating the Underwriters' obligations hereunder, or if the sale of the
Shares provided for herein is not consummated because of any failure, refusal or
inability on the part of the Fund or Adviser to perform any agreement on its
part to be performed or if the Underwriters shall decline to purchase the Shares
for any reason permitted under this Agreement, the Fund shall reimburse the
Underwriters for the reasonable fees and expenses of their counsel and for such
other out-of-pocket expenses as shall have been reasonably incurred by them in
connection with this Agreement and the proposed purchase of the Shares, and upon
demand the Fund shall pay the full amount thereof to the Underwriters; it being
understood that the Fund shall not in any event be liable to any of the
Underwriters for damages on account of loss of anticipated profits from





<PAGE>
                                                                              30


the sale by them of the Shares. If the Fund fails to reimburse the Underwriters
for such fees and expenses, the Adviser shall upon demand, pay the full amount
thereof to the Underwriters.

                  11. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the Registration Statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the Registration Statement or such
post-effective amendment has been released by the Commission. Until such time as
this Agreement shall have become effective, it may be terminated by the Fund, by
notifying the Underwriters, or by the Underwriters, by notifying the Fund.

                  If any of the Underwriters shall fail or refuse to purchase
Shares which it is obligated to purchase hereunder on the Closing Date, and the
aggregate number of Shares which such defaulting Underwriter is obligated but
fails or refuses to purchase is not more than one-tenth of the aggregate number
of Shares which the Underwriters are obligated to purchase on the Closing Date,
the non-defaulting Underwriters shall be obligated severally, in the proportion
which the aggregate number of Shares set forth opposite its name in Schedule I
hereto bears to the aggregate number of Shares set forth opposite the names of
all non-defaulting Underwriters or in such other proportion as the
Representative may specify in accordance with the Salomon Smith Barney Master
Agreement Among Underwriters, to purchase on the Closing Date the Shares which
such defaulting Underwriter is obligated, but fails or refuses, to purchase. If
any of the Underwriters shall fail or refuse to purchase Shares which it is
obligated to purchase on the Closing Date and the number of Shares with respect
to which such default occurs is more than one-tenth of the aggregate number of
Shares which the Underwriters are obligated to purchase on the Closing Date and
arrangements satisfactory to the Representative and the Fund for the purchase of
such Shares by the non-defaulting Underwriter or other party or parties approved
by you and the Fund are not made within 36 hours after such default, this
Agreement will terminate without liability on the part of the non-defaulting
Underwriter or the Fund. In any such case which does not result in termination
of this Agreement, either the Representative or the Fund shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve the defaulting Underwriter from
liability in respect of any such default of any such Underwriter under this
Agreement. The term "Underwriter" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule I hereto who, with
your approval and the approval of the Fund, purchases Shares which a defaulting
Underwriter is obligated, but fails or refuses, to purchase.

                  Any notice under this Section 11 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.

                  12. Termination of Agreement. This Agreement shall be subject
to termination in the Representative's absolute discretion, without liability on
the part of the Underwriters to the Fund or the Adviser, by notice to the Fund
or the Adviser, prior to delivery of and payment for the MuniPreferred shares,
if at any time prior to such time (i) trading in the Fund's Common Shares (as
defined in the Prospectus) shall have been suspended by the Commission or the



<PAGE>
                                                                              31


AMEX or trading in securities generally on the NYSE or AMEX shall have been
suspended or limited or minimum prices for trading in securities generally shall
have been established on either of such Exchanges, (ii) a commercial banking
moratorium shall have been declared by either federal or New York state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or a declaration by the United States of a national emergency or
war, or other calamity or crisis the effect of which on financial markets in the
United States is such as to make it, in the Representative's sole judgment,
impracticable or inadvisable to proceed with the offering or delivery of the
MuniPreferred shares as contemplated by the Prospectus (exclusive of any
supplement thereto). Notice of such termination may be given to the Fund by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.

                  13. Information Furnished by the Underwriters. The statements
set forth in the last paragraph of the cover page and the first, third and
eighth paragraphs under the caption "Underwriting" in any Prepricing Prospectus
and in the Prospectus, constitute the only information furnished by or on behalf
of the Underwriters as such information is referred to in Sections 6(b) and 8
hereof.

                  14. Miscellaneous. Except as otherwise provided in Sections 5,
11 and 12 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Fund or the Adviser, at the
office of the Fund at 333 West Wacker Drive, Chicago, IL 60606, Attention:
Gifford R. Zimmerman, Managing Director, Assistant Secretary and General Counsel
to the Adviser; (ii) if to the Underwriters, to Salomon Smith Barney Inc., 388
Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division.

                  This Agreement has been and is made solely for the benefit of
the Underwriters, the Fund, the Adviser, their directors and officers, and the
other controlling persons referred to in Section 8 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from the Underwriters of any of the Shares in his
status as such purchaser.

                  15. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York.

                  16. Limitation of Liability. Consistent with the Fund's
Declaration, notice is hereby given and the parties hereto agree that this
instrument is executed or made by or on behalf of the Fund by the Trustee(s) or
officer(s) of the Fund and not individually by them and that the obligations of
this instrument are not binding upon any of them or the shareholders of the Fund
individually but are binding only upon the assets and property of the Fund.

                  This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.

                     [Rest of page intentionally left blank]



<PAGE>
                  Please confirm that the foregoing correctly sets forth the
agreement among the Fund, the Adviser and the Underwriters.


                                  Very truly yours,

                                  NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE
                                  MUNICIPAL FUND

                                  By:
                                      ----------------------------
                                  Name:
                                  Title:

                                  NUVEEN ADVISORY CORP.

                                  By:
                                      ----------------------------
                                  Name:
                                  Title:



The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.

SALOMON SMITH BARNEY INC.

By:
    ----------------------------
Name:
Title :

For itself and the other Underwriters
named in Schedule I to the foregoing
Agreement


<PAGE>



                                   SCHEDULE I



           NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL FUND



<Table>
<Caption>
                                                             Number of Shares
Underwriters                                                   of Series TH
- ------------                                                 ----------------


<S>                                                          <C>
Salomon Smith Barney Inc. ..........................                ---

Nuveen Investments .................................                ---

A.G. Edwards & Sons, Inc............................                ---

Prudential Securities Incorporated..................                ---

Total...............................................               1,800
                                                                ========
</Table>



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2H.2
<SEQUENCE>5
<FILENAME>c72644a1exv99w2hw2.txt
<DESCRIPTION>FORM OF MASTER SELECTED DEALER AGREEMENT
<TEXT>
<PAGE>
                                                                     EXHIBIT h.2






                        MASTER SELECTED DEALER AGREEMENT


                                                                 _________, ____


Ladies and Gentlemen:

         In connection with registered public offerings of securities for which
we are acting as manager or co-manager of an underwriting syndicate or
unregistered offerings of securities for which we are acting as manager or
co-manager of the initial purchasers, you may be offered the right as a selected
dealer to purchase as principal a portion of such securities. This will confirm
our mutual agreement as to the general terms and conditions applicable to your
participation in any such selected dealer group.

       1. APPLICABILITY OF THIS AGREEMENT. The terms and conditions of this
Agreement shall be applicable to any offering of securities ("Securities"),
whether pursuant to a registration statement filed under the Securities Act of
1933, as amended (the "Securities Act"), or exempt from registration thereunder,
in respect of which Salomon Smith Barney Inc. (acting for its own account or for
the account of any underwriting or similar group or syndicate) is responsible
for managing or otherwise implementing the sale of the Securities to selected
dealers ("Selected Dealers") and has expressly informed you that such terms and
conditions shall be applicable. Any such offering of Securities to you as a
Selected Dealer is hereinafter called an "Offering". In the case of any Offering
where we are acting for the account of any underwriting or similar group or
syndicate ("Underwriters"), the terms and conditions of this Agreement shall be
for the benefit of, and binding upon, such Underwriters, including, in the case
of any Offering where we are acting with others as representatives of
Underwriters, such other representatives.

       2. CONDITIONS OF OFFERING; ACCEPTANCE AND PURCHASES. Any Offering will be
subject to delivery of the Securities and their acceptance by us and any other
Underwriters, may be subject to the approval of all legal matters by counsel and
the satisfaction of other conditions, and may be made on the basis of
reservation of Securities or an allotment against subscription. We will advise
you by telecopy, telex or other form of written communication ("Written
Communication", which term, in the case of any Offering described in Section
3(a) or 3(b) hereof, may include a prospectus or offering circular) of the
particular method and supplementary terms and conditions (including, without
limitation, the information as to prices and the offering date referred to in
Section 3(c) hereof) of any Offering in which you are invited to participate. To
the extent such supplementary terms and conditions are inconsistent with any
provision herein, such terms and conditions shall supersede any such provision.
Unless otherwise indicated in any such Written Communication, acceptances and
other communications


<PAGE>

by you with respect to an Offering should be sent to the appropriate Syndicate
Department of Salomon Smith Barney Inc. We may close the subscription books at
any time in our sole discretion without notice, and we reserve the right to
reject any acceptance in whole or in part.

       Unless notified otherwise by us, Securities purchased by you shall be
paid for on such date as we shall determine, on one day's prior notice to you,
by wire transfer payable in immediately available funds to the order of Salomon
Smith Barney Inc., in an amount equal to the Public Offering Price (as
hereinafter defined) or, if we shall so advise you, at such Public Offering
Price less the Concession (as hereinafter defined). If Securities are purchased
and paid for at such Public Offering Price, such Concession will be paid after
the termination of the provisions of Section 3(c) hereof with respect to such
Securities. Unless notified otherwise by us, payment for and delivery of
Securities purchased by you shall be made through the facilities of The
Depository Trust Company, if you are a member, unless you have otherwise
notified us prior to the date specified in a Written Communication to you from
us or, if you are not a member, settlement may be made through a correspondent
who is a member pursuant to instructions which you will send to us prior to such
specified date.

       3.  REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

        (a) REGISTERED OFFERINGS. In the case of any Offering of Securities
which are registered under the Securities Act ("Registered Offering"), we will
make available to you as soon as practicable after sufficient copies are made
available to us by the issuer of the Securities such number of copies of each
preliminary prospectus and of the final prospectus relating thereto as you may
reasonably request for the purposes contemplated by the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
applicable rules and regulations of the Securities and Exchange Commission
thereunder.

        You represent and warrant that you are familiar with Rule 15c2-8 under
the Exchange Act relating to the distribution of preliminary and final
prospectuses and agree that you will comply therewith. You agree to make a
record of your distribution of each preliminary prospectus and when furnished
with copies of any revised preliminary prospectus, you will promptly forward
copies thereof to each person to whom you have theretofore distributed a
preliminary prospectus.

        You agree that in purchasing Securities in a Registered Offering you
will rely upon no statement whatsoever, written or oral, other than the
statements in the final prospectus delivered to you by us. You will not be
authorized by the issuer or other seller of Securities offered pursuant to a
prospectus or by any Underwriters to give any information or to make any
representation not contained in the prospectus in connection with the sale of
such Securities.

        (b) OFFERINGS PURSUANT TO OFFERING CIRCULAR. In the case of any Offering
  of Securities, other than a Registered Offering, which is made pursuant to an
  offering circular or other document comparable to a prospectus in a Registered
  Offering, we will make available to you as soon as practicable after
  sufficient copies are made available to us by the issuer of the Securities
  such number of copies of each preliminary offering circular and of the final
  offering circular relating thereto as you may reasonably request. You agree
  that you will comply with applicable Federal, state and other laws, and the





                                       2
<PAGE>

applicable rules and regulations of any regulatory body promulgated thereunder,
governing the use and distribution of offering circulars by brokers or dealers.

         You agree that in purchasing Securities pursuant to an offering
circular you will rely upon no statements whatsoever, written or oral, other
than the statements in the final offering circular delivered to you by us. You
will not be authorized by the issuer or other seller of Securities offered
pursuant to an offering circular or by any Underwriters to give any information
or to make any representation not contained in the offering circular in
connection with the sale of such Securities.

        (c) OFFER AND SALE TO THE PUBLIC. The Offering of Securities is made
subject to the conditions referred to the prospectus or offering circular
relating to the Offering and to the terms and conditions set forth in this
Agreement. With respect to any Offering of Securities, we will inform you by a
Written Communication of the public offering price, the selling concession, the
reallowance (if any) to dealers and the time when you may commence selling
Securities to the public. After such public offering has commenced, we may
change the public offering price, the selling concession and the reallowance to
dealers. The offering price, selling concession and reallowance (if any) to
dealers at any time in effect with respect to an Offering are hereinafter
referred to, respectively, as the "Public Offering Price", the "Concession" and
the "Reallowance". With respect to each Offering of Securities, until the
provisions of this Section 3(c) shall be terminated pursuant to Section 4
hereof, you agree to offer Securities to the public only at the Public Offering
Price, except that if a Reallowance is in effect, a Reallowance from the Public
Offering Price not in excess of such Reallowance may be allowed as consideration
for services rendered in distribution to dealers who are actually engaged in the
investment banking or securities business who are either members in good
standing of the NASD who agree to abide by the applicable rules of the NASD (see
Section 3(e) below) or foreign banks, dealers or institutions not eligible for
membership in the NASD who represent to you that they will promptly reoffer such
Securities at the Public Offering Price and will abide by the conditions with
respect to foreign banks, dealers and institutions set forth in Section 3(e)
hereof.

         (d) OVER-ALLOTMENT; STABILIZATION; UNSOLD ALLOTMENTS. We may, with
respect to any Offering, be authorized to over-allot in arranging sales to
Selected Dealers, to purchase and sell Securities for long or short account and
to stabilize or maintain the market price of the Securities. You agree that upon
our request at any time and from time to time prior to the termination of the
provisions of Section 3(c) hereof with respect to any Offering, you will report
to us the amount of Securities purchased by you pursuant to such Offering which
then remain unsold by you and will, upon our request at any such time, sell to
us for our account or the account of one or more Underwriters such amount of
such unsold Securities as we may designate at the Public Offering Price less an
amount to be determined by us not in excess of the Concession. If, prior to the
later of (a) the termination of the provisions of Section 3(c) hereof with
respect to any Offering, or (b) the covering by us of any short position created
by us in connection with such Offering for our account or the account of one or
more Underwriters, we purchase or contract to purchase for our account or the
account of one or more Underwriters in the open market or otherwise any
Securities purchased by you under this Agreement as part of such Offering, you
agree to pay us on demand for the account of the Underwriters an amount equal to
the Concession with respect to such Securities (unless you shall have purchased
such Securities pursuant to Section 2 hereof at the Public Offering Price and
you have not received or been credited with any Concession, in which case we
shall not





                                       3
<PAGE>

be obligated to pay such Concession to you pursuant to Section 2) plus transfer
taxes and broker's commissions or dealer's mark-up, if any, paid in connection
with such purchase or contract to purchase.

        (e) NASD. You represent and warrant that you are actually engaged in the
investment banking or securities business and either are a member in good
standing of the NASD or, if you are not such a member, you are a foreign bank,
dealer or institution not eligible for membership in the NASD which agrees to
make no sales within the United State, its territories or its possessions or to
persons who are citizens thereof or residents therein, and in making other sales
to comply with the NASD's interpretation with respect to free-riding and
withholding. You further represent, by your participation in an Offering, that
you have provided to us all documents and other information required to be filed
with respect to you, any related person or any person associated with you or any
such related person pursuant to the supplementary requirements of the NASD's
interpretation with respect to review of corporate financing as such
requirements relate to such Offering.

        You agree that, in connection with any purchase or sale of the
Securities wherein a selling concession, discount or other allowance is received
or granted, you will (a) if you are a member of the NASD, comply with all
applicable interpretive material ("IM") and Conduct Rules of the NASD,
including, without limitation, IM 2110-1 (relating to Free-Riding and
Withholding) and Conduct Rule 2740 (relating to Selling Concessions, Discounts
and Other Allowances) or (b) if you are a foreign bank or dealer or institution
not eligible for such membership, comply with IM 2110-1 and with Conduct Rules
2730 (relating to Securities Taken in Trade), 2740 (relating to Selling
Concessions) and 2750 (relating to Transactions With Related Persons) as though
you were such a member and Conduct Rule 2420 (relating to Dealing with
Non-Members) as it applies to a non-member broker or dealer in a foreign
country.

        You further agree that, in connection with any purchase of securities
from us that is not otherwise covered by the terms of this Agreement (whether we
are acting as manager, as member of an underwriting syndicate or a selling group
or otherwise), if a selling concession, discount or other allowance is granted
to you, clauses (a) and (b) of the preceding paragraph will be applicable.

        (f) RELATIONSHIP AMONG UNDERWRITERS AND SELECTED DEALERS. We may buy
Securities from or sell Securities to any Underwriter or Selected Dealer and,
with our consent, the Underwriters (if any) and the Selected Dealers may
purchase Securities from and sell Securities to each other at the Public
Offering Price less all or any part of the Concession. We shall have full
authority to take such action as we deem advisable in all matters pertaining to
any Offering under this Agreement. You are not authorized to act as agent for
us, any Underwriter or the issuer or other seller of any Securities in offering
Securities to the public or otherwise. Neither we nor any Underwriter shall be
under any obligation to you except for obligations assumed hereby or in any
Written Communication from us in connection with any Offering. Nothing contained
herein or in any Written Communication from us shall constitute the Selected
Dealers an association or partners with us or any Underwriter or with one
another. If the Selected Dealers, among themselves or with the Underwriters,
should be deemed to constitute a partnership for Federal income tax purposes,
then you elect to be excluded from the application of Subchapter K, Chapter 1,
Subtitle A of the Internal Revenue Code of 1986 and agree not to take any
position inconsistent with that election. You authorize us, in



                                       4
<PAGE>


our discretion, to execute and file on your behalf such evidence of that
election as may be required by the Internal Revenue Service. In connection with
any Offering you shall be liable for your proportionate amount of any tax,
claim, demand or liability that may be asserted against you alone or against one
or more Selected Dealers participating in such Offering, or against us or the
Underwriters, based upon the claim that the Selected Dealers, or any of them
constitute an association, an unincorporated business or other entity,
including, in each case, your proportionate amount of any expense incurred in
defending against any such tax, claim, demand or liability.

      (g) BLUE SKY LAWS. Upon application to us, we shall inform you as to any
advice we have received from counsel concerning the jurisdictions in which
Securities have been qualified for sale or are exempt under the securities or
blue sky laws of such jurisdictions, but we do not assume any obligation or
responsibility as to your right to sell Securities in any such jurisdiction.

       (h) COMPLIANCE WITH LAW. You agree that in selling Securities pursuant to
any Offering (which agreement shall also be for the benefit of the issuer or
other seller of such Securities), you will comply with all applicable laws,
rules and regulations, including the applicable provisions of the Securities Act
and the Exchange Act, the applicable rules and regulations of the Securities and
Exchange Commission thereunder, the applicable rules and regulations of the
NASD, the applicable rules and regulations of any securities exchange or other
regulatory authority having jurisdiction over the Offering and the applicable
laws, rules and regulations specified in Section 3(b) hereof. Without limiting
the foregoing, (a) you agree that, at all times since you were invited to
participate in an Offering of Securities, you have complied with the provisions
of Regulation M applicable to such Offering, in each case after giving effect to
any applicable exemptions and (b) you represent that your incurrence of
obligations hereunder in connection with any Offering of Securities will not
result in the violation by you of Rule 15c3-1 under the Exchange Act, if such
requirements are applicable to you.

       4. TERMINATION; SUPPLEMENTS AND AMENDMENTS. This Agreement shall continue
in full force and effect until terminated by a written instrument executed by
each of the parties hereto. This Agreement may be supplemented or amended by us
by written notice thereof to you, and any such supplement or amendment to this
Agreement shall be effective with respect to any Offering to which this
Agreement applies after the date of such supplement or amendment. Each reference
to "this Agreement" herein shall, as appropriate, be to this Agreement as so
amended and supplemented. The terms and conditions set forth in Section 3(c)
hereof with regard to any Offering will terminate at the close of business on
the 30th day after the commencement of the public offering of the Securities to
which such Offering relates, but in our discretion may be extended by us for a
further period not exceeding 30 days and in our discretion, whether or not
extended, may be terminated at any earlier time.

       5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on, and inure
to the benefit of, the parties hereto and other persons specified in Section 1
hereof, and the respective successors and assigns of each of them.

       6. GOVERNING LAW. This Agreement and the terms and conditions set forth
herein with respect to any Offering together with such supplementary terms and
conditions with respect to such Offering as may be contained in any Written
Communication from us to you in connection therewith shall be governed by, and
construed in accordance with, the




                                       5
<PAGE>

laws of the State of New York applicable to contracts made and to be performed
within the State of New York.

       Please confirm by signing and returning to us the enclosed copy of this
Agreement that your subscription to or your acceptance of any reservation of any
Securities pursuant to an Offering shall constitute (i) acceptance of and
agreement to the terms and conditions of this Agreement (as supplemented and
amended pursuant to Section 4 hereof; together with and subject to any
supplementary terms and conditions contained in any Written Communication from
us in connection with such Offering, all of which shall constitute a binding
agreement between you and us, individually or as representative of any
Underwriters, (ii) confirmation that your representations and warranties set
forth in Section 3 hereof are true and correct at that time, (iii) confirmation
that your agreements set forth in Sections 2 and 3 hereof have been and will be
fully performed by you to the extent and at the times required thereby and (iv)
in the case of any Offering described in Section 3(a) or 3(b) hereof,
acknowledgment that you have requested and received from us sufficient copies of
the final prospectus or offering circular, as the case may be, with respect to
such Offering in order to comply with your undertakings in Section 3(a) or 3(b)
hereof.


                                         Very truly yours,


                                         SALOMON SMITH BARNEY INC.



                                         By:
                                            ------------------------------------
                                            Name:
                                            Title:



CONFIRMED:.........................., 20

...........................................
             (Name of Dealer)


by:.......................................
    Name:
    Title:

Address:
        ----------------------------------

        ----------------------------------

        ----------------------------------


Telephone:

Fax:
        ----------------------------------




                                       6





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2H.3
<SEQUENCE>6
<FILENAME>c72644a1exv99w2hw3.txt
<DESCRIPTION>FORM OF MASTER AGREEMENT AMONG UNDERWRITERS
<TEXT>
<PAGE>
                                                                     Exhibit h.3


                  FORM OF MASTER AGREEMENT AMONG UNDERWRITERS

                            REGISTERED SEC OFFERINGS
                    (INCLUDING MULTIPLE SYNDICATE OFFERINGS),
                   STANDBY UNDERWRITINGS AND EXEMPT OFFERINGS
                 (OTHER THAN OFFERINGS OF MUNICIPAL SECURITIES)

                                                                    ______, ____


Ladies and Gentlemen:

                  From time to time SALOMON SMITH BARNEY INC. ("SALOMON SMITH
BARNEY") may invite you (and others) to participate on the terms set forth
herein as an underwriter or an initial purchaser, or in a similar capacity, in
connection with certain offerings of securities that are managed solely by us or
with one or more other co-managers. If we invite you to participate in a
specific offering and sale (an "OFFERING") to which this Master Agreement Among
Underwriters (the "SALOMON SMITH BARNEY MASTER AAU") shall apply, we will send
the information set forth below in Section 1.1 to you by one or more wires,
telexes, facsimile or electronic data transmissions or other written
communications (each a "WIRE" and collectively, an "AAU"). Each Wire will
indicate that it is a Wire pursuant to the SALOMON SMITH BARNEY MASTER AAU. The
Wire inviting you to participate in an Offering is referred to herein as the
"INVITATION WIRE". You and we hereby agree that by the terms hereof the
provisions of this SALOMON SMITH BARNEY MASTER AAU automatically shall be
incorporated by reference in each AAU, EXCEPT THAT ANY SUCH AAU MAY ALSO EXCLUDE
OR REVISE ANY PROVISION OF THIS SALOMON SMITH BARNEY MASTER AAU OR MAY CONTAIN
SUCH ADDITIONAL PROVISIONS AS MAY BE SPECIFIED IN SUCH AAU.

                                   I. GENERAL

                  1.1. TERMS OF AAU; CERTAIN DEFINITIONS; CONSTRUCTION. Each AAU
shall relate to an Offering and shall identify (i) the securities to be offered
in the Offering (the "SECURITIES"), their principal terms, the issuer or issuers
(each an "ISSUER") and any guarantor (each a "GUARANTOR") thereof and, if
different from the Issuer, the seller or sellers (each a "SELLER") of the
Securities, (ii) the underwriting agreement, purchase agreement, standby
underwriting agreement, distribution agreement or similar agreement (as
identified in such AAU and as amended or supplemented, including a terms
agreement or pricing agreement pursuant to any of the foregoing, collectively,
the "UNDERWRITING AGREEMENT") providing for the purchase, on a several and not
joint basis, of the Securities by the several underwriters, initial purchasers
or others acting in a similar capacity on whose behalf the Manager (as defined
below) executes the



<PAGE>

Underwriting Agreement (including the Manager and the Co-Managers (as defined
below), the "UNDERWRITERS"), (iii) if applicable, that the Underwriting
Agreement includes an option (an "OVER-ALLOTMENT OPTION") to purchase Additional
Securities (as defined below) to cover over-allotments, if any, (iv) if
applicable, that the Offering is part of an offering that includes concurrent
offerings by two or more syndicates (an "INTERNATIONAL OFFERING"), each of which
will offer and sell Securities subject to such restrictions as shall be
specified in any Intersyndicate Agreement (as defined below) referred to in such
AAU, (v) the price at which the Securities are to be purchased by the several
Underwriters from any Issuer or Seller thereof (the "PURCHASE PRICE"), (vi) the
offering terms, including, if applicable, the price or prices at which the
Securities initially will be offered by the Underwriters (the "OFFERING PRICE"),
any selling concession to dealers (the "SELLING CONCESSION"), reallowance (the
"REALLOWANCE"), management fee, global coordinators' fee, praecipium or other
similar fees, discounts or commissions (collectively, the "FEES AND
COMMISSIONS") with respect to the Securities, (vii) the proposed pricing date
("PRICING DATE") and settlement date (the "SETTLEMENT DATE"), (viii) any
contractual restrictions on the offer and sale of the Securities pursuant to the
Underwriting Agreement, Intersyndicate Agreement or otherwise, (ix) any
co-managers for such Offering (the "CO-MANAGERS"), (x) your proposed
participation in the Offering, (xi) if applicable, the trustee, fiscal agent or
similar agent (the "TRUSTEE") for the indenture, trust agreement, fiscal agency
agreement or similar agreement (the "INDENTURE") under which such Securities
will be issued and (xii) any other principal terms of the Offering.

                  The term "MANAGER" means SALOMON SMITH BARNEY. The term
"UNDERWRITERS" includes the Manager and the Co-Managers. The term "FIRM
SECURITIES" means the number or amount of Securities that the several
Underwriters are initially committed to purchase under the Underwriting
Agreement (which may be expressed as a percentage of an aggregate number or
amount of Securities to be purchased by the Underwriters as in the case of a
standby Underwriting Agreement). The term "ADDITIONAL SECURITIES" means the
Securities, if any, that the several Underwriters have an option to purchase
under the Underwriting Agreement to cover over-allotments, if any. The number,
amount or percentage of Firm Securities set forth opposite each Underwriter's
name in the Underwriting Agreement plus any additional Firm Securities that such
Underwriter has become obligated to purchase under the Underwriting Agreement or
Article XI hereof is hereinafter referred to as the "ORIGINAL PURCHASE
OBLIGATION" of such Underwriter and the ratio which such Original Purchase
Obligation bears to the total of all Firm Securities set forth in the
Underwriting Agreement (or, in the case of a standby Underwriting Agreement, to
100%) is hereinafter referred to as the "UNDERWRITING PERCENTAGE" of such
Underwriter.

                  References herein to statutory sections, rules, regulations,
forms and interpretive materials shall be deemed to include any successor
provisions.

                  1.2. ACCEPTANCE OF AAU. You shall have accepted an AAU for an
Offering if we receive your acceptance, prior to the time specified in the
Invitation Wire for such Offering, by wire, telex, facsimile or electronic data
transmission or other written communication (any such manner of communication
being deemed "IN WRITING") (or





                                       2
<PAGE>

orally, if promptly confirmed In Writing) in the manner specified in the
Invitation Wire, of our invitation to participate in the Offering. If we receive
your timely acceptance of the invitation to participate, such AAU shall
constitute a valid and binding contract between us. Your acceptance of the
Invitation Wire shall also constitute acceptance by you of the terms of
subsequent Wires to you relating to the Offering unless we receive In Writing,
within the time and in the manner specified in such subsequent Wire, a notice
from you to the effect that you do not accept the terms of such subsequent Wire,
in which case you shall be deemed to have elected not to participate in the
Offering.

                  1.3. UNDERWRITERS' QUESTIONNAIRE. Your acceptance of the
Invitation Wire shall confirm that you have no exceptions to the Underwriters'
Questionnaire attached as Exhibit A hereto (or to any other questions addressed
to you in any Wires relating to the Offering previously sent to you), other than
exceptions noted by you In Writing in connection with the Offering and received
from you by us before the time specified in the Invitation Wire or any
subsequent Wire.

                             II. OFFERING MATERIALS

                  2.1. REGISTERED OFFERINGS. In the case of an Offering that
will be registered in whole or in part (a "REGISTERED OFFERING") under the
United States Securities Act of 1933, as amended (the "1933 ACT"), you
understand that the Issuer has filed with the Securities and Exchange Commission
(the "COMMISSION") a registration statement including a prospectus relating to
the Securities. The term "REGISTRATION STATEMENT" means such registration
statement as amended or deemed to be amended to the effective date of the
Underwriting Agreement and, in the event that the Issuer files an abbreviated
registration statement to register additional Securities pursuant to Rule 462(b)
under the 1933 Act, such abbreviated registration statement. The term
"PROSPECTUS" means the prospectus, together with the final prospectus
supplement, if any, relating to the Offering first used to confirm sales of
Securities and, in the case of a Registered Offering that is an International
Offering, the term "PROSPECTUS" shall mean, collectively, each prospectus or
offering circular, together with each final prospectus supplement or final
offering circular supplement, if any, relating to the Offering, in the
respective forms first used or made available for use to confirm sales of
Securities. The term "PRELIMINARY PROSPECTUS" means any preliminary prospectus
relating to the Offering or any preliminary prospectus supplement together with
a prospectus relating to the Offering and, in the case of a Registered Offering
that is an International Offering, the term "PRELIMINARY PROSPECTUS" shall mean,
collectively, each preliminary prospectus or preliminary offering circular
relating to the Offering or each preliminary prospectus supplement or
preliminary offering circular supplement, together with a prospectus or offering
circular, respectively, relating to the Offering. As used herein the terms
"REGISTRATION STATEMENT", "PROSPECTUS" and "PRELIMINARY PROSPECTUS" shall
include in each case the material, if any, incorporated by reference therein.
The Manager will furnish to you, or make arrangements for you to obtain, copies
of each Prospectus and Preliminary Prospectus (but excluding for this purpose,
unless otherwise required pursuant to regulations under the 1933 Act, documents
incorporated therein by reference) as soon as practicable after sufficient
quantities thereof have been made available by the Issuer.



                                       3
<PAGE>

                  2.2. UNREGISTERED OFFERINGS. In the case of an Offering other
than a Registered Offering, you understand that no registration statement has
been filed with the Commission. The term "OFFERING CIRCULAR" means an offering
circular or memorandum, if any, or any other written materials authorized by the
Issuer to be used in connection with an Offering that is not a Registered
Offering. The term "PRELIMINARY OFFERING CIRCULAR" means any preliminary
offering circular or memorandum, if any, or any other written preliminary
materials authorized by the Issuer to be used in connection with such an
Offering. As used herein, the terms "OFFERING CIRCULAR" and "PRELIMINARY
OFFERING CIRCULAR" shall include the material, if any, incorporated by reference
therein. We will either, as soon as practicable after the later of the date of
the Invitation Wire or the date made available to us by the Issuer, furnish to
you (or make available for your review in our office) a copy of any Preliminary
Offering Circular or any proof or draft of the Offering Circular. In any event,
in any Offering involving an Offering Circular, the Manager will furnish to you,
or make arrangements for you to obtain, as soon as practicable after sufficient
quantities thereof are made available by the Issuer, copies of the final
Offering Circular, as amended or supplemented, if applicable (but excluding for
this purpose documents incorporated therein by reference).

                            III. MANAGER'S AUTHORITY

                  3.1. AUTHORITY OF MANAGER TO DETERMINE FORM OF DOCUMENTS,
TERMS OF OFFERING, ETC. You authorize the Manager to act as lead manager of the
Offering of the Securities by the Underwriters (the "UNDERWRITERS' SECURITIES")
or by the Issuer or Seller pursuant to delayed delivery contracts (the "CONTRACT
SECURITIES"), if any, contemplated by the Underwriting Agreement. You authorize
the Manager, on your behalf, (a) to determine the form of the Underwriting
Agreement, (b) to execute and deliver the Underwriting Agreement to the Issuer,
Guarantor or Seller, (c) to determine the form of any agreement or agreements
between or among the syndicates participating in the International Offering of
which the Offering is a part (each an "INTERSYNDICATE AGREEMENT"), and (d) to
execute and deliver any such Intersyndicate Agreement. You authorize the Manager
(i) to exercise any Over-allotment Option for the purchase any of or all the
Additional Securities for the accounts of the several Underwriters pursuant to
the Underwriting Agreement, (ii) to agree, on your behalf and on behalf of the
Co-Managers, to any addition to, change in or waiver of any provision of, or the
termination of, the Underwriting Agreement or any Intersyndicate Agreement
(other than an increase in the Purchase Price or in your Original Purchase
Obligation to purchase Securities, in either case from that contemplated by the
applicable AAU), (iii) to add or remove prospective Underwriters to or from the
syndicate, (iv) to exercise, in the Manager's discretion, all the authority
vested in the Manager in the Underwriting Agreement and (v) except as described
below in this Section 3.1, to take any other action as may seem advisable to the
Manager in respect of the Offering (including, without limitation, actions and
communications with the Commission, the National Association of Securities
Dealers, Inc. (the "NASD"), state blue sky or securities commissions, stock
exchanges and other regulatory bodies or organizations). If, in accordance with
the terms of the applicable AAU, the Offering of the Securities is at varying
prices based on prevailing market



                                       4
<PAGE>

prices or prices related to prevailing market prices or at negotiated prices,
you authorize the Manager to determine, on your behalf in the Manager's
discretion, any Offering Price and the Fees and Commissions applicable to the
Offering from time to time. You authorize the Manager on your behalf to arrange
for any currency transactions (including forward and hedging currency
transactions) as the Manager deems necessary to facilitate settlement of the
purchase of the Securities, but you do not authorize the Manager on your behalf
to engage in any other forward or hedging transactions in connection with the
Offering unless such transactions are specified in an applicable AAU or are
otherwise consented to by you. You further authorize the Manager, subject to the
provisions of Section 1.2 hereof, (i) to vary the offering terms of the
Securities in effect at any time, including, if applicable, the Offering Price
and Fees and Commissions set forth in the applicable AAU, (ii) to determine, on
your behalf, the Purchase Price and (iii) to increase or decrease the number,
amount or percentage of Securities being offered. Notwithstanding the foregoing
provisions of this Section 3.1, the Manager shall notify the Underwriters, prior
to the signing of the Underwriting Agreement, of any provision in the
Underwriting Agreement that could result in an increase in the amount or
percentage of Firm Securities set forth opposite each Underwriter's name in the
Underwriting Agreement by more than 25% (or such other percentage as shall have
been specified in the applicable Invitation Wire or otherwise consented to by
you) as a result of the failure or refusal of another Underwriter or
Underwriters to perform its or their obligations thereunder.

                  3.2. OFFERING DATE. The Offering is to be made as soon after
the Underwriting Agreement is entered into by the Issuer, Guarantor or Seller
and the Manager as in the Manager's judgment is advisable, on the terms and
conditions set forth in the Prospectus or the Offering Circular, as the case may
be, and the applicable AAU. You agree not to sell any Securities prior to the
time the Manager releases such Securities for sale to purchasers. The date on
which such Securities are released for sale is referred to herein as the
"OFFERING DATE".

                  3.3. ADVERTISING; SUPPLEMENTAL OFFERING MATERIAL. Any public
advertisement of the Offering shall be made by the Manager on behalf of the
Underwriters on such date as the Manager shall determine. You agree not to
advertise the Offering prior to the date of the Manager's advertisement thereof
without the Manager's consent. If the offering is made in whole or in part in
reliance on Rule 144A (or upon another exemption from registration), you agree
not to engage in any general solicitation and to abide by any other restrictions
in the AAU or the Underwriting Agreement in connection therewith relating to any
advertising or publicity. Any advertisement you may make of the Offering after
such date will be your own responsibility and at your own expense and risk. In
addition to your agreement to comply with restrictions on the Offering pursuant
to Sections 10.10 and 10.11 hereof, you also agree that you will not, in
connection with the offer and sale of the Securities in the Offering, without
the consent of the Manager, give to any prospective purchaser of the Securities
or other person not in your employ any written information concerning the
Offering, the Issuer, the Guarantor or the Seller, other than information
contained in any Preliminary Prospectus, Prospectus, Preliminary Offering
Circular or Offering Circular or in any computational materials ("COMPUTATIONAL
MATERIALS") or other offering materials prepared by or with the consent of the
Manager for use by the Underwriters in




                                       5
<PAGE>

connection with the Offering and, in the case of a Registered Offering, filed
with the Commission or the NASD, as applicable (the "SUPPLEMENTAL OFFERING
MATERIALS"). You further agree to cease distribution of any COMPUTATIONAL
MATERIALS on the Offering Date.

                  3.4. INSTITUTIONAL AND RETAIL SALES. You authorize the Manager
to sell to institutions or retail purchasers such Securities purchased by you
pursuant to the Underwriting Agreement as the Manager shall determine. The
Selling Concession on any such sales shall be credited to the accounts of the
Underwriters as the Manager shall determine.

                  3.5. SALES TO DEALERS. You authorize the Manager to sell to
Dealers (as defined below) such Securities purchased by you pursuant to the
Underwriting Agreement as the Manager shall determine. A "DEALER" shall be a
person who is (a) a broker or dealer (as defined in the By-Laws of the NASD)
actually engaged in the investment banking or securities business and (i) a
member in good standing of the NASD or (ii) a foreign bank, broker, dealer or
other institution not eligible for membership in the NASD that, in the case of
either clause (a)(i) or (a)(ii), makes the representations and agreements
applicable to such institutions contained in Section 10.6 hereof or (b) in the
case of Offerings of Securities that are exempt securities under Section
3(a)(12) of the Securities Exchange Act of 1934, as amended (the "1934 ACT"),
and such other Securities as from time to time may be sold by a "bank" (as
defined in Section 3(a)(6) of the 1934 Act (a "BANK")), a Bank that is not a
member of the NASD and that makes the representations and agreements applicable
to such institutions contained in Section 10.6 hereof. If the price for any such
sales by the Manager to Dealers exceeds an amount equal to the Offering Price
less the Selling Concession set forth in the applicable AAU, the amount of such
excess, if any, shall be credited to the accounts of the Underwriters as the
Manager shall determine.

                  3.6. DIRECT SALES. The Manager will advise you promptly, on
the date of the Offering, as to the Securities purchased by you pursuant to the
Underwriting Agreement that you shall retain for direct sale. At any time prior
to the termination of the applicable AAU, any such Securities that are held by
the Manager for sale but not sold, may, on your request and at the Manager's
discretion, be released to you for direct sale, and Securities so released to
you shall no longer be deemed held for sale by the Manager. You may allow, and
Dealers may reallow, a discount on sales to Dealers in an amount not in excess
of the Reallowance set forth in the applicable AAU. You may not purchase
Securities from, or sell Securities to, any other Underwriter or Dealer at any
discount or concession other than the Reallowance, except with the consent of
the Manager.

                  3.7. RELEASE OF UNSOLD SECURITIES. From time to time prior to
the termination of the applicable AAU, on the request of the Manager, you shall
advise the Manager of the amount of Securities remaining unsold which were
retained by or released to you for direct sale and of the amount of Securities
and Other Securities (as defined below) purchased for your account remaining
unsold which were delivered to you pursuant to Article V hereof or pursuant to
any Intersyndicate Agreement, and, on the request of the Manager, you shall
release to the Manager any such Securities and




                                       6
<PAGE>

Other Securities remaining unsold (i) for sale by the Manager to institutions,
Dealers or retail purchasers, (ii) for sale by the Issuer or Seller pursuant to
delayed delivery contracts or (iii) if, in the Manager's opinion, such
Securities or Other Securities are needed to make delivery against sales made
pursuant to Article V hereof or any Intersyndicate Agreement.

                  3.8. INTERNATIONAL OFFERINGS. In the case of an International
Offering, you authorize the Manager (i) to make representations on your behalf
as set forth in any Intersyndicate Agreement or Underwriting Agreement and (ii)
to purchase or sell for your account pursuant to the Intersyndicate Agreement
(a) Securities, (b) any other securities of the same class and series, or any
securities into which the Securities may be converted or for which the
Securities may be exchanged or exercised and (c) any other securities designated
in the applicable AAU or applicable Intersyndicate Agreement (the securities
referred to in clauses (b) and (c) above being referred to collectively as the
"OTHER SECURITIES").

                         IV. DELAYED DELIVERY CONTRACTS

                  4.1. ARRANGEMENTS FOR SALES. You agree that arrangements for
sales of Contract Securities will be made only through the Manager acting either
directly or through Dealers (including Underwriters acting as Dealers), and you
authorize the Manager to act on your behalf in making such arrangements. The
aggregate amount of Securities to be purchased by the several Underwriters shall
be reduced by the respective amounts of Contract Securities attributed to such
Underwriters as hereinafter provided. Subject to the provisions of Section 4.2,
the aggregate amount of Contract Securities shall be attributed to the
Underwriters as nearly as practicable in their respective Underwriting
Percentages, except that, as determined by the Manager in its discretion, (i)
Contract Securities directed and allocated by a purchaser to specific
Underwriters shall be attributed to such Underwriters and (ii) Contract
Securities for which arrangements have been made for sale through Dealers shall
be attributed to each Underwriter approximately in the proportion that
Securities of such Underwriter held by the Manager for sales to Dealers bear to
all Securities so held. The fee with respect to Contract Securities payable to
the Manager for the accounts of the Underwriters pursuant to the Underwriting
Agreement shall be credited to the accounts of the respective Underwriters in
proportion to the Contract Securities attributed to such Underwriters pursuant
to the provisions of this Section 4.1, less, in the case of each Underwriter,
the concession to Dealers on Contract Securities sold through Dealers and
attributed to such Underwriter.

                  4.2. EXCESS SALES. If the amount of Contract Securities
attributable to an Underwriter pursuant to Section 4.1 would exceed such
Underwriter's Original Purchase Obligation reduced by the amount of
Underwriters' Securities sold by or on behalf of such Underwriter, such excess
shall not be attributed to such Underwriter, and such Underwriter shall be
regarded as having acted only as a Dealer with respect to, and shall receive
only the concession to Dealers on, such excess.



                                       7
<PAGE>


        V. PURCHASE AND SALE OF SECURITIES; FACILITATION OF DISTRIBUTION

                  5.1. PURCHASE AND SALE OF SECURITIES; FACILITATION OF
DISTRIBUTION. In order to facilitate the distribution and sale of the
Securities, you authorize the Manager to buy and sell Securities and any Other
Securities, in addition to Securities sold pursuant to Article III hereof, in
the open market or otherwise (including, without limitation, pursuant to any
Intersyndicate Agreement), for long or short account, on such terms as it shall
deem advisable, and to over-allot in arranging sales. Such purchases and sales
and over-allotments shall be made for the accounts of the several Underwriters
as nearly as practicable in their respective Underwriting Percentages or, in the
case of an International Offering, such purchases and sales shall be for such
accounts as set forth in the applicable Intersyndicate Agreement. Any securities
which may have been purchased by the Manager for stabilizing purposes in
connection with the Offering prior to the execution of the applicable AAU shall
be treated as having been purchased pursuant to this Section 5.1 for the
accounts of the several Underwriters or, in the case of an International
Offering, for such accounts as are set forth in the applicable Intersyndicate
Agreement. Your net commitment pursuant to the foregoing authorization shall not
exceed at the close of business on any day an amount equal to 20% of your
Underwriting Percentage of the aggregate initial Offering Price of the Firm
Securities, it being understood that, in calculating such net commitment, the
initial Offering Price shall be used with respect to the Securities so purchased
or sold and, in the case of all Other Securities, shall be the purchase price
thereof. Your net commitment for short account (i.e., "naked short") shall be
calculated by assuming that all Securities that may be purchased upon exercise
of any over-allotment option then exercisable are acquired (whether or not
actually acquired) and, in the case of an International Offering, after giving
effect to the purchase of any Securities or Other Securities that the Manager
has agreed to purchase for your account pursuant to any applicable
Intersyndicate Agreement. On demand you shall take up and pay for any Securities
or Other Securities so purchased for your account and any Securities released to
you pursuant to Section 3.7 hereof and you shall deliver to the Manager against
payment any Securities or Other Securities so sold or over-allotted for your
account or released to you. The Manager agrees to notify you if it engages in
any stabilization transaction requiring reports to be filed pursuant to Rule
17a-2 under the 1934 Act and to notify you of the date of termination of
stabilization. You agree not to stabilize or engage in any syndicate covering
transaction (as defined in Rule 100 of Regulation M under the 1934 Act
("Regulation M")) in connection with the Offering without the prior consent of
the Manager. You further agree to provide to Salomon Smith Barney any reports
required of you pursuant to Rule 17a-2 not later than the date specified therein
and you authorize Salomon Smith Barney to file on your behalf with the
Commission any reports required by such Rule.

         If the limitations of Rule 101 of Regulation M ("Rule 101") do not
apply to you with respect to the Securities, Other Securities or other reference
securities (as defined in Rule 100 of Regulation M) because they satisfy the
exception for actively-traded securities in subsection (c)(1) of Rule 101 or the
exception for Rule 144A securities in subsection (b)(10) of Rule 101, you agree
that promptly upon notice from the Manager (or, if later, at the time stated in
the notice) you will comply with Rule 101 as though such exception were not
available but the other provisions of Rule 101 (as interpreted by




                                       8
<PAGE>

the Commission and after giving effect to any applicable exemptions) did apply.
If the securities in question are NASDAQ securities (as defined in Rule 100 of
Regulation M) you may engage in passive market making in accordance with Rule
103 of Regulation M (except that the daily net purchase volume limitation will
not apply and the maximum displayed bid size shall be 5,000 shares excluding
transactions effected in the SOES system) unless the notice from the Manager
also states that passive market making is not permitted.

                  5.2. PENALTY WITH RESPECT TO SECURITIES REPURCHASED BY THE
MANAGER. If pursuant to the provisions of Section 5.1 and prior to the
termination of the Manager's authority to cover any short position incurred
under the applicable AAU or such other date as the Manager shall specify in a
Wire, either (A) the Manager purchases or contracts to purchase for the account
of any Underwriter in the open market or otherwise any Securities which were
retained by, or released to, you for direct sale or any Securities sold pursuant
to Section 3.4 for which you received a portion of the Selling Concession set
forth in the applicable AAU, or any Securities which may have been issued on
transfer or in exchange for such Securities, and which Securities were therefore
not effectively placed for investment or (B) if the Manager has advised you by
Wire that trading in the Securities will be reported to the Manager pursuant to
the "Initial Public Offering Tracking System" of The Depository Trust Company
("DTC") and the Manager determines, based on notices from DTC, that your
customers sold an amount of Securities during any day that exceeds the amount
previously notified to you by Wire, then you authorize the Manager either to
charge your account with an amount equal to such portion of the Selling
Concession set forth in the applicable AAU received by you with respect to such
Securities or, in the case of clause (B), such Securities as exceed the amount
specified in such Wire or to require you to repurchase such Securities or, in
the case of clause (B), such Securities as exceed the amount specified in such
Wire, at a price equal to the total cost of such purchase, including transfer
taxes, accrued interest, dividends and commissions, if any.

                  5.3. COMPLIANCE WITH REGULATION M. You represent that, at all
times since you were invited to participate in the Offering, you have complied
with the provisions of Regulation M applicable to such Offering, in each case as
interpreted by the Commission and after giving effect to any applicable
exemptions. If you have been notified in a Wire that the Underwriters may
conduct passive market making in compliance with Rule 103 of Regulation M in
connection with the Offering, you represent that, at all times since your
receipt of such Wire, you have complied with the provisions of such Rule
applicable to such Offering, as interpreted by the Commission and after giving
effect to any applicable exemptions.

                  5.4. STANDBY UNDERWRITINGS. You authorize the Manager in its
discretion, at any time on, or from time to time prior to, the expiration of the
conversion right of convertible securities identified in the applicable AAU in
the case of securities called for redemption, or the expiration of rights to
acquire securities in the case of rights offerings, for which, in either case,
standby underwriting arrangements have been made: (i) to purchase convertible
securities or rights to acquire Securities for your account, in the open market
or otherwise, on such terms as the Manager determines and to convert convertible
securities or exercise rights so purchased; and (ii) to offer and




                                       9
<PAGE>

sell the underlying common stock or depositary shares for your account, in the
open market or otherwise, for long or short account (for purposes of such
commitment, such common stock or depositary shares being considered the
equivalent of convertible securities or rights), on such terms consistent with
the terms of the Offering set forth in the Prospectus or Offering Circular as
the Manager determines. On demand you shall take up and pay for any securities
so purchased for your account or you shall deliver to the Manager against
payment any securities so sold, as the case may be. During such period you may
offer and sell the underlying common stock or depositary shares, but only at
prices set by the Manager from time to time, and any such sales shall be subject
to the Manager's right to sell to you the underlying common stock or depositary
shares as above provided and to the Manager's right to reserve your Securities
purchased, received or to be received upon conversion. You agree not to bid for,
purchase, attempt to induce others to purchase, or sell, directly or indirectly,
any convertible securities or rights or underlying common stock or depositary
shares, provided, however, that no Underwriter shall be prohibited from (a)
selling underlying common stock owned beneficially by such Underwriter on the
day the convertible securities were first called for redemption, (b) converting
convertible securities owned beneficially by such Underwriter on such date or
selling underlying common stock issued upon conversion of convertible securities
so owned, (c) exercising rights owned beneficially by such Underwriter on the
record date for a rights offering or selling the underlying common stock or
depositary shares issued upon exercise of rights so owned or (d) purchasing or
selling convertible securities or rights or underlying common stock or
depositary shares as a broker pursuant to unsolicited orders.

                           VI. PAYMENT AND SETTLEMENT

                  6.1. PAYMENT AND SETTLEMENT. You shall deliver to the Manager
on the date and at the place and time specified in the applicable AAU (or on
such later date and at such place and time as may be specified by the Manager in
a subsequent Wire) the funds specified in the applicable AAU, payable to the
order of Salomon Smith Barney Inc., for (i) an amount equal to the Offering
Price plus (if not included in the Offering Price) accrued interest,
amortization of original issue discount or dividends, if any, specified in the
Prospectus or Offering Circular, less the applicable Selling Concession in
respect of the Firm Securities to be purchased by you, (ii) an amount equal to
the Offering Price plus (if not included in the Offering Price) accrued
interest, amortization of original issue discount or dividends, if any,
specified in the Prospectus or Offering Circular, less the applicable Selling
Concession in respect of such of the Firm Securities to be purchased by you as
shall have been retained by or released to you for direct sale as contemplated
by Section 3.6 hereof or (iii) the amount set forth or indicated in the
applicable AAU, as the Manager shall advise. You shall make similar payment as
the Manager may direct for Additional Securities, if any, to be purchased by you
on the date specified by the Manager for such payment. The Manager will make
payment to the Issuer or Seller against delivery to the Manager for your account
of the Securities to be purchased by you, and the Manager will deliver to you
the Securities paid for by you which shall have been retained by or released to
you for direct sale. If the Manager determines that transactions in the
Securities are to be settled through the facilities of DTC or other
clearinghouse facility, payment for and delivery of Securities





                                       10
<PAGE>

purchased by you shall be made through such facilities, if you are a member, or,
if you are not a member, settlement shall be made through your ordinary
correspondent who is a member.

                                  VII. EXPENSES

                  7.1. MANAGEMENT FEE. You authorize the Manager to charge your
account as compensation for the Manager's and Co-Managers' services in
connection with the Offering, including the purchase from the Issuer or Seller
of the Securities, as the case may be, and the management of the Offering, the
amount, if any, set forth as the management fee, global coordinators fee,
praecipium or other similar fee in the applicable AAU. Such amount shall be
divided among the Manager and any Co-Managers named in the applicable AAU as
they may determine.

                  7.2. GENERAL EXPENSES. You authorize the Manager to charge
your account with your Underwriting Percentage of all expenses of a general
nature incurred by the Manager and Co-Managers under the applicable AAU in
connection with the Offering, including the negotiation and preparation thereof,
or in connection with the purchase, carrying, marketing and sale of any
securities under the applicable AAU and any Intersyndicate Agreement, including,
without limitation, legal fees and expenses, transfer taxes, costs associated
with approval of the Offering by the NASD and the costs of currency transactions
(including forward and hedging currency transactions) entered into to facilitate
settlement of the purchase of Securities permitted under Section 3.1 hereof.

                    VIII. MANAGEMENT OF SECURITIES AND FUNDS

                  8.1. ADVANCES; LOANS; PLEDGES. You authorize the Manager to
advance the Manager's own funds for your account, charging current interest
rates, or to arrange loans for your account for the purpose of carrying out the
provisions of the applicable AAU and any Intersyndicate Agreement and in
connection therewith, to hold or pledge as security therefor all or any
securities which the Manager may be holding for your account under the
applicable AAU and any Intersyndicate Agreement, to execute and deliver any
notes or other instruments evidencing such advances or loans and to give all
instructions to the lenders with respect to any such loans and the proceeds
thereof. The obligations of the Underwriters under loans arranged on their
behalf shall be several in proportion to their respective Original Purchase
Obligations and not joint. Any lender is authorized to accept the Manager's
instructions as to the disposition of the proceeds of any such loans. In the
event of any such advance or loan, repayment thereof shall, in the discretion of
the Manager, be effected prior to making any remittance or delivery pursuant to
Section 8.2, 8.3 or 9.2 hereof.

                  8.2. RETURN OF AMOUNT PAID FOR SECURITIES. Out of payment
received by the Manager for Securities sold for your account which have been
paid for by you, the Manager will remit to you promptly an amount equal to the
price paid by you for such Securities.




                                       11
<PAGE>

                  8.3. DELIVERY AND REDELIVERY OF SECURITIES FOR CARRYING
PURPOSES. The Manager may deliver to you from time to time prior to the
termination of the applicable AAU pursuant to Section 9.1 hereof against
payment, for carrying purposes only, any Securities or Other Securities
purchased by you under the applicable AAU or any Intersyndicate Agreement which
the Manager is holding for sale for your account but which are not sold and paid
for. You shall redeliver to the Manager against payment any Securities or Other
Securities delivered to you for carrying purposes at such times as the Manager
may demand.

                        IX. TERMINATION; INDEMNIFICATION

                  9.1. TERMINATION. Each AAU shall terminate at the close of
business on the later of the date on which the Underwriters pay the Issuer or
Seller for the Securities and 45 full days after the applicable Offering Date,
unless sooner terminated by the Manager. The Manager may in its discretion by
notice to you prior to the termination of such AAU alter any of the terms or
conditions of the Offering to the extent permitted by Articles III or IV hereof,
or terminate or suspend the effectiveness of Article V hereof, or any part
thereof. No termination or suspension pursuant to this paragraph shall affect
the Manager's authority under Section 3.1 hereof to take actions in respect of
the Offering or under Article V hereof to cover any short position incurred
under such AAU or in connection with covering any such short position to require
you to repurchase Securities as specified in Section 5.2 hereof.

                  9.2. DELIVERY OR SALE OF SECURITIES; SETTLEMENT OF ACCOUNTS.
Upon termination of each AAU or prior thereto at the Manager's discretion, the
Manager shall deliver to you any Securities paid for by you pursuant to Section
6.1 hereof and held by the Manager for sale pursuant to Section 3.4 or 3.5
hereof but not sold and paid for and any Securities or Other Securities that are
held by the Manager for your account pursuant to the provisions of Article V
hereof or any Intersyndicate Agreement. Notwithstanding the foregoing, at the
termination of such AAU, if the aggregate initial Offering Price of any such
Securities and the aggregate purchase price of any Other Securities so held and
not sold and paid for does not exceed an amount equal to 20% of the aggregate
initial Offering Price of the Securities, the Manager may, in its discretion,
sell such Securities and Other Securities for the accounts of the several
Underwriters, at such prices, on such terms, at such times and in such manner as
it may determine. Within the period specified by applicable NASD Rules or, if no
period is so specified, as soon as practicable after termination of such AAU,
your account shall be settled and paid. The Manager may reserve from
distribution such amount as the Manager deems advisable to cover possible
additional expenses. The determination by the Manager of the amount so to be
paid to or by you shall be final and conclusive. Any of your funds in the
Manager's hands may be held with the Manager's general funds without
accountability for interest

                  Notwithstanding any provision of this Master AAU other than
Section 10.12, upon termination of each AAU or prior thereto at the Manager's
discretion, the Manager (i) may allocate to the accounts of the Underwriters the
expenses described in




                                       12
<PAGE>

Section 7.2 hereof and any losses incurred upon the sale of Securities or Other
Securities pursuant to the applicable AAU or any Intersyndicate Agreement
(including any losses incurred upon the sale of securities referred to in
Section 5.4(ii) hereof), (ii) may deliver to the Underwriters any unsold
Securities or Other Securities purchased pursuant to Section 5.1 hereof or any
Intersyndicate Agreement and (iii) may deliver to the Underwriters any unsold
Securities purchased pursuant to the applicable Underwriting Agreement, in each
case in the Manager's discretion. The Manager shall have full discretion to
allocate expenses and Securities to the accounts of any Underwriter as the
Manager decides, except that (a) no Underwriter (other than the Manager or a
Co-Manager) shall bear more than its share of such expenses, losses or
Securities (such share shall not exceed such Underwriter's Underwriting
Percentage and shall be determined pro rata among all such Underwriters based on
their Underwriting Percentages), (b) no such Underwriter shall receive
Securities that, together with any Securities purchased by such Underwriter
pursuant to Section 6.1 (but excluding any Securities that such Underwriter is
required to repurchase pursuant to Section 5.2) exceed such Underwriter's
Original Purchase Obligation and (c) no Co-Manager shall bear more than its
share, as among the Manager and the other Co-Managers, of such expenses, losses
or Securities (such share to be determined pro rata among the Manager and all
Co-Managers based on (1) their relative Underwriting Percentages as a percentage
of the total combined Underwriting Percentages of the Manager and all
Co-Managers, or (2) if the Manager so determines, their relative Offering
Economics (as hereinafter defined) as a percentage of the combined Offering
Economics of the Manager and all Co-Managers together. The Manager's or a
Co-Manager's "OFFERING ECONOMICS" equals the sum of its Management Fee Share,
its Underwriting Fee Share and its Selling Concession Share (each as hereinafter
defined). The Manager's or a Co-Manager's "MANAGEMENT FEE SHARE" is the dollar
amount of its share, as agreed among the Manager and any Co-Managers, of the
amount payable by all Underwriters to some or all of the Manager and any
Co-Manager as a global coordinators' fee, praecipium, management fee or other
fee. The Manager's or a Co-Manager's "UNDERWRITING FEE SHARE" is the dollar
amount of its Underwriting Percentage of the aggregate initial Offering Price of
the Firm Securities less the Purchase Price thereof, less the Selling Concession
thereon. The Manager's or a Co-Manager's "SELLING CONCESSION SHARE" is the
dollar amount of any Selling Concession credited to it on sales from the
institutional pot or on sales made for the account of any other Underwriter. If
any Securities or Other Securities returned to you pursuant to clause (ii) or
(iii) above were not paid for by you pursuant to Section 6.1 hereof, you shall
pay to the Manager an amount per security equal to the amount set forth in
Section 6.1(i), in the case of Securities returned to you pursuant to clause
(iii) above, or the purchase price of such securities, in the case of Securities
or Other Securities returned to you pursuant to clause (ii) above.

                  9.3. POST-SETTLEMENT EXPENSES. Notwithstanding any settlement
on the termination of the applicable AAU, you agree to pay any transfer taxes
which may be assessed and paid after such settlement on account of any sales or
transfers under such AAU or any Intersyndicate Agreement for your account and
your Underwriting Percentage of (i) all expenses incurred by the Manager in
investigating, preparing to defend or defending against any action, claim or
proceeding which is asserted or instituted by any party (including any
governmental or regulatory body) relating to (a) the




                                       13
<PAGE>

Registration Statement, any Preliminary Prospectus or Prospectus (or any
amendment or supplement thereto), any Preliminary Offering Circular or Offering
Circular (or any amendment or supplement thereto) or Supplemental Offering
Materials, (b) the violation of any applicable restrictions on the offer, sale,
resale or purchase of Securities or Other Securities imposed by United States
Federal or state laws or foreign laws and the rules and regulations of any
regulatory body promulgated thereunder or pursuant to the terms of such AAU, the
Underwriting Agreement or any Intersyndicate Agreement or (c) any claim that the
Underwriters constitute a partnership, an association or an unincorporated
business or other separate entity and (ii) any liability, including attorneys'
fees, incurred by the Manager in respect of any such action, claim or
proceeding, whether such liability shall be the result of a judgment or
arbitrator's determination or as a result of any settlement agreed to by the
Manager, other than any such expense or liability as to which the Manager
actually receives indemnity pursuant to Section 9.4, contribution pursuant to
Section 9.5, indemnity or contribution pursuant to the Underwriting Agreement or
damages from an Underwriter for breach of its representations, warranties,
agreements, or covenants contained in the applicable AAU. None of the foregoing
provisions of this Section 9.3 shall relieve any defaulting or breaching
Underwriter from liability for its defaults or breach.

                  9.4. INDEMNIFICATION. You agree to indemnify and hold harmless
each other Underwriter and each person, if any, who controls any such
Underwriter within the meaning of either Section 15 of the 1933 Act or Section
20 of the 1934 Act, to the extent and upon the terms which you agree to
indemnify and hold harmless any of the Issuer, the Guarantor, the Seller, any
person controlling the Issuer, the Guarantor, the Seller, its directors and, in
the case of a Registered Offering, its officers who signed the Registration
Statement and, in the case of an Offering other than a Registered Offering, its
officers, in each case as set forth in the Underwriting Agreement. You further
agree to indemnify and hold harmless any investment banking firm identified in a
Wire as the qualified independent underwriter as defined in Rule 2720 of the
NASD's Conduct Rules ("QIU") for an Offering and each person, if any, who
controls such QIU within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act, from and against any and all losses, claims, damages
and liabilities related to, arising out of or in connection with such investment
banking firm's activities as QIU for the Offering. You agree with the other
Underwriters to reimburse such QIU for all expenses, including fees and expenses
of counsel as they are incurred, in connection with investigating, preparing
for, or defending any action, claim or proceeding related to, arising out of, or
in connection with such QIU's activities as a QIU for the Offering. Each
Underwriter shall be responsible for its Underwriting Percentage of any amount
due to such QIU on account of the foregoing indemnity. You agree that such QIU
shall have no additional liability to any Underwriter or otherwise as a result
of its serving as QIU in connection with the Offering. You further agree that to
the extent the indemnification provided to a QIU under this Section 9.4 is
unavailable to such QIU or insufficient in respect of any losses, claims,
damages or liabilities (and expenses relating thereto), whether as a matter of
law or public policy or as a result of the default of any Underwriter in
performing its obligations under this Section 9.4, you and each other
Underwriter shall contribute to the amount paid or payable by such QIU as a
result of such losses, claims, damages or liabilities (and expenses relating
thereto) in proportion to your Underwriting Percentage.



                                       14
<PAGE>

                  9.5. CONTRIBUTION. Notwithstanding any settlement on the
termination of the applicable AAU, you agree to pay upon request of the Manager,
as contribution, your Underwriting Percentage of any losses, claims, damages or
liabilities, joint or several, paid or incurred by any Underwriter to any person
other than an Underwriter, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, any Preliminary Prospectus or Prospectus (or any amendment or
supplement thereto), any Preliminary Offering Circular or Offering Circular (or
any amendment or supplement thereto) or Supplemental Offering Materials or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading (other
than an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information furnished to
the Company in writing by the Underwriter on whose behalf the request for
contribution is being made expressly for use therein) and your Underwriting
Percentage of any legal or other expenses reasonably incurred by the Underwriter
(with the approval of the Manager) on whose behalf the request for contribution
is being made in connection with investigating or defending any such loss,
claim, damage or liability or any action in respect thereof; provided that no
request shall be made on behalf of any Underwriter guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) from any
Underwriter who was not guilty of such fraudulent misrepresentation. None of the
foregoing provisions of this Section 9.5 shall relieve any defaulting or
breaching Underwriter from liability for its defaults or breach.

                  9.6. SEPARATE COUNSEL. If any claim is asserted or action or
proceeding commenced pursuant to which the indemnity provided in Section 9.4 may
apply, the Manager may take such action in connection therewith as it deems
necessary or desirable, including retention of counsel for the Underwriters, and
in its discretion separate counsel for any particular Underwriter or group of
Underwriters, and the fees and disbursements of any counsel so retained shall be
allocated among the several Underwriters as determined by the Manager. Any
Underwriter may elect to retain at its own expense its own counsel and, on
advice of such counsel but only with the consent of the Manager, may settle or
consent to the settlement of any such claim, action or proceeding. The Manager
may settle or consent to the settlement of any such claim, action or proceeding.
Whenever the Manager receives notice of the assertion of any claim, action or
proceeding to which the provisions of Section 9.4 would apply, it will give
prompt notice thereof to each Underwriter, and whenever you receive notice of
the assertion of any claim or commencement of any action or proceeding to which
the provisions of Section 9.4 would apply, you will give prompt notice thereof
to the Manager. The Manager also will furnish each Underwriter with periodic
reports, at such times as it deems appropriate, as to the status of such claim,
action or proceeding, and the action taken by it in connection therewith.

                  9.7. SURVIVAL OF AGREEMENTS. Regardless of any termination of
an AAU, your agreements contained in Article V and Sections 3.1, 9.3, 9.4, 9.5,
9.6 and 11.2 shall remain operative and in full force and effect regardless of
(i) any termination of the Underwriting Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
by or on behalf of the Issuer,




                                       15
<PAGE>

the Guarantor, the Seller, its directors or officers or any person controlling
the Issuer, the Guarantor or the Seller and (iii) acceptance of any payment for
any Securities.

                X. REPRESENTATIONS AND COVENANTS OF UNDERWRITERS

                  10.1. KNOWLEDGE OF OFFERING. You understand that it is your
responsibility to examine the Registration Statement, the Prospectus or the
Offering Circular, as the case may be, relating to the Offering, any amendment
or supplement thereto, any Preliminary Prospectus or Preliminary Offering
Circular and the material, if any, incorporated by reference therein and any
Supplemental Offering Materials and you will familiarize yourself with the terms
of the Securities, any applicable Indenture and the other terms of the Offering
thereof which are to be reflected in the Prospectus or the Offering Circular, as
the case may be, and the applicable AAU and Underwriting Agreement. The Manager
is authorized, with the advice of counsel for the Underwriters, to approve on
your behalf any amendments or supplements to the Registration Statement and the
Prospectus or the Offering Circular, as the case may be.

                  10.2. DISTRIBUTION OF MATERIALS. You will keep an accurate
record of the names and addresses of all persons to whom you give copies of the
Registration Statement, the Prospectus, any Preliminary Prospectus (or any
amendment or supplement thereto) or any Offering Circular or any Preliminary
Offering Circular and, when furnished with any subsequent amendment to the
Registration Statement, any subsequent Prospectus, any subsequent Offering
Circular or any memorandum outlining changes in the Registration Statement or
any Prospectus or Offering Circular, you will, upon request of the Manager,
promptly forward copies thereof to such persons.

                  10.3. ACCURACY OF UNDERWRITERS' INFORMATION. You confirm that
the information that you have given or are deemed to have given in response to
the Underwriters' Questionnaire attached as Exhibit A hereto (and to any other
questions addressed to you in the Invitation Wire or other Wires), which
information has been furnished to the Issuer for use in the Registration
Statement and the Prospectus or the Offering Circular, as the case may be, or
has otherwise been relied upon in connection with the Offering, is complete and
accurate. You shall notify the Manager immediately of any development before the
termination of the applicable AAU which makes untrue or incomplete any
information that you have given or are deemed to have given in response to the
Underwriters' Questionnaire (or such other questions).

                  10.4. NAME; ADDRESS. Unless you have promptly notified the
Manager in writing otherwise, your name as it should appear in the Prospectus or
the Offering Circular and any advertisement, if different, and your address are
as set forth on the signature pages hereof.

                  10.5. CAPITAL REQUIREMENTS. You represent that your commitment
to purchase the Securities will not result in a violation of the financial
responsibility requirements of Rule 15c3-1 under the 1934 Act or of any similar
provision of any applicable rules of any securities exchange to which you are
subject or, if you are a financial institution subject to regulation by the
Board of Governors of the United States




                                       16
<PAGE>

Federal Reserve System, the United States Comptroller of the Currency or the
United States Federal Deposit Insurance Corporation, will not place you in
violation of any applicable capital requirements or restrictions of such
regulator or any other regulator to which you are subject.

                  10.6. COMPLIANCE WITH NASD REQUIREMENTS. You represent that
you are a member in good standing of the NASD, a Bank that is not a member of
the NASD or a foreign bank or dealer not eligible for membership in the NASD. In
making sales of Securities, if you are such a member, you agree to comply with
all applicable interpretive material ("IM") and rules of the NASD, including,
without limitation, IM-2110-1 (the NASD's interpretation with respect to
free-riding and withholding) and Rule 2740 of the NASD's Conduct Rules, or, if
you are such a foreign bank or dealer, you agree to comply, as applicable, with
IM-2110-1 and Rules 2730, 2740 and 2750 of the NASD's Conduct Rules as though
you were such a member and Rule 2420 of the NASD's Conduct Rules as it applies
to a nonmember broker or dealer in a foreign country. If you are a Bank, you
agree, to the extent required by applicable law or the Conduct Rules of the
NASD, that you will not, in connection with the public offering of any
Securities that do not constitute "exempted securities" within the meaning of
Section 3(a)(12) of the 1934 Act or such other Securities as from time to time
may be sold by a Bank, purchase any Securities at a discount from the Offering
Price from any Underwriter or dealer or otherwise accept any Fees and
Commissions from any Underwriter or Dealer, and you agree to comply, as
applicable, with Rule 2420 of the NASD's Conduct Rules as though you were a
member.

                  10.7. FURTHER STATE NOTICE. The Manager will file a Further
State Notice with the Department of State of New York, if required.

                  10.8. COMPLIANCE WITH RULE 15c2-8. In the case of a Registered
Offering and any other Offering to which the provisions of Rule 15c2-8 under the
1934 Act are made applicable pursuant to the AAU or otherwise, you agree to
comply with such Rule in connection with the Offering. In the case of an
Offering other than a Registered Offering, you agree to comply with applicable
Federal and state laws and the applicable rules and regulations of any
regulatory body promulgated thereunder governing the use and distribution of
offering circulars by underwriters.

                  10.9. DISCRETIONARY ACCOUNTS. In the case of a Registered
Offering of Securities issued by an Issuer that was not, immediately prior to
the filing of the Registration Statement, subject to the requirements of Section
13(d) or 15(d) of the 1934 Act, you agree that you will not make sales to any
account over which you exercise discretionary authority in connection with such
sale except as otherwise permitted by the applicable AAU for such Offering.

                  10.10. OFFERING RESTRICTIONS. If you are a foreign bank or
dealer and you are not registered as a broker-dealer under Section 15 of the
1934 Act, you agree that while you are acting as an Underwriter in respect of
the Securities and in any event during the term of the applicable AAU, you will
not directly or indirectly effect in, or with persons who are nationals or
residents of, the United States, its territories or possessions any transactions
(except for the purchases provided for in the Underwriting




                                       17
<PAGE>

Agreement and transactions contemplated by Articles III and V hereof) in
Securities or any Other Securities.

                  It is understood that, except as specified in the applicable
AAU, no action has been taken by the Manager, the Issuer, the Guarantor or the
Seller to permit you to offer Securities in any jurisdiction other than the
United States, in the case of a Registered Offering, where action would be
required for such purpose.

                  10.11. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. You agree
to make to each other Underwriter participating in an Offering the same
representations, warranties and agreements, if any, made by the Underwriters to
the Issuer, the Guarantor or the Seller in the applicable Underwriting Agreement
or any Intersyndicate Agreement and you authorize the Manager to make such
representations, warranties and agreements to the Issuer, the Guarantor or the
Seller on your behalf.

                  10.12. LIMITATION ON THE AUTHORITY OF THE MANAGER TO PURCHASE
AND SELL SECURITIES FOR THE ACCOUNT OF CERTAIN UNDERWRITERS. Notwithstanding any
provision of this AAU authorizing the Manager to purchase or sell any Securities
or Other Securities (including arranging for the sale of Contract Securities) or
over-allot in arranging sales of Securities for the accounts of the several
Underwriters, the Manager may not, in connection with the Offering of any
Securities, make any such purchases, sales and/or over-allotments for the
account of any Underwriter that, not later than its acceptance of the Invitation
Wire relating to such Offering, has advised the Manager that, due to its status
as, or relationship to, a bank or bank holding company such purchases, sales
and/or over-allotments are prohibited by applicable law. If any Underwriter so
advises the Manager, the Manager may allocate any such purchases, sales and
over-allotments (and the related expenses) which otherwise would have been
allocated to your account based on your respective Underwriting Percentage to
your account based on the ratio of your Original Purchase Obligation to the
Original Purchase Obligations of all Underwriters other than the advising
Underwriter or Underwriters or in such other manner as the Manager shall
determine.

                           XI. DEFAULTING UNDERWRITERS

                  11.1. EFFECT OF TERMINATION. If the Underwriting Agreement is
terminated as permitted by the terms thereof, your obligations hereunder with
respect to the Offering of the Securities shall immediately terminate except (i)
as set forth in Section 9.7, (ii) that you shall remain liable for your
Underwriting Percentage (or such other percentage as may be specified pursuant
to Section 9.2) of all expenses and for any purchases or sales which may have
been made for your account pursuant to the provisions of Article V hereof or any
Intersyndicate Agreement and (iii) that such termination shall not affect any
obligations of any defaulting or breaching Underwriter.

                  11.2. SHARING OF LIABILITY. If any Underwriter shall default
in its obligations (i) pursuant to Section 5.1, 5.2 or 5.4, (ii) to pay amounts
charged to its account pursuant to Section 7.1, 7.2 or 8.1 or (iii) pursuant to
Section 9.2, 9.3, 9.4, 9.5,





                                       18
<PAGE>

9.6 or 11.1, you will assume your proportionate share (determined on the basis
of the respective Underwriting Percentages of the non-defaulting Underwriters)
of such obligations, but no such assumption shall relieve any defaulting
Underwriter from liability to the non-defaulting Underwriters, the Issuer, the
Guarantor or the Seller for its default.

                  11.3. ARRANGEMENTS FOR PURCHASES. The Manager is authorized to
arrange for the purchase by others (including the Manager or any other
Underwriter) of any Securities not purchased by any defaulting Underwriter in
accordance with the terms of the applicable Underwriting Agreement or, if the
applicable Underwriting Agreement does not provide arrangements for defaulting
Underwriters, in the discretion of the Manager. If such arrangements are made,
the respective amounts of Securities to be purchased by the remaining
Underwriters and such other person or persons, if any, shall be taken as the
basis for all rights and obligations hereunder, but this shall not relieve any
defaulting Underwriter from liability for its default.

                               XII. MISCELLANEOUS

                  12.1. OBLIGATIONS SEVERAL. Nothing contained in this Salomon
Smith Barney Master AAU or any AAU constitutes you partners with the Manager or
with the other Underwriters and the obligations of you and each of the other
Underwriters are several and not joint. Each Underwriter elects to be excluded
from the application of Subchapter K, Chapter 1, Subtitle A, of the United
States Internal Revenue Code of 1986, as amended. Each Underwriter authorizes
the Manager, on behalf of such Underwriter, to execute such evidence of such
election as may be required by the United States Internal Revenue Service.

                  12.2. LIABILITY OF MANAGER. The Manager shall be under no
liability to you for any act or omission except for obligations expressly
assumed by the Manager in the applicable AAU.

                  12.3. TERMINATION OF MASTER AGREEMENT AMONG UNDERWRITERS. This
SALOMON SMITH BARNEY Master AAU may be terminated by either party hereto upon
five business days' written notice to the other party; provided that with
respect to any Offering for which an AAU was sent prior to such notice, this
Salomon Smith Barney Master AAU as it applies to such Offering shall remain in
full force and effect and shall terminate with respect to such Offering in
accordance with Section 9.1 hereof.

                  12.4. GOVERNING LAW. THIS SALOMON SMITH BARNEY MASTER AAU AND
EACH AAU SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE
OF NEW YORK.

                  12.5. AMENDMENTS. This Salomon Smith Barney Master AAU may be
amended from time to time by consent of the parties hereto. Your consent shall
be deemed to have been given to an amendment to this Salomon Smith Barney Master
AAU, and such amendment shall be effective, five business days following written
notice





                                       19
<PAGE>

to you of such amendment if you do not notify Salomon Smith Barney in writing
prior to the close of business on such fifth business day that you do not
consent to such amendment. Upon effectiveness, the provisions of this Salomon
Smith Barney Master AAU as so amended shall apply to each AAU thereafter entered
into except as otherwise specifically provided in any such AAU.

                  12.6. NOTICES. Any notice to any Underwriter shall be deemed
to have been duly given if mailed, sent by wire, telex, facsimile or electronic
transmission or other written communication or delivered in person to such
Underwriter at the address which shall have been provided to Salomon Smith
Barney as provided in Section 10.4 hereof. Any such notice shall take effect
upon receipt thereof.

                  Please confirm your acceptance of this Salomon Smith Barney
Master AAU by signing and returning to us the enclosed duplicate copy hereof.


                                    Very truly yours,

                                    SALOMON SMITH BARNEY INC.



                                    By:
                                       ----------------------------------------
                                       Name:
                                       Title:




CONFIRMED:.......................,

.......................................
        (Name of Underwriter)

By:...................................
Name:
Title:
         (If person signing is not an officer or a partner,
          please attach instrument of authorization)

Address:
        ----------------------------

        ----------------------------

        ----------------------------

Telephone:
          --------------------------

Fax:
          --------------------------


                                       20

<PAGE>


                                                                       EXHIBIT A
                                                                    ______, ____



                            SALOMON SMITH BARNEY INC.
                           UNDERWRITERS' QUESTIONNAIRE


                  In connection with each Offering covered by the Salomon Smith
Barney Inc. Master Agreement Among Underwriters dated June 1, 1999, we confirm
that except as set forth in a timely reply by us to the Invitation Wire:


                  (1) Neither we nor any of our directors, officers or partners
         have a material relationship (as "material" is defined in Regulation C
         under the 1933 Act) with the Issuer, the Guarantor or any Seller.

                  (2) (If the offer and sale of the Securities are to be
         registered under the 1933 Act pursuant to a Registration Statement on
         Form S-1 of Form F-1:) Neither we nor any "group" (as that term is used
         in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
         (the "Exchange Act")) of which we are a member is the beneficial owner
         (determined in accordance with Rule 13d-3 under the Exchange Act) of
         more than 5% of any class of voting securities of the Issuer or the
         Guarantor, nor do we have any knowledge that more than 5% of any class
         of voting securities of the Issuer or the Guarantor is held or to be
         held subject to any voting trust or other similar agreement.

                  (3) Other than as may be stated in the Salomon Smith Barney
         Master Agreement Among Underwriters dated June 1, 1999, the applicable
         AAU, the Intersyndicate Agreement or dealer agreement, if any, the
         Prospectus, the Registration Statement or the Offering Circular, we do
         not know and have no reason to believe that there is an intention to
         over-allot or that the price of any security may be stabilized to
         facilitate the offering of the Securities.

                  (4) Except as described in the Prospectus or Offering
         Circular, as the case may, be and the Invitation Wire, we do not know
         of any discounts or commissions to be allowed or paid to dealers,
         including all cash, securities, contracts or other consideration to be
         received by any dealer in connection with the sale of the securities.




                                       21
<PAGE>

                  (5) We have not prepared any report or memorandum for external
         use in connection with the Offering. (If there are any exceptions, (i)
         furnish four (4) copies of each report and memorandum to Salomon Smith
         Barney Inc., 388 Greenwich Street, New York, N.Y. 10013, Attention:
         Investment Banking Department/Transaction Structuring Group, (ii)
         identify each class of person who received such material and the number
         of copies distributed to each such class, and (iii) indicate when such
         distribution commenced and ceased.)

                  (6) (If the offer and sale of the Securities are to be
         registered under the 1933 Act pursuant to a Registration Statement on
         Form S-1 or Form F-1:) We have not within the past twelve months
         prepared or had prepared for us any engineering, management or similar
         report or memorandum relating to broad aspects of the business,
         operations or products of the Issuer or the Guarantor. (The immediately
         preceding sentence does not apply to reports solely comprised of
         recommendations to buy, sell or hold the Issuer's or the Guarantor's
         securities, unless such recommendations have changed within the past
         six months or to information already contained in documents filed with
         the Commission. If there are any exceptions, (i) furnish four (4)
         copies of each report and memorandum to Salomon Smith Barney Inc. 388
         Greenwich Street, New York, N.Y. 10013, Attention: Investment Banking
         Department/Transaction Structuring Group, (ii) identify each class of
         persons who received such material and the number of copies distributed
         to each such class, and (iii) indicate when such distribution commenced
         and ceased.)

                  (7) We are not an "affiliate" of the Issuer or the Guarantor
         for purposes of Rule 2720 of the National Association of Securities
         Dealers, Inc.'s ("NASD") Conduct Rules. We understand that under Rule
         2720 (except as provided in Rule 2720(b)(1)(C) thereof) two entities
         are "affiliates" of each other if one entity controls, is controlled
         by, or is under common control with, the second entity and that
         "control" is presumed to exist if one entity (or, in the case of an
         NASD member, the entity and all "persons associated with" it (as
         defined in the NASD By-Laws)) beneficially owns 10% or more of the
         second entity's outstanding voting securities or, if the second entity
         is a partnership, if the first entity has a partnership interest in 10%
         or more of the second entity's distributable profits or losses.

                  (8) (If the Securities are not investment grade debt
         securities or preferred stock, or equity securities for which there
         exists a "bona fide independent market" (as defined in Rule 2720(b)(3)
         of the NASD's Conduct Rules) or otherwise exempted under Rule
         2720(b)(7)(D) of the NASD's Conduct Rules:) We do not have a "conflict
         of interest" with the Issuer or the Guarantor under Rule 2720 of the
         NASD's Conduct Rules. In that regard, we specifically confirm that we,
         our "parent" (as defined in Rule 2720), affiliates and "persons
         associated with" us (as defined in the NASD By-Laws), in the aggregate
         do not (i) beneficially own 10% or more of the Issuer's or the
         Guarantor's "common equity", "preferred equity", or "subordinated debt"
         (as each such term is defined in Rule 2720), or (ii) in the case of an
         Issuer or Guarantor which is a partnership, beneficially own a general,
         limited or special partnership interest in 10% or more





                                       22
<PAGE>

         of the Issuer's or Guarantor's distributable profits or losses.

                  (9) (If filing with the NASD is required:) Neither we nor any
         of our directors, officers, partners or "persons associated with" us
         (as defined in the NASD By-Laws) nor, to our knowledge, any "related
         person" (defined by the NASD to include counsel, financial consultants
         and advisors, finders, members of the selling or distribution group,
         any NASD member participating in the offering and any other persons
         associated with or related to and members of the immediate family of
         any of the foregoing) or any other broker-dealer, (a) within the last
         12 months have purchased in private transactions, or intend before, at
         or within six months after the commencement of the public offering of
         the Securities to purchase in private transactions, any securities of
         the Issuer, the Guarantor or any Issuer Related Party (as hereinafter
         defined), (b) within the last 12 months had any dealings with the
         Issuer, the Guarantor, any Seller or any subsidiary or controlling
         person thereof (other than relating to the proposed Underwriting
         Agreement) as to which documents or information are required to be
         filed with the NASD pursuant to its Corporate Financing Rule, or (c)
         during the 12 months immediately preceding the filing of the
         Registration Statement (or, if there is none, the Offering Circular),
         have entered into any arrangement which provided or provides for the
         receipt of any item of value (including, but not limited to, cash
         payments and expense reimbursements) and/or the transfer of any
         warrants, options or other securities from the Issuer, the Guarantor or
         any Issuer Related Party to us or any related person.

                  (10) (If filing with the NASD is required:) There is no
         association or affiliation between us and (i) any officer or director
         of the Issuer, the Guarantor or any Issuer Related Party, or (ii) any
         securityholder of five percent or more (or, in the case of an initial
         public offering of equity securities, any securityholder) of any class
         of securities of the Issuer, the Guarantor or an Issuer Related Party;
         it being understood that for purposes of paragraph (9) above and this
         paragraph (10), the term "Issuer Related Party" includes any Seller,
         any affiliate of the Issuer the Guarantor or a Seller and the officers
         or general partners, directors, employees and securityholders thereof.
         (If there are any exceptions, state the identity of the person with
         whom the association or affiliation exists and, if relevant, the number
         of equity securities or the face value of debt securities owned by such
         person, the date such securities were acquired and the price paid for
         such securities).

                  (11) (If the Securities are not issued by a real estate
         investment trust:) No portion of the net offering proceeds from the
         sale of the Securities will be paid to us or any of our affiliates or
         "persons associated with" us (as defined in the NASD By-Laws) or
         members of the immediate family of any such person.

                  (12) (If the Securities are debt securities and their offer
         and sale is to be registered under the 1933 Act:) We are not an
         affiliate (as defined in Rule 0-2 under the Trust Indenture Act of
         1939) of the Trustee for the Securities or of its parent, if any.
         Neither the Trustee nor its parent, if any, nor any of their directors
         or executive officers is a "director, officer, partner, employee,
         appointee or





                                       23
<PAGE>

         representative" of ours (as those terms are defined in the Trust
         Indenture Act of 1939 or in the relevant instructions to Form T-1). We
         and our directors, partners, and executive officers, taken as a group,
         did not on the date specified in the Invitation Wire, and do not, own
         beneficially 1% or more of the shares of any class of voting securities
         of the Trustee or of its parent, if any. If we are a corporation, we do
         not have outstanding and have not assumed or guaranteed any securities
         issued otherwise than in our present corporate name.

                  (13) (If the Issuer is a public utility:) We are not a
         "holding company" or a "subsidiary company" or an "affiliate" of a
         "holding company" or of a "public-utility company", each as defined in
         the Public Utility Holding Company Act of 1935.

                  (14) If we are, or we are affiliated with, a U.S. or non-U.S.
         bank, we hereby represent that our participation in the offering of the
         Securities on the terms contemplated in the applicable AAU and the
         proposed Underwriting Agreement does not contravene any U.S. or state
         banking law restricting the exercise of securities powers in the United
         States.

                  Capitalized terms used but not defined herein shall have the
respective meanings given to them in the applicable AAU.





                                       24





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2K.3
<SEQUENCE>7
<FILENAME>c72644a1exv99w2kw3.txt
<DESCRIPTION>FORM OF AUCTION AGENCY AGREEMENT
<TEXT>
<PAGE>
                                                                     Exhibit k.3

                         NUVEEN AUCTION AGENCY AGREEMENT
                     Basic Terms for Acting as Auction Agent

                                November 1, 1993

                  These basic terms ("Basic Terms") set forth the general terms
and conditions pursuant to which a bank or trust company identified in a Request
and Acceptance Letter will act as auction agent (an "Auction Agent") for
Municipal Auction Rate Cumulative Preferred Stock or Shares issued by an
investment company registered under the Investment Company Act of 1940, as
amended, as further identified by such Request and Acceptance Letter (a "Fund"),
for which Nuveen Advisory Corp. is the investment adviser.

- --------------------------------------------------------------------------------

                  The Fund proposes to issue shares of MuniPreferred(R) pursuant
to its Articles of Incorporation or Declaration of Trust, as amended or
supplemented by the Statement. The Fund desires that the Auction Agent perform
certain duties in connection with the MuniPreferred upon the terms and subject
to the conditions of the Agreement.

1.       Definitions and Rules of Construction.

         1.1      Terms Defined By Reference to Statement.

                  Capitalized terms not defined herein shall have the respective
meanings specified in the Statement.

         1.2      Terms Defined Herein.

                  As used herein and in the Settlement Procedures, the following
terms shall have the following meanings, unless the context otherwise requires:

                  (a) "Agent Member" of any Person shall mean the member of, or
         participant in, the Securities Depository that will act on behalf of a
         Bidder.

                  (b) "Agreement" shall mean the Basic Terms, together with the
         Request and Acceptance Letter relating to one or more series of
         MuniPreferred.

                  (c) "Auction" shall have the meaning specified in Section 2.1
hereof.

                  (d) "Auction Procedures" shall mean the auction procedures
         constituting Part II of the form of Statement as of the filing thereof.



<PAGE>




                  (e) "Authorized Officer" of the Auction Agent shall mean each
         Senior Vice President, Vice President, Assistant Vice President,
         Assistant Treasurer and Assistant Secretary of the Auction Agent
         assigned to its Corporate Trust and Agency Group and every other
         officer or employee of the Auction Agent designated as an "Authorized
         Officer" for purposes hereof in a communication to the Fund.

                  (f) "Broker-Dealer Agreement" shall mean each agreement among
         the Fund, the Auction Agent and a Broker-Dealer substantially in the
         form attached hereto as Exhibit A.

                  (g) "Fund Officer" shall mean the Chairman of the Board of
         Directors or Board of Trustees, as the case may be, each Vice Chairman
         of the Board of Directors or Board of Trustees (whether or not
         designated by a number or word or words added before or after the title
         "Vice Chairman"), the President, each Vice President (whether or not
         designated by a number or word or words added before or after the title
         "Vice President"), the Secretary, the Treasurer, each Assistant Vice
         President, each Assistant Secretary and each Assistant Treasurer of the
         Fund and every other officer or employee of the Fund designated as a
         "Fund Officer" for purposes hereof in a notice to the Auction Agent.

                  (h) "MuniPreferred" shall mean the preferred stock or shares,
         par value $.01 per share, of the Fund designated as its "Municipal
         Auction Rate Cumulative Preferred Stock" or "Municipal Auction Rate
         Cumulative Preferred Shares" and bearing such further designation as to
         series as the Board of Directors or Board of Trustees, as the case may
         be, of the Fund or any committee thereof shall specify; as set forth in
         the Request and Acceptance Letter.

                  (i) "Request and Acceptance Letter" shall mean the letter from
         the Fund to the Auction Agent pursuant to which the Fund appoints the
         Auction Agent and the Auction Agent accepts its appointment as auction
         agent for the MuniPreferred.

                  (j) "Settlement Procedures" shall mean the Settlement
         Procedures attached hereto as Exhibit B.

                  (k) "Statement" shall mean the Statement Establishing and
         Fixing the Rights and Preferences of, and authorizing the issuance of,
         one or more series of Municipal Auction Rate Cumulative Preferred Stock
         or Municipal Auction Rate Cumulative Preferred Shares, as filed by the
         Fund with the office of the Secretary of State or other officer of the
         state where the Fund was incorporated or organized, a copy of which is
         attached to the Request and Acceptance Letter, as the same may be
         amended, supplemented or modified from time to time.



                                       2
<PAGE>




         1.3      Rules of Construction.

                  Unless the context or use indicates another or different
meaning or intent, the following rules shall apply to the construction of the
Agreement:

                  (a) Words importing the singular number shall include the
         plural number and vice versa.

                  (b) The captions and headings herein are solely for
         convenience of reference and shall not constitute a part of the
         Agreement nor shall they affect its meaning, construction or effect.

                  (c) The words "hereof", "herein", "hereto" and other words of
         similar import refer to the Agreement as a whole.

                  (d) All references herein to a particular time of day shall be
         to New York City time.


2.       The Auction.

         2.1      Purpose; Incorporation by Reference of Auction Procedures and
                  Settlement Procedures.

                  (a) The Statement for each series of MuniPreferred will
provide that the Applicable Rate for such series for each Subsequent Rate Period
thereof shall, except under certain conditions, be the rate per annum that a
bank or trust company appointed by the Fund advises results from implementation
of the Auction Procedures for such series. The Board of Directors or Board of
Trustees, as the case may be, of the Fund has adopted a resolution appointing
the Auction Agent as auction agent for purposes of the Auction Procedures for
each series of MuniPreferred. The Auction Agent accepts such appointment and
agrees to follow the procedures set forth in this Section 2 and the Auction
Procedures for the purpose of determining the Applicable Rate for each series of
MuniPreferred for each Subsequent Rate Period thereof for which the Applicable
Rate is to be determined by an Auction. Each periodic implementation of such
procedures is hereinafter referred to as an "Auction."

                  (b) All of the provisions contained in the Auction Procedures
and the Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part hereof to the same extent as if such
provisions were fully set forth herein.

         2.2      Preparation for Each Auction; Maintenance of Registry of
                  Beneficial Owners.

                  (a) Not later than seven days prior to the first Auction Date
for the first series of MuniPreferred subject to an Auction, the Fund shall
provide the Auction Agent with a list of




                                       3
<PAGE>

the Broker-Dealers. Not later than seven days prior to any Auction Date for any
series of MuniPreferred for which any change in such list of Broker-Dealers is
to be effective, the Fund will notify the Auction Agent in writing of such
change and, if any such change involves the addition of a Broker-Dealer to such
list, shall cause to be delivered to the Auction Agent for execution by the
Auction Agent a Broker-Dealer Agreement signed by such Broker-Dealer; provided,
however, that if the Fund proposes to designate any Special Rate Period of any
series of MuniPreferred pursuant to Section 4 of Part I of the Statement, not
later than 11:00 A.M. on the Business Day next preceding the Auction next
preceding the first day of such Rate Period or by such later time or date, or
both, as may be agreed to by the Auction Agent, the Fund shall provide the
Auction Agent with a list of the Broker-Dealers for such series and a manually
signed copy of each Broker-Dealer Agreement or a new Schedule A to a
Broker-Dealer Agreement (which Schedule A shall replace and supersede any
previous Schedule A to such Broker-Dealer Agreement) with each Broker-Dealer for
such series. The Auction Agent and the Fund shall have entered into a
Broker-Dealer Agreement with each Broker-Dealer prior to the participation of
any such Broker-Dealer in any Auction.

                  (b) In the event that any Auction Date for any series of
MuniPreferred shall be changed after the Auction Agent shall have given the
notice referred to in clause (vi) of paragraph (a) of the Settlement Procedures,
or after the notice referred to in Section 2.5(a) hereof, if applicable, the
Auction Agent, by such means as the Auction Agent deems practicable, shall give
notice of such change to the Broker-Dealers for such series not later than the
earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old Auction
Date.

                  (c) (i) The Auction Agent shall maintain a registry of the
beneficial owners of the shares of MuniPreferred of each series who shall
constitute Existing Holders of shares of MuniPreferred of such series for
purposes of Auctions and shall indicate thereon the identity of the respective
Broker-Dealer of each Existing Holder, if any, on whose behalf such
Broker-Dealer submitted the most recent Order in any Auction which resulted in
such Existing Holder continuing to hold or purchasing shares of MuniPreferred of
such series. The Auction Agent shall keep such registry current and accurate.
The Fund shall provide or cause to be provided to the Auction Agent at or prior
to the Date of Original Issue of the shares of MuniPreferred of each series a
list of the initial Existing Holders of the shares of each such series of
MuniPreferred, the number of shares purchased by each such Existing Holder and
the respective Broker-Dealer of each such Existing Holder or the affiliate
thereof through which each such Existing Holder purchased such shares. The
Auction Agent shall advise the Fund in writing whenever the number of Existing
Holders is 500 or more. The Auction Agent may rely upon, as conclusive evidence
of the identities of the Existing Holders of shares of MuniPreferred of any
series (A) such list, (B) the results of Auctions, (C) notices from any
Broker-Dealer as described in the first sentence of Section 2.2(c)(iii) hereof
and (D) the results of any procedures approved by the Fund that have been
devised for the purpose of determining the identities of Existing Holders in
situations where shares of MuniPreferred may have been transferred without
compliance with any restriction on the transfer thereof set forth in the Auction
Procedures.



                                       4
<PAGE>

                           (ii) In the event of any partial redemption of any
series of MuniPreferred, the Auction Agent shall, at least two Business Days
prior to the next Auction for such series, request each Broker-Dealer to provide
the Auction Agent with a list of Persons who such Broker-Dealer believes should
remain Existing Holders after such redemption based upon inquiries of those
Persons such Broker-Dealer believes are Beneficial Owners as a result of the
most recent Auction and with respect to each such Person, the number of shares
of MuniPreferred of such series such Broker-Dealer believes are owned by such
Person after such redemption. In the absence of receiving any such information
from any Broker-Dealer, the Auction Agent may continue to treat the Persons
listed in its registry of Existing Holders as the beneficial owner of the number
of shares of MuniPreferred of such series shown in such registry.

                           (iii) The Auction Agent shall be required to register
a transfer of shares of MuniPreferred of any series from an Existing Holder of
such shares of MuniPreferred only if such transfer is to another Existing
Holder, or other Person if permitted by the Fund, and only if such transfer is
made (A) pursuant to an Auction, (B) the Auction Agent has been notified in
writing (I) in a notice substantially in the form of Exhibit C to the
Broker-Dealer Agreements by a Broker-Dealer of such transfer or (II) in a notice
substantially in the form of Exhibit D to the Broker-Dealer Agreements by the
Broker-Dealer of any Existing Holder, or other Person if permitted by the Fund,
that purchased or sold such shares of MuniPreferred in an Auction of the failure
of such shares of MuniPreferred to be transferred as a result of such Auction or
(C) pursuant to procedures approved by the Fund that have been devised for the
purpose of determining the identities of Existing Holders in situations where
shares of MuniPreferred may have been transferred without compliance with any
restriction on the transfer thereof set forth in the Auction Procedures. 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. on the Business Day preceding such
Auction.

                  (d) The Auction Agent may request the Broker-Dealers, as set
forth in the Broker-Dealer Agreements, to provide the Auction Agent with a list
of Persons who such Broker-Dealer believes should be Existing Holders based upon
inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as
a result of the most recent Auction and with respect to each such Person, the
number of shares of such series of MuniPreferred such Broker-Dealer believes to
be owned by such Person. The Auction Agent shall keep confidential such registry
of Existing Holders and shall not disclose the identities of the Existing
Holders of such shares of MuniPreferred to any Person other than the Fund and
the Broker-Dealer that provided such information.

         2.3      Information Concerning Rates.

                  (a) The Rate Multiple on the date of the Agreement is set
forth in the Request and Acceptance Letter. If there is any change in the credit
rating of MuniPreferred by either of the rating agencies (or substitute or
successor rating agencies) referred to in the definition of "Rate Multiple"
resulting in any change in the Rate Multiple for MuniPreferred after the date of
the




                                       5
<PAGE>

Request and Acceptance Letter, the Fund shall notify the Auction Agent in
writing of such change in the Rate Multiple prior to 12:00 Noon on the Business
Day prior to the next Auction Date for any series of MuniPreferred succeeding
such change. If the Fund designates all or a portion of any dividend on shares
of any series of MuniPreferred to consist of net capital gains or other income
taxable for Federal income tax purposes, it will indicate, in its notice in the
form of Exhibit I hereto to the Auction Agent pursuant to Section 2.6 hereof,
the Rate Multiple for such series to be in effect for the Auction Date on which
the dividend rate for such dividend is to be fixed. In determining the Maximum
Rate for any series of MuniPreferred on any Auction Date as set forth in Section
2.3(b)(i) hereof, the Auction Agent shall be entitled to rely on the last Rate
Multiple for MuniPreferred of which it has most recently received notice from
the Fund (or, in the absence of such notice, the percentage set forth in the
Request and Acceptance Letter), except that if the Fund shall have notified the
Auction Agent of a Rate Multiple to be in effect for an Auction Date in
accordance with the preceding sentence, the Rate Multiple in effect for the next
succeeding Auction Date of any series of MuniPreferred shall be, unless the Fund
notifies the Auction Agent of a change in the Rate Multiple for such succeeding
Auction Date pursuant to this Section 2.3(a), the Rate Multiple that was in
effect on the first preceding Auction Date for MuniPreferred with respect to
which the dividend, the rate for which was fixed on such Auction Date, did not
include any net capital gains or other income taxable for Federal income tax
purposes.

                  (b) (i) On each Auction Date for any series of MuniPreferred,
the Auction Agent shall determine the Maximum Rate for such series. The Maximum
Rate for any series of MuniPreferred on any Auction Date shall be:

                  (A) in the case of any Auction Date which is not the Auction
         Date immediately prior to the first day of any proposed Special Rate
         Period designated by the Fund pursuant to Section 4 of Part I of the
         Statement, the product of (1) the Reference Rate on such Auction Date
         for the next Rate Period of such series and (2) the Rate Multiple on
         such Auction Date, unless such series has or had a Special Rate Period
         (other than a Special Rate Period of 28 Rate Period Days or fewer) and
         an Auction at which Sufficient Clearing Bids existed has not yet
         occurred for a Minimum Rate Period of such series after such Special
         Rate Period, in which case the higher of:

                           (1) the dividend rate on shares of such series for
                  the then-ending Rate Period; and

                           (2) the product of (x) the higher of (I) the
                  Reference Rate on such Auction Date for a Rate Period equal in
                  length to the then-ending Rate Period of such series, if such
                  then ending Rate Period was 364 Rate Period Days or fewer, or
                  the Treasury Note Rate on such Auction Date for a Rate Period
                  equal in length to the then-ending Rate Period of such series,
                  if such then ending Rate Period was more than 364 Rate Period
                  Days, and (II) the Reference Rate on such Auction Date for a
                  Rate Period equal in length to such Special Rate Period of
                  such series, if such




                                       6
<PAGE>

                  Special Rate Period was 364 Rate Period Days or fewer, or the
                  Treasury Note Rate on such Auction Date for a Rate Period
                  equal in length to such Special Rate Period, if such Special
                  Rate Period was more than 364 Rate Period Days and (y) the
                  Rate Multiple on such Auction Date; or

                  (B) in the case of any Auction Date which is the Auction Date
         immediately prior to the first day of any proposed Special Rate Period
         designated by the Fund pursuant to Section 4 of Part I of the
         Statement, the product of (1) the highest of (x) the Reference Rate on
         such Auction Date for a Rate-Period equal in length to the then-ending
         Rate Period of such series, if such then-ending Rate Period was 364
         Rate Period Days or fewer, or the Treasury Note Rate on such Auction
         Date for a Rate Period equal in length to the then-ending Rate Period
         of such Rate Period, if such then-ending Rate Period was more than 364
         Rate Period Days, (y) the Reference Rate on such Auction Date for the
         Special Rate Period for which the Auction is being held if such Special
         Rate Period is 364 Rate Period Days or fewer or the Treasury Note Rate
         on such Auction Date for the Special Rate Period for which the Auction
         is being held if such Special Rate Period is more than 364 Rate Period
         Days, and (z) the Reference Rate on such Auction Date for Minimum Rate
         Periods and (2) the Rate Multiple on such Auction Date.

Not later than 9:30 A.M. on each Auction Date the Auction Agent shall notify the
Fund and the Broker-Dealers of the Maximum Rate so determined and the "AA"
Composite Commercial Paper Rate(s), the Taxable Equivalent of the Short-Term
Municipal Bond Rate(s), Treasury Note Rate(s) and Treasury Bill Rate(s), as the
case may be, used to make such determination.

                           (ii) From and after a Failure to Deposit by the Fund
during any Rate Period of any series of MuniPreferred, until such failure is
cured and a Late Charge (as defined in paragraph (a) of Section 2.7), is paid,
in accordance with subparagraph (e)(i) of Section 2 of Part I of the Statement,
on the first day of each Rate Period of such series the Auction Agent shall
determine the Treasury Note Rate for such Rate Period of more than 364 Rate
Period Days and the Reference Rate for Rate Periods of 364 Rate Period Days or
fewer. Not later than 9:30 A.M. on each such first day, the Auction Agent shall
notify the Fund of the applicable Reference Rate and Treasury Note Rate.

                           (iii) If any "AA" Composite Commercial Paper Rate,
Taxable Equivalent of the Short-Term Municipal Bond Rate, Treasury Note Rate or
Treasury Bill Rate, as the case may be, is not quoted on an interest or bond
equivalent, as the case may be, basis, the Auction Agent shall convert the
quoted rate to the interest or bond equivalent thereof as set forth in the
definition of such rate in the Statement if the rate obtained by the Auction
Agent is quoted on a discount basis, or if such rate is quoted on a basis other
than an interest or bond equivalent or discount basis the Auction Agent shall
convert the quoted rate to an interest or bond equivalent rate after
consultation with the Fund as to the method of such conversion.



                                       7
<PAGE>

                           (iv) If any "AA" Composite Commercial Paper Rate is
to be based on rates supplied by Commercial Paper Dealers and one or more of the
Commercial Paper Dealers shall not provide a quotation for the determination of
such "AA" Composite Commercial Paper Rate, the Auction Agent shall immediately
notify the Fund so that the Fund can determine whether to select a Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers to provide the
quotation or quotations not being supplied by any Commercial Paper Dealer or
Commercial Paper Dealers. The Fund shall promptly advise the Auction Agent of
any such selection.

                           (v) If any Treasury Note Rate or Treasury Bill Rate
is to be based on rates supplied by U.S. Government Securities Dealers and one
or more of the U.S. Government Securities Dealers shall not provide a quotation
for the determination of such Treasury Rate, the Auction Agent shall immediately
notify the Fund so that the Fund can determine whether to select a Substitute
U.S. Government Securities Dealer or Substitute U.S. Government Securities
Dealers to provide the quotation or quotations not being supplied by any U.S.
Government Securities Dealer or U.S. Government Securities Dealers. The Fund
shall promptly advise the Auction Agent of any such selection.

                  (c) The maximum marginal tax rate referred to in the
definition of "Rate Multiple" in the Statement is referred to in this Agreement
as the "Highest Marginal Rate." The Highest Marginal Rate on the date of the
Agreement is set forth in the Request and Acceptance Letter. If there is any
change in the Highest Marginal Rate, the Fund shall notify the Auction Agent in
writing of such change prior to 12:00 Noon on the Business Day prior to the next
Auction Date for MuniPreferred succeeding such change. In determining the
Maximum Rate for any series of MuniPreferred on any Auction Date, the Auction
Agent shall be entitled to rely on the Highest Marginal Rate of which it has
most recently received notice from the Fund (or, in the absence of such notice,
the percentage set forth in the Request and Acceptance Letter).

         2.4      Auction Schedule.

                  The Auction Agent shall conduct Auctions in accordance with
the schedule set forth below. Such schedule may be changed by the Auction Agent
with the consent of the Fund, which consent shall not be unreasonably withheld.
The Auction Agent shall give written notice of any such change to each
Broker-Dealer. Such notice shall be given prior to the close of business on the
Business Day next preceding the first Auction Date on which any such change
shall be effective.


<TABLE>
<CAPTION>
Time                                        Event
- ----                                        -----
<S>                                         <C>
By 9:30 A.M.                                Auction Agent advises the
                                            Fund and Broker-Dealers of the
                                            applicable Maximum Rate and the
                                            Reference Rate(s) and Treasury Note
                                            Rate(s), as the case may be, used in
                                            determining such Maximum Rate as set
                                            forth in Section 2.3(b)(i) hereof.
</TABLE>

                                       8
<PAGE>
<TABLE>
<CAPTION>
Time                                        Event
- ----                                        -----
<S>                                         <C>
9:30 A.M. - 1:30 P.M.                       Auction Agent assembles information communicated
                                            to it by Broker-Dealers as provided in Section 2(a) of
                                            the Auction Procedures.  Submission Deadline is
                                            1:30 P.M.

Not earlier than 1:30 P.M.                  Auction Agent makes determinations pursuant to
                                            Section 3(a) of the Auction Procedures.

By approximately 3:00 P.M.                  Auction Agent advises Fund of results of Auction as
                                            provided in Section 3(b) of the Auction Procedures.

                                            Submitted Bids and Submitted Sell Orders are
                                            accepted and rejected and shares of MuniPreferred
                                            allocated as provided in Section 4 of the Auction
                                            Procedures.  Auction Agent gives notice of Auction
                                            results as set forth in paragraph(a) of the Settlement
                                            Procedures.
</TABLE>

The Auction Agent shall follow the notification procedures set forth in
paragraph (a) of the Settlement Procedures.

         2.5      Designation of Special Rate Period.

                  (a) The Statement will provide that, subject to the Fund's
option to designate a Special Rate Period as referred to in paragraph (b) of
this Section 2.5, (i) each Rate Period of any series of MuniPreferred will be a
Minimum Rate Period (a duration of seven days, subject to certain exceptions)
and (ii) each Rate Period following a Rate Period of any series of MuniPreferred
that is other than a Minimum Rate Period will be a Minimum Rate Period. Not less
than 10 nor more than 20 days prior to the last day of any such Rate Period that
is not a Minimum Rate Period, (i) the Fund shall deliver to the Auction Agent a
notice of the Auction Date of the next succeeding Auction for such series in the
form of Exhibit C hereto and (ii) the Auction Agent shall deliver such notice by
first-class mail, postage prepaid, to each Existing Holder of shares of such
series at the address set forth for such Existing Holder in the records of the
Auction Agent and to the Broker-Dealers for such series as promptly as
practicable after its receipt of such notice from the Fund.

                  (b) Pursuant to the Statement, the Fund may, at its option,
designate a Special Rate Period for any series of MuniPreferred in the manner
described in Section 4 of Part I of the Statement.

                           (i) If the Board of Directors or Board of Trustees,
         as the case may be, proposes to designate any succeeding Subsequent
         Rate Period of any series of




                                       9
<PAGE>

         MuniPreferred as a Special Rate Period, (A) the Fund shall deliver to
         the Auction Agent a notice of such proposed Special Rate Period in the
         form of Exhibit D hereto not less than 20 (or such lesser number of
         days as may be agreed to from time to time by the Auction Agent) nor
         more than 30 days prior to the first day of such proposed Special Rate
         Period and (B) the Auction Agent on behalf of the Fund shall deliver
         such notice by first-class mail, postage prepaid, to each Existing
         Holder of shares of such series of MuniPreferred at the address set
         forth for such Existing Holder in the records of the Auction Agent and
         to the Broker-Dealers for such series as promptly as practicable after
         its receipt of such notice from the Fund.

                           (ii) If the Board of Directors or Board of Trustees,
         as the case may be, determines to designate such succeeding Subsequent
         Rate Period as a Special Rate Period, (A) the Fund shall deliver to the
         Auction Agent a notice of such determination in the form of Exhibit E
         hereto not later than 11:00 A.M. on the second Business Day next
         preceding the first day of such proposed Special Rate Period (or such
         later time or date, or both, as may be agreed to by the Auction Agent)
         and (B) the Auction Agent shall deliver such notice to the
         Broker-Dealers for such series not later than 3:00 P.M. on such second
         Business Day (or, if the Auction Agent has agreed to a later time or
         date, as promptly as practicable thereafter).

                           (iii) If the Fund shall deliver to the Auction Agent
         a notice not later than 11:00 A.M. on the second Business Day next
         preceding the first day of such proposed Special Rate Period (or such
         later time or date, or both, as may be agreed to by the Auction Agent)
         stating that the Fund has determined not to exercise its option to
         designate such succeeding Subsequent Rate Period as a Special Rate
         Period, in the form of Exhibit F hereto, or shall fail to timely
         deliver either such notice or a notice in the form of Exhibit E hereto,
         the Auction Agent shall deliver a notice in the form of Exhibit F
         hereto to the Broker-Dealers for such series not later than 3:00 P.M.
         on such second Business Day (or, if the Auction Agent has agreed to a
         later time or date, as promptly as practicable thereafter).

Such change in the length of any Rate Period shall not occur if (1) an Auction
for shares of such series shall not be held on such Auction Date for any reason
or (2) an Auction for shares of such series shall be held on such Auction Date
but Sufficient Clearing Bids for shares of such series shall not exist in such
Auction.

         2.6      Allocation of Taxable Income.

                  The Fund shall, in the case of a Minimum Rate Period or a
Special Rate Period of 28 Rate Period Days or fewer, and may, in the case of any
other Special Rate Period, designate all or a portion of any dividend on shares
of any series of MuniPreferred to consist of net capital gains or other income
taxable for Federal income tax purposes by delivering to the Auction Agent a
notice in the form of Exhibit I hereto of such designation not later than the
Dividend Payment




                                       10
<PAGE>

Date for such series next preceding the Auction Date on which the dividend rate
for such dividend is to be fixed. The Auction Agent will deliver such notice to
the Broker-Dealers for such series on the Business Day following its receipt of
such notice from the Fund. Within two Business Days after any Auction Date
involving the allocation of income taxable for Federal income tax purposes, the
Auction Agent shall notify each Broker-Dealer for the related series as to the
dollar amount per share of such taxable income and income exempt from Federal
income taxation included in the related dividend.

         2.7      Failure to Deposit.

                  (a)      If:

                           (i) any Failure to Deposit shall have occurred with
         respect to shares of MuniPreferred during any Rate Period thereof
         (other than any Special Rate Period of more than 364 Rate Period Days
         or any Rate Period succeeding any Special Rate Period of more than 364
         Rate Period Days during which a Failure to Deposit occurred that has
         not been cured), but, prior to 12:00 Noon, New York City time, on the
         third Business Day next succeeding the date on which such Failure to
         Deposit occurred, such Failure to Deposit shall have been cured in
         accordance with Section 2.7(c) hereof and the Fund shall have paid to
         the Auction Agent a late charge (a "Late Charge") equal to the sum of
         (1) if such Failure to Deposit consisted of the failure timely to pay
         to the Auction Agent the full amount of dividends with respect to any
         Dividend Period on such shares, an amount computed by multiplying (x)
         200% of the Reference Rate for the Rate Period during which such
         Failure to Deposit occurs on the Dividend Payment Date for such
         Dividend Period by (y) a fraction, the numerator of which shall be the
         number of days for which such Failure to Deposit has not been cured in
         accordance with Section 2.7(c) hereof (including the day such Failure
         to Deposit occurs and excluding the day such Failure to Deposit is
         cured) and the denominator of which shall be 360, and applying the rate
         obtained against the aggregate liquidation preference of the
         outstanding shares of MuniPreferred and (2) if such Failure to Deposit
         consisted of the failure timely to pay to the Auction Agent the
         Redemption Price of the shares of MuniPreferred, if any, for which
         Notice of Redemption has been given by the Fund, an amount computed by
         multiplying (x) 200% of the Reference Rate for the Rate Period during
         which such Failure to Deposit occurs on the redemption date by (y) a
         fraction, the numerator of which shall be the number of days for which
         such Failure to Deposit is not cured in accordance with Section 2.7(c)
         hereof (including the day such Failure to Deposit occurs and excluding
         the day such Failure to Deposit is cured) and the denominator of which
         shall be 360, and applying the rate obtained against the aggregate
         liquidation preference of the outstanding shares of MuniPreferred to
         the redeemed,

then the Auction Agent shall deliver a notice in the form of Exhibit G hereto by
first-class mail, postage prepaid, to the Broker-Dealers for such series not
later than one Business Day after its receipt of the payment from the Fund
curing such Failure to Deposit and such Late Charge.



                                       11
<PAGE>

                  (b)      If:

                           (i) any Failure to Deposit shall have occurred with
         respect to shares of MuniPreferred during any Rate Period thereof
         (other than any Special Rate Period of more than 364 Rate Period Days
         or any Rate Period succeeding any Special Rate Period of more than 364
         Rate Period Days during which a Failure to Deposit occurred but has not
         been cured), and, prior to 12:00 Noon, New York City time, on the third
         Business Day next succeeding the date on which such Failure to Deposit
         occurred, such Failure to Deposit shall not have been cured in
         accordance with Section 2.7(c) hereof or the Fund shall not have paid
         the applicable Late Charge to the Auction Agent; or

                           (ii) any Failure to Deposit shall have occurred with
         respect to shares of MuniPreferred during a Special Rate Period thereof
         of more than 364 Rate Period Days, or during any Rate Period thereof
         succeeding any Special Rate Period of more than 364 Rate Period Days
         during which a Failure to Deposit occurred that has not been cured,
         and, prior to 12:00 noon, New York City time, on the fourth Business
         Day preceding the Auction Date for the Rate Period subsequent to such
         Rate Period, such Failure to Deposit shall not have been cured in
         accordance with Section 2.7(c) hereof or the Fund shall not have paid
         the applicable Late Charge to the Auction Agent in accordance with
         Section 2(e)(i)(D) of the Statement (such Late Charge, for purposes of
         this clause (b)(iii) of this Section 2.7, to be calculated by using, as
         the Reference Rate, the Reference Rate applicable to a Rate Period (x)
         consisting of more than 182 Rate Period Days and (y) commencing on the
         date on which the Rate Period during which Failure to Deposit occurs
         commenced);

then the Auction Agent shall deliver a notice in the form of Exhibit H hereto to
the Broker-Dealers for such series not later than one Business Day after the
receipt of the payment from the Fund curing such Failure to Deposit and such
Late Charge.

                  (c) A Failure to Deposit with respect to shares of
MuniPreferred shall have been cured (if such Failure to Deposit is not solely
due to the willful failure to the Fund to make the required payment to the
Auction Agent) with respect to any Rate Period if, within the respective time
periods described immediately above, the Fund shall have paid to the Auction
Agent (i) all accumulated and unpaid dividends on the shares of MuniPreferred
and (ii) without duplication, the Redemption Price for the shares of
MuniPreferred, if any, for which Notice of Redemption has been mailed; provided,
however, that the foregoing clause (ii) shall not apply to the Fund's failure to
pay the Redemption Price in respect of shares of MuniPreferred when the related
Redemption Notice provides that redemption of such shares is subject to one or
more conditions precedent and each such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.



                                       12
<PAGE>

         2.8      Broker-Dealers.

                  (a) Not later than 12:00 Noon on each Auction Date for any
series of MuniPreferred, the Fund shall pay to the Auction Agent an amount in
cash equal to the aggregate fees payable to the Broker-Dealers for such series
pursuant to Section 2.8 of the Broker-Dealer Agreements for such series. The
Auction Agent shall apply such moneys as set forth in Section 2.8 of each such
Broker-Dealer Agreement.

                  (b) The Fund shall obtain the consent of the Auction Agent
prior to selecting any Person to act as a Broker-Dealer, which consent shall not
be unreasonably withheld.

                  (c) The Auction Agent shall terminate any Broker-Dealer
Agreement as set forth therein if so directed by the Fund, provided that at
least one Broker-Dealer Agreement would be in effect for each series of
MuniPreferred after such termination.

                  (d) Subject to the Auction Agent's having consented to the
selection of the relevant Broker-Dealer pursuant to Section 2.8(b) hereof, the
Auction Agent shall from time to time enter into such Broker-Dealer Agreements
with one or more Broker-Dealers as the Fund shall request, and shall enter into
such schedules to any such Broker-Dealer Agreements as the Fund shall request,
which schedules, among other things, shall set forth the series of MuniPreferred
to which such Broker-Dealer Agreement relates.

         2.9      Ownership of Shares of MuniPreferred.

                  The Fund shall notify the Auction Agent if the Fund or any
affiliate of the Fund acquires any shares of MuniPreferred of any series.
Neither the Fund nor any affiliate of the Fund shall submit any Order in any
Auction for MuniPreferred, except as set forth in the next sentence. 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. For purposes of this
Section 2.9, a Broker-Dealer shall not be deemed to be an affiliate of the Fund
solely because one or more of the directors or executive officers of such
Broker-Dealer or of any Person controlled by, in control of or under common
control with such Broker-Dealer is also a director of the Fund. The Auction
Agent shall have no duty or liability with respect to enforcement of this
Section 2.9.

         2.10     Access to and Maintenance of Auction Records.

                  The Auction Agent shall, upon the receipt of prior written
notice from the Fund, afford to the Fund access at reasonable times during
normal business hours to all books, records, documents and other information
concerning the conduct and results of Auctions. The Auction Agent shall maintain
records relating to any Auction for a period of six years after such Auction,
and such records shall, in reasonable detail, accurately and fairly reflect the
actions taken by the Auction Agent hereunder.




                                       13
<PAGE>

3.       The Auction Agent as Dividend and Redemption Price Disbursing Agent.

                  The Auction Agent, as dividend and redemption price disbursing
agent, shall pay to the Holders of shares of MuniPreferred of any series (i) on
each Dividend Payment Date for such series, dividends on the shares of
MuniPreferred of such series, (ii) on any date fixed for redemption of shares of
MuniPreferred of any series, the Redemption Price of any shares of such series
called for redemption and (iii) any Late Charge related to any payment of
dividends or Redemption Price, in each case after receipt of the necessary funds
from the Fund with which to pay such dividends, Redemption Price or Late Charge.
The amount of dividends for any Rate Period for any series of MuniPreferred to
be paid by the Auction Agent to the Holders of such shares of such series will
be determined by the Fund as set forth in Section 2 of Part I of the Statement
with respect to such series. The Redemption Price of any shares to be paid by
the Auction Agent to the Holders will be determined by the Fund as set forth in
Section 11 of Part I of the Statement with respect to such series. The Fund
shall notify the Auction Agent in writing of a decision to redeem shares of any
series of MuniPreferred at least five days prior to the date a notice of
redemption is required to be mailed to the Holders of the shares to be redeemed
by paragraph (c) of Section 11 of Part I of the Statement. Such notice by the
Fund to the Auction Agent shall contain the information required by paragraph
(c) of Section 11 of Part I of the Statement to be stated in the notice of
redemption required to be mailed by the Fund to such Holders.


4.       The Auction Agent as Transfer Agent and Registrar.

         4.1      Issue of Stock or Shares Certificates.

                  Upon the Date of Original Issue of each series of
MuniPreferred, one or more certificates representing all of the shares of such
series issued on such date shall be issued by the Fund and, at the request of
the Fund, registered in the name of Cede & Co. and countersigned by the Auction
Agent.

         4.2      Registration of Transfer of Shares.

                  Shares of each series of MuniPreferred shall be registered
solely in the name of the Securities Depository or its nominee.

         4.3      Removal of Legend on Restricted Shares.

                  All requests for removal of legends on shares of MuniPreferred
of any series indicating restrictions on transfer shall be accompanied by an
opinion of counsel stating that such legends may be removed and such shares
freely transferred, such opinion to be delivered under



                                       14
<PAGE>

cover of a letter from a Fund Officer authorizing the Auction Agent to remove
the legend on the basis of said opinion.

         4.4      Lost Stock or Share Certificates.

                  The Auction Agent shall issue and register replacement
certificates for certificates represented to have been lost, stolen or destroyed
upon the fulfillment of such requirements as shall be deemed appropriate by the
Fund and the Auction Agent, subject at all times to provisions of law, the
By-Laws of the Fund governing such matters and resolutions adopted by the Fund
with respect to lost securities. The Auction Agent may issue new certificates in
exchange for and upon the cancellation of mutilated certificates. Any request by
the Fund to the Auction Agent to issue a replacement or new certificate pursuant
to this Section 4.4 shall be deemed to be a representation and warranty by the
Fund to the Auction Agent that such issuance will comply with such provisions of
law and the By-Laws and resolutions of the Fund.

         4.5      Disposition of Cancelled Certificates; Record Retention.

                  The Auction Agent shall retain all stock or share certificates
which have been cancelled in transfer or exchange and all accompanying
documentation in accordance with applicable rules and regulations of the
Securities and Exchange Commission for two calendar years. Upon the expiration
of this two-year period, the Auction Agent shall deliver to the Fund the
cancelled certificates and accompanying documentation. The Fund shall also
undertake to furnish to the Securities and Exchange Commission and to the Board
of Governors of the Federal Reserve System, upon demand, at either the principal
office or at any regional office, complete, correct and current hard copies of
any and all such records. Thereafter such records shall not be destroyed by the
Fund without the concurrence of the Auction Agent.

         4.6      Stock or Record Books.

                  For so long as the Auction Agent is acting as the transfer
agent for any series of MuniPreferred pursuant to the Agreement, it shall
maintain a stock or record book containing a list of the Holders of the shares
of MuniPreferred of each such series. In case of any request or demand for the
inspection of the stock or record books of the Fund or any other books in the
possession of the Auction Agent, the Auction Agent will notify the Fund and
secure instructions as to permitting or refusing such inspection. The Auction
Agent reserves the right, however, to exhibit the stock or record books or other
books to any Person in case it is advised by its counsel that its failure to do
so would be unlawful.

         4.7      Return of Funds.

                  Any funds deposited with the Auction Agent hereunder by the
Fund for any reason, including but not limited to redemption of shares of
MuniPreferred of any series, that remain




                                       15
<PAGE>

unpaid after ninety days shall be repaid to the Fund upon the written request of
the Fund, together with interest, if any, earned thereon.

5. Representations and Warranties of the Fund.

                  The Fund represents and warrants to the Auction Agent that:

                  (a) the Fund is a duly incorporated and existing corporation
         or a duly organized and existing business trust in good standing under
         the laws of the State of its incorporation or organization and has full
         corporate power or all requisite power to execute and deliver the
         Agreement and to authorize, create and issue the shares of
         MuniPreferred of each series and the shares of MuniPreferred of each
         series when issued, will be duly authorized, validly issued, fully paid
         and nonassessable;

                  (b) the Agreement has been duly and validly authorized,
         executed and delivered by the Fund and constitutes the legal, valid and
         binding obligation of the Fund;

                  (c) the form of the certificate evidencing the shares of
         MuniPreferred of each series complies or will comply with all
         applicable laws of the State of its incorporation or organization;

                  (d) when issued, the shares of MuniPreferred of each series
         will have been duly registered under the Securities Act of 1933, as
         amended, and no further action by or before any governmental body or
         authority of the United States or of any state thereof is required in
         connection with the execution and delivery of the Agreement or will
         have been required in connection with the issuance of the shares of
         MuniPreferred of each series;

                  (e) the execution and delivery of the Agreement and the
         issuance and delivery of the shares of MuniPreferred of each series do
         not and will not conflict with, violate or result in a breach of, the
         terms, conditions or provisions of, or constitute a default under, the
         Articles of Incorporation or Declaration of Trust (as amended by one or
         more Statements) or the By-Laws of the Fund, any law or regulation, any
         order or decree of any court or public authority having jurisdiction,
         or any mortgage, indenture, contract, agreement or undertaking to which
         the Fund is a party or by which it is bound the effect of which
         conflict, violation, default or breach would be material to the Fund or
         the Fund and its subsidiaries taken as a whole; and

                  (f) no taxes are payable upon or in respect of the execution
         of the Agreement or the issuance of the shares of MuniPreferred of any
         series.




                                       16
<PAGE>

6.       The Auction Agent.

         6.1      Duties and Responsibilities.

                  (a) The Auction Agent is acting solely as agent for the Fund
hereunder and owes no fiduciary duties to any Person, other than the Fund, by
reason of the Agreement.

                  (b) The Auction Agent undertakes to perform such duties and
only such duties as are specifically set forth in the Agreement, and no implied
covenants or obligations shall be read into the Agreement against the Auction
Agent.

                  (c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered, or omitted or
for any error of judgment made by it in the performance of its duties under the
Agreement. The Auction Agent shall not be liable for any error of judgment made
in good faith unless the Auction Agent shall have been negligent in ascertaining
the pertinent facts.

         6.2      Rights of the Auction Agent.

                  (a) The Auction Agent may rely and shall be protected in
acting or refraining from acting upon any communication authorized hereby and
upon any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document believed
in good faith by it to be genuine. The Auction Agent shall not be liable for
acting upon any telephone communication authorized hereby which the Auction
Agent believes in good faith to have been given by the Fund or by a
Broker-Dealer. The Auction Agent may record telephone communications with the
Fund or with the Broker-Dealers or both.

                  (b) The Auction Agent may consult with counsel of its choice
and the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.

                  (c) The Auction Agent shall not be required to advance, expend
or risk its own funds or otherwise incur or become exposed to financial
liability in the performance of its duties hereunder.

                  (d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys and shall
not be responsible for any misconduct or negligence on the part of any agent or
attorney appointed by it with due care hereunder.

         6.3      Auction Agent's Disclaimer.

                  The Auction Agent makes no representation as to the validity
or adequacy of the Agreement, the Broker-Dealer Agreements or the shares of
MuniPreferred of any series except that the Auction Agent hereby represents that
the Agreement has been duly authorized, executed




                                       17
<PAGE>

and delivered by the Auction Agent and constitutes a legal and binding
obligation of the Auction Agent.

         6.4      Compensation, Expenses and Indemnification.

                  (a) The Fund shall pay the Auction Agent from time to time
reasonable compensation for all services rendered by it under the Agreement and
the Broker-Dealer Agreements.

                  (b) The Fund shall reimburse the Auction Agent upon its
request for all reasonable out-of-pocket expenses, disbursements and advances
incurred or made by the Auction Agent in accordance with any provision of the
Agreement and the Broker-Dealer Agreements (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any expense or disbursement attributable to its negligence or bad faith.

                  (c) The Fund shall indemnify the Auction Agent for and hold it
harmless against any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with its agency under the
Agreement and the Broker-Dealer Agreements, including the costs and expenses of
defending itself against any such claim or liability in connection with its
exercise or performance of any of its duties hereunder and thereunder.

7.       Miscellaneous.

         7.1      Term of Agreement.

                  (a) The term of the Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Fund may terminate the Agreement
at any time by so notifying the Auction Agent, provided that the Fund has
entered into an agreement in substantially the form of the Agreement with a
successor Auction Agent. The Auction Agent may terminate the Agreement upon
written notice to the Fund on the date specified in such notice, which date
shall be no earlier than 45 days after the date of delivery of such notice.

                  (b) Except as otherwise provided in this paragraph (b), the
respective rights and duties of the Fund and the Auction Agent under the
Agreement with respect to any series of MuniPreferred shall cease upon
termination of the Agreement with respect to such series. The Fund's
representations, warranties, covenants and obligations to the Auction Agent
under Sections 5 and 6.4 hereof shall survive the termination of the Agreement
with respect to any series of MuniPreferred. Upon termination of the Agreement
with respect to any series of MuniPreferred, the Auction Agent shall, at the
Fund's request, promptly deliver to the Fund copies of all books and records
maintained by it with respect to MuniPreferred in connection with its duties
hereunder.





                                       18
<PAGE>

         7.2      Communications.

                  Except for (i) communications authorized to be by telephone
pursuant to the Agreement or the Auction Procedures and (ii) communications in
connection with Auctions (other than those expressly required to be in writing),
all notices, requests and other communications to any party hereunder shall be
in writing (including telecopy or similar writing) and shall be given to such
party, addressed to it, at its address or telecopy number set forth below:


If to the Fund,                       [Name of Fund]
                                      333 West Wacker Drive
                                      Chicago, Illinois  60606
                                      Attention: Richard J. Franke,
                                         Chairman of the Board

                                      Telecopier No.:  (312) 917-7942
                                      Telephone No.:  (312) 917-7700

If to the Auction Agent, to the
address or telecopy number set forth
in the Request and Acceptance
Letter,

or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Fund by a Fund Officer and on
behalf of the Auction Agent by telephone (confirmed by telecopy or in writing)
by an Authorized Officer.

         7.3      Entire Agreement.

                  The Agreement contains the entire agreement between the
parties relating to, and superseding any prior agreement between the parties
relating to, the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or implied,
between the parties relating to the subject matter hereof except for agreements
relating to the compensation of the Auction Agent.

         7.4      Benefits.

                  Nothing herein, express or implied, shall give to any Person,
other than the Fund, the Auction Agent and their respective successors and
assigns, any benefit of any legal or equitable right, remedy or claim hereunder.


                                       19
<PAGE>




         7.5      Amendment; Waiver.

                  (a) The Agreement shall not be deemed or construed to be
modified, amended, rescinded, cancelled or waived, in whole or in part, except
by a written instrument signed by a duly authorized representative of the party
to be charged.

                  (b) Failure of either party hereto to exercise any right or
remedy hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.

         7.6      Successors and Assigns.

                  The Agreement shall be binding upon, inure to the benefit of,
and be enforceable by, the respective successors and assigns of each of the Fund
and the Auction Agent.

         7.7      Severability.

                  If any clause, provision or section hereof shall be ruled
invalid or unenforceable by any court of competent jurisdiction, the invalidity
or unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.

         7.8      Governing Law.

                  The Agreement shall be governed by and construed in accordance
with the laws of the State of New York.

                  If the Fund is a Massachusetts business trust, the following
provision is deemed to be included in the Basic Terms:

         7.9      Declaration of Trust.

                  The Fund's Declaration is on file with the Secretary of State
of the Commonwealth of Massachusetts. This Agreement has been executed on behalf
of the Fund by the Vice President and Treasurer of the Fund acting in such
capacity and not individually, and the obligations of the Fund set forth in this
Agreement are not binding upon any of the Fund's trustees, officers or
shareholders individually, but are binding only upon the assets and property of
the Fund.





                                       20
<PAGE>
                                                                       EXHIBIT A


                                     FORM OF
                             BROKER-DEALER AGREEMENT

                             [INTENTIONALLY OMITTED]
<PAGE>
                                                                       EXHIBIT B


                              SETTLEMENT PROCEDURES


                             [INTENTIONALLY OMITTED]

<PAGE>




                                                                       EXHIBIT C


                                 [NAME OF FUND]

                           NOTICE OF AUCTION DATE FOR

           MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]

                              ("MuniPreferred(R)")


                  NOTICE IS HEREBY GIVEN that the Auction Date of the next
Auction for Series ___ of the Fund's MuniPreferred is scheduled to be
_______________, ____ and the next Dividend Payment Date for Series ___ of the
Fund's MuniPreferred will be __________________, ____.

                  [A Failure to Deposit in respect of the Series ___
MuniPreferred currently exists. If, prior to 12:00 noon, New York City time, on
the fourth Business Day preceding the next scheduled Auction Date of the Series
____ MuniPreferred, such Failure to Deposit is not cured or the applicable Late
Charge is not paid, the next Auction will not be held. Notice of the next
Auction for the Series ___ MuniPreferred will be delivered when such Failure to
Deposit is cured and the applicable Late Charge is paid.(1)]


                                                  [NAME OF FUND]

- --------
(1)   Include this language if a Failure to Deposit exists.


<PAGE>




                                                                       EXHIBIT D


                                 [NAME OF FUND]

                          NOTICE OF PROPOSED CHANGE OF

                            LENGTH OF RATE PERIOD OF

           MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]

                              ("MuniPreferred(R)")


                  [Name of Fund] (the "Fund") may exercise its option to
designate the Rate Period of its Series ____ MuniPreferred commencing [the first
day of the Special Rate Period] as a Special Rate Period.

                  By 11:00 A.M. on the second Business Day preceding the first
day of such proposed Special Rate Period, the Fund will notify
___________________ of either (a) its determination to exercise such option,
designating the length of such Special Rate Period for such series or (b) its
determination not to exercise such option.


                                                              [NAME OF FUND]



Dated:  ___________________, ____



<PAGE>

                                                                       EXHIBIT E


                                 [NAME OF FUND]

                    NOTICE OF CHANGE OF LENGTH OF RATE PERIOD

           MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]

                              ("MuniPreferred(R)")


                  NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has
determined to designate the Rate Period of its Series ____ MuniPreferred
commencing on [the first day of the Special Rate Period] as a Special Rate
Period.

                  The Special Rate Period will be __________ [Rate Period Days].

                  The Auction Date for the Special Rate Period is [the Business
Day next preceding the first day of such Special Rate Period].

                  As a result of the Special Rate Period designation, the amount
of dividends payable on Series ____ MuniPreferred during the Special Rate Period
will be based on a 360-day year.

                  The Special Rate Period shall not commence if (a) an Auction
for shares of MuniPreferred shall not be held on such Auction Date for any
reason or (b) an Auction for shares of MuniPreferred shall be held on such
Auction Date but Sufficient Clearing Bids for such shares shall not exist in
such Auction.

                  The scheduled Dividend Payment Dates for such series of
MuniPreferred during such Special Rate Period will be _________________________.

                  [Special Redemption Provisions, if any]

                  Attached hereto is a MuniPreferred Basic Maintenance Report
showing that, as of the third Business Day next preceding such proposed Special
Rate Period, Moody's Eligible Assets (if Moody's is rating such shares of
MuniPreferred) and S&P Eligible Assets (if S&P is rating such shares of
MuniPreferred) each have an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount as of such Business Day (assuming for
purposes of the foregoing calculation that (i) the Maximum Rate is the Maximum
Rate on such Business Day as if such Business Day were the Auction Date for the
proposed Special Rate Period, and (ii) the Moody's Discount Factors applicable
to Moody's Eligible Assets are determined by reference to


<PAGE>




the first Moody's Exposure Period longer than the Moody's Exposure Period then
applicable to the Fund.)


                                                              [NAME OF FUND]



Dated: _____________, _____





                                      E-2
<PAGE>




                                                                       EXHIBIT F


                                 [NAME OF FUND]

                      NOTICE OF DETERMINATION NOT TO CHANGE

                            LENGTH OF RATE PERIOD OF

           MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]

                              ("MuniPreferred(R)")


                  NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has
determined not to exercise its option to designate a Special Rate Period of its
Series ___ MuniPreferred and the next succeeding Rate Period of such series will
be a Minimum Rate Period of ____ Rate Period Days.


                                             [NAME OF FUND]



Dated: _______________, _____



<PAGE>




                                                                       EXHIBIT G

                                 [NAME OF FUND]

                                NOTICE OF CURE OF

                              FAILURE TO DEPOSIT ON

           MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]

                              ("MuniPreferred(R)")


                  NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has
cured its Failure to Deposit and paid the applicable Late Charge with respect to
its Series ___ MuniPreferred. The dividend rate on the shares of Series ___
MuniPreferred for the current Dividend Period is _____________% per annum, the
Dividend Payment Date for the current Dividend Period is scheduled to be
_______________, ___ and the next Auction Date is scheduled to be
_______________, ___.


                                                   [NAME OF FUND]



Dated: ________________, ___




<PAGE>


                                                                       EXHIBIT H

                                 [NAME OF FUND]

                                NOTICE OF CURE OF

                              FAILURE TO DEPOSIT ON

           MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]

                              ("MuniPreferred(R)")


                  NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has
cured its Failure to Deposit and paid the applicable Late Charge with respect to
its Series ____ MuniPreferred. The next Auction Date for the Series ____
MuniPreferred is scheduled to be on _________________, ___.


                                               [NAME OF FUND]



Dated: _________________, ____



<PAGE>




                                                                       EXHIBIT I

                                 [NAME OF FUND]

                                    NOTICE OF

               [CAPITAL GAINS] [AND] [TAXABLE ORDINARY INCOME](1)

                                  DIVIDEND FOR

           MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]

                              ("MuniPreferred(R)")

         NOTICE IS HEREBY GIVEN that the amount of the dividend payable on
________________, 19____ for Series ____ of the Fund's MuniPreferred will be
determined by the Auction to be held on _______________, 19___. Up to [$ A ](2)
[$ B ](3) per share of the dividend payable on such date as determined by such
Auction will consist of [capital gains](2) [ordinary income taxable for Federal
income tax purposes](3). If the dividend amount payable on such date as
determined by such Auction is less than [$ A ](2) [$ B ](3) per share, the
entire amount of the dividend will consist of [capital gains](2) [ordinary
income taxable for Federal income tax purposes](3). [To the extent such dividend
amount exceeds [$ A ] per share, any excess up to [$ B ] per share will consist
of ordinary income taxable for Federal income tax purposes.](4) Accordingly, the
aforementioned composition of the dividend payable on _______________, ___
should be considered in determining Orders to be submitted with respect to the
Auction to be held on ________________, __. The Rate Multiple in effect for
such Auction will be ____%.

                                           [NAME OF FUND]


- --------

         (1) Include language with respect to capital gains, taxable ordinary
income or both, depending on the character of the designation to be made with
respect to the dividend(s).

         (2) Include bracketed material if a portion of the dividend will be
designated capital gains.

         (3) Include bracketed material if a portion of the dividend will be
designated ordinary income taxable for Federal income tax purposes and no
portion of the dividend will be designated capital gains.

         (4) Include bracketed material if a portion of the dividend will be
designated capital gains and a portion will be designated ordinary income
taxable for Federal income tax purposes.


<PAGE>



(Footnotes continued)



A  =     the maximum amount of capital gains allocated to such series of
         MuniPreferred to be included in such dividend, divided by the number of
         shares of MuniPreferred.

B  =     the maximum amount of ordinary income taxable for Federal income tax
         purposes allocated to such series of MuniPreferred to be included in
         such dividend, divided by the number of shares in such series.



                                      I-2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2K.4
<SEQUENCE>8
<FILENAME>c72644a1exv99w2kw4.txt
<DESCRIPTION>FORM OF BROKER-DEALER AGREEMENT
<TEXT>
<PAGE>
                                                                     Exhibit k.4

                         NUVEEN BROKER-DEALER AGREEMENT
                    Basic Terms for Acting as a Broker-Dealer

                                December 14, 1993



                  These basic terms ("Basic Terms") set forth the general terms
and conditions pursuant to which a broker-dealer identified in an Acceptance
Letter (together with its successors and assigns, a "BD") will act as a
broker-dealer for Municipal Auction Rate Cumulative Preferred Stock or Shares
issued by investment companies, now or hereafter organized, registered under the
Investment Company Act of 1940, as amended, as further identified by the Request
Letters (the "Funds"), for which Nuveen Advisory Corp. (the "Adviser") is the
investment adviser.

                  Each Fund has issued or may issue shares of MuniPreferred(R),
pursuant to its Articles of Incorporation or Declaration of Trust, as amended or
supplemented by the Statement of such Fund. A bank or trust company specified in
the Request Letter will act as the auction agent (the "Auction Agent") of such
Fund pursuant to authority granted it in the Auction Agency Agreement.

                  The Statement of each Fund will provide that, for each
Subsequent Rate Period of any series of MuniPreferred of such Fund then
outstanding, the Applicable Rate for such series for such Subsequent Rate Period
shall, except under certain conditions, be the rate per annum that the Auction
Agent of such Fund advises results from implementation of the Auction Procedures
for such series. The Board of Directors or Board of Trustees, as the case may
be, of each Fund will adopt a resolution appointing the Auction Agent as auction
agent for purposes of the Auction Procedures for each series of MuniPreferred of
such Fund.

                  The Auction Procedures of each Fund will require the
participation of one or more Broker-Dealers for each series of MuniPreferred of
such Fund. BD will act as a Broker-Dealer for each series of MuniPreferred of
each Fund identified in a Request Letter.

         1.       Definitions and Rules of Construction.

                  1.1.     Terms Defined by Reference to Statement.

                  Capitalized terms not defined herein shall have the respective
meanings specified in the Statement of the relevant Fund.




<PAGE>



                  1.2.     Terms Defined Herein.

                  As used herein and in the Settlement Procedures, the following
terms shall have the following meanings, unless the context otherwise requires:

                  (a) "Acceptance Letter" shall mean the letter from Adviser to
         BD pursuant to which the Adviser appoints BD as a Broker Dealer for
         each series of MuniPreferred issued by any Fund that has executed a
         Request Letter.

                  (b) "Agreement", with respect to any Fund, shall mean the
         Basic Terms, together with the Acceptance Letter and the Request Letter
         relating to one or more series of MuniPreferred of such Fund and any
         other substantially similar agreement among such Fund, the Adviser, any
         Auction Agent for such Fund and/or BD.

                  (c) "Auction" shall have the meaning specified in Section 2.1
         hereof.

                  (d) "Auction Agency Agreement", with respect to any Fund,
         shall mean the Auction Agency Agreement between such Fund and the
         Auction Agent relating to one or more series of MuniPreferred of such
         Fund.

                  (e) "Auction Procedures", with respect to any Fund, shall mean
         the auction procedures constituting Part II of the form of Statement of
         such Fund as of the filing thereof.

                  (f) "Authorized Officer" of an Auction Agent shall mean each
         Senior Vice President, Vice President, Assistant Vice President,
         Assistant Treasurer and Assistant Secretary of such Auction Agent
         assigned to its Corporate Trust and Agency Group and every other
         officer or employee of such Auction Agent designated as an "Authorized
         Officer" for purposes of the Agreement in a communication to BD.

                  (g) "BD Officer" shall mean each officer or employee of BD
         designated as a "BD Officer" for purposes of the Agreement in a
         communication to any Auction Agent.

                  (h) "MuniPreferred" shall mean the preferred stock or shares,
         par value $.01 per share, of any Fund designated as its "Municipal
         Auction Rate Cumulative Preferred Stock" or "Municipal Auction Rate
         Cumulative Preferred Shares" and bearing such further designation as to
         series as the Board of Directors or Board of Trustees, as the case may
         be, of such Fund or any committee thereof shall specify, as set forth
         in a Request Letter.



                                       2
<PAGE>



                  (i) "Request Letter", with respect to any Fund, shall mean the
         letter from such Fund to the Adviser and the Auction Agent for such
         Fund pursuant to which such Fund appoints BD as a Broker-Dealer for
         each series of MuniPreferred of such Fund.

                  (j) "Settlement Procedures" shall mean the Settlement
         Procedures attached hereto as Exhibit A.

                  (k) "Statement", with respect to any Fund, shall mean the
         Statement Establishing and Fixing the Rights and Preferences of, and
         authorizing the issuance of, one or more series of Municipal Auction
         Rate Cumulative Preferred Stock or Municipal Auction Rate Cumulative
         Preferred Shares, as filed by such Fund with the office of the
         Secretary of State or other officer of the state where such Fund was
         incorporated or organized, a copy of which will be attached to the
         Request Letter of such Fund.

                  1.3.   Rules of Construction.

                  Unless the context or use indicates another or different
meaning or intent, the following rules shall apply to the construction of each
Agreement:

                  (a) Words importing the singular number shall include the
         plural number and vice versa.

                  (b) The captions and headings herein are solely for
         convenience of reference and shall not constitute a part of such
         Agreement nor shall they affect its meaning, construction or effect.

                  (c) The words "hereof", "herein", "hereto", and other words of
         similar import refer to such Agreement as a whole.

                  (d) All references herein to a particular time of day shall be
         to New York City time.

         2.       The Auction.

                  2.1.   Purpose; Incorporation by Reference of Auction
Procedures and Settlement Procedures.

                  (a) The provisions of the Auction Procedures of any Fund will
be followed by the Auction Agent of such Fund for the purpose of determining the
Applicable Rate for any Subsequent Rate Period of any series of MuniPreferred of
such Fund for which the Applicable


                                       3
<PAGE>



Rate is to be determined by an Auction. Each periodic operation of such
procedures is hereinafter referred to as an "Auction."

                  (b) All of the provisions contained in the Auction Procedures
and the Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part hereof to the same extent as if such
provisions were fully set forth herein.

                  (c) BD agrees to act as, and assumes the obligations of, and
limitations and restrictions placed upon, a Broker-Dealer under each Agreement
for each series of MuniPreferred. BD understands that other Persons meeting the
requirements specified in the definition of "Broker-Dealer" contained in the
Auction Procedures may execute Agreements and participate as Broker-Dealers in
Auctions.

                  2.2.     Preparation for Each Auction.

                  (a) Not later than 9:30 A.M. on each Auction Date for any
series of MuniPreferred, the Auction Agent for such series shall advise the
Broker-Dealers for such series by telephone of the Maximum Rate therefor and the
Reference Rate(s) and Treasury Note Rate(s), as the case may be, used in
determining such Maximum Rate.

                  (b) In the event that any Auction Date for any series of
MuniPreferred shall be changed after the Auction Agent for such series has given
the notice referred to in clause (vi) of paragraph (a) of the Settlement
Procedures, or after the notice referred to in Section 2.5(a) hereof, if
applicable, such Auction Agent, by such means as such Auction Agent deems
practicable, shall give notice of such change to BD, if it is a Broker-Dealer
for such series, not later than the earlier of 9:15 A.M. on the new Auction Date
or 9:15 A.M. on the old Auction Date.

                  (c) For purposes of maintaining its list of Existing Holders,
the Auction Agent for any series of MuniPreferred from time to time may request
any Broker-Dealer to provide such Auction Agent with a list of Persons who such
Broker-Dealer believes should be Existing Holders based upon inquiries of those
Persons such Broker-Dealer believes are Beneficial Owners as a result of the
most recent Auction and with respect to each such Person, the number of shares
of such series of MuniPreferred such Broker-Dealer believes are owned by such
Person. BD shall comply with any such request relating to a series of
MuniPreferred in respect of which BD was named a Broker-Dealer, and the Auction
Agent shall keep confidential any such information so provided by BD and shall
not disclose any information so provided by BD to any Person other than the Fund
and BD.

                  (d) BD agrees to maintain a list of customers relating to a
series of MuniPreferred and to use its best efforts, subject to existing laws
and regulations, to contact the customers on such list whom BD believes may be
interested in participating in the Auction on each Auction Date, as a Potential
Holder or a Potential Beneficial Owner, for the purposes set forth in




                                       4
<PAGE>

the Auction Procedures. Nothing herein shall require BD to submit an Order for
any customer in any Auction.

                  (e) The Auction Agent's registry of Existing Holders of shares
of a series of MuniPreferred shall be conclusive and binding on BD. BD may
inquire of the Auction Agent between 3:00 P.M. on the Business Day preceding an
Auction for shares of a series of MuniPreferred and 9:30 A.M. on the Auction
Date for such Auction to ascertain the number of shares of such series in
respect of which the Auction Agent has determined BD to be an Existing Holder.
If BD believes it is the Existing Holder of fewer shares of such series than
specified by the Auction Agent in response to BD's inquiry, BD may so inform the
Auction Agent of that belief. BD shall not, in its capacity as Existing Holder
of shares of such series, submit Orders in such Auction in respect of shares of
such series covering in the aggregate more than the number of shares of such
series specified by the Auction Agent in response to BD's inquiry.

                  2.3.     Auction Schedule; Method of Submission of Orders.

                  (a) Each Fund and the Auction Agent for such Fund shall
conduct Auctions for MuniPreferred in accordance with the schedule set forth
below. Such schedule with respect to any series of MuniPreferred of any Fund may
be changed by the Auction Agent for such series with the consent of such Fund,
which consent shall not be unreasonably withheld. Such Auction Agent shall give
written notice of any such change to each Broker-Dealer of such series. Such
notice shall be given prior to the close of business on the Business Day next
preceding the first Auction Date on which such change shall be effective.

<TABLE>
<CAPTION>
      Time                                            Event
      ----                                            -----
<S>                                 <C>
By 9:30 A.M.                        Auction Agent for such series advises such
                                    Fund and the Broker-Dealers for such series
                                    of the applicable Maximum Rate and the
                                    Reference Rate(s) and Treasury Note Rate(s),
                                    as the case may be, used in determining such
                                    Maximum Rate as set forth in Section 2.2(a)
                                    hereof.

9:30 A.M. - 1:30 P.M.               Auction Agent assembles information
                                    communicated to it by Broker-Dealers as
                                    provided in Section 2(a) of the Auction
                                    Procedures of such Fund. Submission Deadline
                                    is 1:30 P.M.

Not earlier than 1:30 P.M.          Auction Agent makes determinations pursuant
                                    to Section 3(a) of the Auction Procedures of
                                    such Fund.
</TABLE>





                                       5
<PAGE>


<TABLE>
<CAPTION>
      Time                                            Event
      ----                                            -----
<S>                                 <C>
By approximately 3:00 P.M.          Auction Agent advises Fund of results of
                                    Auction as provided in Section 3(b) of the
                                    Auction Procedures of such Fund.

                                    Submitted Bids and Submitted Sell Orders are
                                    accepted and rejected and shares of such
                                    series of MuniPreferred allocated as
                                    provided in Section 4 of the Auction
                                    Procedures of such Fund.

                                    Auction Agent gives notice of Auction
                                    results as set forth in Section 2.4(a)
                                    hereof.
</TABLE>


                  (b) BD shall submit Orders to the appropriate Auction Agent in
writing substantially in the form attached hereto as Exhibit B. BD shall submit
a separate Order to such Auction Agent for each Potential Holder or Existing
Holder with respect to whom BD is submitting an Order and shall not otherwise
net or aggregate such Orders prior to their submission to such Auction Agent.

                  (c) BD shall deliver to the appropriate Auction Agent (i) a
written notice in substantially the form attached hereto as Exhibit C of
transfers of shares of MuniPreferred to BD from another Person other than
pursuant to an Auction and (ii) a written notice substantially in the form
attached hereto as Exhibit D, of the failure of any shares of MuniPreferred to
be transferred to or by any Person that purchased or sold shares of
MuniPreferred through BD pursuant to an Auction. Such Auction Agent is not
required to accept any such notice described in clause (i) for an Auction unless
it is received by the Auction Agent by 3:00 P.M. on the Business Day preceding
such Auction.

                  (d) BD and other Broker-Dealers may submit Orders in Auctions
for their own accounts (including Orders for their own accounts where the Order
is placed beneficially for a customer) unless the relevant Fund shall have
notified BD and all other 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.

                  (e) BD agrees to handle its customers' orders in accordance
with its duties under applicable securities laws and rules.

                  (f) To the extent that pursuant to Section 4 of the Auction
Procedures of any Fund, BD continues to hold, sells, or purchases a number of
shares that is fewer than the number of shares in an Order submitted by BD to
the Auction Agent in which BD designated itself as an


                                       6
<PAGE>

Existing Holder or Potential Holder in respect of customer Orders, BD shall make
appropriate pro rata allocations among its customers for which it submitted
Orders of similar tenor. If as a result of such allocations, any Beneficial
Owner would be entitled or required to sell, or any Potential Beneficial Owner
would be entitled or required to purchase, a fraction of a share of
MuniPreferred on any Auction Date, BD shall, in such manner as it shall
determine in its sole discretion, round up or down the number of shares of
MuniPreferred to be purchased or sold on such Auction Date by any Beneficial
Owner or Potential Beneficial Owner on whose behalf BD submitted an Order so
that the number of shares so purchased or sold by each such Beneficial Owner or
Potential Beneficial Owner on such Auction Date shall be whole shares of
MuniPreferred.

                  2.4.     Notices.

                  (a) On each Auction Date for any series of MuniPreferred, the
Auction Agent for such series shall notify BD, if BD is a Broker-Dealer of such
series, by telephone of the results of the Auction as set forth in paragraph (a)
of the Settlement Procedures. By approximately 11:30 A.M. on the Business Day
next succeeding such Auction Date, the relevant Auction Agent shall confirm to
BD in writing the disposition of all Orders submitted by BD in such Auction.

                  (b) BD shall notify each Existing Holder, Potential Holder,
Beneficial Owner or Potential Beneficial Owner of shares of MuniPreferred with
respect to whom BD has submitted an Order as set forth in paragraph (b) of the
Settlement Procedures and take such other action as is required of BD pursuant
to the Settlement Procedures.

                  2.5.     Designation of Special Rate Period.

                  (a) If any Fund delivers to its Auction Agent a notice of the
Auction Date for any series of MuniPreferred of such Fund for a Rate Period
thereof that next succeeds a Rate Period that is not a Minimum Rate Period in
the form of Exhibit C to the Auction Agency Agreement, and BD is a Broker-Dealer
of such series, the Auction Agent shall deliver such notice to BD as promptly as
practicable after its receipt of such notice from such Fund.

                  (b) If the Board of Directors or Board of Trustees, as the
case may be, of any Fund proposes to designate any succeeding Subsequent Rate
Period of any series of MuniPreferred of such Fund as a Special Rate Period and
such Fund delivers to its Auction Agent a notice of such proposed Special Rate
Period in the form of Exhibit D to the Auction Agency Agreement, and BD is a
Broker-Dealer for such series, such Auction Agent shall deliver such notice to
BD as promptly as practicable after its receipt of such notice from the Fund.

                  (c) If the Board of Directors or Board of Trustees, as the
case may be, of any Fund determines to designate such succeeding Subsequent Rate
Period as a Special Rate Period, and such Fund delivers to its Auction Agent a
notice of such Special Rate Period in the form of Exhibit E to the Auction
Agency Agreement not later than 11:00 A.M. on the second Business Day next
preceding the first day of such Rate Period (or by such later time or date, or
both, as


                                       7
<PAGE>



may be agreed to by such Auction Agent), and BD is a Broker-Dealer for such
series, such Auction Agent shall deliver such notice to BD not later than 3:00
P.M. on such second Business Day (or, if such Auction Agent has agreed to a
later time or date, as promptly as practicable thereafter).

                  (d) If any Fund shall deliver to its Auction Agent a notice
not later than 11:00 A.M. on the second Business Day next preceding the first
day of any Rate Period (or by such later time or date, or both, as may be agreed
to by such Auction Agent) stating that such Fund has determined not to exercise
its option to designate such succeeding Subsequent Rate Period as a Special Rate
Period, in the form of Exhibit F to the Auction Agency Agreement, or shall fail
to timely deliver either such notice or a notice in the form of Exhibit E to the
Auction Agency Agreement, and BD is a Broker-Dealer for such series, such
Auction Agent shall deliver a notice in the form of Exhibit F to the Auction
Agency Agreement to BD not later than 3:00 P.M. on such second Business Day (or,
if such Auction Agent has agreed to a later time or date, as promptly as
practicable thereafter).

                  2.6.     Allocation of Taxable Income.

                  If any Fund delivers to its Auction Agent a notice in the form
of Exhibit I to the Auction Agency Agreement designating all or a portion of any
dividend on shares of any series of MuniPreferred of such Fund to consist of net
capital gains or other income taxable for Federal income tax purposes, and BD is
a Broker-Dealer for such series, such Auction Agent shall deliver such notice to
BD on the Business Day following its receipt of such notice from such Fund. On
or prior to the Auction Date referred to in such notice, BD will contact each of
its customers that is a Beneficial Owner of shares of such series of
MuniPreferred or a Potential Beneficial Owner of shares of such series of
MuniPreferred interested in submitting an Order in the Auction to be held on
such Auction Date, and BD will notify such Beneficial Owners and Potential
Beneficial Owners of the contents of such notice. BD will be deemed to have
notified such Beneficial Owners and Potential Beneficial Owners if, for each of
them, (i) BD makes a reasonable effort to contact such Beneficial Owner or
Potential Beneficial Owner by telephone, and (ii) upon failing to contact such
Beneficial Owner or Potential Beneficial Owner by telephone BD mails written
notification to such Beneficial Owner or Potential Beneficial Owner at the
mailing address indicated in the account records of BD.

                  The Auction Agent for any series of MuniPreferred shall be
required to notify BD if it is a Broker-Dealer for such series within two
Business Days after each Auction of such series that involves an allocation of
income taxable for Federal income tax purposes as to the dollar amount per share
of such taxable income and income exempt from Federal income taxation included
in the related dividend.





                                       8
<PAGE>

                  2.7.     Failure to Deposit.

                  (a)      If:

                           (i) any Failure to Deposit shall have occurred with
         respect to shares of any series of MuniPreferred of any Fund during any
         Rate Period thereof (other than any Special Rate Period of more than
         364 Rate Period Days or any Rate Period succeeding any Special Rate
         Period of more than 364 Rate Period Days during which a Failure to
         Deposit occurred that has not been cured), but, prior to 12:00 Noon,
         New York City time, on the third Business Day next succeeding the date
         on which such Failure to Deposit occurred, such Failure to Deposit
         shall have been cured in accordance with Section 2.7 of the Auction
         Agency Agreement and such Fund shall have paid to the Auction Agent for
         such series the applicable Late Charge as described in Section 2.7 of
         the Auction Agency Agreement,

then, if BD is a Broker-Dealer for such series, such Auction Agent shall deliver
a notice in the form of Exhibit G to the Auction Agency Agreement by first-class
mail, postage prepaid, to BD not later than one Business Day after its receipt
of the payment from such Fund curing such Failure to Deposit and such Late
Charge.

                  (b)      If:

                           (i) any Failure to Deposit shall have occurred with
         respect to shares of any series of MuniPreferred of any Fund during any
         Rate Period thereof (other than any Special Rate Period of more than
         364 Rate Period Days or any Rate Period succeeding any Special Rate
         Period of more than 364 Rate Period Days during which a Failure to
         Deposit occurred but has not been cured), and, prior to 12:00 Noon, New
         York City time, on the third Business Day next succeeding the date on
         which such Failure to Deposit occurred, such Failure to Deposit shall
         not have been cured as described in Section 2.7 of the Auction Agency
         Agreement or such Fund shall not have paid to the Auction Agent for
         such series the applicable Late Charge described in Section 2.7 of the
         Auction Agency Agreement; or

                           (ii) any Failure to Deposit shall have occurred with
         respect to shares of any series of MuniPreferred of any Fund during a
         Special Rate Period thereof of more than 364 Rate Period Days, or
         during any Rate Period thereof succeeding any Special Rate Period of
         more than 364 Rate Period Days during which a Failure to Deposit
         occurred that has not been cured, and, prior to 12:00 noon, New York
         City time, on the fourth Business Day preceding the Auction Date for
         the Rate Period subsequent to such Rate Period, such Failure to Deposit
         shall not have been cured as described in Section 2.7 of the Auction
         Agency Agreement or such Fund shall not have paid to the Auction Agent
         for such series the applicable Late Charge described in Section 2.7 of
         the Auction Agency Agreement;




                                       9
<PAGE>

then such Auction Agent shall deliver a notice in the form of Exhibit H to the
Auction Agency Agreement to the Broker-Dealers for such series not later than
one Business Day after the receipt of the payment from such Fund curing such
Failure to Deposit and such Late Charge.

                  2.8.     Service Charge to be Paid to BD.

                  On the Business Day next succeeding each Auction Date for any
series of MuniPreferred specified in, or on Schedule A to, the Request Letter of
any Fund, the Auction Agent for such series shall pay to BD from moneys received
from such Fund an amount equal to the product of (a) (i) in the case of any
Auction Date immediately preceding a Rate Period of such series consisting of
364 Rate Period Days or fewer, 1/4 of 1%, or (ii) in the case of any Auction
Date immediately preceding a Rate Period of such series consisting of more than
364 Rate Period Days, such percentage as may be agreed upon by such Fund and BD
with respect to such Rate Period, times (b) a fraction, the numerator of which
is the number of Rate Period Days in the Rate Period therefor beginning on such
Business Day and the denominator of which is 365 if such Rate Period consists of
7 Rate Period Days and 360 for all other Rate Periods, times (c) $50,000 times
(d) the sum of (i) the aggregate number of shares of such series placed by BD in
such Auction that were (A) the subject of Submitted Bids of Existing Holders
submitted by BD and continued to be held as a result of such submission and (B)
the subject of Submitted Bids of Potential Holders submitted by BD and purchased
as a result of such submission plus (ii) the aggregate number of shares of such
series subject to valid Hold Orders (determined in accordance with paragraph (d)
of Section 2 of the Auction Procedures) submitted to the Auction Agent by BD
plus (iii) the number of shares of MuniPreferred deemed to be subject to Hold
Orders of Existing Holders pursuant to paragraph (c) of Section 2 of the Auction
Procedures of such Fund that were acquired by BD for its own account or were
acquired by BD for its customers who are Beneficial Owners.

                  For purposes of subclause (d)(iii) of the foregoing paragraph,
if any Existing Holder or Beneficial Owner who acquired shares of any series of
MuniPreferred through BD transfers those shares to another Person other than
pursuant to an Auction, then the Broker-Dealer for the shares so transferred
shall continue to be BD; provided, however, that if the transfer was effected
by, or if the transferee is, a Broker-Dealer other than BD, then such
Broker-Dealer shall be the Broker-Dealer for such shares.

                  2.9.     Settlement.

                  (a) If any Existing Holder or Beneficial Owner with respect to
whom BD has submitted a Bid or Sell Order for shares of MuniPreferred of any
series that was accepted in whole or in part fails to instruct its Agent Member
to deliver the shares of MuniPreferred subject to such Bid or Sell Order against
payment therefor, BD, if it knows the identity of such Agent Member, shall
instruct such Agent Member to deliver such shares against payment therefor and,
if such Agent Member fails to comply with such instructions, BD may deliver to
the Potential Holder or Potential Beneficial Owner with respect to whom BD
submitted a Bid for shares of MuniPreferred of such series that was accepted in
whole or in part a number of shares of MuniPreferred of such




                                       10
<PAGE>

series that is less than the number of shares of MuniPreferred of such series
specified in such Bid to be purchased by such Potential Holder or Potential
Beneficial Owner.

                  (b) Neither the Auction Agent nor the Fund shall have any
responsibility or liability with respect to the failure of an Existing Holder,
Beneficial Owner, Potential Holder or Potential Beneficial Owner or its
respective Agent Member to deliver shares of MuniPreferred of any series or to
pay for shares of MuniPreferred of any series sold or purchased pursuant to the
Auction Procedures or otherwise.

                  (c) Notwithstanding any provision of the Auction Procedures or
the Settlement Procedures to the contrary, in the event BD is an Existing Holder
with respect to shares of a series of MuniPreferred and the Auction Procedures
provide that BD shall be deemed to have submitted a Sell Order in an Auction
with respect to such shares if BD fails to submit an Order in that Auction with
respect to such shares, BD shall have no liability to any Person for failing to
sell such shares pursuant to such a deemed Sell Order if (i) such shares were
transferred by the beneficial owner thereof without notification of such
transfer in compliance with the Auction Procedures or (ii) BD has indicated to
the Auction Agent pursuant to Section 2.2(e) of this Agreement that, according
BD's records, BD is not the Existing Holder of such shares.

                  (d) 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 MuniPreferred 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 MuniPreferred 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.

                  (e) Notwithstanding the foregoing terms of this Section, any
delivery or non-delivery of shares of MuniPreferred of any series which
represents any departure from the results of an Auction for shares of such
series, as determined by the Auction Agent, shall be of no effect for purposes
of the registry of Existing Holders maintained by the Auction Agent pursuant to
the Auction Agency Agreement unless and until the Auction Agent shall have been
notified of such delivery or non-delivery.

                  (f) The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 2.9.





                                       11
<PAGE>

         3.       The Auction Agent.

                  3.1.     Duties and Responsibilities.

                  (a) Each Auction Agent is acting solely as agent for the Funds
with whom such Auction Agent has entered into Request Letters and owes no
fiduciary duties to any other Person, other than such Funds, by reason of the
Agreements to which such Auction Agent is a party.

                  (b) Each Auction Agent undertakes to perform such duties and
only such duties as are specifically set forth in the Agreements to which it is
a party, and no implied covenants or obligations shall be read into such
Agreements against such Auction Agent.

                  (c) In the absence of bad faith or negligence on its part,
each Auction Agent shall not be liable for any action taken, suffered, or
omitted or for any error of judgment made by it in the performance of its duties
under the Agreements to which it is a party. Each Auction Agent shall not be
liable for any error of judgment made in good faith unless such Auction Agent
shall have been negligent in ascertaining the pertinent facts.

                  3.2.     Rights of the Auction Agents.

                  (a) Each Auction Agent may rely and shall be protected in
acting or refraining from acting upon any communication authorized hereby and
upon any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document believed
in good faith by it to be genuine. Each Auction Agent shall not be liable for
acting upon any telephone communication authorized by the Agreements to which it
is a party that such Auction Agent believes in good faith to have been given by
the appropriate Fund, by the Adviser or by a Broker-Dealer. Each Auction Agent
may record telephone communications with the Broker-Dealers.

                  (b) Each Auction Agent may consult with counsel of its choice
and the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.

                  (c) Each Auction Agent shall not be required to advance,
expend or risk its own funds or otherwise incur or become exposed to financial
liability in the performance of its duties hereunder.

                  3.3.     Auction Agents' Disclaimers.

                  Each Auction Agent makes no representation as to the validity
or adequacy of the Agreements to which it is a party, the Auction Agency
Agreements to which it is a party or the shares of MuniPreferred of any series.





                                       12
<PAGE>

         4.       Miscellaneous.

                  4.1.     Termination.

                  Any party to any Agreement may terminate such Agreement at any
time on five days' notice to the other parties to such Agreement, provided that
the Fund party to such Agreement shall not terminate the Agreement unless at
least one Broker-Dealer Agreement would be in effect for each series of
MuniPreferred of such Fund after such termination. Each Agreement shall
automatically terminate with respect to any series of MuniPreferred with respect
to which the relevant Auction Agency Agreement has terminated.

                  4.2.     Participant in Securities Depository; Payment of
Dividends in Same-Day Funds.

                  (a) BD is, and shall remain for the term of the Agreements, a
member of, or participant in, the Securities Depository (or an affiliate of such
a member or participant).

                  (b) BD represents that it (or if BD does not act as Agent
Member, one of its affiliates) shall make all dividend payments on the
MuniPreferred available in same-day funds on each Dividend Payment Date to
customers that use BD or affiliate as Agent Member.

                  4.3.     Communications.

                  Except for (i) communications authorized to be by telephone by
the Agreement of any Fund or the Auction Procedures of such Fund and (ii)
communications in connection with Auctions (other than those expressly required
to be in writing), all notices, requests and other communications to any party
under such Agreement shall be in writing (including telecopy or similar writing)
and shall be given to such party, addressed to it, at its address or telecopy
number set forth below:


           If to a Fund,               [Name of Fund]
             addressed:                333 West Wacker Drive
                                       Chicago, Illinois 60606
                                       Attention:  Richard J. Franke,
                                                   Chairman of the Board
                                       Telecopier No.: (312) 917-7942
                                       Telephone No.:  (312) 917-7700

           If to the Adviser,          Nuveen Advisory Corp.
             addressed:                333 West Wacker Drive
                                       Chicago, Illinois  60606
                                       Attention:  Richard J. Franke,
                                                   Chairman of the Board



                                       13
<PAGE>



                  If to BD, to the
                    address or telecopy number
                    as set forth in the Acceptance
                    Letter,

                  If to an Auction
                    Agent, to the address
                    or telecopy number as set
                    forth in the Request Letter,


or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other parties. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer and on behalf of
an Auction Agent by an Authorized Officer of such Auction Agent.
BD may record telephone communications with any Auction Agent.

                  4.4.     Entire Agreement.

                  Each Agreement contains the entire agreement among the parties
thereto relating to the subject matter thereof, and there are no other
representations, endorsements, promises, agreements or understandings, oral,
written or implied, among the parties thereto relating to the subject matter
thereof. Each Agreement supersedes any prior agreement to which BD was a party
in respect of any Fund.

                  4.5.     Benefits.

                  Nothing in any Agreement, express or implied, shall give to
any person, other than the Fund party to such Agreement, the Adviser, the
Auction Agent party to such Agreement and BD and their respective successors and
assigns, any benefit or any legal or equitable right, remedy or claim under such
Agreement.

                  4.6.     Amendment; Waiver.

                  (a) Each Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in part, except by
a written instrument signed by a duly authorized representative of the party to
be charged.

                  (b) Failure of any party to any Agreement to exercise any
right or remedy thereunder in the event of a breach thereof by any other party
shall not constitute a waiver of any such right or remedy with respect to any
subsequent breach.




                                       14
<PAGE>


                  4.7.     Successors and Assigns.

                  Each Agreement shall be binding upon, inure to the benefit of,
and be enforceable by, the respective successors and assigns of the Fund party
to such Agreement, the Adviser, the Auction Agent party to such Agreement and
BD.

                  4.8.     Severability.

         If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.

                  4.9.     GOVERNING LAW.

                  EACH AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

                  4.10.    Declaration of Trust.

                  The Declaration of each Fund that is a Massachusetts business
trust is on file with the Secretary of State of the Commonwealth of
Massachusetts. Each Agreement to which a Fund that is a Massachusetts business
trust is a party has been executed on behalf of such Fund by the Vice President
and Treasurer of such Fund acting in such capacity and not individually, and the
obligations of such Fund set forth in such Agreement are not binding upon any of
such Fund's trustees, officers or shareholders individually, but are binding
only upon the assets and property of such Fund.



                                       15
<PAGE>
                                                                       EXHIBIT A


                              SETTLEMENT PROCEDURES




                             [INTENTIONALLY OMITTED]
<PAGE>
                                                                       EXHIBIT B





                                 [Name of Fund]

               $_____ Municipal Auction Rate Cumulative Preferred
                           Stock [Shares], Series ____

               $_____ Municipal Auction Rate Cumulative Preferred
                           Stock [Shares], Series ____

                                    AUCTION DATE: _____________

ISSUE: ___________________     SERIES: _________

THE UNDERSIGNED Broker-Dealer SUBMITS THE FOLLOWING ORDERS ON BEHALF OF THE
BIDDER(S) LISTED BELOW:
================================================================================

ORDERS BY EXISTING HOLDERS-    NUMBER OF SHARES OF MUNIPREFERRED


<TABLE>
<CAPTION>
EXISTING HOLDER                HOLD          BID/RATE              SELL
<S>                           <C>           <C>                   <C>
1._________________________   ________      _________/________    _______

2._________________________   ________      _________/________    _______

3._________________________   ________      _________/________    _______

4._________________________   ________      _________/________    _______

5._________________________   ________      _________/________    _______

6._________________________   ________      _________/________    _______

7._________________________   ________      _________/________    _______

8._________________________   ________      _________/________    _______

9._________________________   ________      _________/________    _______

10.________________________   ________      _________/________    _______
</TABLE>




================================================================================
ORDERS BY POTENTIAL HOLDERS-        NUMBER OF SHARES OF MUNIPREFERRED


<TABLE>
<CAPTION>
POTENTIAL HOLDER                    BID/RATE
<S>                                 <C>
1._____________________________     _________/________

2._____________________________     _________/________

3._____________________________     _________/________

4._____________________________     _________/________

5._____________________________     _________/________

6._____________________________     _________/________

7._____________________________     _________/________

8._____________________________     _________/________

9._____________________________     _________/________

10.____________________________     _________/________

11.____________________________     _________/________

12.____________________________     _________/________

13.____________________________     _________/________

14.____________________________     _________/________

15.____________________________     _________/________

</TABLE>


NOTES:

1.       If one or more Orders covering in the aggregate more than the number of
         outstanding shares of MuniPreferred held by any Existing Holder are
         submitted, such Orders shall be considered valid in the order of
         priority set forth in the Auction Procedures.

2.       A Hold Order or Sell Order may be placed only by an Existing Holder
         covering a number of shares of MuniPreferred not greater than the
         number of shares of MuniPreferred currently held by such Existing
         Holder.

3.       Potential Holders may make Bids only, each of which must specify a
         rate. If more than one Bid is submitted on behalf of any Potential
         Holder, each Bid submitted shall be a separate Bid with the rate
         specified.

4.       Bids may contain no more than three figures to the right of the decimal
         point (.001 of 1%).

================================================================================



<PAGE>




================================================================================

[AUCTION AGENT] AUCTION BID FORM      NAME OF Broker-Dealer:___________________
                                      AUTHORIZED
Submit to:                            SIGNATURE:_______________________________

                                      TOTAL NUMBER OF ORDERS ON THIS BID FORM:
================================================================================



<PAGE>




                                                                       EXHIBIT C


                    (To be used only for transfers made to a
                Broker-Dealer other than pursuant to an Auction)


                                 [NAME OF FUND]

           MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES],
                                     SERIES ___

                                  TRANSFER FORM


We are the Broker-Dealer to whom the Existing Holder or Beneficial Owner named
below transferred shares of the above series of MuniPreferred other than
pursuant to an Auction. We hereby notify you that such Existing Holder or
Beneficial Owner has transferred ______ shares of the above series of Muni-
Preferred to us.



                                    ------------------------------------------
                                             (Name of Existing Holder or
                                                  Beneficial Owner)



                                    ------------------------------------------
                                             (Name of Broker-Dealer)



                                    By:
                                       ---------------------------------------
                                             Printed Name:
                                             Title:


<PAGE>




                                                                       EXHIBIT D


               (To be used only for failures to deliver shares of
                   MuniPreferred sold pursuant to an Auction)

                                 [NAME OF FUND]

           MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES],
                                   SERIES ____

                         NOTICE OF A FAILURE TO DELIVER


Complete either I or II


I.       We are a Broker-Dealer for ________________ (the "Purchaser"), which
         purchased _______ shares of the above series of MuniPreferred in the
         Auction held on _____ from the seller of such shares.

II.      We are a Broker-Dealer for ____________ (the "Seller"), which sold
         ________ shares of the above series of MuniPreferred in the Auction
         held on ______ to the purchaser of such shares.


         We hereby notify you that (check one) --

         o        the Seller failed to deliver such shares of MuniPreferred to
                  the Purchaser

         o        the Purchaser failed to make payment to the Seller upon
                  delivery of such shares of MuniPreferred

                                     Name:
                                          -----------------------------------
                                              (Name of Broker-Dealer)

                                     By:
                                          -----------------------------------
                                              Printed Name:
                                              Title:



<PAGE>

                    [Form of Broker-Dealer Acceptance Letter]


                              Nuveen Advisory Corp.


                                                              ____________, ____


[Broker-Dealer]
[Address]

Ladies and Gentlemen:

                  Reference is made to (a) the Broker-Dealer Agreements executed
by the Funds (as hereinafter defined) listed on Exhibit A hereto, Bankers Trust
Company and various broker-dealers, copies of which will be made available to
you upon request by Bankers Trust Company (the "Broker-Dealer Agreements") and
(b) the Nuveen Broker-Dealer Agreement-Basic Terms for Acting as a Broker-Dealer
dated December 14, 1993, receipt of which is hereby acknowledged by you (the
"Basic Terms"). For purposes of this letter ("Acceptance Letter"), (a) "Fund"
shall mean any closed-end investment company registered under the Investment
Company Act of 1940, as amended, for which Nuveen Advisory Corp. acts as
investment adviser; (b) except as otherwise provided below, the terms of each
Broker-Dealer Agreement shall be incorporated herein by reference, and you shall
be considered BD for all purposes thereof, as if you were the Broker-Dealer
signatory thereto in the place of the actual Broker-Dealer signatory thereto;
and (c) the Basic Terms are incorporated herein by reference, you shall be
considered BD for all purposes thereof, Bankers Trust Company shall be
considered the Auction Agent for all purposes thereof, and each Fund not listed
on Exhibit A hereto shall be considered a Fund for all purposes thereof.

                  We hereby request that you act as a Broker-Dealer for the
Money Market Cumulative Preferred Stock ("MMP") of each series, and the
Municipal Auction Rate Cumulative Preferred Stock or Shares ("MPS" or
"MuniPreferred") of each series, of each Fund that executes a letter,
substantially in the form attached hereto as Exhibit B or Exhibit C, as
appropriate, appointing you as a Broker-Dealer ("Request Letter"). You hereby
(a) accept such appointment as a Broker-Dealer for each series of MMP, MPS or
MuniPreferred of each Fund identified in a Request Letter and (b) agree to act
as BD in accordance with (1) the terms of the Broker-Dealer Agreement relating
to such Fund, in the case of any Fund listed on Exhibit A hereto or (2) the
Basic Terms, in the case of any other Fund; provided, however, that:



                                        2

<PAGE>




                  (1) for purposes of any such Broker-Dealer Agreement or the
Basic Terms, and notwithstanding any provision of any Broker-Dealer Agreement to
the contrary, your address, telecopy number and telephone number for
communications pursuant to such Broker-Dealer Agreement or the Basic Terms shall
be as follows:


                       ----------------------------------

                       ----------------------------------

                       ----------------------------------

                       ----------------------------------

and the address, telecopy number and telephone number of the Auction Agent for
communications pursuant to such Broker-Dealer or the Basic Terms shall be as
follows:


                       ----------------------------------

                       ----------------------------------

                       ----------------------------------

                       ----------------------------------

                  (2) notwithstanding any provision of a Broker-Dealer Agreement
to the contrary, except as otherwise set forth herein, your appointment as
Broker-Dealer extends to each series of MMP, MPS or MuniPreferred issued by the
Fund to which such Broker-Dealer Agreement relates.

                  (3) the text of Section 2.9 of each Broker-Dealer Agreement
shall be deleted and the following shall be deemed to be inserted in its place:

                  (a) If any Existing Holder with respect to whom BD has
         submitted a Bid or Sell Order for shares of MMP, MPS or MuniPreferred
         of any series that was accepted in whole or in part fails to instruct
         its Agent Member to deliver the shares of MMP, MPS or MuniPreferred
         subject to such Bid or Sell Order against payment therefor, BD, if it
         knows the identity of such Agent Member, shall instruct such Agent
         Member to deliver such shares against payment therefor and, if such
         Agent Member fails to comply with such instructions, BD may deliver to
         the Potential Holder with respect to whom BD submitted a Bid for shares
         of MMP, MPS or MuniPreferred of such series that was accepted in whole
         or in part a number of shares of MMP, MPS or MuniPreferred of such
         series that is less

                                        3

<PAGE>




         than the number of shares of MMP, MPS, or MuniPreferred of such series
         specified in such Bid to be purchased by such Potential Holder.

                  (b) Neither the Auction Agent nor the Fund shall have any
         responsibility or liability with respect to the failure of an Existing
         Holder or a Potential Holder or its respective Agent Member to deliver
         shares of MMP, MPS or MuniPreferred of any series or to pay for shares
         of MMP, MPS or MuniPreferred of any series sold or purchased pursuant
         to the Auction Procedures or otherwise.

                  (c) Notwithstanding any provision of the Auction Procedures or
         the Settlement Procedures to the contrary, in the event BD is an
         Existing Holder with respect to shares of a series of MMP, MPS or
         MuniPreferred and the Auction Procedures provide that BD shall be
         deemed to have submitted a Sell Order in an Auction with respect to
         such shares if BD fails to submit in Order in that Auction with respect
         to such shares, BD shall have no liability to any Person for failing to
         sell such shares pursuant to such a deemed Sell Order if (i) such
         shares were transferred by the beneficial owner thereof without
         notification of such transfer in compliance with the Auction Procedures
         or (ii) BD has informed the Auction Agent pursuant to Section 2.2(g) of
         this Agreement that, according to BD's records, BD believes it is not
         the Existing Holder of such shares.

                  (d) Notwithstanding any provision of the Auction Procedures or
         the Settlement Procedures to the contrary, in the event an Existing
         Holder of shares of a series of MMP, MPS or MuniPreferred 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 MMP,
         MPS or MuniPreferred that have been made in respect of Potential
         Holders' Submitted Bids for shares of such series that have been
         accepted in whole or in part shall constitute good delivery to such
         Potential Holders.

                  (e) Notwithstanding the foregoing terms of this Section, any
         delivery or non-delivery of shares of MMP, MPS or MuniPreferred of any
         series which represents any departure from the results of an Auction
         for shares of such series, as determined by the Auction Agent, shall be
         of no effect for purposes of the registry of Existing Holders
         maintained by the Auction Agent pursuant to the Auction Agency
         Agreement unless and until the Auction Agent shall have been notified
         of such delivery or non-delivery.

                  (f) The Auction Agent shall have no duty or liability with
         respect to enforcement of this Section 2.9.

                  (4)      a new Section 2.2(g) shall be added to each
Broker-Dealer Agreement, to read as follows:


                                        4

<PAGE>




                  (g) The Auction Agent's registry of Existing Holders of shares
         of a series of MMP, MPS or MuniPreferred shall be conclusive and
         binding on BD. BD may inquire of the Auction Agent between 3:00 P.M. on
         the Business Day preceding an Auction for shares of a series of MMP,
         MPS or MuniPreferred and 9:30 A.M. on the Auction Date for such Auction
         to ascertain the number of shares of such series in respect of which
         the Auction Agent has determined BD to be an Existing Holder. If BD
         believes it is the Existing Holder of fewer shares of such series than
         specified by the Auction Agent in response to BD's inquiry, BD may so
         inform the Auction Agent of that belief. BD shall not, in its capacity
         as Existing Holder of shares of such series, submit Orders in such
         Auction in respect of shares of such series covering in the aggregate
         more than the number of shares of such series specified by the Auction
         Agent in response to BD's inquiry.

                  (5) a new sentence shall be added to the end of Section 2.2(d)
of each Broker-Dealer Agreement, to read as follows:

         Nothing contained herein shall require BD to submit an Order for any
         customer in any Auction.

                  You hereby acknowledge that, notwithstanding any provision of
any Broker-Dealer Agreement or the Basic Terms to the contrary, the Fund may (a)
upon five business days' notice to the Auction Agent and you, amend, alter or
repeal any of the provisions contained in any Broker-Dealer Agreement or the
Basic Terms, it being understood and agreed that you shall be deemed to have
accepted any such amendment, alteration or repeal if, after the expiration of
such five business day period, you submit an Order to the Auction Agent in
respect of the shares of MMP, MPS, MuniPreferred of the Fund or Funds to which
such amendment, alteration or repeal relates, and (b) upon two business days'
notice to the Auction Agent and you, exclude you from participating as a
Broker-Dealer in any particular Auction for any particular series of MMP, MPS or
MuniPreferred.

                  This Acceptance Letter shall be deemed to form part of each
Broker-Dealer Agreement and the Basic Terms.

                  Capitalized terms not defined in this Acceptance Letter shall
have the meanings ascribed to them in the relevant Broker-Dealer Agreement or
the Basic Terms, as the case may be.


                                        5

<PAGE>




                  If the foregoing terms are acceptable to you, please so
indicate in the space provided below. This Acceptance Letter may be executed in
any number of counterparts, each of which shall be an original, but all of which
shall constitute one and the same instrument.



                                        NUVEEN ADVISORY CORP.


                                        By:
                                           ------------------------------------
                                           Name:
                                           Title:

Accepted by and Agreed to as of
the date first written above:



[Broker-Dealer]

By:
   ----------------------------------
   Name:
   Title:





                                        6

<PAGE>




                         EXHIBIT A TO ACCEPTANCE LETTER




Nuveen Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Select Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen Florida Investment Quality Municipal Fund
Nuveen Florida Quality Income Municipal Fund
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen New Jersey Quality Income Municipal Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen New York Municipal Market Opportunity Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen Ohio Quality Income Municipal Fund, Inc.



<PAGE>




                         EXHIBIT B TO ACCEPTANCE LETTER

                            [Form of Request Letter]


                                                ______________ ____, ____


FROM:             All investment companies registered under the Investment
                  Company Act of 1940, as amended, for which Nuveen Advisory
                  Corp. acts as investment adviser and whose registration
                  statements relating to shares of Money Market Cumulative
                  Preferred Stock or Municipal Auction Rate Cumulative Preferred
                  Stock or Shares have been declared effective by the Securities
                  and Exchange Commission on or prior to the date hereof.

TO:               Nuveen Advisory Corp.
                  Deutsche Bank Trust Company Americas

Ladies and Gentlemen:

                  Reference is made to (a) the respective Broker-Dealer
Agreements, previously executed by the Funds (as hereinafter defined) listed on
Exhibit A hereto, various Broker-Dealers and Bankers Trust Company (the
"Broker-Dealer Agreements"); (b) the respective Auction Agency Agreements
previously executed by the Funds listed on Exhibit A hereto and Bankers Trust
Company (the "Auction Agency Agreements"); (c) the Nuveen Broker-Dealer
Agreement -- Basic Terms for Acting as a Broker-Dealer dated December 14, 1993,
receipt of which is hereby acknowledged by you (the "Broker-Dealer Basic
Terms"); and (d) the Nuveen Auction Agency Agreement -- Basic Terms for Acting
as Auction Agent dated November 1, 1993, receipt of which is hereby acknowledged
by you (the "Auction Agency Basic Terms"). For purposes of this letter ("Request
Letter"), (a) "Fund" shall mean any closed-end investment company registered
under the Investment Company Act of 1940, as amended, for which Nuveen Advisory
Corp. acts as investment adviser; (b) except as otherwise provided below, the
terms of each Broker-Dealer Agreement shall be incorporated herein by reference,
and each Broker-Dealer listed on Exhibit B hereto shall be considered BD for all
purposes thereof, as if such Broker-Dealer were the Broker-Dealer signatory
thereto in the place of the actual Broker-Dealer signatory thereto; (c) the
Broker-Dealer Basic Terms are incorporated herein by reference, each
Broker-Dealer listed on Exhibit B hereto shall be considered BD for all purposes
thereof, Bankers Trust Company shall be considered the Auction Agent for all
purposes thereof, and each Fund referred to on Exhibit C hereto shall be
considered a Fund for all purposes thereof; (d) except as otherwise provided
below, the terms of each Auction Agency Agreement shall be incorporated herein
by reference, and each Broker-Dealer listed on Exhibit B shall be considered a
Broker-Dealer for all purposes thereof; and (e) the Auction Agency Basic Terms
are incorporated herein by reference, Bankers





<PAGE>




Trust Company shall be considered the Auction Agent for all purposes thereof,
and each Fund referred to on Exhibit C hereto shall be considered a Fund for all
purposes thereof.

                  We hereby appoint the Broker-Dealers listed on Exhibit B
hereto as Broker-Dealers for the Money Market Cumulative Preferred Stock ("MMP")
or Municipal Auction Rate Cumulative Preferred Stock or Shares ("MPS" or
"MuniPreferred") of each series of each Fund listed on Exhibit A hereto or
referred to on Exhibit C hereto. Each such Broker-Dealer will act as BD in
respect of such series in accordance with (1) the terms of the Broker-Dealer
Agreement relating to such Fund, in the case of any Fund listed on Exhibit A
hereto, except as otherwise set forth in an Acceptance Letter relating to such
Broker-Dealer from Nuveen Advisory Corp., to such Broker-Dealer or (2) the
Broker-Dealer Basic Terms, in the case of any Fund referred to on Exhibit C
hereto; provided, however, that for purposes of any such Broker-Dealer Agreement
or the Broker-Dealer Basic Terms, and notwithstanding any provision of any
Broker-Dealer Agreement to the contrary, Bankers Trust Company's address,
telecopy number and telephone number for communications pursuant to such
Broker-Dealer Agreement or the Broker-Dealer Basic Terms shall be as follows:


                        ---------------------------------

                        ---------------------------------

                        ---------------------------------

                        ---------------------------------


                  Bankers Trust Company agrees to act as Auction Agent with
respect to shares of each series of MMP, MPS or MuniPreferred of each Fund
listed on Exhibit A or referred to on Exhibit C hereto in accordance with (1)
the terms of the Auction Agency Agreement relating to the MMP, MPS or
MuniPreferred of such Fund, in the case of any Fund listed on Exhibit A hereto
or (2) the Auction Agency Basic Terms, in the case of any Fund referred to on
Exhibit C hereto; provided, however, that Section 2.2(c)(i) of each Auction
Agency Agreement shall be amended to read as follows:

                  (c)(i) The Auction Agent shall maintain a registry of the
         beneficial owners of the shares of MMP, MPS or MuniPreferred who shall
         constitute Existing Holders of shares of MMP, MPS or MuniPreferred for
         purposes of Auctions and shall indicate thereon the identity of the
         respective Broker-Dealer of each Existing Holder, if any, on whose
         behalf such Broker-Dealer submitted the most recent Order in any
         Auction which resulted in such Existing Holder continuing to hold or
         purchasing shares of MMP, MPS or MuniPreferred. The Auction Agent shall
         keep such registry current and accurate. The Fund shall provide or
         cause to be provided to the Auction Agent at or prior to the Date of
         Original Issue of the shares of MMP, MPS or MuniPreferred a list of the
         initial Existing Holders of the shares of MMP, MPS or MuniPreferred,
         the number of shares purchased by each such



                                        2

<PAGE>




         Existing Holder and the respective Broker-Dealer of each such Existing
         Holder or the affiliate thereof through which each such Existing Holder
         purchased such shares. The Auction Agent shall advise the Fund in
         writing whenever the number of Existing Holders is 500 or more. The
         Auction Agent may rely upon, as conclusive evidence of the identities
         of the Existing Holders of shares of MMP, MPS or MuniPreferred (A) such
         list, (B) the results of Auctions, (C) notices from any Existing
         Holder, the Agent Member of any Existing Holder or the Broker-Dealer of
         any Existing Holder as described in the first sentence of Section
         2.2(c)(iii) hereof and (D) the results of any procedures approved by
         the Fund that have been devised for the purpose of determining the
         identities of Existing Holders in situations where shares of MMP, MPS
         or MuniPreferred may have been transferred without compliance with any
         restrictions on the transfer thereof set forth in the Auction
         Procedures.

                  This Request Letter shall be deemed to form part of each
Auction Agency Agreement and the Auction Agency Basic Terms.

                  Capitalized terms not defined in this Request Letter shall
have the meanings ascribed to them in the relevant Broker-Dealer Agreement,
Broker-Dealer Basic Terms, Auction Agency Agreement or Auction Agency Basic
Terms, as the case may be.





                                        3

<PAGE>




                  If the foregoing terms are acceptable to you, please so
indicate in the space provided below. This Request Letter may be executed in any
number of counterparts, each of which shall be an original, but all of which
shall constitute one and the same instrument.

                                    All investment companies registered under
                                    the Investment Company Act of 1940, as
                                    amended, for which Nuveen Advisory Corp.
                                    acts as investment adviser and whose
                                    registration statements relating to shares
                                    of Money Market Cumulative Preferred Stock
                                    or Municipal Auction Rate Cumulative
                                    Preferred Stock or Shares have been declared
                                    effective by the Securities and Exchange
                                    Commission on or prior to the date hereof.

                                    By:
                                        ---------------------------------------
                                        Name:
                                        Title:


Accepted and Agreed to as of
the date first written above:

NUVEEN ADVISORY CORP.               DEUTSCHE BANK TRUST COMPANY AMERICAS



By:                                 By:
   ------------------------------       ---------------------------------------
   Name:                                Name:
   Title:                               Title:


cc: [Broker-Dealers]



                                        4

<PAGE>




                           EXHIBIT A TO REQUEST LETTER
                                 (List of Funds)



Nuveen Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Select Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen Florida Investment Quality Municipal Fund
Nuveen Florida Quality Income Municipal Fund
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen New Jersey Quality Income Municipal Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen New York Municipal Market Opportunity Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen Ohio Quality Income Municipal Fund, Inc.


<PAGE>




                           EXHIBIT B TO REQUEST LETTER


                            [LIST OF BROKER-DEALERS]


<PAGE>




                           EXHIBIT C TO REQUEST LETTER


                  Each Fund not listed on Exhibit A whose registration statement
relating to shares of MMP, MPS or MuniPreferred has been declared effective by
the Securities and Exchange Commission on or prior to the date of the Request
Letter to which this Exhibit C is attached.


<PAGE>




                         EXHIBIT C TO ACCEPTANCE LETTER

                            [Form of Request Letter]

                              [Name(s) of Fund(s)]



                            _____________ ____, ____


Ladies and Gentlemen:

                  Reference is made to (a) the Nuveen Broker-Dealer Agreement --
Basic Terms for Acting as a Broker-Dealer dated December 14, 1993, receipt of
which is hereby acknowledged by you (the "Broker-Dealer Basic Terms") and (b)
the Nuveen Auction Agency Agreement -- Basic Terms for Acting as Auction Agent
dated November 1, 1993, receipt of which is hereby acknowledged by you (the
"Auction Agency Basic Terms"). For purposes of this letter ("Request Letter"),
(a) "Fund" shall mean each undersigned closed-end investment company registered
under the Investment Company Act of 1940, as amended, for which Nuveen Advisory
Corp. acts as investment adviser; (b) the Broker-Dealer Basic Terms are
incorporated herein by reference, each Broker-Dealer listed on Exhibit A hereto
shall be considered BD for all purposes thereof, Bankers Trust Company shall be
considered the Auction Agent for all purposes thereof, and each Fund shall be
considered a Fund for all purposes thereof; and (c) the Auction Agency Basic
Terms are incorporated herein by reference, Bankers Trust Company shall be
considered the Auction Agent for all purposes thereof, and each Fund shall be
considered a Fund for all purposes thereof.

                  Each Fund hereby appoints the Broker-Dealers listed on Exhibit
A hereto as Broker-Dealers for each series of Money Market Cumulative Preferred
Stock ("MMP") or Municipal Auction Rate Cumulative Preferred Stock or Shares
("MPS" or "MuniPreferred") of such Fund. Each such Broker-Dealer will act as BD
in respect of each such series in accordance with the Broker-Dealer Basic Terms;
provided, however, that for purposes of the Broker-Dealer Basic Terms, Bankers
Trust Company's address, telecopy number and telephone number for communications
pursuant to the Broker-Dealer Basic Terms shall be as follows:


                         ------------------------------

                         ------------------------------

                         ------------------------------

                         ------------------------------





<PAGE>





                  Bankers Trust Company agrees to act as Auction Agent with
respect to shares of each series of MMP, MPS or MuniPreferred of each Fund in
accordance with the Auction Agency Basic Terms.

                  This Request Letter shall be deemed to form part of the
Auction Agency Basic Terms.

                  Capitalized terms not defined in this Request Letter shall
have the meanings ascribed to them in the Broker-Dealer Basic Terms or Auction
Agency Basic Terms, as the case may be.

                  If the foregoing terms are acceptable to you, please so
indicate in the space provided below. This Request Letter may be executed in any
number of counterparts, each of which shall be an original, but all of which
shall constitute one and the same instrument.


                                            [NAME(S) OF FUND(S)]


                                            By:
                                               ---------------------------
                                               Name:
                                               Title:


Accepted and Agreed to as of the date first
written above:

NUVEEN ADVISORY CORP.                       DEUTSCHE BANK TRUST COMPANY AMERICAS


By:                                         By:
  --------------------------                   ---------------------------
  Name:                                        Name:
  Title:                                       Title:



cc:      [Broker-Dealers listed on Exhibit A]


                                        2

<PAGE>



                           EXHIBIT A TO REQUEST LETTER

                            [LIST OF BROKER-DEALERS]



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2K.5
<SEQUENCE>9
<FILENAME>c72644a1exv99w2kw5.txt
<DESCRIPTION>FORM OF DTC REPRESENTATION LETTER
<TEXT>
<PAGE>
                                                                     EXHIBIT k.5


              Book Entry Only Auction-Rate/Money Market Preferred/
                      and Remarketed Preferred Securities

                           LETTER OF REPRESENTATIONS
                 [To be Completed by Issuer and Trust Company]


                    ---------------------------------------
                                [Name of Issuer]

                    ---------------------------------------
                            [Name of Trust Company]

                                                          ----------------------
                                                                   [Date]


Attention:  General Counsel's Office
THE DEPOSITORY TRUST COMPANY
55 Water Street 49th Floor
New York, NY 10041-0099

     Re:
        ------------------------------------------------------------------

        ------------------------------------------------------------------

        ------------------------------------------------------------------
          [Issue description, including CUSIP number (the "Securities")]



Ladies and Gentlemen:

     This letter sets forth our understanding with respect to certain matters
relating to the Securities. Trust Company shall act as transfer agent,
registrar, dividend disbursing agent, redemption agent or other such agent with
respect to the Securities. The Securities have been issued pursuant to a
prospectus, private placement memorandum, or other such document authorizing the
issuance of the Securities dated ________________________ (the "Document").
_______________________________ is distributing the Securities through the
["Underwriter/Placement Agent"]



<PAGE>
Depository Trust Company ("DTC").

     To induce DTC to accept the Securities as eligible for deposit at DTC, and
to act in accordance with its Rules with respect to the Securities, Issuer and
Trust Company make the following representations to DTC:

     1.   Prior to closing on the Securities on _______________ there shall be
deposited with DTC one or more Security certificates registered in the name of
DTC's nominee, Cede & Co., which represents 100% of the offering value of the
Securities. Said certificate(s) shall remain in DTC's custody as provided in
the Document. If, however, the aggregate principal amount of the Securities
exceeds $400 million, one certificate shall be issued with respect to each $400
million of principal amount and an additional certificate shall be issued with
respect to any remaining principal amount. Each Security certificate shall bear
the following legend:


          Unless this certificate is presented by an authorized representative
     of The Depository Trust Company, a New York corporation ("DTC"), to Issuer
     or its agent for registration of transfer, exchange, or payment, and any
     certificate issued  is registered in the name of Cede & Co. or in such
     other name as is requested by an authorized representative of DTC (and any
     payment is made to Cede & Co. or to such other entity as is requested by an
     authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
     HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
     the registered owner hereof, Cede & Co., has an interest herein.

     2.   Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its participants ("Participants") or to any person having an
interest in the Securities any information contained in the Security
certificate(s); and (b) acknowledges that neither DTC's Participants nor any
person having an interest in the Securities shall be deemed to have notice of
the provisions of the Security certificate(s) by virtue of submission of such
certificate(s) to DTC.

     3.   In the event of any solicitation of consents from or voting by
holders of the Securities, Issuer shall establish a record date for such
purposes (with no provision for revocation of consents or votes by subsequent
holders) and shall send notice of such record date to DTC no fewer than 15
calendar days in advance of such record date. Notices to DTC pursuant to this
Paragraph by telecopy shall be directed to DTC's Reorganization Department,
Proxy Unit at (212) 855-5181 or (212) 855-5182. If the party sending the notice
does not receive a telecopy receipt from DTC confirming that the notice has
been received, such party shall telephone (212) 855-5202. Notices to DTC
pursuant to this Paragraph, by mail or by any other means, shall be sent to:

                         Supervisor, Proxy Unit
                         Reorganization Department
                         The Depository Trust Company
                         55 Water Street 50th Floor
                         New York, NY 10041-0099


                                      -2-
<PAGE>
     4.   In the event of a full or partial redemption of the Securities,
Issuer or Trust Company shall send a notice to DTC specifying: (a) the number
of Securities to be redeemed; and (b) the date such notice is to be distributed
to Security holders (the "Publication Date"). Such notice shall be sent to DTC
by a secure means (e.g., legible telecopy, registered or certified mail,
overnight delivery) in a timely manner designed to assure that such notice is
in DTC's possession no later than the close of business on the business day
before or, if possible, two business days before the Publication Date. Issuer
or Trust Company shall forward such notice either in a separate secure
transmission for each CUSIP number or in a secure transmission for multiple
CUSIP numbers (if applicable) which includes a manifest or list of each CUSIP
number submitted in that transmission. (The party sending such notice shall
have a method to verify subsequently the use of such means and the timeliness
of such notice.) The Publication Date shall be no fewer than 30 days nor more
than 60 days prior to the redemption date. Notices to DTC pursuant to this
Paragraph by telecopy shall be directed to DTC's Call Notification Department
at (516) 227-4164 or (516) 227-4190. If the party sending the notice does not
receive a telecopy receipt from DTC confirming that the notice has been
received, such party shall telephone (516) 227-4070. Notices to DTC pursuant to
this Paragraph, by mail or by any other means, shall be sent to:

                         Manager, Call Notification Department
                         The Depository Trust Company
                         711 Stewart Avenue
                         Garden City, NY 11530-4719

     5.   In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Trust
Company to Security holders specifying the terms of the tender and the
Publication Date of such notice shall be sent to DTC by a secure means in the
manner set forth in the preceding Paragraph. Notices to DTC pursuant to this
Paragraph and notices of other corporate actions by telecopy shall be directed
to DTC's Reorganization Department at (212) 855-5488. If the party sending the
notice does not receive a telecopy receipt from DTC confirming that the notice
has been received, such party shall telephone (212) 855-5290. Notices to DTC
pursuant to this Paragraph, by mail or by any other means, shall be sent to:

                         Manager, Reorganization Department
                         Reorganization Window
                         The Depository Trust Company
                         55 Water Street 50th Floor
                         New York, NY 10041-0099

     6.   All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities.

     7.   The Document indicates that the dividend rate for the Securities may
vary from time to time. Absent other existing arrangements with DTC, Issuer or
Trust Company shall give DTC notice of each such change in the dividend rate,
on the same day that the new rate is determined, by telephoning DTC's Dividend
Announcement Section at (212) 855-4550, or by telecopy sent to (212) 855-4555.
Such verbal or telecopy notice shall be followed by prompt written confirmation
sent by

                                      -3-

<PAGE>
a secure means (e.g., legible telecopy, registered or certified mail, overnight
delivery) in a timely manner designed to assure that such notice is in DTC's
possession no later than the close of business on the business day before or,
if possible, two business days before the Publication Date. Issuer or Agent
shall forward such notice either in a separate secure transmission for each
CUSIP number or in a secure transmission for multiple CUSIP numbers (if
applicable) which includes a manifest or list of each CUSIP number submitted in
that transmission. (The party sending such notice shall have a method to verify
subsequently the use and timeliness of such notice.) Notices to DTC pursuant to
this Paragraph, by mail or by any other means, shall be sent to:

                    Manager, Announcements
                    Dividend Department
                    The Depository Trust Company
                    55 Water Street 25th Floor
                    New York, NY 10041-0099

     8.   The Document indicates that each purchaser of Securities must sign a
purchaser's letter which contains provisions restricting transfer of the
Securities purchased. Issuer and Trust & Co. shall be entitled to all voting
rights applicable to the Securities and to receive the full amount of all
dividends, liquidation proceeds, and redemption proceeds payable with respect
to the Securities, even if the credits of Securities to the DTC accounts of any
DTC Participant result from transfers or failures to transfer in violation of
the provisions of the purchaser's letter. Issuer and Trust Company acknowledge
that DTC shall treat any Participant having Securities credited to its DTC
accounts as entitled to the full benefits of ownership of such Securities.
Without limiting the generality of the preceding sentence, Issuer and Trust
Company acknowledge that DTC shall treat any Participant having Securities
credited to its DTC accounts as entitled to receive dividends, distributions,
and voting rights, if any, in respect of Securities and, subject to Paragraphs
12 and 13, to receive certificates evidencing Securities if such certificates
are to be issued in accordance with Issuer's certificate of incorporation. (The
treatment by DTC of the effects of the crediting by it of Securities to the
accounts of Participants described in the preceding two sentences shall not
affect the rights of Issuer, participants in auctions relating to the
Securities, purchasers, sellers, or holders of Securities against any
Participant.) DTC shall not have any responsibility to ascertain whether any
transfer of Securities is made in accordance with the provisions of the
purchaser's letter.

     9.   Issuer or Trust Company shall provide a written notice of dividend
payment and distribution information to DTC as soon as the information is
available. Issuer or Trust Company shall provide this information to DTC
electronically, as previously arranged by Issuer or Trust Company and DTC, as
soon as the information is available. If electronic transmission has not been
arranged, absent any other arrangements between Issuer or Trust Company and
DTC, such information shall be sent by telecopy to DTC's Dividend Department at
(212) 855-4555 or (212) 855-4556, and receipt of such notices shall be
confirmed by telephoning (212) 855-4550. Notices to DTC pursuant to this
Paragraph, by mail or by any other means, shall be addressed as indicated in
Paragraph 7.


                                      -4-
<PAGE>
     10.  Dividend payments and distributions shall be received by Cede & Co.,
as nominee of DTC, or its registered assigns, in same-day funds no later than
2:30 p.m. (Eastern Time) on the payment date. Issuer shall remit by 1:00 p.m.
(Eastern Time) on the payment date, dividend and distribution payments due Trust
Company, or at such earlier time as may be required by Trust Company to
guarantee that DTC shall receive payment in same-day funds no later than 2:30
p.m. (Eastern Time) on the payment date. Absent any other arrangements between
Issuer or Trust Company and DTC, such funds shall be wired to the Dividend
Deposit Account number that will be stamped on the signature page hereof at the
time DTC executes this Letter of Representations.

     11.  Issuer or Trust Company shall provide DTC, no later than 12:00 noon
(Eastern Time) on each payment date, automated notification of CUSIP-level
detail. If the circumstances prevent the funds paid to DTC from equaling the
dollar amount associated with the detail payments by 12:00 noon (Eastern Time),
Issuer or Trust Company must provide CUSIP-level reconciliation to DTC no later
than 2:30 p.m. (Eastern Time). Reconciliation must be provided by either
automated means or written format. Such reconciliation notice, if sent by
telecopy, shall be directed to DTC's Dividend Department at (212) 855-4633, and
receipt of such reconciliation notice shall be confirmed by telephoning
(212) 855-4430.

     12.  Redemption payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns, in same-day funds no later than 2:30 p.m.
(Eastern Time) on the payment date. Issuer shall remit by 1:00 p.m. (Eastern
Time) on the payment date all such redemption payments due Trust Company, or at
such earlier time as required by Trust Company to guarantee that DTC shall
receive payment in same-day funds no later that 2:30 p.m. (Eastern Time) on the
payment date. Absent any other arrangements between Issuer or Trust Company and
DTC, such funds shall be wired to the Redemption Deposit Account number that
will be stamped on the signature page hereof at the time DTC executes this
Letter of Representations.

     13.  Reorganization payments and CUSIP-level detail resulting from
corporate actions (such as tender offers, remarketings, or mergers) shall be
received by Cede & Co., as nominee of DTC, or its registered assigns, in
same-day funds no later than 2:30 p.m. (Eastern Time) on the payment date.
Issuer shall remit by 1:00 p.m. (Eastern Time) on the payment date all such
reorganization payments due Trust Company, or at such earlier time as required
by Trust Company to guarantee that DTC shall receive payment in same-day funds
no later than 2:30 p.m. (Eastern Time) on the payment date. Absent any other
arrangements between Issuer or Trust Company and DTC, such funds shall be wired
to the Reorganization Deposit Account number that will be stamped on the
signature page hereof at the time DTC executes this Letter of Representations.

     14.  DTC my direct Issuer or Trust Company to use any other number or
address as the number or address to which notices or payments may be sent.

     15.  In the event of a redemption acceleration, or any similar transaction
(e.g., tender made and accepted in response to Issuer's or Trust Company's
invitation) necessitating a reduction in the number of Securities outstanding,
or an advance refunding of part of the Securities outstanding DTC, in its
discretion: (a) may request Issuer or Trust Company to issue and authenticate a
new Security certificate; or (b) may make an appropriate notation on the
Security certificate indicating the date and amount of such reduction in the
number of Securities outstanding, except in the case of final

                                      -5-
<PAGE>
redemption, in which case the certificate will be presented to Issuer and Trust
Company prior to payment, if required.

     16.  In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Trust
Company shall notify DTC of the availability of certificates. In such event,
Issuer or Trust Company shall issue, transfer, and exchange certificates in
appropriate amounts, as required by DTC and others.

     17.  DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to
Issuer or Trust Company (at which time DTC will confirm with Issuer or Trust
Company the aggregate principal amount of Securities outstanding). Under such
circumstances, at DTC's request, Issuer and Trust Company shall cooperate fully
with DTC by taking appropriate action to make available one or more separate
certificates evidencing Securities to any DTC Participant having Securities
credited to its DTC accounts.

     18.  Issuer herby authorizes DTC to provide to Trust Company listings of
Participants' holdings, known as Security Position Listings ("SPLs") with
respect to the Securities from time to time at the request of Trust Company.
Issuer also authorizes DTC, in the event of a partial redemption of Securities,
to provide Trust Company, upon request, with the names of those Participants
whose positions in Securities have been selected for redemption by DTC. DTC will
use its best efforts to notify Trust Company of those Participants whose
positions in Securities have been selected for redemption by DTC. Issuer
authorizes and instructs Trust Company to provide DTC with such signatures,
examples of signatures, and authorizations to act as may be deemed necessary or
appropriate by DTC to permit DTC to discharge its obligations to its
Participants and appropriate regulatory authorities. DTC charges a customary fee
for such SPLs. This authorization, unless revoked by Issuer, shall continue with
respect to the Securities while any Securities are on deposit at DTC, until and
unless Trust Company shall no longer be acting. In such event, Issuer shall
provide DTC with similar evidence, satisfactory to DTC, of the authorization of
any successor thereto so to act. Requests for SPLs shall be directed to the
Proxy Unit of DTC's Reorganization Department at (212) 855-5181 or (212)
855-5812. Receipt of such requests shall be confirmed by telephoning (212)
855-5202. Delivery by mail or by any other means, with respect to such SPL
request, shall be directed to the address indicated in Paragraph 3.

     19.  Nothing herein shall be deemed to require Trust Company to advance
funds on behalf of Issuer.

     20.  This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together shall constitute but one and the same
instrument.

     21.  This Letter of Representations shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect
to principles of conflicts of law.

     22.  The sender of each notice delivered to DTC pursuant to this Letter of
Representations is responsible for confirming that such notice was properly
received by DTC.

                                      -6-
<PAGE>
     23.  Issuer recognizes that DTC does not in any way undertake to, and
shall not have any responsibility to, monitor or ascertain the compliance of
any transactions in the Securities with the following, as amended from time to
time: (a) any exemptions from registration under the Securities Act of 1933;
(b) the Investment Company Act of 1940; (c) the Employee Retirement Income
Security Act of 1974; (d) the Internal Revenue Code of 1986; (e) any rules of
any self-regulatory organizations (as defined under the Securities Exchange Act
of 1934); or (f) any other local, state, or federal laws or regulations
thereunder.

     24.  Issuer and Trust Company shall comply with the applicable
requirements stated in DTC's Operational Arrangements, as they may be amended
from time to time. DTC's Operational Arrangements are posted on DTC's website
at "www.DTC.org."

     25.  The following rider(s), attached hereto, are hereby incorporated into
this Letter of Representations:


- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------




                                      -7-
<PAGE>

NOTES:

A. IF THERE IS A TRUST COMPANY (AS DEFINED IN
THIS LETTER OF REPRESENTATIONS), TRUST
COMPANY, AS WELL AS ISSUER, MUST SIGN THIS
LETTER. IF THERE IS NO TRUST COMPANY, IN
SIGNING THIS LETTER ISSUER ITSELF UNDERTAKES
TO PERFORM ALL OF THE OBLIGATIONS SET FORTH
HEREIN.

B. SCHEDULE B CONTAINS STATEMENTS THAT DTC
BELIEVES ACCURATELY DESCRIBE DTC, THE METHOD
OF EFFECTING BOOK-ENTRY TRANSFERS OF
SECURITIES DISTRIBUTED THROUGH DTC, AND
CERTAIN RELATED MATTERS.

                                            Very truly yours,



                                            ____________________________________
                                                          [Issuer]


                                            By: ________________________________
                                                [Authorized Officer's Signature]


                                            ___________________________________
                                                      [Trust Company]


                                            By: ________________________________
                                                [Authorized Officer's Signature]


Received and Accepted:
THE DEPOSITORY TRUST COMPANY






cc:  Underwriter
     Underwriter's Counsel


                                      -8-


<PAGE>
                                                                      SCHEDULE A


           --------------------------------------------------------

           --------------------------------------------------------
                                [Describe Issue]


CUSIP Number             Share Total              Value ($Amount)
- ------------             -----------              --------------















                                      -9-
<PAGE>
                                                                      SCHEDULE B


                       SAMPLE OFFERING DOCUMENT LANGUAGE
                      DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
                      -----------------------------------
 (Prepared by DTC-bracketed material may be applicable only to certain issues)


     1.   The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities
will be issued as fully-registered securities registered in the name of Cede
& Co. (DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC. One fully-registered Security certificate
will be issued for [each issuer of] the Securities, [each] in the aggregate
principal amount of such issue, and will be deposited with DTC. [If, however,
the aggregate principal amount of [any] issue exceeds $400 million, one
certificate will be issued with respect to each $400 million of principal
amount and an additional certificate will be issued with respect to any
remaining principal amount of such issue.]

     2.   DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Direct Participants")
deposit with DTC. DTC also facilitates the settlement among Direct Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Direct
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks, and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The Rules
applicable to DTC and its Direct and Indirect Participants are on file with the
Securities and Exchange Commission.

     3.   Purchases of Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Direct and Indirect Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Securities, except in the event that use of the book-entry system
for the Securities is discontinued.


                                      -10-
<PAGE>
     4.   To facilitate subsequent transfers, all Securities deposited by
Direct Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of Securities with DTC and their
registration in the name of Cede & Co. or such other nominee do not effect any
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Securities are credited, which may or may
not be the Beneficial Owners. The Direct and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.

     5.   Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. [Beneficial Owners of Securities may wish to
take certain steps to augment transmission to them of notices of significant
events with respect to the Securities, such as redemptions, tenders, defaults,
and proposed amendments to the security documents. Beneficial Owners of
Securities may wish to ascertain that the nominee holding the Securities for
their benefit has agreed to obtain and transmit notices to Beneficial Owners, or
in the alternative, Beneficial Owners may wish to provide their names and
addresses to the registrar and request that copies of the notices be provided
directly to them.]

     [6.  Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]

     7.   Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent
or vote with respect to the Securities. Under its usual procedures, DTC mails an
Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).

     8.   Redemption proceeds, distributions, and dividend payments on the
Securities will be made to Cede & Co., or such other nominee as may be requested
by an authorized representative of DTC. DTC's practice is to credit Direct
Participants' accounts, upon DTC's receipt of funds and corresponding detail
information from Issuer or Agent on payable date in accordance with their
respective holdings shown on DTC's records. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
such Participant and not of DTC, Agent, or Issuer, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
redemption proceeds, distributions, and dividends to Cede & Co. (or such other
nominee as may be requested by an authorized representative of DTC) is the
responsibility of Issuer or Agent, disbursement of such payments to Direct
Participants shall be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.


                                      -11-
<PAGE>
     [9.  A Beneficial owner shall give notice to elect to have the Securities
purchased or tendered, through its Participant, to [Tender/Remarketing] Agent,
and shall effect delivery of such Securities by causing the Direct Participant
to transfer the Participant's interest in the Securities, on DTC's records, to
[Tender/Remarketing] Agent. The requirement for physical delivery of Securities
in connection with an optional tender or a mandatory purchase will be deemed
satisfied when the ownership rights in the Securities are transferred by Direct
Participants on DTC's records and followed by a book-entry credit of tendered
Securities to [Tender/Remarketing] Agent's DTC account.]

     10.  DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to
Issuer or Agent. Under such circumstances, in the event that a successor
securities depository is not obtained, Security certificates are required to be
printed and delivered.

     11.  Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.

     12.  The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.




                                      -12-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2L.1
<SEQUENCE>10
<FILENAME>c72644a1exv99w2lw1.txt
<DESCRIPTION>OPIN. & CON. OF VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<TEXT>
<PAGE>
                                                                     EXHIBIT l.1

VEDDER PRICE

                                               VEDDER, PRICE, KAUFMAN & KAMMHOLZ
                                               222 NORTH LASALLE STREET
                                               CHICAGO, ILLINOIS 60601
                                               312-609-7500
                                               FACSIMILE: 312-609-5005

                                               A PARTNERSHIP INCLUDING VEDDER,
                                               PRICE, KAUFMAN & KAMMHOLZ, P.C.
                                               WITH OFFICES IN CHICAGO,
                                               NEW YORK CITY AND LIVINGSTON,
                                               NEW JERSEY

                                               January 8, 2002



Nuveen Insured California Tax-Free Advantage Municipal Fund
333 West Wacker Drive
Chicago, Illinois  60606

         Re:      Nuveen Insured California Tax-Free Advantage Municipal Fund
                  Municipal Auction Rate Cumulative Preferred Shares to be
                  Issued Pursuant to the Underwriting Agreement (File No.
                  333-100874)

Ladies and Gentlemen:

         We are acting as counsel to Nuveen Insured California Tax-Free
Advantage Municipal Fund, a Massachusetts business trust (the "Fund"), in
connection with the Fund's filing of a registration statement on Form N-2 (the
"Registration Statement") with the Securities and Exchange Commission covering
the registration and proposed issuance of up to 1,800 shares of its Municipal
Auction Rate Cumulative Preferred Shares ("MuniPreferred") Series TH,
liquidation preference of $25,000 per share (the "Shares"). In that capacity, we
have examined such corporate records, certificates and other documents, and have
made such other factual and legal investigations as we have deemed necessary and
appropriate for the purposes of this opinion. Insofar as this opinion pertains
to matters governed by the laws of the Commonwealth of Massachusetts, we are
relying, with your consent, solely upon the opinion of Bingham McCutchen LLP
dated January 8, 2002, which opinion is satisfactory in substance and form to
us.

         We have assumed that the Registration Statement, the underwriting
agreement relating to the Fund's Shares and the Statement Establishing and
Fixing the Rights and Preferences of Municipal Auction Rate Cumulative Preferred
Shares (the "Statement") relating to the Fund's Shares will be duly completed,
executed and delivered and in accordance with the resolutions of the Trustees
attached to a Certificate of the Secretary of the Fund, certifying as to, and
attaching copies of, the Fund's Declaration of Trust ("Declaration"), Statement,
By-Laws, and certain resolutions adopted by the Trustees of the Fund and that
the Statement will be duly filed with the Office of the Secretary of the
Commonwealth of Massachusetts.

         Based upon the foregoing, it is our opinion that:

         (1)      The Fund is duly established and validly existing under the
                  Fund's Declaration and the laws of the Commonwealth of
                  Massachusetts as a voluntary association




<PAGE>
VEDDER PRICE

Nuveen Insured California Tax-Free Advantage Municipal Fund
January 8, 2002
Page 2

                  with transferable shares of beneficial interest commonly
                  referred to as a "Massachusetts business trust."

         (2)      The Shares, when issued and sold in accordance with the Fund's
                  Declaration, Statement and By-Laws and for the consideration
                  described in the Underwriting Agreement, will be legally
                  issued, fully paid and non-assessable, except that, as set
                  forth in the Registration Statement, shareholders of the Fund
                  may under certain circumstances be held personally liable for
                  its obligations.

         We hereby consent to the filing of this opinion as Exhibit 1.1 to the
Registration Statement and to the reference to us under the caption "Legal
Opinions" in the prospectus contained in the Registration Statement. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933 or the rules
and regulations thereunder.

                                            Very truly yours,



                                            VEDDER, PRICE, KAUFMAN & KAMMHOLZ

JTB/DAS



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2L.2
<SEQUENCE>11
<FILENAME>c72644a1exv99w2lw2.txt
<DESCRIPTION>OPINION & CONSENT OF BINGHAM MCCUTCHEN LLP
<TEXT>
<PAGE>
                                                                     EXHIBIT l.2


                                January 8, 2003



Vedder Price Kaufman & Kammholz
222 N. LaSalle Street
Chicago, Illinois 60601

         RE:      Nuveen Insured California Tax-Free Advantage Municipal Fund

Ladies and Gentlemen:

         We have acted as special Massachusetts counsel to Nuveen Insured
California Tax-Free Advantage Municipal Fund, a Massachusetts business trust
(the "Fund"), in connection with the Fund's Registration Statement on Form N-2
filed with the Securities and Exchange Commission (the "Commission") on October
31, 2002 (the "Initial Filing") as such Registration Statement is proposed to be
amended by Pre-Effective Amendment No. 1 thereto to be filed with the Commission
on or about January 8, 2003 (as proposed to be amended, the "Registration
Statement") with respect to 1,800 shares Series TH of the Fund's MuniPreferred
shares, with a liquidation preference of $25,000 per share (the "Shares"). You
have requested that we deliver this opinion to you, as special counsel to the
Fund, for use by you in connection with your opinion to the Fund with respect to
the Shares.

         In connection with the furnishing of this opinion, we have examined the
following documents:

         (a) a certificate dated a recent date of the Secretary of the
Commonwealth of Massachusetts as to the existence of the Fund;

         (b) copies of the Fund's Declaration of Trust and of all amendments
thereto (the "Declaration") on file in the office of the Secretary of the
Commonwealth of Massachusetts;

         (c) a draft of the Fund's Statement Establishing and Fixing the Rights
and Preferences of MuniPreferred shares attached as Appendix A


<PAGE>


Vedder Price Kaufman & Kammholz
January 8, 2003
Page 2

to the Statement of Additional Information included in the printer's proof
referred to in (f) below (the "Statement");

         (d) a certificate of the Secretary of the Fund, certifying as to, and
attaching copies of, the Fund's Declaration, Statement, By-Laws, and certain
resolutions adopted by the Trustees of the Fund;

         (e) a conformed copy of the Initial Filing; and

         (f) a printer's proof, which we received from the printer as a .pdf
file on January 7, 2003 of Pre-Effective Amendment No. 1 to the Initial Filing
to be filed with the Securities and Exchange Commission (the "Amendment").

         In such examination, we have assumed the genuineness of all signatures,
the conformity to the originals of all of the documents reviewed by us as
copies, the authenticity and completeness of all original documents reviewed by
us in original or copy form and the legal competence of each individual
executing any document.

         We have assumed that the Amendment will be duly filed with the
Commission in substantially the form of the printer's proof referred to in (f)
above, that the Statement will be duly completed, executed and delivered in
substantially the form included in such printer's proof and in accordance with
the resolutions of the Trustees attached to the certificate referred to in (d)
above, and that the Statement will be duly filed with the office of the
Secretary of the Commonwealth of Massachusetts.

         This opinion is based entirely on our review of the documents listed
above and such investigation of law as we have deemed necessary or appropriate.
We have made no other review or investigation of any kind whatsoever, and we
have assumed, without independent inquiry, the accuracy of the information set
forth in such documents. As to our opinion below relating to the valid existence
of the Fund, our opinion relies entirely upon and is limited by the certificate
referenced in paragraph (a) above.




<PAGE>
Vedder Price Kaufman & Kammholz
January 8, 2003
Page 3


         This opinion is limited solely to the laws of the Commonwealth of
Massachusetts as applied by courts located in such Commonwealth, except that we
express no opinion as to any Massachusetts securities law. No opinion is given
herein as to the choice of law or internal substantive rules of law which any
tribunal may apply.

         We understand that all of the foregoing assumptions and limitations are
acceptable to you.

         Based upon and subject to the foregoing, please be advised that it is
our opinion that:

         1. The Fund is duly established and validly existing under the Fund's
Declaration and the laws of the Commonwealth of Massachusetts as a voluntary
association with transferable shares of beneficial interest commonly referred to
as a "Massachusetts business trust."

         2. The Shares, when issued and sold in accordance with the Fund's
Declaration, Statement and By-Laws will be legally issued, fully paid and
non-assessable, except that, as set forth in the Registration Statement,
shareholders of the Fund may under certain circumstances be held personally
liable for its obligations.

         We hereby consent to your reliance on this opinion in connection with
your opinion to the Fund with respect to the Shares, to the reliance by the Fund
on this opinion, to the reference to our name in the Registration Statement and
in the prospectus forming a part thereof under the heading "Legal Opinions" and
to the filing of this opinion as an exhibit to the Registration Statement.

                                             Very truly yours,


                                             Bingham McCutchen LLP





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2N.1
<SEQUENCE>12
<FILENAME>c72644a1exv99w2nw1.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE>
                                                                     EXHIBIT n.1




                         CONSENT OF INDEPENDENT AUDITORS

         We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated November 5, 2002 in the Registration Statement
(Form N-2) and related Prospectus and Statement of Additional Information of the
Nuveen Insured California Tax-Free Advantage Municipal Fund filed with the
Securities and Exchange Commission in this Pre-Effective Amendment No. 1 to the
Registration Statement under the Securities Act of 1933 (Registration No.
333-100874) and in this Amendment No. 5 to the Registration Statement under the
Investment Company Act of 1940 (Registration No. 811-21212).



                                       /s/ Ernst & Young LLP
                                       -----------------------------------------
                                       ERNST & YOUNG LLP
Chicago, Illinois
January 8, 2003

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2N.2
<SEQUENCE>13
<FILENAME>c72644a1exv99w2nw2.txt
<DESCRIPTION>CONSENT OF ORRICK, HERRINGTON & SUTCLIFFE, LLP
<TEXT>
<PAGE>

                                                                     EXHIBIT n.2


                  CONSENT OF ORRICK, HERRINGTON & SUTCLIFFE LLP


         We consent to the reference to our firm under the caption "California
Tax Matters" in Appendix E to the Statement of Additional Information contained
in the Registration Statement (Form N-2) and related Prospectus of Nuveen
Insured California Tax-Free Advantage Municipal Fund filed with the Securities
and Exchange Commission under the Securities Act of 1933 on January 8, 2003. We
do not hereby admit that we are experts whose consent is required.

                                             ORRICK, HERRINGTON & SUTCLIFFE LLP



                                             By:  /s/ Kenneth G. Whyburn
                                                -------------------------------
                                                      Kenneth G. Whyburn


San Francisco, California
January 8, 2003







</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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