As filed with the Securities and Exchange Commission on March 15, 2000
1940 Act File No. 811-07359
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2 [X]
(Check appropriate box or boxes)
LEND LEASE HYPERION HIGH-YIELD
CMBS FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Lend Lease Hyperion Capital Advisors, L.L.C.
One Liberty Plaza, New York, New York 10006-1404
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 549-8400
Clifford E. Lai
Lend Lease Hyperion Capital Advisors, L.L.C.
One Liberty Plaza
New York, New York 10006-1404
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(Name and Address of Agent for Service)
Copy to: MICHAEL R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
928132.6
<PAGE>
PRIVATE PLACEMENT MEMORANDUM NAME OF OFFEREE ___________________
March 15, 2000
20,000,000 Shares
LEND LEASE HYPERION HIGH-YIELD
CMBS FUND, INC.
Common Stock
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Lend Lease Hyperion High-Yield CMBS Fund, Inc. (the "Fund") is a
non-diversified closed-end management investment company whose investment
objective is to provide high total return by investing in securities backed by
real estate debt. The Fund will seek to achieve its objective by investing,
under normal circumstances, at least 65% of its assets in below investment grade
commercial mortgage-backed securities ("CMBS"). Investments in below investment
grade securities are considered to be speculative and may be subject to special
risks. Such special risks include greater risk of loss of principal and
potential for non-payment of interest when compared with most other types of
investments. The loss of the money invested is a risk of the Fund. There is no
assurance that the Fund will achieve its investment objective. The Fund expects
to distribute in cash all of its net assets on or before December 31, 2001, and
immediately thereafter to terminate, provided that the duration of the Fund may
be extended for successive one-year periods provided that each continuance is
specifically approved in advance by the holders of more than 75% of the
outstanding shares of the Fund's Common Stock. Notwithstanding the foregoing,
the Fund may be liquidated at any time subject to the unanimous consent of the
shareholders. Investors should carefully assess the risks associated with an
investment in the Fund including the risk that the Fund may acquire rights of
equity in real estate through its holdings. The management and disposition of
these equity interests may pose additional risks to the principal investments of
the Fund. Investment in the Fund involves risk and is suitable only for
qualified investors of substantial financial resources who have no need for
liquidity in their investment and who can bear the risk of losing their
investment. See "Private Placement Memorandum Summary" and "The Fund and its
Objective, Policies, and Risks."
Lend Lease Hyperion Capital Advisors, L.L.C. is the Fund's investment
adviser (the "Adviser"). The Adviser is a registered investment adviser. The
Fund's administrator is Hyperion Capital Management, Inc. (the "Administrator").
The address of the Adviser, the Fund and the Administrator is One Liberty Plaza,
New York, New York 10006 and its telephone number is (212) 549-8400.
The minimum purchase in the offering is $1 million (100,000
shares)(except for purchases by the Adviser and its affiliates). The minimum
offering size of the Fund is $40 million and the maximum offering size is $200
million. The shares of the Fund will be offered and sold primarily through Lend
Lease Capital Markets, Inc. Lend Lease Capital Markets, Inc.'s address and
telephone number are 3424 Peachtree Road., N.E., Suite 800, Atlanta, Georgia
30326, and (404)848-8600, respectively. The Fund may also offer and sell its
shares through other broker- dealers that are members of the National
Association of Securities Dealers, Inc. No fees or commissions will be paid for
selling Fund shares.
<TABLE>
<CAPTION>
Price to Sales Proceeds to
Investors Load Fund(1)
<S> <C> <C> <C>
Per Share.................... $10.00 $ 0 $10.00
Total Minimum
(4,000,000 shares)........... $40,000,000 $0 $40,000,000.00
Total Maximum $200,000,000.00 $ 0 $200,000,000.00
(20,000,000 shares)..........
(1) Before deducting offering expenses payable by the Fund estimated at $85,000. These expenses will be
charged as expenses against the assets of the Fund. See "Use of Proceeds."
</TABLE>
The Private Placement Memorandum sets forth concisely information about
the Fund that a prospective investor ought to know before investing. Investors
are advised to read this Private Placement Memorandum carefully and retain it
for future reference. A Statement of Additional Information dated March 15, 2000
("SAI") about the Fund has been filed with the Securities and Exchange
Commission and is available, without charge, upon writing or calling the Fund at
the above location. The SAI has been incorporated by reference into this Private
Placement Memorandum.
THIS PRIVATE PLACEMENT MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY OR TO ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THIS PRIVATE PLACEMENT MEMORANDUM
CONSTITUTES AN OFFER ONLY TO NAMED, QUALIFIED OFFEREES.
274828.26
<PAGE>
Table of Contents Page
Private Placement Memorandum Summary.....................................4
Fund Termination.........................................................6
Risk Considerations......................................................6
Summary of the Fund's Expenses...........................................9
Use of Proceeds.........................................................10
The Fund and its Objective, Policies and Risks..........................10
Management of the Fund..................................................24
Dividends and Distributions.............................................27
Reinvestment of Dividends...............................................27
Determination of Net Asset Value........................................27
Capital Stock of the Fund...............................................28
Taxes ...............................................................30
Validity of Shares......................................................33
Experts ...............................................................33
Reports to Shareholders.................................................34
Further Information.....................................................34
Description of Ratings......................................... Appendix A
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THE SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"), IN RELIANCE UPON THE EXEMPTION PROVIDED BY
SECTION 4(2) OF THE ACT AND REGULATION D THEREUNDER. THE SHARES OF COMMON STOCK
HAVE NOT BEEN REGISTERED UNDER ANY STATE SECURITIES LAWS IN RELIANCE UPON
VARIOUS EXEMPTIONS PROVIDED BY THOSE LAWS. THE SHARES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY ANY REGULATORY AUTHORITY NOR HAS ANY REGULATORY AUTHORITY PASSED
ON THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS PRIVATE
PLACEMENT MEMORANDUM. THE SHARES ARE BEING OFFERED TO A LIMITED NUMBER OF
QUALIFIED PERSONS WHO WILL PURCHASE THE SHARES FOR THEIR OWN ACCOUNTS, PRIMARILY
"ACCREDITED INVESTORS" PURSUANT TO REGULATION D OF THE 1933 ACT, AND OTHER
SIMILARLY QUALIFIED INVESTORS. THE SHARES MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE 1933 ACT AND THE SECURITIES LAWS OF THE STATES IN
WHICH THE SHARES ARE SOLD PURSUANT TO REGISTRATION UNDER THE 1933 ACT OR SUCH
LAWS OR EXEMPTIONS THEREFROM. NO PUBLIC MARKET FOR THE SHARES NOW EXISTS OR IS
ANTICIPATED TO DEVELOP. AN INVESTMENT IN THE SHARES IS NOT SUITABLE FOR ANY
PERSON REQUIRING INVESTMENT LIQUIDITY.
-----------
FOR RESIDENTS OF ALL STATES:
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE LEND LEASE HYPERION HIGH-YIELD CMBS FUND, INC. AND THE TERMS OF THIS
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SHARES OFFERED HEREBY
HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED
THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE 1933
ACT, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
-----------
274828.26
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<PAGE>
FOR FLORIDA RESIDENTS:
THE SHARES OFFERED HEREBY WILL BE SOLD TO, AND ACQUIRED BY, THE PURCHASER IN A
TRANSACTION EXEMPT UNDER SECTION 517.061(11) OF THE FLORIDA SECURITIES AND
INVESTOR PROTECTION ACT. THAT SECTION PROVIDES THAT WHEN SALES ARE MADE TO FIVE
OR MORE PERSONS, ANY SALE MADE PURSUANT TO SUCH SECTION IS VOIDABLE AT THE
OPTION OF THE PURCHASER WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER,
OR AN ESCROW AGENT OR WITHIN THREE (3) DAYS AFTER THE AVAILABILITY OF THAT
PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.
274828.26
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<PAGE>
PRIVATE PLACEMENT MEMORANDUM SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information included elsewhere in this Private Placement
Memorandum. Investors should carefully consider the information set forth under
the heading "Risk Considerations" in this Private Placement Memorandum Summary.
<TABLE>
<S> <C>
The Fund Lend Lease Hyperion High-Yield CMBS Fund, Inc. (the "Fund") is a non-
diversified closed-end management investment company. The Fund expects
to distribute in cash all of its net assets on or before December 31, 2001, and
immediately thereafter to terminate, provided that the duration of the Fund
may be extended for successive one-year periods provided that each
continuance is specifically approved in advance by the holders of more than
75% of the outstanding shares of the Fund's Common Stock.
Notwithstanding the foregoing, the Fund may be liquidated at any time upon
the unanimous consent of the shareholders. See "The Fund and its Objective,
Policies and Risks."
The Offering The Fund is initially offering a minimum of 4,000,000 shares (gross proceeds
of $40,000,000) and a maximum of 20 million shares (gross proceeds of
$200,000,000) of common stock ("Common Stock" or "Shares") during a 90-
day initial offering period ("Initial Offering Period"). Investors may
subscribe to purchase Shares of the Fund during the Initial Offering Period by
completing the Subscription Agreement and the Investor Qualification
Statement. Payment for Shares being subscribed for will be made in
accordance with the instructions set forth in the Subscription Agreement and
the Trade Payment Authorization form. Shares may be purchased at an
offering price of $10.00 per share on the first day of the Initial Offering
Period and at the then current net asset value for the remainder of the Initial
Offering Period. The Fund may offer additional Shares at the then current net
asset value subsequent to the close of the initial offering period subject to the
prior approval of the holders of more than 75% of the outstanding shares of
the Fund's Common Stock. See "Dividends and Distribution" and "Capital
Stock of the Fund."
Investment Objective
and Policies The Fund's investment objective is to provide high total return by investing in
securities backed by real estate debt. No assurance can be given that the
Fund's objective will be achieved. See "Investment Objective."
The Fund will seek to achieve its objective by investing, under normal
circumstances, primarily in below investment grade commercial mortgage- backed
securities which represent interests in or are secured by mortgage loans on
commercial real property, such as industrial and warehouse properties, office
buildings, retail space and shopping malls, single and multifamily properties
and cooperative apartments, hotels and motels, nursing homes, hospitals and
senior living centers, mobile home parks, manufactured home communities,
theaters, self-storage facilities, restaurants and convenience stores
("Commercial Mortgage-Backed Securities" or "CMBS"). Under normal market
conditions, at least 65% of the Fund's assets will be invested in below
investment grade CMBS. The Fund's portfolio is expected to consist
274828.26
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<PAGE>
primarily of securities with stated maturities of 2-20 years. See
"Commercial Mortgage-Backed Securities."
The Fund may also invest in other mortgage-related securities or assets,
including commercial mortgage loans ("Commercial Mortgage Loans"), mezzanine
capital in real estate financed transactions ("Mezzanine Capital"), and debt
securities of real estate investment trusts ("REITs"), as well as securities
issued by the U.S. Treasury. The Fund may also invest in Fannie Mae Multifamily
MBS/DUS (Delegated Underwriting and Servicing Mortgage-Backed Securities).
Additionally, the Fund reserves the right to invest without limitation in money
market instruments for temporary defensive purposes.
Investment Adviser Lend Lease Hyperion Capital Advisors, L.L.C. (the "Adviser") will act as the
Fund's investment adviser. The Fund will pay the Adviser a monthly fee at
an annual rate of .50% of the average weekly net asset value of the Fund.
See "Management of the Fund."
Administrator Hyperion Capital Management, Inc. will act as the Fund's administrator (the
"Administrator"). The Fund will pay the Administrator a monthly fee at an
annual rate of .15% of the average weekly net assets of the Fund. Investors
Capital Services, Inc. will act as sub-administrator of the Fund and will be
paid by the Administrator. See "Management of the Fund."
Distributions The Fund intends to distribute quarterly all or substantially all of its net
investment income to holders of the Fund's Common Stock. It is expected
that the initial dividend on shares of the Fund's Common Stock will be
declared to holders of the Fund's Common Stock on the 1st day of the fiscal
quarter which follows the first fiscal quarter in which an investor (other than
the Adviser or an affiliate of the Adviser) becomes a holder of the Fund's
Common Stock. The initial dividend will then be paid on the 15th day of
such quarter. Thereafter, holders of the Fund's Common Stock on the 1st day
of a fiscal quarter of the Fund will become entitled to distributions made on
the 15th day of each fiscal quarter. See "Taxes."
Estimated Expenses The Fund's annual operating expenses, including advisory and administrative
fees and other expenses (excluding interest expenses), are estimated to be
approximately .75% in its first full year of operations. Annual operating
expenses (excluding any extraordinary items) in excess of .75% of the Fund's
average daily net assets for any year will be paid by the Adviser. Estimated
offering expenses of $85,000 will be charged to capital upon completion of
the offering of the common stock. See "Summary of the Fund's Expenses"
and "Management of the Fund."
Repurchase of Shares Beginning eighteen months after this offering, the Board of Directors of the
Fund may, in its sole discretion and from time to time, consider share
repurchases pursuant to rules of the Securities and Exchange Commission
which permit discretionary tender offers and repurchase offers. There can be
no assurance that the Fund will in fact redeem any of its Shares. See
"Discretionary Tender Offers and Repurchase Offers".
274828.26
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<PAGE>
Listing The Shares will not be listed on a stock
exchange. It is not anticipated that a
market for the Shares will develop.
Fund Termination The Fund expects to distribute in cash all of its net assets on or prior to
December 31, 2001, and immediately thereafter to terminate, provided that
the duration of the Fund may be extended for successive one-year periods
provided that each continuance is specifically approved in advance by the
holders of more than 75% of the outstanding shares of the Fund's Common
Stock. In the event either Clifford E. Lai or Thomas H. Mattinson ceases his
affiliation with the Adviser, the Fund will terminate immediately thereafter,
unless the duration of the Fund is otherwise extended by the approval of more
than 75% of the outstanding shares of the Fund's Common Stock.
Notwithstanding the foregoing, the Fund may be liquidated at any time upon
the unanimous consent of the shareholders. No fee will be imposed in
connection with the Fund's termination and liquidation.
Risk Considerations Investment in the Fund involves special considerations, as the Fund is a
closed-end investment company which invests principally in below investment
grade CMBS. The Fund is intended to be for investors who seek a long-term
investment. Since the formation of the Fund on September 12, 1995, the
Adviser has been the sole shareholder of the Fund. The Fund has invested the
initial contribution of the Adviser in short-term debt instruments. The Fund
has no other history of operations. No trading market exists or is expected to
exist for the Shares. A loss of some or all of your investment is a risk of
investing in the Fund. A summary of the principal risks of investing in the
Fund follows.
Non-diversification. An investment in the Fund's Common Stock cannot be
considered a complete investment program. Because the Fund's investment
portfolio will be non-diversified, the shares may be subject to greater risk
than the shares of a closed-end investment company whose portfolio is
diversified.
Commercial Mortgage-Backed Securities. The Fund will invest primarily in below
investment grade CMBS. Investors should consider the risks associated with
investing in CMBS and other mortgage-related securities which may involve the
risks of delinquent payments of interest and principal, early prepayments and
potential unrecoverable principal loss from the sale of foreclosed property. The
below investment grade quality of the CMBS also present additional risks which
are discussed below. Additionally, by investing in Commercial Mortgage Loans,
the Fund may acquire rights of equity in real estate through its holdings. See
"Taxes" for a discussion of the federal tax implications of such holdings. The
management and disposition of these equity interests may pose additional risks
to the principal investments of the Fund. See "Risk Considerations."
Investing in Lower Credit Quality Securities. Investors should recognize that
below investment-grade and unrated CMBS and other mortgage-related securities in
which the Fund will invest have speculative characteristics. The prices of lower
credit quality securities have been found to be less sensitive to
interest rate changes than more highly rated investments, but more sensitive to
274828.26
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<PAGE>
adverse economic downturns or individual issuer developments. A projection of
an economic downturn or of a period of rising interest rates, for example,
could cause a decline in the price of lower credit quality securities because
the advent of a recession could lessen the ability of obligors of mortgages
underlying such investments to make principal and interest payments. In such
event, existing credit supports may be insufficient to protect loss of
principal.
Illiquid Securities. The Fund may invest in securities such as CMBS that may
lack an established secondary trading market or are otherwise considered
illiquid. Liquidity of a security refers to the ability to easily dispose of
securities and the price to be obtained, and does not necessarily relate to the
credit risk or likelihood of receipt of cash at maturity. Illiquid securities
may trade at a discount from comparable, more liquid investments. The CMBS and
other mortgage-related securities which the Fund intends to acquire may be less
marketable or in some instances illiquid because of the absence of registration
under the federal securities laws, contractual restrictions on transfer and the
small size of the issue (relative to the issues of comparable interests). There
is no limit on the percentage of the Fund's assets that may be invested in
illiquid securities. See "Risk Considerations."
Borrowing. The Fund may borrow from banks or through repurchase agreements in
amounts up to one-third of total assets and pledge some assets as collateral.
The Fund will pay interest on borrowed money and may incur other transaction
costs. These expenses can exceed the income received or capital appreciation
realized by the Fund from any securities purchased with borrowed money.
Further, the Fund may invest in securities with borrowed money which lose
value, thereby increasing the amount of loss incurred by an investor. In times
of volatile markets, a sudden drop in the value of the assets of the Fund may
cause the Fund to violate agreed upon credit maintenance ratios. This could
result in a default under such loan agreements causing an early call of a loan
and/or the payment of penalties to the lender; thereby causing a loss of income
and/or principal to investors in the Fund.
Other Investment Management Techniques. The Fund may use various other
investment management techniques that also involve special considerations
including engaging in hedging transactions (when available and cost efficient)
used to affect the Fund's average duration of securities in which it invests
and entering into repurchase agreements. For further discussion of these
practices and the associated risks and special considerations, see "Risk
Considerations."
Market Value of Assets. The market values of the Fund's assets will generally
fluctuate inversely with changes in prevailing interest rates and directly with
the perceived credit quality of such assets. To the extent the various hedging
techniques and active portfolio management employed by the Fund do not offset
these changes, the net asset value of the Fund's Shares will also fluctuate in
relation to these changes. The various investment techniques employed by the
Fund and the different characteristics of particular securities
in which the Fund may invest make it difficult to predict precisely the impact
of interest rate and credit quality changes on the net asset value of the
Shares. Market value
274828.26
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<PAGE>
may also be impaired by actual principal losses resulting from collateral
foreclosures and sales.
</TABLE>
274828.26
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<PAGE>
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SUMMARY OF THE FUND'S EXPENSES
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The expense summary below was developed to help you make your
investment decisions. You should consider this expense information along with
other important information in this Private Placement Memorandum, including the
Fund's investment objective.
Estimated Annual Fund Expenses
(as a percentage of average daily net assets)
Investment Advisory Fees............................ .50%
Other Expenses...................................... .25%
(including Administration Fees. . . . . . . . ..15%)
=====
Total Annual Fund Operating Expenses................ .75%
Example:
A shareholder would pay the following expenses on a 10,000 investment
in the Fund, assuming a 5% annual return:
1 Year 3 Years 5 Years 10 Years
$102 $318 $552 $1,225
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The purpose of the expense table provided above is to assist investors
in understanding the various costs and expenses that an investor in the
Fund would bear directly or indirectly. The expenses reflected above
are estimates of the expenses the Fund will incur. For a further
discussion of these fees, see "Management of the Fund."
If the Fund incurs actual total operating expenses (excluding
extraordinary items) in excess of .75% of the Fund's average daily net
assets in any year, such excess will be paid by the Adviser and will
not be charged to the Fund or its shareholders.
274828.26
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<PAGE>
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USE OF PROCEEDS
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The net proceeds of this offering, after deduction of the current
offering expenses (estimated to be $85,000), will be invested in accordance with
the policies set forth under "Investment Policies." A portion of the offering
expenses of the Fund has been advanced by the Adviser and may be repaid by the
Fund upon closing of this offering.
The Fund estimates that the net proceeds of this offering will be fully
invested in accordance with the Fund's investment objective and policies within
one year of the initial offering. Pending such investment, the proceeds may be
invested in U.S. Government securities or short-term investment grade debt
obligations or money market instruments. See "Investment Policies."
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THE FUND AND ITS OBJECTIVE, POLICIES AND RISKS
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The Fund
The Fund is a closed-end, non-diversified management investment company
that was incorporated on September 12, 1995 under the laws of the State of
Maryland. On September 12, 1995, the Adviser contributed $100,000, which since
that time has been invested in short-term debt instruments. In addition, on or
before March 15, 2000, Lend Lease Real Estate Investments, Inc. ("Lend Lease
Real Estate") will purchase at least $720,000 of the Fund's Shares, and Hyperion
Capital Management, Inc. will purchase at least $100,000 of the Fund's Shares.
The Fund has had no other investment activity since its inception. The Fund
intends to allocate the net proceeds of the offering in accordance with the
investment objective and policies as described below. The investment adviser
believes that the Fund will fully invest the proceeds of the offering within one
year depending on market conditions. The Fund expects to distribute in cash all
of its net assets on or before December 31, 2001, and immediately thereafter to
terminate, provided that the duration of the Fund may be extended for successive
one-year periods provided that each continuance is specifically approved in
advance by the holders of more than 75% of the outstanding shares of the Fund's
Common Stock. In the event either Clifford E. Lai or Thomas H. Mattinson ceases
his affiliation with the Adviser, the Fund will terminate immediately
thereafter, unless otherwise extended by the approval of more than 75% of the
outstanding shares of the Fund's Common Stock. Notwithstanding the foregoing,
the Fund may be liquidated at any time upon the unanimous consent of the
shareholders. Prior to its termination and liquidation, the Fund intends, at all
times, to have greater than 100 beneficial owners of its securities.
Investment Objective
The Fund's investment objective is to provide high total return by
investing in securities backed by real estate debt. The Fund will seek to
achieve its objective by investing, under normal circumstances, at least 65% of
its assets in below investment grade CMBS. The Fund may also invest in other
mortgage-related securities or assets including Commercial Mortgage Loans,
Mezzanine Capital, and debt securities of real estate investment trusts, as well
as securities issued or guaranteed by the U.S. Treasury. The majority of assets
in which the Fund will invest are expected to be rated BB or below. Investments
in lower rated securities or unrated securities of equivalent credit quality are
subject to special risks, including a greater risk of loss of principal and
non-payment of interest. An investor should carefully consider these factors
before purchasing shares of Common Stock of the
274828.26
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<PAGE>
Fund. The investment objective of the Fund is fundamental and may not be changed
without approval by the holders of more than 75% of the shares of the Fund's
Common Stock. No assurance can be given that the Fund's objective will be
achieved. Like all investors in interest bearing securities, the Fund is exposed
to risk that the prices of individual securities held by the portfolio may
fluctuate, in some cases significantly, in response to changes in credit
conditions and prevailing levels of interest rates. See "Risk Considerations."
Investment Policies
In determining which commercial mortgage-backed securities the Fund
will purchase, the Adviser will consider, among other factors, the following:
creditworthiness of the borrower, characteristics of the underlying mortgage
loan, including the loan-to-value ratio ("LTV") and debt service coverage ratio,
loan seasoning, and refinancing risk; characteristics of the underlying
property, including diversity of the loan pool, occupancy and leasing, and
competitiveness in the pertinent market; economic, environmental and local
considerations; deal structure, including historical performance of the
originator, subordination percentages; and structural participants such as
administrators and servicers.
In addition to examining the relative value of the investments as
indicated above, the Adviser's disciplined approach to investments for the
Fund's portfolio will include considerable interaction with rating agencies,
servicers and special servicers, conducting its own real estate due diligence,
reviewing third party due diligence of the underlying mortgage securities,
extensive review of due diligence by underwriters and rating agencies,
confirmation of debt service coverage ratios and stress testing of security cash
flows. The Adviser also will select investments which will vary the portfolio by
underlying property types and geographic regions.
The Fund may invest its assets without limitation in (i) cash, (ii)
short-term, investment-grade debt obligations or money market instruments or
(iii) securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities for the following cash management reasons: (1) liquidation of
Fund assets and pending reinvestment of the proceeds in accordance with the
Fund's investment objective and policies; (2) to pay distributions to
shareholders and operating expenses; and (3) to meet its obligations under any
tender offer or share repurchases. In addition, the Fund may take a temporary
defensive posture and invest without limitation in the securities listed above
at such times as the Adviser, in its sole discretion, believes that it is in the
best interest of the Fund's shareholders to assume such a defensive posture. To
the extent that the Fund invests in such instruments, it may not achieve its
investment objective.
The Fund may also employ various hedging techniques, including interest
rate transactions, that will affect the Fund's average duration. (See "Risk
Considerations -- Hedging Transactions.") In addition, the Fund may use various
techniques and investments to increase or decrease its exposure to changing
security prices, interest rates or other factors that affect security values.
These techniques and investments may involve derivative transactions such as
buying and selling options and futures contracts, selling securities short and
investments in mortgage-backed securities. The Fund may use these practices to
adjust the risk and return characteristics of the Fund's portfolio. However,
these techniques or investments may result in a loss, regardless of whether the
intent was to reduce risk or increase return, with unexpected changes in market
conditions or if the counterparty to the transaction does not perform as
promised. In addition, these techniques or investments may increase the
volatility of the Fund and may involve a small investment of cash relative to
the magnitude of the risk assumed.
The following is a discussion of the various investments eligible to be
purchased by the Fund and the investment techniques anticipated to be employed
by the Fund.
(1) Commercial Mortgage-Backed Securities -- CMBS are generally
multi-class debt or pass-through securities backed by a mortgage loan or pool of
mortgage loans secured by commercial property, such as industrial and warehouse
properties, office buildings, retail centers and shopping malls, multi-family
properties and cooperative apartments, hotels and motels, nursing homes,
hospitals, senior living centers, manufactured living communities and mobile
home parks. Assets underlying CMBS may relate to many properties, only a few
274828.26
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<PAGE>
properties, or to a single property. Each commercial mortgage loan that
underlies CMBS has certain distinct characteristics.
Commercial mortgage loans are sometimes not amortizing and often not
fully amortizing. At their maturity date, repayment of the remaining principal
balance or "balloon" is due and is repaid through the attainment of an
additional loan, the sale of the property or the contribution of additional
capital. Unlike most single family residential mortgages, commercial real
property loans often contain provisions that substantially reduce the likelihood
that they will be prepaid. The provisions generally impose significant
prepayment penalties on loans and, in some cases, there may be prohibitions on
principal prepayments for several years following origination. This difference
in prepayment exposure is significant due to the extraordinarily high levels of
refinancing of traditional residential mortgages experienced over the past years
when mortgage rates reached a 25 year low. Changing real estate markets may
adversely affect both the value of the underlying collateral and the borrower's
ability to meet contractual obligations, either of which may lead to
delinquencies, defaults, modifications or foreclosure that in turn may lead to
the realization of credit losses in CMBS. See "Risk Considerations."
CMBS have been issued in public and private transactions by a variety
of public and private issuers. Non-governmental entities that have issued or
sponsored CMBS offerings include owners of commercial properties, originators
of, and investors in, mortgage loans, savings and loan associations, mortgage
banks, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. The Fund may from time to time purchase
CMBS directly from issuers in negotiated or non-negotiated transactions or from
a holder of such CMBS in the secondary market.
Commercial mortgage securitizations generally are senior/subordinated
structures. The senior class investors are deemed to be protected against
potential losses on the underlying mortgage loans by the subordinated class
investors who take the first loss if there are defaults on the underlying
commercial mortgage loans. Other protections, which may benefit all of the
classes including the subordinated classes, may include issuer guarantees,
additional subordinated securities, cross-collateralization,
over-collateralization and the equity investor in the underlying properties.
By adjusting the priority of interest and principal payments on each
class of a given CMBS, issuers are able to create senior investment grade
securities and lower rated or unrated subordinated securities tailored to meet
the needs of sophisticated institutional investors. In general, subordinated
classes of CMBS are entitled to receive repayment of principal only after all
required principal payments have been made to more senior classes and have
subordinate rights as to receipt of interest distributions. Such subordinated
classes are subject to a substantially greater risk of nonpayment than are
senior classes of CMBS. Even within a class of subordinated securities, most
CMBS are structured with a hierarchy of levels (or "loss positions"). Loss
positions determine the order in which nonrecoverable losses of principal are
applied to the securities within a given structure. For instance, a first loss
subordinated security will absorb any principal losses before any higher loss
subordinate position. This type of structure allows a number of classes of
securities to be created with varying degrees of credit exposure, prepayment
exposure and potential total return. The Fund will invest in subordinated class
securities and may invest in first loss subordinated securities which may be
unrated securities.
The Fund may also create or acquire interest only classes of CMBS
("IOs"), which are classes of CMBS that are entitled to no (or only nominal)
payments of principal, but only to payments of interest. The yield to maturity
of IOs is very sensitive to changes in the weighted average life of such
securities, which in turn is dictated by the rate of prepayments on the
underlying mortgage collateral. Yield on IOs may be adversely affected by
interest rate changes. In periods of declining interest rates, rates of
prepayments on mortgage loans generally increase, and if the rate of prepayments
is faster than anticipated, then the yield on IOs will be affected adversely.
The Fund also may invest in Sub IOs, a class for which interest generally is
withheld and used to make principal payments on more senior classes. Sub IOs
provide credit support to the senior classes, and thus bear substantial credit
risk. Moreover, because all IO classes only receive interest payments, their
yields are extremely sensitive
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not only to default losses but also to changes in the weighted average life of
the relevant classes, which in turn will be dictated by the rate of prepayments
on the underlying Mortgage Collateral.
The following table sets forth an example of the prioritization of the
payments to each class as well as the order of absorption of credit losses, if
any, on the underlying mortgage loans. The table provides a example of the
current CMBS structures, however, the actual ratings, cash flows and loss
absorption priorities of the CMBS in which the Fund will invest may differ.
General Examples Of CMBS Structures
Excess
Principal Loss
Typical Cash Flow Absorption
Class Rating Priority Priority
- ----- ------ -------- --------
Senior A-1 "AAA" 1st 7
Senior A-2 "AA" 2nd 6
Subordinated B-1 "A","BBB" 3rd, 4th 5
Subordinated B-2 "BB" 5th 4
Subordinated B-3 "B" 6th 3
Subordinated B-4 Unrated 7th 2
Equity Holder N/A N/A 1
The rating assigned to a given issue and class of CMBS is a product of
many factors, including, but not limited to, the structure of the security, the
level of subordination, the quality and adequacy of the collateral, projected
losses from the collateral and the past performance of the originators and
servicing companies. The rating of any CMBS is determined to a substantial
degree by the debt service coverage ratio (i.e., the ratio of current net
operating income from the commercial properties, in the aggregate, to the
current debt service obligations on the properties) and the LTV ratio of the
pooled properties. The amount of the securities issued in any one rating
category is determined by the rating agencies after a rigorous credit rating
process which includes analysis of the issuer, servicer and property manager, as
well as verification of the LTV and debt service coverage ratios. LTV ratios may
be particularly important in the case of commercial mortgages because most
commercial mortgage loans generally provide that the lender's sole remedy in the
event of a default is against the mortgaged property, and the lender is not
permitted to pursue remedies with respect to other assets of the borrower.
The Fund may invest in Fannie Mae MBS/DUS which are Delegated
Underwritings and Services (DUS)/multi-family mortgage-backed securities. Fannie
Mae delegates to selected lenders the responsibility for underwriting, closing
and delivering multifamily mortgages without Fannie Mae's prior review. Fannie
Mae Multifamily has 26 active lenders that participate in DUS. Each lender must
have at least $7.5 million in acceptable net worth, including at least $500,000
in liquid assets. The DUS lender is at risk for a portion of any loss resulting
from default. Generally, mortgages eligible for MBS/DUS include fixed-rate
mortgages with 5-, 7-, 10-, 15 and 18- year balloon maturities. DUS loans
generally are non-recourse to the borrower and are generally assumable. Eligible
properties must be income-producing multifamily rental or cooperatives with a
minimum of five units. Required are title insurance, property insurance, rent
loss insurance and if applicable, steam boiler, builder's risk and flood
insurance. Occupancy must be the greater of 90% or break even for 3 consecutive
months prior to receiving a DUS commitment.
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(2) Commercial Mortgage Loans -- A Commercial Mortgage Loan is a legal
instrument for pledging a described property interest for the repayment of a
loan under certain terms and conditions, and constitutes a lien on the interest
pledged. Commercial Mortgage Loans supply most of the capital employed in real
estate investments. A borrower gives a lender a lien on real estate as assurance
that the loan will be repaid. If the borrower fails to make payment, the lender
can foreclose the lien and acquire the real estate, thereby offsetting the loss.
Under normal market conditions, the Fund may invest in Commercial
Mortgage Loans, which involve loans to a single obligor on a single asset.
Commercial Mortgage Loans, also known as whole loans, are nonrecourse to the
borrower and therefore repayment of a Commercial Mortgage Loan will be dependent
solely on the cash flow derived from, and the market or liquidation value of,
the underlying property. Other assets of the borrower, if any, would generally
not be available to the lender for payment of the Commercial Mortgage Loan.
Commercial real estate lending can be affected significantly by the condition of
the property, supply and demand in the market for the type of property securing
a Commercial Mortgage Loan and adverse economic conditions. Market values may
vary as a result of economic events or governmental regulations outside the
control of the borrower or lender, which events may impact the future cash flow
of the property. For example, under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances in, on, under or in the vicinity of such real
property. Such laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of such hazardous or toxic
substances. The borrower's income and ability to make payments on its Commercial
Loan could be affected adversely by the existence of an environmental liability
with respect to its properties. A borrower subsequently defaulting on its
Commercial Loan would then cause a loss to the Fund and its investors.
A borrower may pledge real estate to more than one lender, thereby
creating several liens; in such cases, the order of the liens is important. The
first loan contract executed and recorded is the first Mortgage, which has
priority over all subsequent transactions. Second and third Mortgages are
sometimes referred to as junior liens because they involve more lending risk
than first Mortgages, as they have a lower priority of repayment in the event of
default, therefore higher rates of interest are charged for secondary financing.
(3) Mezzanine Capital -- Mezzanine Capital investments, which may take
the form of a subordinate mortgage or a preferred equity position, represent the
middle "tier" of a three (or more) tier commercial real estate capital
structure. Mezzanine Capital investments are subordinate to first mortgage loans
with respect to principal and interest payments and senior to the equity
ownership position with respect to principal and interest payments and/or
preferred cash flows. Capital losses experienced at the property level are
absorbed in reverse order of seniority, first by the equity ownership position,
second by the Mezzanine Capital position, and finally by the first mortgage
position. Typically, the equity ownership position will comprise 5-25% of the
capital structure, the Mezzanine Capital position 5-50%, and the first mortgage
position 40-75%. Mezzanine Capital positions often receive attractive current
income returns and high total return. See "Risk Considerations."
(4) Debt Securities Issued by Real Estate Investment Trusts -- The Fund
may invest in debt securities issued by real estate investment trusts ("REIT
Debt Securities"). REITs are pooled investment vehicles which invest primarily
in income producing real estate or real estate related loans or interests and
have elected and qualified for REIT status under the Internal Revenue Code of
1986, as amended (the "Code"). Generally, REITs can be classified as equity
REITs, mortgage REITs, or hybrid REITs. Equity REITs invest the majority of
their assets directly in real property and derive income primarily from the
collection of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest the majority of
their assets in real estate mortgages and derive income from the collection of
interest payments. Hybrid REITs combine the characteristics of both equity REITs
and mortgage REITs.
REIT Debt Securities, for the most part, are general and unsecured
obligations. These securities typically have corporate bond features such as
semi-annual interest coupons, no amortization and strong
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prepayment protection. Further, REITs are subject to heavy cash flow dependency,
default by borrowers, self- liquidation, and the possibilities of failing to
qualify for the exemption from tax on distributed income under the Code and
failing to maintain their exemptions from the Investment Company Act of 1940
(the "1940 Act"). Additionally, real estate related unsecured debt generally
contains covenants restricting the level of secured and total debt and requires
a minimum debt service coverage ratio and net worth level. See "Risk
Considerations."
(5) U.S. Treasury Securities-- These include issues of the U.S.
Treasury, such as bills, certificates of indebtedness, notes and bonds. U.S.
Treasury Securities are backed by the full faith and credit of the U.S.
Government.
(6) The Fund may also purchase Repurchase Agreements and engage in
hedging transactions which are discussed more fully in "Risk Considerations".
The investment policies of the Fund, like the investment
objective of the Fund, are fundamental and cannot by changed without the
approval of the holders of more than 75% of the shares of the Fund's Common
Stock.
Investment Restrictions
The Fund has adopted the following fundamental investment restrictions
which may not be changed without the approval of the holders of more than 75% of
the shares of the Fund's Common Stock. The Fund is subject to further investment
restrictions that are set forth in the Statement of Additional Information. The
Fund may not:
1. Borrow money (commonly referred to as "leverage") in
an aggregate amount in excess of 33 1/3% of the
Fund's total assets (after giving effect to any such
leveraging).
2. Pledge, hypothecate, mortgage or otherwise encumber
its assets other than to secure such issuances or
borrowings as set forth in restriction No. 1 above or
in connection with, to the extent permitted under the
1940 Act, good faith hedging transactions (including
interest rate swaps), reverse repurchase agreements,
when issued and forward commitment transactions.
3. Invest in securities of other investment companies,
except that the Fund may purchase unit investment
trust securities where such unit investment trusts
meet the investment objective of the Fund and then
only up to 5% of the Fund's net assets, except as
they may be acquired as part of a merger,
consolidation or acquisition of assets but in no
event to an extent not permitted by Section 12(d) of
the 1940 Act.
4. Invest in CMBS where the underlying assets are
non-dollar denominated Commercial Mortgage Loans.
5. Invest in any security that would cause any investor
in the Fund to be required to make a filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
Risk Considerations
Lower Rated and Unrated Securities (commonly referred to as "Junk") --
Generally, lower rated or unrated securities of equivalent credit quality offer
a higher return potential than higher rated securities but involve greater
volatility of price and greater risk of loss of income and principal, including
the possibility of a default or bankruptcy of the issuers of such securities.
Lower rated securities and comparable unrated securities will likely have larger
uncertainties or major risk exposure to adverse conditions and are predominantly
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speculative. The occurrence of adverse conditions and uncertainties would likely
reduce the value of securities held by the Fund, with a commensurate effect on
the value of the Fund's shares. While the market values of lower rated
securities and unrated securities of equivalent credit quality tend to react
less to fluctuations in interest rate levels than do those of higher-rated
securities, the market value of certain of these lower rated securities also
tend to be more sensitive to changes in economic conditions including,
unemployment rates, inflation rates and negative investor perception than
higher-rated securities. In addition, lower rated securities and unrated
securities of equivalent credit quality generally present a higher degree of
credit risk. The Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings.
The weighted average credit quality of the Fund once it is fully
invested is expected to be B to BB. Securities which are rated Ba by Moody's, BB
by S&P, BB by Duff & Phelps Credit Rating Corporation ("D&P") or BB by Fitch
Investors Service, Inc. ("Fitch") (collectively referred to as the "Rating
Agencies") have speculative characteristics with respect to capacity to pay
interest and repay principal. Securities which are rated B generally lack
characteristics of a desirable investment, and assurance of interest and
principal payments over any long period of time may be small. Securities which
are rated Caa or CCC or below are of poor standing and highly speculative. Those
issues may be in default or present elements of danger with respect to principal
or interest. Securities rated C by Moody's, D by S&P, or the equivalent by D&P
or Fitch are in the lowest rating class. Such ratings indicate that payments are
in default, or that a bankruptcy petition has been filed with respect to the
issuer or that the issuer is regarded as having extremely poor prospects. A
general description of the ratings of Moody's, S&P, D&P and Fitch are set forth
in Appendix A. It is unlikely that future payments of principal or interest will
be made to the Fund with respect to these highly speculative securities other
than as a result of the sale of the securities or the foreclosure or other forms
of liquidation of the collateral underlying the securities.
In general, the ratings of the Rating Agencies represent the opinions
of these agencies as to the quality of securities that they rate. Such ratings,
however, are relative and subjective, and are not absolute standards of quality
and do not evaluate the market value risk of the securities. It is possible that
an agency might not change its rating of a particular issue to reflect
subsequent events. These ratings will be used by the Fund as data in the
selection of portfolio securities, but the Fund also will rely upon the
independent advice of the Adviser to evaluate potential investments.
In order to calculate the average credit quality of the Fund, the Fund
will assign sequential numbers to each of the 10 rating categories from BB (Ba)
to Unrated, multiply the value of each instrument by the rating equivalent
number assigned to its lowest rating, sum all of such products, divide the
aggregate by the net asset value of the Portfolio and convert the number back to
its equivalent rating symbol. All securities rated less than B-, except for
securities rated D, shall have the same rating number. Securities rated D will
have a rating number of 0.
Tax Risks -- A discussion of tax risks attributable to the Fund's
anticipated acquisition of lower rated or unrated securities is included in the
Statement of Additional Information under "Tax Status."
Commercial Mortgage-Backed Securities -- Investments in CMBS involve
the credit risk of delinquency and default. Delinquency refers to interruptions
in the payment of interest and principal. Default refers to the potential for
unrecoverable principal loss from the sale of foreclosed property. These risks
include the risks inherent in the commercial mortgage loans which support such
CMBS and the risks associated with direct ownership of real estate. This may be
especially true in the case of CMBS secured by, or evidencing an interest in, a
relatively small or less diverse pool of commercial mortgage loans. The factors
contributing to these risks include the effects of general and local economic
conditions on real estate values, the conditions of specific industry segments,
the ability of tenants to make lease payments and the ability of a property to
attract and retain tenants, which in turn may be affected by local conditions
such as oversupply of space or a reduction of available space, the ability of
the owner to provide adequate maintenance and insurance, changes in management
of the
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underlying commercial property, energy costs, government regulations with
respect to environmental, zoning, rent control, bankruptcy and other matters,
real estate and other taxes, and prepayments of the underlying commercial
mortgage loans (although such prepayments generally occur less frequently than
prepayments on residential mortgage loans).
While the credit quality of the securities in which the Fund invests
will reflect the perceived appropriateness of future cash flows to meet
operating expenses, the underlying commercial properties may not be able to
continue to generate income to meet their operating expenses (mainly debt
services, lease payments, capital expenditures and tenant improvements) as a
result of any of the factors mentioned above. Consequently, the obligors under
commercial mortgages may be unable to make payments of principal and interest in
a timely fashion, increasing the risk of default on a related CMBS. In addition,
the repayment of the commercial mortgage loans underlying CMBS will typically
depend upon the future availability of financing and the stability of real
estate property values.
Most commercial mortgage loans are non-recourse obligations of the
borrower, meaning that the sole remedy of the lender in the event of a default
is to foreclose upon the collateral. As a result, in the event of default by a
borrower, recourse may be had only against the specific property pledged to
secure the loan and not against the borrower's other assets. If borrowers are
not able or willing to refinance or dispose of the property to pay the principal
balance due at maturity, payments on the subordinated classes of the related
CMBS are likely to be adversely affected. The ultimate extent of the loss, if
any, to the subordinated classes may only be determined after a foreclosure of
the mortgage encumbering the property and if the mortgagee takes title to the
property upon liquidation of the property. Factors such as the title to the
property, its physical conditions and financial performance, as well as
governmental disclosure requirements with respect to the condition of the
property, may make a third party unwilling to purchase the property at a
foreclosure sale or for a price sufficient to satisfy the obligations with
respect to the related CMBS. The condition of a property may deteriorate during
foreclosure proceedings. Certain obligors on underlying mortgages may become
subject to bankruptcy proceedings, in which case the amount and timing of
amounts due under the related CMBS may be materially adversely affected.
In general, any losses on a given property, the lien on which is
included in a CMBS, will be absorbed first by the equity holder of the property
and then by the "first loss" subordinated security holder to the extent of its
principal balance. Because the Fund intends to invest in both senior classes and
subordinated classes of CMBS, in the event of default of the equity support, any
debt classes junior to those in which the Fund invests will bear losses prior to
the Fund. However, there can be no assurance that the Fund will be able to
recover all of its investments in the securities it purchases. In addition, if
the underlying mortgage portfolio has been overvalued by the originator, or if
the values subsequently decline, the Fund may bear significant losses.
The Fund also may create or acquire interest only classes of CMBS
("IOs"), which are classes of CMBS that are entitled to no (or only nominal)
payments of principal, but only to payments of interest. The yield to maturity
of IOs is very sensitive to changes in the weighted average life of such
securities, which in turn is dictated by the rate of prepayments on the
underlying mortgage collateral. Yield on IOs may be adversely affected by
interest rate changes. In periods of declining interest rates, rates of
prepayments on mortgage loans generally increase. If the rate of prepayments
occurs faster than anticipated, then the yield on IOs will be affected
adversely. The Fund also may create or acquire Sub IOs, a class for which
interest generally is withheld and used to make principal payments on more
senior classes. Sub IOs provide credit support to the senior classes, and thus
bear substantial credit risk. Moreover, because all IO classes only receive
interest payments, their yields are extremely sensitive not only to default
losses but also to changes in the weighted average life of the relevant classes,
which in turn will be dictated by the rate of prepayments on the underlying
Mortgage Collateral.
Commercial Mortgage Loans -- Commercial Mortgage Loans generally lack
standardized terms, which may complicate their structure. Commercial properties
themselves tend to be unique and are more difficult to value than single family
residential properties. Commercial Mortgage Loans also tend to have shorter
maturities
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than residential mortgage loans and may not be fully amortizing, meaning that
they may have a significant principal balance, or "balloon," due on maturity.
The timely payment of interest and principal on a Commercial Mortgage
Loan is secured by an income producing property and, therefore, is dependent
upon performance and payments by the lessees under the related leases and the
successful operation of the underlying property, rather than its liquidation
value. If the net operating income from the underlying property is reduced (for
example, if rental or occupancy rates decline or real estate tax rates or other
operating expenses increase), the borrower's ability to repay the Commercial
Mortgage Loan may be impaired. Furthermore, the liquidation value of the
property may be adversely affected by risks generally incident to interests in
real property, including changes in general or local economic conditions and/or
specific industry segments; declines in real estate values; declines in rental
or occupancy rates; increases in interest rates, real estate tax rates and other
operating expenses including energy costs; changes in governmental rules,
regulations and fiscal policies, including environmental legislation; acts of
God; and other factors which are beyond the borrower's, the lender's or the
property manager's control. Additionally, the borrower may be obligated to cause
standard hazard insurance to be maintained with respect to an underlying
property. Insurance with respect to extraordinary hazards such as earthquakes is
not always required, and insurance may not be available (or is available only at
prohibitively expensive rates) with respect to many other risks, including those
listed above. In addition, there is no assurance that any loss incurred will not
exceed the limits of policies obtained.
In addition, the borrower's ability to make payments in respect of a
Commercial Mortgage Loan largely depends on the ability of tenants to perform
under their rental obligations under existing leases and the ability of the
borrower to continue to lease a substantial portion of the property upon terms
which do not adversely affect the property's cash flow. As the leases expire or
lessees default, the demand for, and supply of, rental space in general, from
time to time, may affect the property's occupancy rate and the rental rates
obtained and concessions, if any, granted on new leases or re-leases of space,
which may cause fluctuations in the cash flow from the operation of the
property. Such fluctuations may affect the amount and timing of payments on the
Commercial Mortgage Loan.
Furthermore, Commercial Mortgage Loans with balloon payments involve a
greater degree of risk of payment because the ability of a borrower to make a
balloon payment will depend upon its ability to either refinance the loan or to
sell the related property. The ability and desire of the borrower to accomplish
either of these goals will be affected by a number of factors, including the
level of available mortgage rates at the time of sale or refinancing, the
borrower's equity in the property, the physical and financial condition and
operating history of the property, tax laws, prevailing general economic and
market conditions and the availability of credit for commercial real estate
projects, generally. In addition, the value of commercial properties depends, in
part, on the fitness of such properties for a particular purpose. Thus, no
assurance can be given that other parties will find such property sufficient for
the purpose for which it is currently being used.
Mezzanine Capital -- Investments in Mezzanine Capital involve similar
risks associated with investments in real estate and subordinated mortgage
investments. Such risks which are commonly associated with the general and local
economic conditions affecting the real estate market and the credit risks of
delinquency and default are discussed in "Risk Considerations--Commercial
Mortgage-Backed Securities" and "Risk Considerations--Commercial Mortgage Loans"
herein.
Restricted and Illiquid Securities -- Liquidity relates to the ability
of the Fund to readily dispose of securities and the price to be paid therefor,
but does not relate to credit risk or the likelihood of receipt of cash at
maturity. Illiquid securities are subject to legal or contractual restrictions
on disposition or lack an established secondary trading market. The sale of
restricted and illiquid securities often requires more time and results in
higher brokerage charges or dealer discounts and other selling expenses than
does the sale of securities eligible for trading on national securities
exchanges or in the over-the-counter markets. Restricted securities may sell at
a price lower than similar securities that are not subject to restrictions on
resale. If it qualifies, the Fund may
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purchase certain restricted securities eligible for sale to qualified
institutional buyers as contemplated by Rule 144A under the 1933 Act or
restricted securities eligible for sale to institutional accredited investors
under Regulation D under the 1933 Act.
REIT Debt Securities -- Investing in REIT Debt Securities involves
certain unique risks in addition to those risks associated with investing in the
real estate industry in general which include, among other things, possible
declines in the value of real estate; risks related to general and local
economic conditions; possible lack of availability of mortgage funds;
over-building; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to, third parties for damages resulting
from, environmental problems; casualty or condemnation losses; uninsured damages
from flood, earthquakes or other natural disasters; limitations on and
variations in rents; dependency on property management skill; the appeal of
properties to tenants; and changes in interest rates. Equity REITs may be
affected by changes in the value of the underlying property owned by the REITs
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified, and are subject
to the risks of financing projects. The Fund may invest in the debt securities
of new or unseasoned REIT issuers and it, therefore, may be difficult or
impossible for the Adviser to ascertain the value of each of such REITs'
underlying assets, management capabilities and growth prospects. In addition,
REITs are subject to heavy cash flow dependency, default by borrowers,
self-liquidation, and the possibilities of failing to qualify for the exemption
from tax on distributed income under the Code and failing to maintain their
exemptions from the 1940 Act. REITs whose underlying assets include long-term
health care properties, such as nursing, retirement and assisted-living homes,
may be affected by federal regulations concerning the health care industry.
REITs (especially mortgage REITs) and REIT Debt Securities are subject
to interest rate risks. When interest rates decline, the value of a REIT
investment in fixed rate obligations usually rises. Conversely, when interest
rates rise, the value of a REIT investment in fixed rate obligations can be
expected to decline. In contrast, as interest rates on adjustable rate mortgage
loans are reset periodically, yields on a REIT investment in such loans may
gradually align themselves to reflect changes in market interest rates, causing
the value of such investments to fluctuate less dramatically in response to
interest rate fluctuations than would investments in fixed rate obligations.
Repurchase Agreements -- The Fund may invest temporarily, without
limitation, in repurchase agreements, which are agreements pursuant to which
securities are acquired by the Fund from a third party with the commitment that
they will be repurchased by the seller at a fixed price on an agreed date. These
agreements may be made with respect to any of the portfolio securities in which
the Fund is authorized to invest. Repurchase agreements may be characterized as
loans by the Fund to the other party to the agreement that are secured by the
underlying securities. Repurchase agreements facilitate portfolio management and
allow the Fund to earn additional revenue. The Fund may enter into repurchase
agreements with (i) member banks of the Federal Reserve System having total
assets in excess of $500 million and (ii) securities dealers, provided that such
banks or dealers meet the creditworthiness standards established by the Adviser
("Qualified Institutions"). The Adviser will monitor the continued
creditworthiness of Qualified Institutions. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or date of maturity of the purchased security. The collateral
will be marked to market daily. Such agreements permit the Fund to keep all of
its assets earning interest while retaining overnight flexibility in pursuit of
investments of a longer-term nature.
The use of repurchase agreements involves certain risks. For example,
if the seller of securities under a repurchase agreement defaults on its
obligation to repurchase the underlying securities, as a result of its
bankruptcy or otherwise, the Fund will seek to dispose of such securities, which
action could involve costs or delays. If the seller becomes insolvent and
subject to liquidation or reorganization under applicable bankruptcy or other
laws, the Fund's ability to dispose of the underlying securities may be
restricted. Also, it is possible that the Fund may not be able to substantiate
its interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by a custodian at all times in
an amount at least equal to the
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repurchase price, including accrued interest. If the seller fails to repurchase
the securities, the Fund may suffer a loss to the extent proceeds from the sale
of the underlying securities are less than the repurchase price.
Lending of Securities -- The Fund may lend its portfolio securities to
Qualified Institutions. By lending its portfolio securities, the Fund attempts
to increase its income through the receipt of interest on the loan. Any gain or
loss in the market price of the securities loaned that may occur during the term
of the loan will be for the account of the Fund.
The Fund will not lend portfolio securities if, as a result, the
aggregate of such loans exceeds 331/3% of the value of the Fund's total assets
(including such loans). All relevant facts and circumstances, including the
creditworthiness of the Qualified Institution, will be monitored by the Adviser,
and will be considered in making decisions with respect to lending of
securities, subject to review by the Fund's Board of Directors. The Fund may pay
reasonable negotiated fees in connection with loaned securities, so long as such
fees are set forth in a written contract and their reasonableness is determined
by the Fund's Board of Directors.
Borrowing -- The Fund may borrow from banks or through repurchase
agreements in amounts up to one-third of total assets and pledge some assets as
collateral. The Fund will pay interest on borrowed money and may incur other
transaction costs. These expenses can exceed the income received or capital
appreciation realized by the Fund from any securities purchased with borrowed
money. Further, the Fund may invest in securities with borrowed money which lose
value, thereby increasing the amount of loss incurred by an investor. In times
of volatile markets, a sudden drop in the value of the assets of the Fund may
cause the Fund to violate agreed upon credit maintenance ratios. This could
result in a default under such loan agreements causing an early call of a loan
and/or the payment of penalties to the lender; thereby causing a loss of income
and/or principal to investors in the Fund. The Fund will only borrow when the
Adviser believes that such borrowings will benefit the Fund after taking into
account considerations such as interest income and possible gains or losses upon
liquidation.
Hedging Transactions -- The Fund may, but will not be obligated to,
enter into various hedging transactions, such as interest rate swaps and the
purchase or sale of interest rate collars, caps and floors, to preserve a return
or spread on a particular investment within the portfolio or its entire
portfolio and to manage the effective maturity or interest rate sensitivity of
its portfolio. Hedging transactions may also be used to attempt to protect
against possible declines in the market value of the Fund's assets resulting
from downward trends in the debt securities markets (generally due to a rise in
interest rates), to protect any unrealized gains in the value of the Fund's
portfolio securities, to facilitate the sale of such securities or to establish
a position in the securities markets as a temporary substitute for purchasing
particular securities. Any, all or none of these techniques may be used at any
time. There is no particular strategy that requires use of one technique rather
than another. Use of any particular hedging transaction is a function of the
overall strategy adopted by the Fund and market conditions. Further hedging
transactions may be used by the Fund in the future as they are developed or
deemed by the Board of Directors of the Fund to be appropriate and in the best
interest of investors in the Fund. The Fund may not be able to hedge some of its
investments due to the cost or lack of availability of a hedging transaction.
The Fund intends to use these transactions as a hedge against market
fluctuations and to manage the duration of the Fund's investments and not as
speculative investments. The Fund may also purchase and sell (or write) options
on securities or indices of securities and may purchase or sell futures
contracts or options on futures contracts, as described below.
The Fund may employ a variety of hedging transactions as described
below and there can be no assurance that any such transaction used will succeed.
The principal risks relating to the use of hedging transactions are: (a)
possible imperfect correlation between changes in the value of the hedging
instrument and the changes in the market value of the underlying securities; (b)
possible lack of a liquid secondary market for closing out or offsetting a
hedging position; (c) losses on hedging positions resulting from general
movements in securities prices or interest rate movements not anticipated by the
Adviser, and (d) the possibility that the Fund could be obligated to pay
variation margin on a hedging position at a time when it would be
disadvantageous to do so. While the use of hedging transactions should tend to
minimize the risk of loss resulting from a decline in the value of hedged
274828.26
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<PAGE>
portfolio securities, these transactions will tend to limit any potential that
could result from an increase in the value of these securities. Such
transactions also are subject to the risk that, if the Adviser is incorrect in
its forecast of interest rates, market values or other economic factors
affecting such a transaction, the Fund would have been better off if it had not
entered into the transaction.
Calls and Puts on Securities and Related Options. The Fund may engage
in various put and call transactions. The Fund may hedge through the use of call
options ("calls") on U.S. Treasury securities and CMBS that are traded on U.S.
securities exchanges and in U.S. over-the-counter markets. The Fund may purchase
and sell calls on these securities or indices thereof. Sales of calls will be
"covered" while the call is outstanding (i.e., the seller owns the securities
subject to the call or other securities acceptable for applicable escrow
requirements). Some contracts are "cash settled" (i.e., the seller pays the
difference between the call and market price in cash when the market price is
higher). Cash-settled calls also may be covered. The Fund does not intend to
sell any cash-settled calls that are not covered. If a call sold by the Fund is
exercised, the Fund forgoes any possible profit from an increase in the market
price of the underlying security over the exercise price.
The Fund may hedge through the use of put options ("puts") that relate
to U.S. Treasury securities and CMBS (whether or not it holds such securities in
its portfolio) or on indices of securities. The Fund may purchase puts on these
securities and may also sell puts on these securities or indices if such puts
are secured by segregated liquid assets. The Fund will not sell puts if, as a
result, more than 50% of the Fund's assets would be required to be segregated
liquid assets. In selling puts, there is a risk that the Fund may be required to
buy the underlying security at a disadvantageous price.
A put option gives the purchaser of the option the right to sell and
the writer, if the purchaser exercises his right, the obligation to buy the
underlying security at the exercise price during the option period. A call
option gives the purchaser of the option the right to buy and the writer, if the
purchaser exercises his right, the obligation to sell the underlying security at
the exercise price during the option period. The Fund is authorized to purchase
and sell exchange listed options and over-the-counter options ("OTC Options").
Listed options are issued by the Options Clearing Corporation ("OCC") which
guarantees the performance of the obligations of the parties to such options.
The purchaser of an option risks losing his entire investment in a
short period of time. If an option is not sold while it has remaining value, or
if during the life of an option the underlying security does not appreciate, in
the case of a call option, or depreciate, in the case of a put option, the
purchaser of such option may lose his entire investment. On the other hand,
given the same market conditions, if the potential purchaser of a call option
purchases the underlying security directly instead of purchasing a call option
or if the potential purchaser of a put option decides not to purchase the put
option but to sell the underlying security, such potential option purchaser
might have less of a loss. An option purchaser does not have the choice of
"waiting out" an unexpected decrease or increase in the underlying securities'
price beyond the expiration date of the option. The more that an option is
out-of-the-money and the shorter its remaining term to expiration, the greater
the risk that a purchaser of the option will lose all or part of his investment.
Further, except where the value of the remaining life of an option may be
realized in the secondary market, for an option purchase to be profitable, the
market price of the underlying interest must exceed or be below the exercise
price by more than the premium and transaction costs paid in connection with the
purchase of the option and its sale or exercise.
The writer of an option assumes an obligation to deliver or purchase
the underlying interest represented by the option upon the assignment to him of
an exercise notice. The writer is subject to being assigned an exercise notice
at any time after he has written the option until the option expires or until he
has closed out his position by the offsetting purchase of an identical option.
The Fund's ability to close out its position as a writer or purchaser
of an exchange-listed option is dependent upon the existence of a liquid
secondary market on option exchanges. Among the possible reasons for the absence
of a liquid secondary market on an exchange are: (i) insufficient trading
interest in certain options;
274828.26
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<PAGE>
(ii) restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange or
OCC to handle current trading volume; or (vi) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options) in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding options
on that exchange that had been listed by the OCC as a result of trades on that
exchange would generally continue to be exercisable in accordance with their
terms. OTC Options are purchased from or sold to dealers or financial
institutions which have entered into direct agreement with the Fund. With OTC
Options, such variables as expiration date, exercise price and premium will be
agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. If the transacting dealer fails
to make or take delivery of the securities underlying an option it has written,
in accordance with the terms of that option as written, the Fund would lose the
premium paid for the option as well as any anticipated benefit of the
transaction. OTC Options and their underlying securities may be considered
illiquid. The Fund will engage in OTC Option transactions only with primary
United States Government securities dealers recognized by the Federal Reserve
Bank of New York.
The hours of trading for options on debt securities may not conform to
the hours during which the underlying securities are traded. To the extent that
the option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the option markets.
Futures Contracts and Related Options. The Fund may buy or sell
financial futures contracts or purchase options on such futures as a hedge
against anticipated interest rate changes. A futures contract sale creates an
obligation by the Fund, as seller, to deliver the specified type of financial
instrument called for in the contract at a specified future time for a specified
price or, in "cash settlement" futures contracts, to pay to (or receive from)
the buyer in cash the difference between the price in the futures contract and
the market price of the instrument on the specified date, if the market price is
higher (or lower, as the case may be). Options on futures contracts are similar
to options on securities except that an option on a futures contract gives the
purchaser the right for the premium paid to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put).
The Fund's use of futures and options on futures will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission ("CFTC") with which
the Fund must comply in order not to be deemed a commodity pool operator within
the meaning and intent of the Commodity Exchange Act and the regulations
promulgated thereunder.
Typically, an investment in a futures contract requires the Fund to
deposit with the applicable exchange or other specified financial intermediary
as security for its obligations an amount of cash or other specified debt
securities which initially is 1% to 5% of the face amount of the contract and
which thereafter fluctuates on a periodic basis as the value of the contract
fluctuates. An investment in options involves payment of a premium for the
option without any further obligation on the part of the Fund.
Regulations of the CFTC applicable to the Fund currently require that
all of the Fund's futures and options on futures transactions constitute bona
fide hedging transactions or be undertaken incidental to the Fund's activities
in the securities markets. In accordance with CFTC regulations, the Fund may not
purchase or sell futures contracts or options thereon if immediately thereafter
the sum of the amounts of initial margin deposits on the Fund's existing futures
positions and premiums paid for options on futures would exceed 5% of the fair
market value of the Fund's total assets. The Adviser reserves the right to
comply with such different standard as may be established by CFTC rules and
regulations with respect to the purchase or sale of futures contracts or options
thereon.
274828.26
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<PAGE>
The variable degree of correlation between price movements of futures
contracts and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the value of
the Fund's position. In addition, futures and futures option markets may not be
liquid in all circumstances. As a result, in volatile markets, the Fund may not
be able to close out a transaction without incurring losses substantially
greater than the initial deposit. Although the contemplated use of these
contracts should tend to minimize the risk of loss due to a decline in the value
of the hedge position, at the same time they tend to limit any potential gain
which might result from an increase in the value of such position. The ability
of the Fund to hedge successfully will depend on the Adviser's ability to
forecast pertinent market movements, which cannot be assured. Finally, the daily
deposit requirements in futures contracts create an ongoing greater potential
financial risk than do options purchased by the Fund, where the exposure is
limited to the cost of the initial premium. Losses due to hedging transactions
will reduce net asset value. Income earned by the Fund from its hedging
activities generally will be treated as capital gains.
Interest Rate Transactions. Interest rate swaps involve the exchange
with another party of commitments to pay or receive interest (e.g., an exchange
of floating rate payments for fixed rate payments). The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of interest
on a notional principal amount from the party selling such interest rate floor.
An interest rate collar combines the elements of purchasing a cap and selling a
floor. The collar protects against an interest rate rise above the maximum
amount but gives up the benefits of an interest rate decline below the minimum
amount. The net amount of the excess, if any, of the Fund's obligations over its
entitlements with respect to each interest rate swap will be accrued on a daily
basis and an amount of cash or liquid securities having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account by the Fund's custodian. If there is a default by the other party to
such a transaction, the Fund may have contractual remedies pursuant to the
agreements related to the transactions.
The Fund may enter into interest rate transactions to preserve a return
or spread on a particular investment or portion of its portfolio, to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date, to effectively fix the rate of interest that it pays on one or
more borrowings or series of borrowings or to manage the effective maturity or
interest rate sensitivity of its portfolio. The Fund would use these
transactions as a hedge and not as a speculative investment. Interest rate
transactions are subject to risks comparable to those described above with
respect to other hedging strategies.
The Fund may enter into interest rate swaps, caps, collars and floors
on either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these interest rate transactions are entered into for good
faith hedging purposes, and inasmuch as segregated accounts will be established
with respect to such transactions, the Adviser and the Fund believe such
obligations do not constitute senior securities and, accordingly, will not treat
them as being subject to its borrowing restrictions. The net amount of the
excess, if any, of the Fund's obligations over its entitlements, with respect to
each interest rate swap, will be accrued on a daily basis and an amount of cash,
U.S. Government securities or other liquid high grade debt obligations having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by a custodian that satisfies the
requirements of the 1940 Act. The Fund also will establish and maintain such
segregated accounts with respect to its total obligations under any interest
rate swaps that are not entered into on a net basis and with respect to any
interest rate caps, collars and floors that are written by the Fund.
The Fund will enter into interest rate transactions only with banks and
recognized securities dealers believed by the Adviser to present minimal credit
risks in accordance with guidelines established by the Fund's Board of
Directors. If there is a default by the other party to such a transaction, the
Fund will have to rely on its
274828.26
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<PAGE>
contractual remedies (which may be limited by bankruptcy, insolvency or similar
laws) pursuant to the agreements related to the transaction.
Subordinated Securities -- The Fund may invest in subordinated
certificates. Credit enhancement in the form of subordination provides for the
issuance of a senior class of certificates which are generally rated at least
AA/Aa by any of the Rating Agencies and one or more classes of subordinated
certificates which bear ratings lower than the senior certificates or are
non-rated. Holders of either the senior or the subordinated certificates will
ordinarily be entitled to a pro-rata share of distributions of principal and
interest. However, in the event that delinquencies and defaults on the
underlying mortgage loans cause a shortfall in the distributions to the senior
certificates, distributions otherwise payable to the subordinated certificates
will be distributed to the senior certificates to the extent required. The
characteristics of the mortgage loans and other credit enhancement features will
determine the size of the subordinated interest required to obtain the desired
rating on the senior securities.
To compensate for the greater risk of loss on, and illiquidity of, the
subordinated certificates, the yields on subordinated certificates are generally
substantially higher than those available on senior certificates. To the extent
that actual delinquency and loss experience is greater than anticipated, the
return on the subordinated certificates will be adversely affected and, in
extreme cases, all or a portion of the principal could be lost; to the extent
that such experience is more favorable than anticipated, the return on the
subordinated certificates will be increased.
Non-Diversification -- As a non-diversified investment company, the
Fund is not subject to any statutory restriction under the 1940 Act with respect
to investing its assets in one or relatively few issuers. Non- diversification
may present greater risks for the Fund than in the case of a diversified
company. However, the Fund intends to qualify as a "regulated investment
company" under the Code. The Fund will be restricted in that at the close of
each quarter of the taxable year, at least 50% of the value of its total assets
must be represented by cash items (including receivables), U.S. Government
securities, regulated investment company securities and other securities,
limited in respect of any one issuer to not more than 5% in value of the total
assets of the Fund and to not more than 10% of the outstanding voting securities
of such issuer. In addition, at the close of each quarter of any taxable year,
not more than 25% in value of the Fund's total assets may be invested in
securities (other than securities of regulated investment companies or U.S.
Government Securities) of any one issuer or of two or more issuers which the
Fund controls and which are engaged in the same or similar or related trades or
business. The limitations described in this paragraph regarding qualification
under the Code as a "regulated investment company" are not fundamental policies
and may be revised to the extent applicable Federal income tax requirements are
revised. (See "Taxes" herein).
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MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The Fund's Board of Directors, which is responsible for the overall
management and supervision of the Fund, has employed Lend Lease Hyperion Capital
Advisors, L.L.C. to serve as investment adviser of the Fund. For information
about the Directors and Officers of the Fund, see "Management of the Fund" in
the Statement of Additional Information.
Investment Adviser
The Adviser provides advice to the Fund pursuant to an Investment
Advisory Agreement (the "Advisory Agreement"). Subject to such policies as the
Board of Directors of the Fund may determine, the Adviser makes investment
decisions for the Fund. The Adviser provides persons satisfactory to the Board
of Directors of the
274828.26
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<PAGE>
Fund to serve as certain officers of the Fund. Such officers may be directors,
officers or employees of the Adviser or its affiliates. For its services under
the Advisory Agreement, the Adviser receives from the Fund a fee accrued and
paid monthly at an annual rate equal to 0.50% of the Fund's average weekly net
assets.
The Adviser is a limited liability company formed under the Delaware
Limited Liability Company Act and provides investment advisory, administrative,
distribution, financial and clerical services to clients whose principal
investment objective is to invest in CMBS. The Adviser is owned equally by Lend
Lease Real Estate and Hyperion Capital Management, Inc. The Fund's primary
day-to-day investment management decisions will be made by an investment
committee, and no one person is primarily responsible for making recommendations
to that committee. Information regarding the Fund's performance is set forth in
the Fund's Annual Report, which will be available without charge, upon request,
from the Fund.
Lend Lease Real Estate is an indirect wholly-owned subsidiary of Lend
Lease Corporation Limited, an integrated real estate and financial services
company established in 1958 as a New South Wales, Australia corporation. Listed
on the Australian and New Zealand stock exchanges, Lend Lease Corporation
Limited has substantial global interests operating in the United States, the
Asia-Pacific Region, South America and Europe, and also has a market
capitalization in excess of $7.0 billion as of December 31, 1999. Lend Lease
Corporation Limited has maintained an "AA" rating from Standard & Poor's since
1992. As of December 31, 1999, Lend Lease Corporation Limited's global real
estate investment management business has approximately $40 billion in real
estate assets under management on five continents.
Lend Lease Real Estate is a full service investment adviser with
experience in investing and managing commercial real estate assets for
institutional lenders and owners. According to Pensions & Investments, Lend
Lease Real Estate manages one of the largest portfolios in the United States of
real estate assets owned by pension plans and other tax exempt investors. Lend
Lease Real Estate has substantial experience in the origination and servicing of
whole loans, the acquisition and resolution of troubled loans and the management
of diverse real estate related assets. Lend Lease Real Estate is
co-headquartered in New York, New York and Atlanta, Georgia and has 13 regional
offices located throughout the United States. The firm's regional operations are
full service offices with accounting, valuation professionals, asset managers,
and acquisition and disposition specialists. The business address of Lend Lease
Real Estate is 3424 Peachtree Road., N.E., Suite 800, Atlanta, Georgia
30342-1152.
In November 1999, Lend Lease Real Estate announced that it had reached
an agreement to buy five of AMERESCO, Inc.'s commercial mortgage businesses:
AMERESCO Capital Limited Partnership, Holiday Fenoglio Fowler, Real Estate
Structured Finance, AMERESCO Services Limited Partnership and Asset Management.
Hyperion Capital Management, Inc. ("HCM") is a wholly-owned subsidiary
of Hyperion Partners L.P. and also serves as Administrator of the Fund. Hyperion
Partners L.P. is a Delaware limited partnership which primarily seeks
investments in the financial services, housing and real estate industries and
assists in the development of the properties in which it invests. The sole
general partner of Hyperion Partners is Hyperion Ventures L.P., a Delaware
limited partnership ("Hyperion Ventures"). Corporations owned principally by
Lewis S. Ranieri, Salvatore A. Ranieri and Scott A. Shay are the general
partners of Hyperion Ventures. Lewis S. Ranieri, a former Vice-Chairman of
Salomon Brothers Inc., is the Chairman of the Board of the Adviser. Messrs.
Salvatore Ranieri and Shay are principally engaged in the management of the
affairs of Hyperion Ventures and its affiliated entities. Hyperion Capital
Management, Inc. and its affiliates, as of December 31, 1999 act as investment
managers for clients with assets in excess of $5 billion. The business address
of HCM is One Liberty Plaza, New York, New York 10006.
The Adviser provides persons satisfactory to the Fund's Board of
Directors to serve as officers of the Fund. Such officers, as well as certain
other employees and directors of the Fund, may be directors and officers of Lend
Lease Real Estate or HCM or their affiliates. The Statement of Additional
Information contains general
274828.26
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<PAGE>
background information regarding each director and principal officer of the
Fund. In addition, the Adviser provides the Fund with the unique expertise of
its two owners. With respect to the Adviser, Lend Lease Real Estate's personnel
provide investment research, acquisition and asset management services to assist
the Adviser in underwriting, due diligence and portfolio management activities
with respect to the commercial real estate collateral underlying the Fund's
investments and provides the Adviser with personnel to perform real estate
evaluation services used in developing credit evaluation and pricing models. HCM
provides personnel to the Adviser to provide quantitative research, trading,
portfolio management, administration, compliance and finance services to the
Adviser in connection with its underwriting, due diligence and portfolio
management activities with respect to the securities in which the Fund may
invest. Further, HCM personnel provide quantitative modeling services to the
Adviser to assist in developing credit evaluation and pricing models.
Certain affiliates of the Adviser engage in real estate-related
activities, including but not limited to acting as the servicer of pools of
CMBS; underwriting and issuing CMBS; serving as market-maker of CMBS;
originating loans that underlie CMBS; acting as the borrowers of mortgages that
underlie CMBS; and purchasing CMBS for their own accounts or accounts over which
they have control. Because the 1940 Act prohibits certain affiliated
transactions involving the Fund and certain affiliates of the Fund, in the
absence of exemptive relief, the Fund may be prohibited from purchasing CMBS
with respect to which an affiliate of the Adviser acted in one or more of the
above capacities. The Adviser does not anticipate that this restriction will
have any significant adverse effect on its ability to manage the Fund. However,
the Adviser may seek exemptive relief to permit the Fund to engage in certain
transactions involving affiliates under conditions designed to eliminate or
minimize any potential conflict of interest. The Adviser understands that no
affiliated person or promoter of or principal underwriter for the Fund or any
affiliated person of such a person, promoter, or principal underwriter, has an
obligation to seek or obtain any exemptive order to facilitate such a
transaction.
Administrator
Pursuant to an Administrative Services Agreement, the Administrator
supervises the overall administration of the Fund, including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the independent contractors and agents of the
Fund; the preparation and filing of all documents required for compliance by the
Fund with applicable laws and regulations; and arranging for the maintenance of
books and records of the Fund. Pursuant to its terms, the Sub- Administration
Agreement between the Administrator and Investors Capital Services, Inc., a
Delaware corporation, will continue subject to the approval of the Fund's Board
of Directors. Investors Capital provides for, or assists the Administrator in
managing and supervising all aspects of, the general day-to-day business
activities and operations of the Fund other than investment advisory activities,
including custodial, transfer agency, dividend disbursing, accounting, auditing,
compliance and related services. For its administrative services to the Fund,
the Administrator receives a fee from the Fund at a rate equal, on an annual
basis, to 0.15% of the average weekly net assets of the Fund.
Expenses
The Fund will bear the expenses of this offering, which are not
expected to exceed $85,000, including legal and accounting fees and the costs of
preparing solicitation materials. In addition to the expenses to be paid to the
Adviser, Administrator, transfer agent, dividend paying agent and custodian
discussed within this private placement memorandum, the Fund will pay all other
ongoing expenses, including but not limited to legal fees, accounting fees for
preparation of financial statements and tax returns, annual audits, brokerage
commissions, transfer taxes and other clearing, settlement and transactional
charges, except that the Adviser undertakes to pay such ongoing expenses (other
than brokerage commissions, transfer taxes, clearing, settlement and
transactional charges and other extraordinary items) to the extent that such
expenses exceed .75% of average daily net assets per annum.
274828.26
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DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
In order to qualify as a regulated investment company for Federal
income tax purposes, the Fund must distribute at least 90% of its net investment
income for each fiscal year. "Net investment income," as used herein, includes
all dividends, interest, other ordinary income earned by the Fund on its
portfolio holdings and net short-term capital gains, net of the Fund's expenses.
The Fund may also distribute all or a portion of net capital gain (i.e., the
excess of net long-term capital gain over net short-term capital loss), if any,
at least once annually. The Fund intends to distribute at least 90% of its net
investment income each year and to distribute enough of its net investment
income and net capital gains to avoid the 4% excise tax on undistributed amounts
that will be imposed if it fails to distribute at least 98% of such amounts.
Subject to these requirements, the Fund intends to distribute quarterly all or
substantially all of its net investment income to holders of the Fund's Common
Stock. It is expected that the initial dividend on shares of the Fund's Common
Stock will be declared to holders of the Fund's Common Stock on the 1st day of
the fiscal quarter which follows the first fiscal quarter in which an investor
(other than the Adviser or an affiliate of the Adviser) becomes a holder of the
Fund's Common Stock. The initial dividend will then be paid on the 15th day of
such quarter.
Reinvestment of Dividends
A shareholder may elect to receive dividends and capital gain
distributions either in cash or in additional shares of the Fund. Unless
otherwise specified in writing by a shareholder, all dividends and capital gain
distributions will be paid on the payment date in cash. An election may be
changed by notifying the Fund in writing at any time prior to the record date
for a particular dividend or distribution. There are no sales or others charges
in connection with the reinvestment of dividends and capital gains
distributions. There is no fixed dividend rate, and there can be no assurance
that the Fund will pay any dividend or capital gains distributions. Dividends
and capital gain distributions will be taxable to shareholders whether received
in cash or reinvested in additional shares of the Fund.
Notices as to the source or sources from which any dividend is paid, if
not paid from net investment income, will be provided in accordance with Section
19(a) of the 1940 Act. A final liquidating distribution to shareholders of the
net assets of the Fund will be made on, or before, the termination of the Fund.
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DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per Share will be determined monthly as of 3 p.m.
(New York time) on the last day on which the New York Stock Exchange is open in
each month. For purposes of determining the net asset value per Share, the value
of the Fund's assets (less the Fund's liabilities) will be divided by the number
of outstanding Shares. See the Statement of Additional Information for a
discussion of the methodology used to value the Fund's assets.
274828.26
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<PAGE>
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CAPITAL STOCK OF THE FUND
- --------------------------------------------------------------------------------
Description of Shares,
Voting Rights and Liabilities
The Fund was incorporated in Maryland on September 12, 1995. The
authorized capital stock consists of one hundred million shares of common stock
having a par value of one-tenth of one cent ($.001) per share.
Shares have no preference, preemptive, conversion or similar rights.
Each share has equal voting, dividend, distribution and liquidation rights.
Shares when issued are fully paid and non-assessable, except as set forth below.
Shareholders are entitled to one vote for each share held on matters on which
they are entitled to vote. The Fund is not required, and has no current
intention, to hold annual meetings of shareholders, although the Fund will hold
special meetings of shareholders when in the judgment of the Board of Directors
it is necessary or desirable to submit matters for a shareholder vote.
Shareholders also have under certain circumstances (e.g., upon application and
submission of certain specified documents to the Board of Directors by a
specified number of shareholders) the right to remove one or more Directors of
the Fund. Shareholders also have the right to remove one or more Directors
without a meeting by a declaration in writing by a specified number of
shareholders. Upon liquidation or dissolution of the Fund, shareholders would be
entitled to share pro rata in the net assets available for distribution to
shareholders.
The Fund's charter provides that the Fund will terminate automatically
on December 31, 2001 provided that the duration of the Fund may be extended for
successive one-year periods provided that each continuance is specifically
approved in advance by the holders of more than 75% of the shares of the Fund's
Common Stock. In the event either Clifford E. Lai or Thomas H. Mattinson ceases
his affiliation with the Adviser and its affiliates, the Fund will terminate
immediately thereafter, unless otherwise extended by the approval of more than
75% of the outstanding shares of the Fund's Common Stock. Notwithstanding the
foregoing, the Fund may be liquidated at any time upon the unanimous consent of
the shareholders. In connection with such termination, the Fund will liquidate
all of its assets and distribute to shareholders the net proceeds therefrom in
cash after making appropriate provisions for any liabilities of the Fund. The
foregoing provisions of the Fund's charter are governed by the Maryland General
Corporation Law (the "MGCL") and not the 1940 Act. Pursuant to the MGCL, unless
the duration of the Fund is extended, the termination of the existence of the
Fund will occur on the later of: (i) December 31, 2001; or (ii) the date on
which the Fund fulfills the conditions set forth in Section 3-519(a) of the
MGCL, which requires the Fund to make payment of any applicable taxes and/or
unemployment insurance payments due to the State of Maryland.
On September 12, 1995, the predecessor to Lend Lease Hyperion Capital
Advisors, L.L.C. purchased $100,000 of the Fund's Shares at an initial
subscription price of $10.00 per share. Based on the foregoing share ownership,
the vote of the Adviser may be determinative of the outcome of any matters
submitted to the vote of the shareholders of the Fund. As of the date of the
Private Placement Memorandum, Lend Lease Hyperion Capital Advisors, L.L.C. owned
of record and beneficially 10,000 shares, constituting 100% of the outstanding
shares, and thus, until the offering of the shares is completed, Lend Lease
Hyperion Capital Advisors, L.L.C. will continue to control the Fund. Prior to
its termination and liquidation, the Fund intends to have at all times greater
than 100 beneficial owners of its securities.
Certain individuals will each be gifted 10 shares of Common Stock by
affiliates of the Adviser in order for the Fund to maintain more than 100
beneficial owners of its securities. Generally, such individuals will be
employees of HCM or Lend Lease Real Estate, both affiliates of the Adviser, and
are being gifted the Common Stock to enable the Fund to qualify as an investment
company. Such individuals, individually and collectively, will have no ability
to control or determine any corporate action of the Fund that requires
shareholder approval in light of the relative amount of the stock held by such
persons.
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Annual and other meetings may be required with respect to such
additional matters relating to the Fund as may be required by the 1940 Act, any
registration of the Fund with the Securities and Exchange Commission or any
state, or as the Directors may consider necessary or desirable. Each Director
serves until the next meeting of the shareholders called for the purpose of
considering the election or reelection of such Director or of a successor to
such Director, and until the election and qualification of his or her successor,
elected at such a meeting, or until such Director sooner dies, resigns, retires
or is removed by the vote of the shareholders.
For further information with respect to the Fund and the shares offered
hereby, reference is made to the Fund's registration statement filed with the
Securities and Exchange Commission, including the exhibits thereto. The
Registration Statement and the exhibits thereto may be examined at the
Commission and copies thereof may be obtained upon payment of certain
duplicating fees.
The Fund may offer additional shares. Other offerings of the Fund's
shares, if made, will require approval of its Board of Directors and approval by
the holders of more than 75% of the outstanding shares of the Fund's Common
Stock. Any additional offering will be subject to the requirement of the 1940
Act that shares may not be sold at a price below the then current net asset
value, exclusive of sales loads, except in connection with an offering to
existing shareholders or with consent of the holders of more than 75% of the
outstanding shares of the Fund's Common Stock.
Discretionary Tender Offers and Repurchase Offers
The Board of Directors may elect to periodically redeem Shares of the
Fund in the manner described herein or as it otherwise may be permitted under
applicable laws. Commencing eighteen months after the date of the offering of
the Fund's Shares and periodically thereafter, the Board of Directors of the
Fund may elect to make discretionary repurchase offers to all Fund shareholders.
Pursuant to a discretionary repurchase offer, the Fund will repurchase the
Shares for cash at the net asset value including accrued income not yet declared
as dividends determined on the repurchase pricing date and will pay the holders
of the Fund's Shares by the repurchase payment deadline, unless the repurchase
offer is suspended or postponed.
Beginning eighteen months after this offering, the Fund's Board of
Directors may consider at any time repurchases of Shares or a tender offer for
cash at net asset value including accrued income not yet declared as dividends
for all or a portion of the outstanding Shares. Under certain circumstances, it
is possible that periodic purchases of, or tender offers for, the Fund's Shares
may cause a deemed dividend distribution under the Code as defined herein to the
remaining shareholders of the Fund. Each such tender offer is subject to
approval by the Board of Directors. Subject to the Fund's fundamental policy
with respect to leverage, the Fund may borrow to borrowings will reduce the
Fund's net income.
Because of the nature of the Fund's investment objectives, policies and
portfolio, the Adviser does not anticipate that repurchases and tenders should
interfere with the ability of the Fund to manage its investments in order to
seek its investment objectives, and does not anticipate any material difficulty
in borrowing money or disposing of portfolio securities to consummate share
repurchases and tenders.
If a tender offer is made, it is the announced policy of the Board of
Directors of the Fund, which may be changed by the Board of Directors, not to
accept tenders or effect repurchases if (1) such transactions, if consummated,
would impair the Fund's status as a regulated investment company under the Code
(i.e., it 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); (2) the Fund would not be able to borrow money
or liquidate portfolio securities in an orderly manner to fund such purchases
without creating a negative impact on the net asset value of the Fund to the
detriment of non-tendering shareholders; or (3) there is, in the Board of
Directors' judgment, (a) any material legal action or proceeding, instituted or
threatened, challenging such transaction or otherwise materially adversely
affecting the Fund, (b) a declaration of a banking moratorium by federal or
state authorities or any suspension of payment by banks generally in the United
States or New York
274828.26
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State, (c) a material limitation affecting the Fund or the issuers of its
portfolio securities imposed by federal or state authorities on the extension of
credit by lending institutions, (d) the commencement of war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or (e) any other events or conditions which would have a material
adverse effect on the Fund or its shareholders if shares were repurchased. The
Board of Directors may modify these conditions in light of experience.
Any tender offer made by the Fund will be at net asset value per share
(including accrued income not yet declared as dividends) determined at the close
of business on the day the offer ends, and will be made in such manner as may be
determined by the Board of Directors in compliance with the Securities Exchange
Act of 1934, the rules promulgated thereunder and other applicable laws and
regulations. Shareholders will be notified of such tender offer by publication
or mailing or both. As of the close of business each day during the offer, the
Fund will calculate its net asset value and make its calculation available to
shareholders at the telephone number specified in the offering statement. When a
tender offer is authorized by the Fund's Board of Directors, a shareholder
wishing to accept the offer will be required to tender all of the Shares owned
by such shareholder (or attributed to the shareholder for Federal income tax
purposes under Section 318 of the Code) (the "Tender Shares"). Failure by a
shareholder to tender all such Shares could result in adverse tax consequences
of such shareholder and all other shareholders. The Fund will purchase Tender
Shares in accordance with the terms of the offer unless it determines to accept
none of them (based upon one of the conditions of the tender offer as summarized
above). Costs associated with the tender offer will be charged against capital.
Tender Shares that have been accepted and purchased by the Fund will be
held in its treasury until reissued by the Board of Directors. Treasury shares
will be recorded and reported as an offset to shareholders' equity and
accordingly will reduce the Fund's aggregate assets. If Treasury shares are
retired, issued and outstanding Shares and capital in excess of par will be
reduced.
Limited Transferability of Shares
The Fund does not intend to list its Shares on a stock exchange and
therefore it is not anticipated that a market for the Shares will develop. The
transfer of any such Shares will be done at the then current net asset value of
the Fund's Shares and may only be sold under an exemption from the registration
requirements of the Securities Act because the Fund's Shares have not been
registered under the Securities Act. The availability of such exemption is
dependent, in part, upon the "investment intent" of each new investor and the
suitability of such an investment for him.
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TAXES
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The following summary reflects the existing provisions of the Code and
other relevant federal income tax authorities applicable to U.S. citizens and
residents and U.S. domestic corporations, partnerships, trusts and estates, as
of the date of this Private Placement Memorandum. The federal income tax
consequences described below do not deal with the federal income tax
consequences applicable to investors subject to special rules, such as banks,
non-U.S. investors, insurance companies and dealers in securities. A shareholder
in the Fund should consult his or her own tax adviser concerning these matters.
The Fund intends to qualify and to elect to be treated as a regulated
investment company for federal income tax purposes for its taxable year
beginning August 1, 1999. To qualify as a regulated investment company, the Fund
must distribute annually to shareholders at least 90% of its investment company
taxable income (which includes, among other items, dividends, taxable interest
and the excess of net short-term capital gains over net long-term capital
losses), and meet certain diversification of assets, source of income, and other
274828.26
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requirements of the Code. If the Fund does qualify and elect, it will not be
subject to Federal income tax on the portion of its investment company taxable
income (including any net capital gain) it distributes to shareholders in a
timely manner, but will be subject to Federal income tax on any undistributed
income, and to an additional tax on undistributed income if the ownership of the
Fund is concentrated and the Fund is therefore treated as a personal holding
company. If the Fund does not meet all of these Code requirements, it will be
taxed as an ordinary corporation and its distributions will generally be taxed
to shareholders as ordinary income. In determining the amount of net capital
gains to be distributed, any capital loss carryover from prior years will be
applied against capital gains to reduce the amount of distributions paid.
Amounts, other than tax-exempt interest, not distributed on a timely
basis in accordance with a calendar year distribution requirement may be subject
to a nondeductible 4% excise tax. To prevent imposition of the excise tax, the
Fund must distribute for the calendar year an amount equal to the sum of (1) at
least 98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain ordinary losses) for the one-year period ending
October 31 of such year, and (3) all ordinary income and capital gain net income
(adjusted for certain ordinary losses) for previous years that were not
distributed during such years.
Distributions to shareholders attributable to the Fund's interest
income (including original issue discount and market discount), other items of
ordinary income, and net short-term capital gains are taxable as ordinary
dividend income. It is not anticipated that any of such dividends will qualify
for the dividends received deduction for corporate shareholders. Capital gain
dividends, which are designated as distributions 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 gains, regardless of how long the Shares have
been held by the shareholder. The taxation of capital gains is discussed below.
All distributions are taxable to the shareholder whether reinvested in
additional shares or received in cash. Shareholders will be notified annually as
to the Federal tax status of distributions. Shareholders receiving distributions
in the form of additional shares will have a cost basis for Federal income tax
purposes in each share received equal to the net asset value of a share of the
Fund on the reinvestment date.
Investors should be careful to consider the tax implications of buying
shares just prior to a distribution by the Fund. The price of shares purchased
at that time includes the amount of the forthcoming distribution. Distributions
by the Fund reduce the net asset value of the Fund's shares, but nevertheless
would be taxable to the shareholder as ordinary income or capital gain as
described above, even though, from an investment standpoint, they may constitute
a partial return of capital.
Dividends and distributions are generally taxable to the shareholders
at the time the dividend or distribution is made. Any dividend declared by the
Fund in October, November or December of any calendar year, however, which is
payable to shareholders of record on a specified date in such a month and which
is not paid on or before December 31 of such year, will be treated as received
by the shareholders as of December 31 of such year, provided that the dividend
is paid during January of the following year.
Upon the taxable disposition (including a sale or redemption) of shares
of a Fund, a shareholder may realize a gain or loss, depending upon its basis in
the shares. The gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands, and will be long-term if
the shareholder's holding period for the shares is more than 12 months.
Non-corporate shareholders are subject to tax at a maximum rate of 20% on
long-term capital gains (10% if the taxpayer is, and would be after accounting
for such gains, subject to the 15% tax bracket for ordinary income). Long-term
capital gains of corporate taxpayers are currently taxed at the same rates
applicable to ordinary income. A loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on a disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30
274828.26
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<PAGE>
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. The deductibility of
capital losses is subject to limitations.
The amount and character of the taxable income or tax loss of the Fund
will depend upon the application of a number of complex and/or uncertain aspects
of Federal income tax law. In particular, certain securities issued or acquired
by the Fund (including regular interests in real estate mortgage investment
conduits, may be treated as having original issue discount ("OID") for Federal
income tax purposes. A security will be treated as having OID if its stated
redemption price at maturity exceeds its issue price by more than a statutory de
minimis amount. In the case of any security treated as having OID, the Fund
would be required to accrue a portion of the OID daily as interest income even
though it would not actually receive the cash payment of such income until a
later period. A similar problem may arise with respect to residual interests in
a real estate mortgage investment conduit.
Other securities acquired by the Fund may be acquired at a market
discount. A security is purchased at a market discount when, subject to a
statutory de minimis exception, it is purchased after the original issue at a
price below the stated redemption price at maturity. Any gain from the
disposition of a security that was originated after July 18, 1984 and acquired
by the Fund at a market discount will be treated as ordinary income to the
extent the gain does not exceed the accrued market discount. Holders of market
discount securities are required to include as ordinary income any partial
principal payment on the loan, to the extent such payment does not exceed the
accrued market discount on such security, even if the holder eventually disposes
of the security prior to maturity at a loss. The Administration's fiscal year
2000 budget proposal would have required that market discount be included in
income currently.
Certain of the options, futures contracts, and forward foreign currency
exchange contracts in which the Fund may invest are so-called "section 1256
contracts." With certain exceptions, realized gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"). Also, section 1256 contracts held by the Fund at the
end of each taxable year (and, generally, for purposes of the 4% excise tax, on
October 31 of each year) are "marked-to-market" with the result that unrealized
gains or losses are treated as though they were realized and the resulting gain
or loss is treated as 60/40 gain or loss.
Generally, the hedging transactions undertaken by the fund may result
in "straddles" for Federal income tax purposes. The straddle rules may affect
the timing and character of gains (or losses) realized by the Fund. Losses
realized by the Fund on a position that is part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized. The
hedging transaction may increase the amount of short-term capital gain realized
by the Fund.
The Fund is required to report to the Internal Revenue Service ("IRS")
all distributions to shareholders, except in the case of certain exempt
shareholders. Distributions by the Fund (other than distributions to exempt
shareholders) are generally subject to withholding of Federal income tax at a
rate of 31% ("backup withholding") if (1) the shareholder fails to furnish the
Fund with and to certify the shareholder's correct taxpayer identification
number or social security number, (2) the IRS notifies the Fund or a shareholder
that the shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect, or (3) when required
to do so, the shareholder fails to certify that he or she is not subject to
backup withholding. If the withholding provisions are applicable, any such
distributions (whether reinvested in additional shares or taken in cash) will be
reduced by the amounts required to be withheld. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that he or she is not otherwise subject to back-up withholding. An individual's
taxpayer identification number is his or her Social Security number.
Back-up withholding is not an additional tax and may be credited
against a taxpayer's federal income tax provided the shareholder provides the
necessary information.
274828.26
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Because shares of the Fund are privately placed, not publically
offered, individual shareholders will be required to gross up their dividends
from the Fund by their share of the investment expenses incurred by the Fund,
which expenses will be allowable deductions for individual shareholders only to
the extent such expenses, together with other miscellaneous itemized deductions
of the shareholder, exceed 2% of the shareholder's adjusted gross income.
Dividends and capital gains distributions may also be subject to state,
local and foreign taxes.
Shareholders who are not United States citizens or residents should be
aware that distributions from the Fund will generally be subject to a
withholding tax of 30%, or a lower treaty rate, and should consult their own tax
advisers to determine whether investment in the Fund is appropriate.
Entities that generally qualify for an exemption from Federal income
tax, such as many pension trusts, are nevertheless taxed on "unrelated business
taxable income." A tax-exempt entity's dividend income from the Fund and gain
from the sale of shares in the Fund or the Fund's sale of securities should not
constitute unrelated business income to such tax-exempt entity unless the
acquisition of the share itself is debt-financed or constitutes dealer property
in the hands of the tax-exempt entity, or (and to the extent that) the Fund owns
residual interests in a REMIC.
Before investing in the Fund, the trustee or investment manager of an
employee benefit plan (e.g., a pension or profit sharing retirement plan) should
consider among other things (a) whether the investment is prudent under the
Employee Retirement Income Security Act of 1974 ("ERISA"), taking into account
the needs of the plan and all of the facts and circumstances of the investment
in the Fund; and (b) whether the investment satisfies the diversification
requirement of Section 404(a)(1)(C) of ERISA.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations thereunder presently in effect.
These provisions are subject to change by legislative or administrative action,
and any such changes may be effective either prospectively or retroactively.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning federal, state and local income tax matters.
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VALIDITY OF SHARES
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The validity of the Shares offered hereby will be passed on for the
Fund by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.
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EXPERTS
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PricewaterhouseCoopers LLP serves as the independent accountants for
the Fund and audits its annual financial statements.
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REPORTS TO SHAREHOLDERS
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The Fund will send unaudited quarterly reports and audited annual
reports, including a list of investments held, to shareholders.
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FURTHER INFORMATION
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The Private Placement Memorandum and the SAI do not contain all of the
information set forth in the Registration Statement that the Fund has filed with
the Securities and Exchange Commission. The complete Registration Statement,
including the Code of Ethics for the Fund and the Adviser, may be reviewed at
the Securities and Exchange Commission or on the internet, or obtained from the
Securities and Exchange Commission upon payment of the prescribed fee by:
o calling: 1-800-SEC-0330
o visiting the SEC internet address: http://www.sec.gov.
o writing: Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549-6009
The Fund does not intend to hold annual meetings of shareholders,
except as may be required by applicable law. A special meeting of shareholders
will be called upon the Fund's receipt of the written request of the holders of
at least ten percent of the shares of the Common Stock of the Fund issued and
outstanding and entitled to vote at such meetings.
* * *
Investment Adviser
Lend Lease Hyperion Capital Advisors, L.L.C.
One Liberty Plaza
New York, New York 10006
Administrator
Hyperion Capital Management, Inc.
One Liberty Plaza
New York, New York 10006
Transfer Agent, Custodian and Accounting Agent
State Street Bank and Trust Company
2 Avenue De Lafayette
Boston, Massachusetts 02111
Placement Agent
Lend Lease Capital Markets, Inc.
3424 Peachtree Road, NE
Atlanta, Georgia 30326
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STATEMENT OF ADDITIONAL INFORMATION
March 15, 2000
LEND LEASE HYPERION HIGH-YIELD CMBS FUND, INC.
One Liberty Plaza, New York, New York 10006
(212) 549-8400
This Statement of Additional Information sets forth
information which may be of interest to investors but which is not necessarily
included in the Fund's Private Placement Memorandum, dated March 15, 2000 (the
"Private Placement Memorandum"), through which shares of the Fund are offered.
This Statement of Additional Information should be read in conjunction with the
Private Placement Memorandum, a copy of which may be obtained by a qualified
investor without charge by calling 1-(800) Hyperion.
The Statement of Additional Information is NOT a private
placement memorandum and is authorized for distribution to prospective investors
only if preceded or accompanied by the Private Placement Memorandum.
Table of Contents Page
1. THE FUND..........................................................2
2. INVESTMENT OBJECTIVE, POLICIES, RISKS
AND RESTRICTIONS...............................................2
3. DETERMINATION OF NET ASSET VALUE;
VALUATION OF PORTFOLIO SECURITIES..............................4
4. TAX STATUS........................................................4
5. MANAGEMENT OF THE FUND ...........................................5
6. COUNSEL AND INDEPENDENT ACCOUNTANTS .............................10
7. PORTFOLIO TRANSACTIONS...........................................10
8. DESCRIPTION OF SHARES, VOTING RIGHTS
AND LIABILITIES...............................................11
9. FINANCIAL STATEMENTS.............................................12
10. DESCRIPTION OF RATINGS.........................................A-1
This Statement of Additional Information shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any jurisdiction in which such an offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such jurisdiction.
299892.12
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1. THE FUND
Lend Lease Hyperion High-Yield CMBS Fund, Inc. (the "Fund"),
is a non-diversified, closed- end management investment company organized as a
corporation under the laws of the State of Maryland on September 12, 1995. Lend
Lease Hyperion Capital Advisors, L.L.C., the adviser of the Fund (the
"Adviser"), manages the investments of the Fund from day to day in accordance
with the Fund's investment objective and policies. The selection of investments
for the Fund and the way they are managed depend on the conditions and trends in
the economy and the financial marketplaces.
Hyperion Capital Management, Inc., the administrator of the
Fund (the "Administrator") supervises the overall administration of the Fund,
including, among other responsibilities, the negotiation of contracts and fees
with, and the monitoring of performance and billings of, the independent
contractors and agents of the Fund; the preparation and filing of all documents
required for compliance by the Fund with applicable laws and regulations; and
arranging for the maintenance of books and records of the Fund. The Board of
Directors of the Fund provides broad supervision over the affairs of the Fund.
2. INVESTMENT OBJECTIVE, POLICIES, RISKS AND RESTRICTIONS
Investment Objective
The investment objective of the Fund is to provide high total
return by investing in securities backed by real estate debt. There can, of
course, be no assurance that the Fund will achieve its investment objective. The
investment objective of the Fund is fundamental and may not be changed without
approval by the holders of more than 75% of the shares of the Fund's Common
Stock.
Investment Policies
The Fund seeks to achieve its investment objective by
investing, under normal circumstances, at least 65% of its assets in below
investment grade CMBS.
The following is intended only as a supplement to the
information contained in the Private Placement Memorandum and should be read
only in conjunction with the Private Placement Memorandum. Terms defined in the
Private Placement Memorandum and not defined herein have the same meanings
herein as in the Private Placement Memorandum.
Investment Restrictions
The Fund has adopted the following investment restrictions
which may not be changed without approval by the holders of more than 75% of the
shares of the Fund's Common Stock.
The Fund may not:
(1) Invest 25% or more of the value of the total assets of the
Fund in securities of issuers engaged in any one industry (excluding real estate
and related industries and U.S. Government securities as defined in the 1940
Act).
(2) Borrow Money. This restriction shall not apply to (i)
issuing senior securities in the form of indebtedness in the aggregate up to an
amount equal to 33 1/3% of the Fund's total assets (after giving effect to any
such leveraging) and (ii) hedging techniques described in the Private Placement
Memorandum which may be deemed to be borrowing.
299892.12
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(3) Pledge, hypothecate, mortgage or otherwise encumber its
assets other than to secure such borrowings as set forth in restriction No. 2
above or in connection with, to the extent permitted under the 1940 Act, good
faith hedging transactions (including interest rate swaps), reverse repurchase
agreements, dollar roll agreements, when issued and forward commitment
transactions.
(4) Underwrite the securities of other issuers, except insofar
as the Fund may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.
(5) Invest in securities of other investment companies, except
that the Fund may purchase unit investment trust securities where such unit
investment trusts meet the investment objective of the Fund and then only up to
5% of the Fund's net assets, except as they may be acquired as part of a merger,
consolidation or acquisition of assets, but in no event to an extent not
permitted by Section 12(d) of the 1940 Act.
(6) Issue senior securities, except insofar as the Fund may be
deemed to have issued a senior security in connection with any permitted
borrowing.
(7) Make loans of money or property to any person, except
through loans of portfolio securities to Qualified Institutions, the purchase of
debt obligations in which the Fund may invest consistent with the Fund's
investment objective and policies and investment restrictions or the temporary
investment in repurchase agreements with Qualified Institutions. The Fund may
not lend portfolio securities, if, as a result, the aggregate of such loans
exceeds 33 1/3% of the value of the Fund's total assets (including such loans).
(8) Invest for the purpose of exercising control over
management of any company.
(9) Purchase real estate or interests therein (including
limited partnership interests but excluding Mortgage-Backed Securities, Stripped
Mortgage-Backed Securities and similar instruments and REIT Debt Securities) or
interests in oil, gas or mineral leases.
(10) Purchase or sell commodities, commodity contracts,
options, futures contracts, or options on futures contracts, except for hedging
purposes.
(11) Make any short sale of securities except for short sales
against the box and short sales made in connection with hedging transactions.
(12) Purchase or retain any securities issued by an issuer,
any of whose officers or directors, trustees or security holders is an officer
or director of the Fund, or is an officer or director of the Adviser, if after
the purchase of the securities of such issuer by the Fund one or more of such
persons who individually owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, together own
beneficially more than 5% of such shares or securities, or both, all taken at
market value.
(13) Invest in CMBS where the underlying assets are non-dollar
denominated Commercial Mortgage Loans.
(14) Invest in any security that would cause any investor in
the Fund to be required to make a filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
Percentage and Rating Restrictions. If a percentage
restriction or a rating restriction on investment or utilization of assets set
forth above or referred to in the Private Placement Memorandum is adhered to at
the time an investment is made or assets are so utilized, a later change in
percentage resulting from changes in the value of the securities held by the
Fund or a later change in the rating of a security held by the Fund will not be
considered a violation of policy.
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<PAGE>
3. DETERMINATION OF NET ASSET VALUE;
VALUATION OF PORTFOLIO SECURITIES
The net asset value of each share of the Fund is determined as
of the time of 3 p.m. (New York time) on the last day of each month on which the
New York Stock Exchange is open for business (a "Pricing Day"). As of the date
of this Statement of Additional Information, the New York Stock Exchange is open
for business every weekday except for the following holidays (as observed): New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. This
determination of the net asset value of shares is made once during each Pricing
Day as of 3:00 p.m., New York time, by dividing the value of the Fund's net
assets (i.e., the value of its assets including accrued income less its
liabilities, including expenses payable or accrued) by the number of Fund Shares
outstanding in the Fund at the time the determination is made.
Pricing of Securities. A determination of value used in
calculating net asset value must be a fair value determination made in good
faith by or on behalf of the Fund's Board of Directors in accordance with
procedures established by such Board. While no single standard for determining
fair value exists, as a general rule, the current fair value of a security would
appear to be the amount which the Fund could expect to receive upon its current
sale. Some, but not necessarily all, of the general factors which may be
considered in determining fair value include: (i) the fundamental analytical
data relating to the investments; (ii) the nature and duration of restrictions
on disposition of the securities; and (iii) an evaluation of the forces which
influence the market in which these securities are purchased and sold. Without
limiting or including all of the specific factors which may be considered in
determining fair value, some of the specific factors include: type of security,
financial statements of the issuer, cost at date of purchase, size of holding,
discount from market value, value of unrestricted securities of the same class
at the time of purchase, special reports prepared by analysts, information as to
any transaction or offers with respect to the security, existence of merger
proposals or tender offers affecting the securities, price and extent of public
trading in similar securities of the issuer or comparable companies, and other
relevant matters.
The Fund values CMBS and other debt securities on the basis of
valuations provided by dealers or by a pricing service, approved by the Fund's
Board of Directors, which uses information with respect to transactions in such
securities, quotations from dealers, market transactions in comparable
securities, various relationships between securities and yield to maturity in
determining value. Debt securities having a remaining maturity of sixty days or
less when purchased, and debt securities originally purchased with maturities in
excess of sixty days but which currently have maturities of sixty days or less
are valued at cost adjusted for amortization of premiums and accretion of
discounts.
4. TAX STATUS
The Fund intends to qualify and elect to be treated as a
regulated investment company for federal income tax purposes for its fiscal year
beginning August 1, 1999 and it intends to do so for future fiscal years. In
order to so qualify, the Fund must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, payments
with respect to loans of securities, gains from the sale or other disposition of
securities or other income derived with respect to its business of investing in
such securities (including, but not limited to, gains from options, futures or
forward contracts); and (b) diversify its holdings so that, at the end of each
fiscal quarter, (i) at least 50% of the value of the Fund's assets is
represented by cash, U.S. Government securities (as defined in the 1940 Act),
securities of other regulated investment companies, and other securities which,
with respect to any one issuer, do not represent more than 5% of the value of
the Fund's assets nor more than 10% of the voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's assets is invested in the
securities of any issuer (other than U.S. Government securities as defined in
the
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1940 Act or the securities of other regulated investment companies) or of two or
more issuers which the Fund controls and which are engaged in the same or
related trades or businesses. If the Fund qualifies as a regulated investment
company and satisfies a minimum distribution requirement, the Fund will not be
subject to federal income tax to the extent that it distributes its income to
its shareholders. The minimum distribution requirement is satisfied if the Fund
distributes as an ordinary income dividend at least 90% of its investment
company taxable income (generally net investment income and the excess of net
short-term capital gain over net long-term capital loss and computed without
regard to the deduction for dividends paid) for the taxable year. The Fund will
be subject to corporate income tax on undistributed income and to an additional
tax on any undistributed income if the ownership of the Fund is concentrated and
the Fund is therefore treated as a personal holding company.
The Fund may be subject to a nondeductible 4% excise tax which
will be imposed if, and to the extent that, the Fund does not distribute by the
end of each calendar year (or is not subjected to regular corporate tax in such
year on) an amount equal to the sum of (a) 98% of the Fund's ordinary income for
such calendar year; (b) 98% of the excess of capital gains over capital losses
for the one-year period ending on October 31 of each year; and (c) the
undistributed income and gains from the preceding years (if any) pursuant to the
calculations in (a) and (b). A distribution will be treated as having been paid
on December 31 if it is declared by the Fund in October, November or December
with a record date in such month and is paid by the Fund in January of the
following year. Such distribution will be treated as received by the
shareholders in the calendar year in which the distribution is declared.
The Fund intends to engage in various hedging transactions.
Under various provisions of the Code, the result of such transactions may be to
change the character of recognized gains and losses, accelerate the recognition
of certain gains and losses, and defer the recognition of certain losses.
The Fund's taxable income will in most cases be determined on
the basis of reports made to the Fund by the issuers of the securities in which
the Fund invests. The tax treatment of certain securities in which the Fund may
invest is not free from doubt and it is possible that an Internal Revenue
Service examination of the issuers of such securities or of the Fund could
result in adjustments to the income of the Fund. An upward adjustment by the
Internal Revenue Service to the income of the Fund may result in the failure of
the Fund to satisfy the minimum distribution requirement described above.
The Fund's fiscal year end is July 31st.
5. MANAGEMENT OF THE FUND
The directors and officers of the Fund and their principal
occupations during the past five years are set forth below. Their titles may
have varied during this period. Asterisks indicate that those directors are
"interested persons" (as defined in the 1940 Act) of the Fund. Except for Kurt
L. Wright and Thomas H. Mattinson whose address is 3424 Peachtree Road, N.E.,
Suite 800, Atlanta, Georgia 30326; Leo M. Walsh, Jr. whose address is 100
Parsons Pond Drive, Franklin Lakes, New Jersey 07417; and Harald R. Hansen whose
address is Club Station Drive, Atlanta, Georgia 30319, the address of each
director and officer is One Liberty Plaza, New York, New York 10006.
299892.12
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<PAGE>
Officers and Directors of the Fund
Harald R. Hansen He served as chairman of First Union
Director National Bank of Georgia from January
1989 until his retirement in September
1996. From January 1989 to April 1996 he
also served as Chief Executive Officer of
First Union National Bank of Georgia and
prior to that he was executive vice
president in charge of the General
Banking Group of First Union National
Bank of Georgia. Mr. Hansen has been a
Director of Chastain Capital Corporation
since February 1998. Mr. Hansen serves as
chairman of the board of directors of the
United Way, chairman of the advisory
board for the School of Business at Clark
Atlanta University, Chairman of the
Midtown Alliance and the Chairman of the
Atlanta Paralympics Organizing Committee.
In addition, he serves on the board of
directors of the Atlanta Symphony, the
High Museum of Art in Atlanta, the
Woodruff Arts Center, the Southern Golf
Association, the Georgia State University
School of Business and the Fuqua School
of Business at Duke University. Mr.
Hansen has received numerous honors
including the Distinguished Service Award
from the Atlanta Business League and the
Minority Business Advocate of the Year
from the Minority Business Development
Agency in Atlanta. Mr. Hansen earned a
bachelor's degree from Duke University
and served in the U.S. Naval Reserve, the
U.S. Marine Corps and is a retired
colonel in the U.S. Marine Corps Reserve.
Age 68.
Leo M. Walsh, Jr. Director and/or Trustee of several
Director (Chairman of investment companies advised by Hyperion
the Audit Committee) Capital Management, Inc. or by its
affiliates (1989-Present). Financial
Consultant for Merck-Medco Managed Care
L.L.C. (formerly Medco Containment
Services Inc.) (1994-Present). Financial
Consultant for Synetic Inc., a
manufacturer of porous plastic materials
for health care uses (1989-1990);
President, WW Acquisition Corp.
(1989-1990); Senior Executive Vice
President and Chief Operating Officer of
The Equitable Life Assurance Society of
the United States ("The Equitable")
(1986-1988); Director of The Equitable
and Chairman of Equitable Investment
Corporation, a holding company for The
Equitable's investment oriented
subsidiaries (1983-1988); Chairman and
Chief Executive Officer of
EQUICOR-Equitable HCA Corporation (1987-
1988). Age 67.
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<PAGE>
*Kurt L. Wright Mr. Wright has been Executive Vice
Director and Chairman President of Lend Lease Real Estate since
of the Board April 1997 and currently heads Lend Lease
Real Estate's Mortgage Debt and Public
Markets Group, which is responsible for
all CMBS, loan originations and
securitization and high-yield investing.
Mr. Wright also has been Chief Executive
Officer of Chastain Capital since its
inception. From 1995 to 1997, he was
Senior Vice President responsible for
portfolio management for the Buckhead
Strategic Fund series. From 1993 to 1995,
Mr. Wright was a Vice President
responsible for mortgage research,
product development and marketing
activities within the Mortgage Investors
Group. From 1990 to 1993, he performed
real estate market analyses and ad hoc
review of client portfolios while a
member of ERE's Investment Research
Department and is a member of the
Investment Committee of ERE Rosen, LLC, a
REIT securities manager with $500 million
of assets under management. From 1988 to
1990, he was a Senior Analyst for the
Prudential Realty Group, from 1985 to
1987 he was Treasurer and Controller of
Morgan Stanley Real Estate Inc. and from
1981 to 1984 he was an accountant for
Deloitte, Haskins & Sells specializing in
real estate. Mr. Wright is a Chartered
Financial Analyst and a Certified Public
Accountant, and is a member of the
Editorial Board of Real Estate Capital
Markets Report and the Research Committee
of the National Council of Real Estate
Investment Fiduciaries. Mr. Wright has a
BA from Colgate University, an MS from
New York University and an MBA from
Columbia University. Age 40.
Clifford E. Lai President (since December 1998) and
President Chief Investment Officer, Hyperion
Capital Management, Inc. (March
1993-Present). President of several
investment companies advised by Hyperion
Capital Management, Inc. or by its
affiliates (1993-Present). Formerly
Managing Director and Chief Investment
Strategist for Fixed Income, First Boston
Asset Management (1989-1993); Vice
President, Morgan Stanley & Co.
(1987-1989). Age 46.
Thomas H. Mattinson Mr. Mattinson, a Senior Vice President
Senior Vice President of Lend Lease Real Estate, has been with
Lend Lease Real Estate since November
1995 and currently heads Lend Lease Real
Estate's CMBS and structured finance
investment groups. Previously, he was
responsible for acquiring and managing
high- yield commercial mortgages and
equities on behalf of the Buckhead
Strategic Fund. He also was formerly
associated with EQ Services, an Equitable
Real Estate affiliate, from 1992 to 1995,
and oversaw resolution of $500 million of
non-performing loans and real estate
obligations. From 1990 to 1992, Mr.
Mattinson was employed at Heller
Financial to manage commercial mortgages
and liquidate non-performing mortgages
and real estate. At CARTER, formerly
Carter & Associates, worked as a
Financial Analyst. Mr. Mattinson has a BA
in both Real Estate/Urban Land Economics
and Finance from Southern Methodist
University. Age 34.
299892.12
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<PAGE>
Thomas F. Doodian Chief Operating Officer (since December
Treasurer and Assistant 1998) and Director of Finance and
Secretary Operations, Hyperion Capital Management,
Inc. (July 1995- November 1998).
Treasurer of several investment companies
advised by Hyperion Capital Management,
Inc. (February 1998-Present). Formerly,
Vice President in Mortgage Backed Trading
at Mabon Securities Corporation
(1994-1995); fixed income analyst,
trader, and Vice President and Controller
at Credit Suisse First Boston
(1984-1994). Age 40.
Joseph Tropeano Vice President and Compliance Officer of
Secretary and Assistant Hyperion Capital Management, Inc.
Treasurer (December 1993-Present). Formerly Senior
Compliance Examiner and Staff Accountant
with the investment management section of
the Securities & Exchange Commission's
northeast regional office (1988- 1993).
With Merrill Lynch from 1980 to 1988. Age
38.
299892.12
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<PAGE>
DIRECTORS' COMPENSATION TABLE
(Estimated for the year ended July 31, 2000)
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual from Fund and
Name of Person Compensation from Accrued as Part of Benefits upon Fund Complex
Fund Fund Expenses Retirement Paid to Directors
<S> <C> <C>
Leo M. Walsh $5,000 None None $5,000
Harald R. Hansen $5,000 None None $5,000
</TABLE>
Each Director, who is not an interested person of the Fund, receives
annual fee of $5,000 which is paid by the Fund.
Adviser
Lend Lease Hyperion Capital Advisors, L.L.C. (the "Adviser") manages
the Fund pursuant to an Investment Advisory Agreement (the "Advisory
Agreement"). Subject to such policies as the Board of Directors of the Fund may
determine, the Adviser makes investment decisions for the Fund. The Adviser
furnishes at its own expense all facilities and personnel necessary in
connection with providing these services.
The Advisory Agreement was initially approved by the Fund's initial
shareholders on September 22, 1995. The Advisory Agreement was most recently
approved by the Fund's board of directors, including a majority of the directors
who are not parties to the agreement or interested persons of any such party (as
such term is defined in the 1940 Act) effective January 1, 2000. The Advisory
Agreement will continue in effect for a period of two years from its effective
date, and if not sooner terminated, will continue in effect for successive
periods of 12 months thereafter, provided that each continuance is specifically
approved at least annually by both (1) the vote of a majority of the Fund's
board of directors and the vote of the holders of more than 75% of the
outstanding shares of the Fund's Common Stock and (2) by the vote of a majority
of the directors who are not parties to such Agreement or interested persons (as
such term is defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated as a whole at any time by the Fund, without the
payment of any penalty, upon the vote of a majority of the Fund's Board of
Directors or a majority of the outstanding voting securities of the Fund on 60
days' written notice to the Adviser or by the Adviser on 60 days' written notice
to the Fund. The Agreement will terminate automatically in the event of its
assignment (as such term is defined in the 1940 Act and the rules thereunder).
The Advisory Agreement may not be amended without the approval of the holders of
more than 75% of the Fund's outstanding Common Stock.
The Advisory Agreement provides that neither the Adviser nor its
personnel shall be liable for any error of judgment or mistake of law or for any
loss arising out of any investment or for any act or omission in its services to
the Fund, except for willful misfeasance, bad faith, gross negligence or
reckless disregard of its or their obligations and duties under the Advisory
Agreement. The Advisory Agreement provides that the Adviser may render services
to others.
The Fund's Private Placement Memorandum contains additional information
regarding the Adviser and a description of fees payable to the Adviser for
services under the Advisory Agreement.
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<PAGE>
Administrator
Pursuant to the Administrative Services Agreements, the Administrator
provides the Fund with general office facilities and supervises the overall
administration of the Fund; including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the independent contractors and agents of the Fund; the preparation
and filing of all documents required for compliance by the Fund with applicable
laws and regulations; and arranging for the maintenance of books and records of
the Fund. Pursuant to its terms, the Sub-Administration Agreement between the
Administrator and Investors Capital Services, Inc., a Delaware corporation, will
continue subject to the approval of the Fund's Board of Directors. Investors
Capital provides for, or assists the Administrator in managing and supervising
all aspects of, the general day-to-day business activities and operations of the
Fund other than investment advisory activities, including custodial, transfer
agency, dividend disbursing, accounting, auditing, compliance and related
services. The Administrator provides persons satisfactory to the Board of
Directors of the Fund to serve as officers of the Fund. Such officers may be
directors, officers or employees of the Administrator or its affiliates. The
Administrative Services Agreement may not be amended without the approval of the
holders of more than 75% of the outstanding shares of the Fund's Common Stock.
The Fund's Private Placement Memorandum contains a description of the
fees payable to the Administrator under the Administrative Services Agreement.
The Administrative Services Agreement was approved by the Fund's Board of
Directors effective January 1, 2000. The Administrative Services Agreement will
continue in effect for a period of one year from its effective date, and if not
sooner terminated, will continue in effect for successive periods of 12 months
thereafter, provided that each continuance is specifically approved at least
annually by both (1) the vote of a majority of the Fund's board of directors and
the vote of the holders of more than 75% of the outstanding shares of the Fund's
Common Stock and (2) by the vote of a majority of the directors who are not
parties to such Agreement or interested persons (as such term is defined in the
1940 Act) of any such party, cast in person at a meeting called for the purpose
of voting on such approval. The Administrative Services Agreement may be
terminated as a whole at any time by the Fund, without the payment of any
penalty, upon the vote of a majority of the Fund's Board of Directors or a
majority of the outstanding voting securities of the Fund on 60 days' written
notice to the Administrator or by the Administrator on 60 days' written notice
to the Fund. The Agreement will terminate automatically in the event of its
assignment (as such term is defined in the 1940 Act and the rules thereunder).
The Administrative Services Agreement may not be amended without the approval of
the holders of more than 75% of the Fund's outstanding Common Stock..
Transfer Agent, Custodian and Accounting Agent
The Fund has entered into a Transfer Agent and Registrar Services Fee
Agreement with State Street Bank & Trust Company ("State Street") which acts as
transfer and accounting agent for the Fund. Pursuant to a Custodian Agreement,
State Street also acts as the custodian of the Funds's assets. For its services,
the Custodian will receive compensation as may from time to time be agreed upon
by it and the Fund. The Fund's transfer and accounting agent and custodian do
not assist in, and are not responsible for, investment decisions involving
assets of the Fund.
Code of Ethics
The Fund and the Adviser have each adopted a Code of Ethics under
Rule 17j-1 of the 1940 Act. The Code of Ethics for the Fund and the Adviser (the
"Code") restricts the personal investing activities of certain Access Persons
and others, as defined in the Code. The primary purpose of the Code is to ensure
that these investing activities do not disadvantage the Fund. Such Access
Persons are generally required to preclear security transactions with the Fund's
Compliance Officer or his designee and to report all transactions on a regular
basis. The Compliance Officer or designee has the responsibility for
interpreting the provisions of the Code, for
299892.12
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adopting and implementing Procedures for the enforcement of the provisions of
the Code, and for determining whether a violation has occurred. In the event of
a finding that a violation has occurred, the Compliance Officer or designee
shall take appropriate action. The Fund and the Adviser have developed
procedures for the administration of the Code.
6. COUNSEL AND INDEPENDENT ACCOUNTANTS
Legal matters in connection with the issuance of shares of stock of the
Fund are passed upon by Messrs. Battle Fowler LLP. PricewaterhouseCoopers LLP
are the independent accountants for the Fund, providing audit services and tax
return preparation.
7. PORTFOLIO TRANSACTIONS
The Fund's purchases and sales of securities usually are principal
transactions. Securities are normally purchased directly from the issuer or from
an underwriter or market maker for the securities. There usually are no
brokerage commissions paid for such purchases and, therefore, the Fund does not
anticipate paying brokerage commissions on its securities purchases, although it
may pay such commissions on futures transactions. Any transaction for which the
Fund pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and
asked price.
Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment and in a manner deemed
to be in the best interest of the investors in the Fund rather than by any
formula. The primary consideration is prompt execution of orders in an effective
manner at the most favorable price.
Investment decisions for the Fund will be made independently from those
for any other account or investment company that is or may in the future become
managed by the Adviser or its affiliates. If, however, the Fund and other
investment companies or accounts managed by the Adviser are contemporaneously
engaged in the purchase or sale of the same security, the transactions may be
averaged as to price and allocated equitably to each account. In some cases,
this policy might adversely affect the price paid or received by the Fund or the
size of the position obtainable for the Fund. In addition, when purchases or
sales of the same security for the Fund and for other investment companies
managed by the Adviser occur contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large
denomination purchases or sales. Furthermore, in certain circumstances
affiliates of the Adviser whose investment portfolios are managed internally,
rather than by the Adviser, might seek to purchase or sell the same type of
investments at the same time as the Portfolio. Such an event might also
adversely affect the Fund.
8. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The authorized capital stock of the Fund, which was incorporated on
September 12, 1995 in the State of Maryland, consists of one hundred million
shares of stock having a par value of one tenth of one cent ($.001) per share.
Each share when issued will have identical voting rights, equal dividend,
distribution and liquidation rights and each fractional share has those rights
in proportion to the percentage that the fractional share represents of a whole
share. Shares will be voted in the aggregate. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares, when
issued in accordance with the terms of the offering, will be fully
299892.12
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paid and nonassessable. On September 12, 1995, the predecessor of Lend Lease
Hyperion Capital Advisers, L.L.C. purchased $100,000 of the Fund's shares at an
initial subscription price of $10 per share.
The shares of the Fund have non-cumulative voting rights, which means
that the holders of more than 50% of the shares outstanding voting for the
election of directors can elect 100% of the directors if the holders choose to
do so, and, in that event, the holders of the remaining shares will not be able
to elect any person or persons to the Board of Directors. The Fund will not
issue certificates evidencing Fund shares.
As a general matter, the Fund will not hold annual or other meetings of
the Fund's shareholders. This is because the By-Laws of the Fund provide for
annual meetings only if the following actions require shareholder approval under
the 1940 Act: (a) election of directors, (b) approval of revised investment
advisory contracts with respect to a particular class or series of stock, (c)
approval of revisions to the Fund's distribution agreement with respect to a
particular class or series of stock, (d) ratification of the selection of
independent public accountants, and (e) upon the written request of holders of
shares entitled to cast not less than 25% of all those votes entitled to be cast
at such meeting. Annual and other meetings may be required with respect to such
additional matters relating to the Fund as may be required by the 1940 Act,
including the removal of Fund directors(s) and communication among shareholders,
any registration of the Fund with the Securities and Exchange Commission or any
state, or as the Directors may consider necessary or desirable. Each Director
serves until the next meeting of the shareholders called for the purpose of
considering the election or reelection of such Director or of a successor to
such Director, and until the election and qualification of his or her successor,
elected at such meeting, or until such Director sooner dies, resigns, retires or
is removed by the vote of the shareholders.
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9. FINANCIAL STATEMENTS
The following unaudited Statement of Assets and Liabilities and
Statement of Operations reflect the financial performance of the Fund as of
February 29, 2000. All of the Fund's current assets reflect the initial
contribution of the Adviser and the income thereon.
Lend Lease Hyperion High-Yield
CMBS Fund, Inc.
Statement of Assets and Liabilities
As of February 29, 2000
(Unaudited)
- -------------------------------------------------------------------------------
Assets:
Investments, at value (Cost...$123,734) $ 123,733.91
Cash 734.59
Interest Receivable -
Prepaid Expenses 77,870.74
Deferred Organization Expenses -
Other Assets -
--------------
Total Assets $ 202,339.24
--------------
Liabilities:
Due to Advisor $ -
Investment Advisory Fee Payable -
Administration Fee Payable -
Interest Payable -
Accrued Expenses 77,870.74
--------------
Total Liabilities $ 77,870.74
--------------
Net Assets: $ 124,468.50
==============
Capital Stock, at par $ 10.00
Additional Paid-In Capital 99,990.00
Undistributed Net Investment Income 24,468.50
Accumulated Net Realized Losses -
Net Appreciation -
--------------
Net Assets Applicable to Capital Stock Outstanding $ 124,468.50
==============
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Lend Lease Hyperion High-Yield
CMBS Fund, Inc.
Statement of Operations
For The Seven Months Ended February 29, 2000
(Unaudited)
- -------------------------------------------------------------------------------
Investment Income:
Interest $ 3,413.69
------------
Investment Income:
Investment Advisory Fees --
Administration Fees --
------------
Total Operating Expenses --
Interest Expense --
------------
Total Expenses --
------------
Net Investment Income $ 3,413.69
------------
Realized and Unrealized Gains (Losses) on Investments --
Short Sales, Futures and Options:
Net Realized Gains (Losses): $ --
Net Change in Unrealized Appreciation --
------------
Total Realized and Unrealized Gains Losses $ --
------------
Net Increase in Net Assets Resulting from Operations
$ 3,413.69
============
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<PAGE>
10. DESCRIPTION OF RATINGS
APPENDIX A
Description of Moody's Investors Service, Inc.'s
Below Investment Grade Debt Ratings:
Ba -- Securities 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 securities in this class.
B -- Securities which are rated B generally lack
characteristics of a desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
Caa -- Securities 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 -- Securities 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 -- Securities which are rated C are the lowest rated class
of securities by Moody's Investors Service and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
NR -- Indicates that the Security is not rated.
Con-Securities for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are debt obligations secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned in operating experience,
(c) rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Rating denotes probable credit stature
upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through B (i.e., two categories below Baa)
in its securities rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category, the modifier 2 indicates
a mid-range ranking, and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
Description of Standard & Poor Corporation's
Below Investment Grade Debt Ratings:
BB, B, CCC, CC -- Securities rated BB, B, and CCC are
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation. While such securities will likely
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
299892.12
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<PAGE>
C, CI -- The C rating is applied to debt subordinated to
senior debt which is assigned an actual or implied CCC - Debt rating. The CI
rating is reserved for income securities on which no interest is being paid.
D -- Securities rated D are in default, or are expected to
default upon maturity or payment date, and payment of interest and/or repayment
of principal is in arrears
Provisional Ratings -- (Prov.) following a rating indicates
the rating is provisional, which assumes the successful completion of the
project being financed by the issuance of the securities being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, which addresses credit quality subsequent to completion, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion. Accordingly, the investor should exercise his own judgment with
respect to such likelihood and risk.
Plus (+) or Minus (-): The ratings from AA to CCC (i.e., three
categories below BBB) may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
NR: Securities may lack a S&P rating because no public rating
has been requested, because there is insufficient information on which to base a
rating, or because S&P does not rate a particular type of obligation as a matter
of policy.
Description of Fitch Investors Service, Inc.'s
Below Investment Grade Debt Ratings:
BB: Securities are considered speculative. The obligor's
ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified, which could assist the obligor in satisfying its debt service
requirements.
B: Securities are considered highly speculative. While
securities in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
CCC: Securities have certain identifiable characteristics
that, if not remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC: Securities are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C: Securities are in imminent default in payment of interest
or principal.
DDD, DD, and D: Securities are in default on interest and/or
principal payments. Such securities are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. 'DDD' represents the highest potential for
recovery on these securities, and 'D' represents the lowest potential for
recovery.
Plus (+) or Minus (-): The ratings from AA to C (i.e. five
categories below BBB) may be modified by the addition of a plus or minus sign to
indicate the relative position of a credit within the rating category.
NR: Indicates that Fitch does not rate the specific issue.
299892.12
A-2
<PAGE>
Conditional: A conditional rating is premised on the
successful completion of a project or the occurrence of a specific event.
Description of Duff & Phelps Credit Rating Co.'s
Below Investment Grade Debt Ratings:
BB+, BB, BB-: Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
B+, B, B-: Below investment grade and possessing risk that
obligations will not be met when due. Financial protection factors will
fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC: Well below investment-grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable company
developments.
DD: Defaulted debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
DP: Preferred stock with dividend arrearages.
Plus (+) or Minus (-): The ratings from AA to C (i.e. five
categories below BBB) may be modified by the addition of a plus or minus sign to
indicate the relative position of a credit within the rating category.
Notes with Respect to All Ratings:
Securities which are unrated expose the investor to risks with
respect to capacity to pay interest or repay principal that are similar to the
risks of lower-rated securities. The Fund is dependent on Fund management's
judgment, analysis and experience in the evaluation of such securities.
Investors should note that the assignment of a rating to a
security by a rating service may not reflect the effect of recent developments
on the issuer's ability to make interest and principal payments.
299892.12
A-3
LEND LEASE HYPERION HIGH-YIELD CMBS FUND, INC.
SUBSCRIPTION INSTRUCTIONS
This booklet contains the documents required in order to
subscribe to the Fund. Investors should complete and execute these documents
according to the instructions below.
This booklet must be accompanied or preceded by a copy of the
Private Placement Memorandum. Investors should review the Private Placement
Memorandum prior to completing the subscription documents. This entire booklet
should then be returned to Lend Lease Hyperion High-Yield CMBS Fund, Inc., c/o
Lend Lease Capital Markets, Inc., 3424 Peachtree Road, N.E., Suite 800, Atlanta,
Georgia 30326 (Attention: _______________ (212) 848-8600). Payment for the
shares being subscribed for should be made via wire transfer in immediately
available Federal funds in accordance with the payment authorization
instructions set forth herein. The date on which such payment is made shall be
referred to as the "Payment Date." Duplicate copies of each signed document will
be returned to you after your subscription is accepted.
All documents must be completed and signed in accordance with
the instructions set forth herein, unless otherwise indicated. These documents
may be executed in one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument. If the
investing entity requires more than one signatory to sign, then each document
must be signed by the required number of signatories. Following is a list of the
documents with a brief description of the action required:
BASIC DOCUMENTS
A-1 Subscription Agreement Review, complete and
execute.
A-2 Investor Qualification Statement Complete and execute.
A-3 Trade Payment Authorization Form Review, complete and execute.
307322.9
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<PAGE>
A-1
LEND LEASE HYPERION HIGH-YIELD CMBS FUND, INC.
SUBSCRIPTION AGREEMENT
The undersigned investor ("Investor") hereby subscribes to purchase for
shares of common stock in Lend Lease Hyperion High-Yield CMBS Fund, Inc. (the
"Fund") (such shares hereinafter referred to as "Fund Shares") in the
Subscription Amount set forth on the signature page hereof ("Subscription
Amount"). Unless otherwise defined herein, or unless the context requires
otherwise, the defined terms used herein have the same meaning as used in the
Private Placement Memorandum of the Fund (the "Private Placement Memorandum").
The Investor acknowledges that (i) this subscription, when received by
the Fund, will be irrevocable, (ii) the Fund may reject the subscription in its
absolute and sole discretion at any time prior to the delivery and payment for
the Shares (the "Closing"), and (iii) this subscription will only be deemed to
have been accepted upon confirmation that this Subscription Agreement has been
accepted by the Fund, when payment for the Fund Shares has been made in
accordance with the Trade Payment Authorization Form included as part of this
booklet and when the Fund deposits, receives and acknowledges payment of the
Subscription Amount by delivering a countersigned duplicate copy of this
Agreement at the Closing. With this subscription, the Investor tenders the
following completed and duly executed documents: (a) a completed Subscription
Agreement; and (b) an Investor Qualification Statement, and (c) a Trade Payment
Authorization Form. The Subscription Amount must be paid by check or wire
transfer payable according to instructions provided in the Trade Payment
Authorization Form.
1. Investor Acknowledgments and Representations
--------------------------------------------
The Investor hereby acknowledges, represents, and warrants to, and
agrees with the Fund as follows:
THIS OFFERING IS BEING MADE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
REGULATIONS THEREUNDER (THE "SECURITIES ACT") FOR AN OFFER AND SALE OF
SECURITIES THAT DO NOT INVOLVE A PUBLIC OFFERING. THE FUND SHARES
OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF, EXCEPT AS PERMITTED
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT
TO REGISTRATION OR EXEMPTION THEREFROM. THERE IS CURRENTLY NO PUBLIC OR
OTHER MARKET FOR THE FUND SHARES, AND NONE IS EXPECTED TO DEVELOP. EACH
PROSPECTIVE INVESTOR SHOULD PROCEED ONLY ON THE ASSUMPTION THAT SUCH
PROSPECTIVE INVESTOR MAY HAVE TO BEAR THE ECONOMIC RISK OF AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY FOR AN INDEFINITE PERIOD OF
TIME AND BEAR THE RISK OF A LOSS OF THE ENTIRE INVESTMENT.
307322.9
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<PAGE>
THE FUND HAS NOT REGISTERED AS A DEALER WITH THE NEW YORK
STATE ATTORNEY GENERAL, ON THE GROUNDS THAT THE SALE OF THE FUND SHARES
IS NOT A PUBLIC OFFERING WITHIN THE MEANING OF SS. 359-e OF THE NEW
YORK GENERAL BUSINESS LAW.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR
OWN EXAMINATION OF THE FUND AND THE TERMS OF THIS OFFERING, INCLUDING
THE MERITS AND RISKS INVOLVED. INVESTORS MUST ALSO RELY ON THEIR
RELATIONSHIP WITH THE PRINCIPALS OF THE OFFERING TO OBTAIN INFORMATION
ABOUT THE BACKGROUND AND EXPERIENCE OF THE PRINCIPALS THAT THE
INVESTORS CONSIDER MATERIAL TO AN INVESTMENT IN THE FUND.
THE FUND SHARES HAVE NOT BEEN ISSUED OR SOLD IN RELIANCE ON
PARAGRAPH (13) OF CODE SECTION 10-5-9 OF 'THE GEORGIA SECURITIES ACT OF
1973', AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH
IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER
SUCH ACT.
2. Additional Representations and Warranties.
-----------------------------------------
The Investor hereby represents and confirms that: (a) the Investor was
not formed for the specific purpose of acquiring the Fund Shares, and has total
assets in excess of $5,000,000; (b) the Investor is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it was
formed; (c) the Investor has the power and authority to carry on the business in
which it is engaged and to purchase the Fund Shares; and (d) the execution and
delivery of this Subscription Agreement and all other documents and agreements
relating to this investment by the Investor have been duly authorized by all
necessary action and constitute the legal, valid and binding obligations of the
Investor enforceable in accordance with their terms.
The undersigned hereby represents and confirms that, if executing this
Subscription Agreement in a representative or fiduciary capacity, has full power
and authority to execute and deliver this Subscription Agreement in such
capacity and on behalf of the subscribing partnership, trust, corporation, or
other entity for whom the undersigned is executing this Subscription Agreement,
and such partnership, trust, corporation, or other entity has full right and
power to perform pursuant to this Subscription Agreement and make an investment
in the Fund and has its principal place of business at the address set forth or
the signature page hereof and such entity has not been formed for the specific
purpose of acquiring Fund Shares.
The Investor hereby confirms that if the Investor is a corporation: (a)
the Investor is a widely held "C" corporation (i.e., 5 or fewer individuals do
not hold 50% or more of the stock of the corporation) or (b) the Investor has
discussed with its tax advisors the specific tax consequences to it that would
result from the ownership of Fund Shares.
The Investor hereby acknowledges and represents that (a) the Investment
Officer for the Investor has received and read a copy of the Private Placement
Memorandum and the Statement
307322.9
-3-
<PAGE>
of Additional Information (the "SAI") and has had an opportunity to ask
questions concerning the matters stated in the Private Placement Memorandum and
the SAI and has relied only upon the information contained therein; (b) the
Investor is purchasing the Fund Shares for its own account, for investment, and
not with a view to, or for resale, fractionalization or further distribution;
(c) the Investor, its advisers, if any, and any designated representatives, if
any, have such knowledge and experience in financial and business matters
necessary to evaluate evaluator the investment in the Fund, and have carefully,
reviewed and understand the risks associated with investments in the Fund, which
are set forth in the Private Placement Memorandum.
The Investor has adequate means of providing for current and
anticipated financial needs and contingencies, is able to bear the economic risk
for an indefinite period of time and has no need for liquidity of the investment
in the Fund Shares and could afford complete loss of such investment.
The Investor is not subscribing for Fund Shares as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any solicitation
of a subscription by a person not previously known to the Subscriber in
connection with investments in securities generally.
The Investor specifically acknowledges that by signing this
Subscription Agreement, the Investor authorizes the Fund to cause the Investor
to become a shareholder in the Fund.
In addition to the transfer restrictions imposed by federal and state
securities laws and the Private Placement Memorandum, Georgia investors agree
that, pursuant to Section 10-5-9(13) of the Georgia Securities Act of 1973, the
Fund Shares have been purchased for investment for such investor's own account.
This agreement shall be governed by and construed in accordance with
the laws of the State of New York. The Investor hereby expressly submits to the
jurisdiction of all federal and state courts located in the State of New York
and consents that any process or notice of motion or other application to any of
said courts or a judge thereof may be served within or without such court's
jurisdiction by registered mail or by personal service, provided a reasonable
time for appearance is allowed. The Investor also waives any claim that the
Supreme Court of the State of New York for the County of New York or the Federal
District Court for the Southern District of New York is an inconvenient forum.
Each of Lend Lease Real Estate Investments, Inc. and Hyperion Capital
Management, Inc. represents and warrants that:
(a) Organization and Standing of the Fund. The Fund is duly
and validly organized and validly existing as a corporation under the laws of
the State of Maryland, and has all requisite power and authority under the
Articles of Incorporation, Bylaws, and such laws to enter into and carry out the
terms of the Subscription Agreements, to conduct its business as described in
the Articles of Incorporation and the Bylaws, each as amended, and the Private
307322.9
-4-
<PAGE>
Placement Memorandum and to issue and sell Fund Shares. The Fund is also duly
and validly authorized to do business in the State of New York. There is no
jurisdiction other than Maryland or New York in which the Fund must be formed or
qualified to enable it to engage in the business in which it is or will be
engaged.
(b) Investment Company Act. The Fund is duly and validly
registered as a closed-end management investment company under the Investment
Company Act of 1940, as amended.
(c) Compliance with Other Instruments, etc. The Fund is not in
violation of any term of the Articles of Incorporation or Bylaws, each as
amended, or the Subscription Agreements, and the Fund is not in violation of any
term of any other mortgage, indenture, contract, agreement, instrument,
judgment, decree, order, statute, rule or regulation applicable to it. The
execution and delivery of the Subscription Agreements do not result in the
violation of, constitute a default under or conflict with any mortgage,
indenture, contract, agreement, instrument, judgment, decree, order, statute,
rule or regulation applicable to the Fund or result in the creation of any
mortgage, lien, encumbrance or charge upon any of the properties or assets of
the Fund.
(d) Governmental and Regulatory Approval. Neither the
execution and delivery of the Subscription Agreements nor the offer, issuance or
sale of the Fund Shares requires any consent, approval or authorization from, or
filing, registration or qualification with, any Federal, state or local
governmental or regulatory authority (including, without limitation,
registration under the Securities Act) on the part of the Fund not heretofore
obtained or made, except for: (i) compliance by the Fund with the filing
requirements of any applicable state securities ("Blue Sky") laws; and (ii)
compliance by the Fund with the filing requirements under Regulation D under the
Securities Act.
(e) Litigation. There are no actions, proceedings or
investigations pending or threatened (or any basis therefor known to the Fund)
against the Fund, its adviser, Lend Lease Real Estate Investments, Inc. or
Hyperion Capital Management, Inc. which would result in any material adverse
change in the business, prospects, condition, affairs or operations of the Fund
or in any material liability on the part of the Fund or the adviser.
(f) Disclosure. None of the Private Placement Memorandum,
Statement of Additional Information or the Subscription Agreements contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they are or were made.
(g) Fund Liabilities. Except as set forth in the Private
Placement Memorandum, the Fund has not engaged in any transactions (other than
offering under the Private Placement Memorandum) and does not have any
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise (including, without limitation, liabilities as guarantor or
otherwise with respect to obligations of others) and whether due or to become
due
307322.9
-5-
<PAGE>
(other than liabilities and obligations arising out of the offering under the
Private Placement Memorandum).
(h) Issuance of the Fund Shares. All action required to be
taken by the Fund as a condition to the issuance and sale of the Shares
purchased by the Investor has been taken, and such Shares are duly and validly
issued, fully paid and nonassessable.
(i) Articles of Incorporation. The Articles of Incorporation,
and any amendments thereto, have been duly filed for record with the Secretary
of State of Maryland, and the Fund shall deliver complete and correct copies of
such to the Investor immediately following the Closing.
(j) Side Letters. The Fund has provided the Investor with
true, complete and correct copies of the form of all letters, agreements,
undertakings, and other documents by and among the Fund, its adviser or any
person acting with respect to either, on the one hand, and any Investor, on the
other hand, relating to such Investor's purchase of Fund Shares or any terms,
conditions, operations, obligations or other understandings affecting the Fund.
3. The Investor understands and acknowledges the following: (a) the
minimum Subscription Amount is $1 million; (b) the Fund must receive
subscriptions acceptable to it in its sole discretion, in a minimum amount of
$40 million (the "Minimum Amount") in order for the closing to occur; (c) the
Closing for the offering is subject to the Fund's receipt of subscriptions for
the Minimum Amount on or before June __, 2000 (the "Termination Date"); (d)
subject to the receipt of subscriptions for the Minimum Amount, the Fund will
either accept or reject subscriptions and at each Closing will countersign the
Subscription Agreements for accepted subscriptions and provide duplicate copies
of such agreements to the subscribers; and (e) if subscriptions for at least the
Minimum Amount have been accepted prior to the Termination Date, the Closing
shall be held with respect to the Shares sold. Thereafter, the remaining Shares
will continue to be offered and sold and additional Closings may from time to
time be conducted with respect to additional Shares sold, until the Termination
Date.
4. At the Closing, the Investor will pay to the Fund $__________ of its
Subscription Amount. The Investor hereby agrees to make additional payments to
the Fund thereafter, in accordance with and subject to the following terms, in
the aggregate amount equal to $__________, as required by the Adviser to make
additional investments in the Fund in accordance with the investment objectives
and policies set forth in the Private Placement Memorandum and the SAI. All such
payments will be made at such time and of such amounts as the Adviser requires
in a written notice (the "Payment Notice") given to the Investor at the address
or by telecopier at the telecopy number of the Investor set forth on the
signature page of this Subscription Agreement at least five (5) days prior to
the Payment Date specified in the Payment Notice. On the Payment Date specified
on the Payment Notice, the Investor shall pay the amount so specified by wire
transfer of immediately available funds to the bank account specified in the
Payment Notice.
307322.9
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement this _____ day of March, 2000.
Dollar Amount of Subscription Amount: $___________________
---------------------------------------------------------
Print Full Legal Name of Partnership, Corporation, Trust,
Employee Benefit Plan or Other Entity (if applicable).
By
------------------------------------------------------
(Signature of Authorized Signatory)
Name:----------------------------------------------------
Title:---------------------------------------------------
Address:-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
Employer Identification
Number (if applicable):----------------------------------
Date and State of Incorporation or
Organization (if applicable):----------------------------
Date on which Taxable Year Ends:-------------------------
Telecopy Number:-----------------------------------------
ACCEPTED AS OF
THE DATE HEREOF:
Lend Lease Hyperion
High-Yield CMBS Fund, Inc.
By:-----------------------
Name:
Title:
307322.9
-7-
<PAGE>
A-2
LEND LEASE HYPERION HIGH-YIELD CMBS FUND, INC.
INVESTOR QUALIFICATION STATEMENT
The shares of common stock of Lend Lease Hyperion High-Yield
CMBS Fund, Inc. (the "Fund") (such shares hereinafter referred to as "Fund
Shares") are being offered to a limited number of qualified institutional
accredited investors, without registration under the Securities Act of 1933, as
amended (the "Act"), in reliance on the private offering exemption pursuant to
Section 4(2) of the Act and Regulation D, and without registration under the
securities laws of the states in which the Fund Shares are offered and sold in
reliance on applicable state securities exemptions.
The information and representations provided in this Investor
Qualification Statement will be used to determine whether the Investor is
qualified to purchase the Fund Shares under Regulation D and applicable state
securities laws and rules.
General Information
1. Full legal name of Investor:
-------------------------------------------------------------
-------------------------------------------------------------
2. Address of principal place of business:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
3. Name, title, business address and telephone number of officer
to whom all correspondence should be addressed:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
307322.9
-8-
<PAGE>
4. Investor's federal tax identification number:
-------------------------------------------------------------
5. Date and state of incorporation:
-------------------------------------------------------------
6. Date on which taxable year ends:
-------------------------------------------------------------
-------------------------------------------------------------
7. Nature of Investor's business:
-------------------------------------------------------------
-------------------------------------------------------------
Accredited Institutional Investor Information
- ---------------------------------------------
Initial all appropriate spaces below to indicate the basis on which the
undersigned qualifies as an accredited investor.
[ ] The undersigned hereby certifies that it is a bank as defined in
section 3(a)(2) of theSecurities Act of 1933.
[ ] The undersigned hereby certifies that it is a savings and loan
association or building and loan association, cooperative bank,
homestead association, or similar institution, which is supervised and
examined by state or federal authority having supervision over any such
institution, whether acting in its individual or fiduciary capacity.
[ ] The undersigned hereby certifies that it is a broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of
1934.
[ ] The undersigned hereby certifies that it is an insurance company as
defined in section 2(13) of the Securities Act.
307322.9
-9-
<PAGE>
[ ] The undersigned hereby certifies that it is an investment company
registered under the Investment Company Act of 1940 or a business
development company as defined in section 2(a)(48) of that act.
[ ] The undersigned hereby certifies that it is a Small Business Investment
Company licensed by the U.S. Small Business Administration under
section 301(c) or (d) of the Small Business Investment Act of 1958.
[ ] The undersigned hereby certifies that it is a plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000.
[ ] The undersigned hereby certifies that it is an employee benefit plan
within the meaning of the Employee Retirement Income Security Act of
1974 if the investment decision is made by a plan fiduciary, as defined
in section 3(21) of such act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if
the employee benefit plan has total assets in excess of $5,000,000; or,
if a self-directed plan, with investment decisions made solely by
persons described as accredited investors herein.
[ ] The undersigned hereby certifies that it is a private business
development company as defined in section 202(a)(22) of the Investment
Advisers Act of 1940.
[ ] The undersigned hereby certifies that it is an organization described
in section 501(c)(3) of the Internal Revenue Code, corporation,
Massachusetts or similar business trust, or partnership, not formed for
the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000.
Additional Representations and Warranties
- -----------------------------------------
The Investor makes the following additional representations
and warranties:
1. The Investor, if a corporation, is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated.
2. The Investor, if a corporation, has the corporate power and
authority to carry on the business in which it is engaged and to purchase the
Fund Shares.
3. The undersigned, if executing this Subscription Agreement
in a representative or fiduciary capacity, has full power and authority to
execute and deliver this Subscription Agreement in such capacity and on behalf
of the subscribing partnership, trust, corporation, or other entity for whom the
undersigned is executing this Subscription Agreement,
307322.9
-10-
<PAGE>
and such partnership, trust, corporation, or other entity has full right and
power to perform pursuant to this Subscription Agreement and make an investment
in the Fund.
4. The execution and delivery of the Subscription Agreement,
the Investor Qualification Statement, and all other documents and agreements
relating to an investment by the Investor in the Fund have been duly authorized
by all necessary corporate action and constitute the legal, valid and binding
obligations of the Investor enforceable in accordance with their terms.
5. The execution and delivery of the Subscription Agreement,
the Investor Qualification Statement, and all other documents and agreements
relating to an investment by the Investor in the Fund do not, and the
performance of the terms thereof will not, contravene any provision of existing
law or regulations, or of the charter or bylaws of the Investor, and will not
conflict with or result in any breach of the terms, conditions or provisions of,
or constitute a default under, or result in or permit the creation or imposition
of any lien, charge or encumbrance upon any of the properties of the Investor
pursuant to, any indenture, mortgage or other agreement or instrument or any
judgment, decree, order or decision to which the Investor is a party or by which
it is bound.
6. Under existing law, no approval, authorization, license,
permit or other action by or filing with, any Federal, state, municipal or other
governmental commission, board or agency is required on the part of the Investor
in connection with the execution and delivery by the Investor of the
Subscription Agreement, the Investor Qualification Statement, or any other
documents or agreements relating to an investment by the Investor in the Fund,
or the consummation of the transactions contemplated thereby.
7. The Investor, by execution of the Investor Qualification
Statement, hereby certifies that the information, representations and warranties
provided by it hereunder are true, accurate and correct.
307322.9
-11-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Investor
Qualification Statement this _____ day of March, 2000.
Dollar Amount of Subscription Amount: $______________
---------------------------------------------------------
Print Full Legal Name of Partnership, Corporation, Trust,
Employee Benefit Plan or Other Entity (if applicable).
By-------------------------------------------------------
(Signature of Authorized Signatory)
Name:----------------------------------------------------
Title:---------------------------------------------------
Address:-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
Employer Identification
Number (if applicable):----------------------------------
Date and State of Incorporation or
Organization (if applicable):----------------------------
Date on which Taxable Year Ends:-------------------------
ACCEPTED AS OF
THE DATE HEREOF:
Lend Lease Hyperion
High-Yield CMBS Fund, Inc.
By:-----------------------
Name:
Title:
307322.9
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<PAGE>
A-3
HYPERION CAPITAL MANAGEMENT, INC.
TRADE PAYMENT AUTHORIZATION FORM
FUND: Lend Lease Hyperion High-Yield CMBS Fund, Inc.
Tax ID/Shareholder
Account Number
Shareholder Name
Shareholder Address
Trade Date Trade Price
Trade Type: Purchase --- Redemption ---
Trade Amount (Dollars)
WIRE INSTRUCTIONS:
Purchase Wire Information: Redemption Wire Instructions:
Special Instructions Yes__ No__
State Street Bank & Trust Co. ABA No.----------------------
Boston, Massachusetts 02101 Bank-------------------------
Attn: Mutual Funds Division ----------------------------
ABA No. 011 000 028
BNF=-------------------------
BNF=LEND LEASE HYPERION HIGH- ----------------------------
YIELD CMBS FUND, INC.
A/C=7L16 OBI=-------------------------
OBI=Lend Lease Hyperion ----------------------------
High-Yield CMBS Fund Inc./Shareholder
Name/Shareholder Account # ----------------------------
Authorized Signature ----------------------------------------------------------
*United States Internal Revenue Form W-9 for clients with tax identification
numbers, or Form W-8 for non-residents aliens, must accompany the application or
initial purchases. Failure to provide completed forms to the Transfer Agent WILL
result in backup withholding tax being deducted from any distributions.
307322.9
-13-
The cross-reference sheet is incorporated by reference to the
Cross-Reference Sheet to the Registration Statement on Form N-2 dated September
22, 1995.
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(1) (a) Statement of Assets and Liabilities
(b) Statement of Operations as of February 29, 2000.
(2) Exhibits
(a) Articles of Incorporation, as amended, of the
Registrant. (Articles of Incorporation filed as
Exhibit 1 to Registration Statement on Form N-2
dated September 22, 1995 and incorporated herein by
reference.)
(b) By-Laws, as amended, of the Registrant. (By-Laws
filed as Exhibit 2 to Registration Statement on
Form N-2 dated September 22, 1995 and incorporated
herein by reference.)
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) Investment Management Contract between the
Registrant and Lend Lease Hyperion Capital
Advisors, L.L.C.
(h) Distribution Agreement between the Registrant and
Lend Lease Capital Markets Inc.
(i) Not applicable.
1(j) Custodian Contract and Transfer Agent and Registrar
Services Fee Agreement between the Registrant and
State Street Bank and Trust Company.
(j.1) Amendment to Custodian Contract, Transfer Agency
and Stock Transfer Services Agreement, dated as of
March 13, 2000, and Domestic Custody and Accounting
Fee Schedule between the Registrant and State
Street Bank and Trust Company.
(k) Administrative Services Agreement between the
Registrant and Lend Lease Hyperion Capital
Advisors, L.L.C.
(l) Opinion of Battle Fowler L.L.P.
- --------
(1) Filed as an Exhibit to the Registration Statement of Registrant on
September 22, 1995 and incorporated herein by reference.
928132.6
<PAGE>
(m) Written assurance of Lend Lease Hyperion Capital
Advisors, L.L.C. that its purchase of shares of the
registrant was for investment purposes without any
present intention of redeeming or reselling.
(n) Not applicable.
(o) Not applicable.
(p) Not applicable.
(q) Not applicable.
(r) Code of Ethics of the Registrant and Lend Lease
Hyperion Capital Advisors, L.L.C.
Item 25. Marketing Arrangements.
Not applicable.
Item 26. Other Expense of Issuance and Distribution.
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities covered by this
Registration Statement:
Securities and Exchange Commission fee..........$ 1,000.00
Accountants' fees and expenses.................. -0-
Blue Sky fees and expenses...................... -0-
Cost of Stock Certificates...................... -0-
Printing........................................ 5,000.00
Marketing expenses.............................. -0-
Legal fees and expenses......................... 70,000.00
Miscellaneous................................... 9,000.00
----------
Total.......................................... $ 85,000.00
Item 27. Persons controlled by or Under Common Control with Registrant.
None.
Item 28. Number of Holders of Securities.
Number of Record Holders
Title of Class as of February 29, 2000
--------------- -----------------------
Shares of Common Stock 1
Item 29. Indemnification.
In accordance with Section 2-418 of the General
Corporation Law of the State of Maryland, Article NINTH of the
Registrant's Articles of Incorporation provides as follows:
928132.6
<PAGE>
"NINTH: (1) The Corporation shall indemnify (i) its
currently acting and former directors and officers, whether
serving the Corporation or at its request any other entity, to
the fullest extent required or permitted by the General Laws of
the State of Maryland now or hereafter in force, including the
advance of expenses under the procedures and to the fullest
extent permitted by law, and (ii) other employees and agents to
such extent as shall be authorized by the Board of Directors or
the By-Laws and as permitted by law. Nothing contained herein
shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders 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.
The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be
entitled. The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time
such by-laws, resolutions or contracts implementing such
provisions or such indemnification arrangements as may be
permitted by law. No amendment of the charter of the Corporation
or repeal of any of its provisions shall limit or eliminate the
right of indemnification provided hereunder with respect to acts
or omissions occurring prior to such amendment or repeal.
(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment
Company Act of 1940, no director or officer of the Corporation
shall be personally liable to the Corporation or its stockholders
for money damages; provided, however, that nothing herein shall
be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders 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. No
amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation of
liability provided to directors and officers hereunder with
respect to any act or omission occurring prior to such amendment
or repeal."
In Section 7 of the Distribution Agreement relating to the
securities being offered hereby, the Registrant agrees to
indemnify Lend Lease Hyperion High-Yield CMBS Fund, Inc. and any
person who controls Lend Lease Hyperion High-Yield CMBS Fund,
Inc., within the meaning of the Securities Act of 1933, against
certain types of civil liabilities arising in connection with the
Registration Statement or Prospectus.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Securities Act") may be
permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than
928132.6
<PAGE>
a payment by the Registrant of expenses incurred or paid by a
director, officer or 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 of
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Insofar as the Investment Company Act of 1940 may be
concerned, in the event that a claim for indemnification is
asserted by a director, officer or controlling person of the
Registrant in connection with the securities being registered,
the Registrant will not make such indemnification unless (i) the
Registrant has submitted, before a court or other body, the
question of whether the person to be indemnified was liable by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duties, and has obtained a final decision
on the merits that such person was not liable by reason of such
conduct or (ii) in the absence of such decision, the Registrant
shall have obtained a reasonable determination, based upon a
review of the facts, that such person was not liable by virtue of
such conduct, by (a) the vote of a majority of directors who are
neither interested persons as such term is defined in the
Investment Company Act of 1940, nor parties to the proceeding or
(b) an independent legal counsel in a written opinion.
The Registrant will not advance attorneys' fees or other
expenses incurred by the person to be indemnified unless the
Registrant shall have (i) received an undertaking by or on behalf
of such person to repay the advance unless it is ultimately
determined that such person is entitled to indemnification and
one of the following conditions shall have occurred: (x) such
person shall provide security for his undertaking, (y) the
Registrant shall be insured against losses arising by reason of
any lawful advances or (z) a majority of the disinterested,
non-party directors of the Registrant, or an independent legal
counsel in a written opinion, shall have determined that based on
a review of readily available facts there is reason to believe
that such person ultimately will be found entitled to
indemnification.
Item 30. Business and Other Connections of Investment Adviser.
The description of the Lend Lease Hyperion Capital Advisors,
L.L.C. under the caption "Management of the Fund" in the Prospectus and
"Management and Investment Management Contract" in the Statement of Additional
Information constituting parts A and B, respectively, of the Registration
Statement are incorporated herein by reference.
Registrant's investment adviser, Lend Lease Hyperion Capital
Advisors, L.L.C., is a registered investment adviser. Lend Lease Hyperion
Capital Advisors, L.L.C.'s investment advisory clients include Lend Lease
Hyperion Mortgage Opportunity Fund, Inc., a registered investment company whose
address is One Liberty Plaza, New York, New York 10006, which invest principally
in commercial mortgage-backed securities.
928132.6
<PAGE>
Item 31. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of Registrant at Lend Lease
Hyperion Capital Advisors, L.L.C., One Liberty Plaza, New York, New York 10006
the Registrant's Manager; State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, the Registrant's transfer agent, custodian
and accounting agent.
Item 32. Management Services.
Not applicable.
Item 33. Undertakings.
Not applicable.
928132.6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this Amendment to the Registration Statement to
be signed on its behalf by the undersigned, the 9th day of March, 2000.
LEND LEASE HYPERION HIGH-YIELD
CMBS FUND, INC.
By: /S/ JOSEPH TROPEANO
------------------------
Name: Joseph Tropeano
928132.6
<PAGE>
Exhibit Index
(a) Articles of Incorporation, as amended, of the Registrant.
(b) By-Laws, as amended, of the Registrant.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) Investment Management Contract between the Registrant and
Lend Lease Hyperion Capital Advisors, L.L.C.
(h) Distribution Agreement between the Registrant and Lend
Lease Capital Markets Inc.
(i) Not applicable.
1(j) Custodian Contract and Transfer Agent and Registrar
Services Fee Agreement between the Registrant and State
Street Bank and Trust Company.
(j.1) Amendment to Custodian Contract, Transfer Agency and Stock
Transfer Services Agreement, dated as of March 13, 2000,
and Domestic Custody and Accounting Fee Schedule between
the Registrant and State Street Bank and Trust Company.
(k) Administrative Services Agreement between the Registrant
and Lend Lease Hyperion Capital Advisors, L.L.C.
(l) Opinion of Battle Fowler L.L.P.
(m) Written assurance of Lend Lease Hyperion Capital Advisors,
L.L.C. that its purchase of shares of the registrant was
for investment purposes without any present intention of
redeeming or reselling.
(n) Not applicable.
(o) Not applicable.
(p) Not applicable.
(q) Not applicable.
(r) Code of Ethics of the Registrant and Lend Lease Hyperion
Capital Advisors, L.L.C
- --------
(1) Filed as an Exhibit to the Registration Statement of Registrant on
September 22, 1995 and incorporated herein by reference.
928132.6
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
LEND LEASE HYPERION HIGH-YIELD COMMERCIAL CMBS FUND, INC.
Lend Lease Hyperion High-Yield Commercial CMBS Fund, Inc., a Maryland
corporation having its principal office in this state in Baltimore, Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by striking
out Article SECOND and inserting in lieu thereof the following:
"SECOND: The name of the corporation (hereinafter called the
"Corporation") is Lend Lease Hyperion High-Yield CMBS Fund, Inc."
SECOND: The charter of the Corporation is hereby amended by striking
out Article SIXTH paragraph (4)(e) and (f) and inserting in lieu thereof the
following:
"(e) Liquidation. In the event of the liquidation, the
stockholders of the class shall be entitled to receive, when and as
declared by the Board of Directors, the excess of the assets over the
liabilities. The holders of shares shall not be entitled thereby to
any distribution upon liquidation of any other Shares. The assets so
distributable to the stockholders shall be distributed among such
stockholders in proportion to the number of shares held by them and
recorded on the books of the Corporation. The liquidation may be
authorized by the unanimous consent of the shareholders.
(f) Net Asset Value Per Share. The net asset value per share
shall be the quotient obtained by dividing the value of the net assets
(being the value of the assets including accrued income less the
liabilities) by the total number of shares outstanding, all as
determined by or under the direction of the Board of Directors in
accordance with generally accepted accounting principles and the
Investment Company Act of 1940. Subject to the applicable provisions
of the Investment Company Act of 1940, the Board of Directors, in its
sole discretion, may prescribe and shall set forth in the By-Laws of
the Corporation or in a duly adopted resolution of the Board of
Directors such bases and times for determining the value of the assets
belonging to, and the net asset value per share of outstanding shares,
or the net income attributable to such shares, as the Board of
Directors deems necessary or desirable. The Board of Directors shall
909595.1 Fund II
<PAGE>
have full discretion, to the extent not inconsistent with the Maryland
General Corporation Law and the Investment Company Act of 1940, to
determine which item shall be treated as income and which items as
capital and whether any item of expense shall be charged to income or
capital. Each such determination and allocation shall be conclusive
and binding for all purposes."
THIRD: The charter of the Corporation is hereby further amended by
striking out Article EIGHTH, paragraph (7) and inserting in lieu thereof the
following:
"(7) The duration of the Corporation's existence will terminate
on December 31, 2001 provided that the duration of the Corporation may
be extended for successive one-year periods provided that each
continuance is specifically approved in advance by holders of more
than 75% of the shares of the Corporation's Common Stock.
Notwithstanding the foregoing, the Corporation may be liquidated at
any time subject to the unanimous consent of the stockholders."
FOURTH: The amendment of the charter of the Corporation as hereinabove
set forth has been duly advised by the board of directors and approved by the
stockholders of the Corporation.
-2-
909595.1 Fund II
<PAGE>
IN WITNESS WHEREOF: Lend Lease Hyperion High-Yield Commercial CMBS
Fund, Inc., has caused these presents to be signed in its name and on its behalf
by its _____________ and attested by its __________ on February __, 2000.
LEND LEASE HYPERION HIGH-YIELD
COMMERCIAL CMBS FUND, INC.
By: ___________________________________
Name:
Title:
ATTEST:
By: _______________________________
Name:
Title:
-3-
909595.1 Fund II
<PAGE>
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
LEND LEASE HYPERION HIGH-YIELD COMMERCIAL MORTGAGE FUND, INC.
Lend Lease Hyperion High-Yield Commercial Mortgage Fund, Inc., a
Maryland corporation having its principal office in this state in Baltimore,
Maryland (hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by striking
out Article SECOND and inserting in lieu thereof the following:
"SECOND: The name of the corporation (hereinafter called the
"Corporation") is Lend Lease Hyperion High-Yield Commercial CMBS Fund,
Inc."
SECOND: The charter of the Corporation is hereby further amended by
striking out Article EIGHTH, paragraphs (6) and (7), respectively, and inserting
in lieu thereof the following:
"(6) Specifically and without limitation of the foregoing
subsection (e) but subject to the exception therein prescribed, the
Corporation may enter into management or advisory, underwriting,
distribution and administration contracts and other contracts, and may
otherwise do business, with Lend Lease Hyperion Capital Advisors,
L.L.C., and any parent, subsidiary, partner, or affiliate of such firm
or any affiliates of any such affiliate, or the stockholders, members,
directors, officers, partners and employees thereof, and may deal
freely with one another notwithstanding that the Board of Directors of
the Corporation may be composed in part of directors, officers,
partners or employees of such firm and/or its parents, subsidiaries or
affiliates and that officers of the Corporation may have been, be or
become directors, officers, or employees of such firm, and/or its
parents, subsidiaries or affiliates, and neither such management or
advisory, underwriting, distribution or administration contracts nor
any other contract or transaction between the Corporation and such
firm and/or its parents, subsidiaries or affiliates shall be
invalidated or in any way affected thereby, nor shall any director or
officer of the Corporation be liable to the Corporation or to any
stockholder or creditor thereof or to any person for any loss incurred
by it or him under or by reason of such contract or transaction;
provided that nothing herein shall protect any director or officer of
the
889866.1 Fund II
<PAGE>
Corporation against any liability to the Corporation or to its
security holders 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; and provided
always that such contract or transaction shall have been on terms that
were not unfair to the Corporation at the time at which it was entered
into.
(7) The duration of the Corporation's existence will terminate
on December 31, 2002 provided that the duration of the Corporation may
be extended for successive one-year periods provided that each
continuance is specifically approved in advance by holders of more than
75% of the shares of the Corporation's Common Stock. Notwithstanding
the foregoing, the Corporation may be liquidated at any time subject to
the unanimous consent of the stockholders."
THIRD: The amendment of the charter of the Corporation as hereinabove
set forth has been duly advised by the board of directors and approved by the
stockholders of the Corporation.
-2-
889866.1 Fund II
<PAGE>
IN WITNESS WHEREOF: Lend Lease Hyperion High-Yield Commercial Mortgage
Fund, Inc., has caused these presents to be signed in its name and on its behalf
by its _____________ and attested by its __________ on November __, 1999.
LEND LEASE HYPERION HIGH-YIELD
COMMERCIAL MORTGAGE FUND, INC.
By: ____________________________
Name:
Title:
ATTEST:
By:____________________________________
Name:
Title:
-3-
889866.1 Fund II
<PAGE>
PARRIS N. GLENDENING
State of Maryland Governor
DEPARTMENT OF RONALD W. WINEHOLT
ASSESSMENTS AND TAXATION Director
PAUL B. ANDERSON
Charter Division Administrator
- ------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
(See instructions on previous page)
Equitable Real Estate Hyperion High-Yield Commercial Mortgage Fund, Inc
(1)
(2) Equitable Real Estate Hyperion High-Yield Commercial Mortgage Fund, Inc. , a
Maryland corporation hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
(3) The charter of the corporation is hereby amended as follows: The name of the
Corporation is hereby changed to Lend Lease Hyperion High-Yield Commercial ____
Mortgage Fund, Inc.____________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
This amendment of the charter of the corporation has been approved by
(4) the directors and shareholders
We the undersigned President and Secretary swear under penalties of perjury that
the foregoing is a corporate act.
/s/ Joseph Tropeano /s/ Kenneth C. Weiss
- ---------------------------------- ----------------------------------
ASST. SECRETARY / JOSEPH TROPEANO PRESIDENT / KENNETH C. WEISS
MAIL TO: STATE DEPARTMENT OF ASSESSMENTS & TAXATION
301 WEST PRESTON STREET, ROOM 809
BALTIMORE, MD 21201
PHONE: 401-767-1350
930103.1
<PAGE>
ARTICLES OF INCORPORATION
OF
EQUITABLE REAL ESTATE HYPERION HIGH-YIELD
COMMERCIAL MORTGAGE FUND, INC.
FIRST: (1) The name of the incorporator is Ann M. Smith.
(2) The incorporator's post office address is 75 East 55th
Street, New York, New York 10022.
(3) The incorporator is over eighteen years of age.
(4) The incorporator is forming the corporation named in
these Articles of Incorporation under the General Corporation Law of the State
of Maryland.
SECOND: The name of the corporation (hereinafter called the
"Corporation") is Equitable Real Estate Hyperion High-Yield Commercial Mortgage
Fund, Inc.
THIRD: The purposes for which the Corporation is formed are:
(1) to conduct, operate and carry on the business of an
investment company;
(2) to subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange,
distribute or otherwise dispose of notes, bills, bonds, debentures and
other negotiable or non-negotiable instruments, obligations and
evidences of indebtedness issued or guaranteed as to principal and
interest by the United States Government, or any agency or
instrumentality thereof, any State or local government, or any agency
or instrumentality thereof, or any other securities of any kind issued
by any corporation or other issuer organized under the laws of the
United States or any State, territory or possession thereof or any
foreign country or any subdivision thereof or otherwise, to pay for
the same in cash or by the issue of stock, including treasury stock,
bonds and notes of the Corporation or otherwise; and to exercise any
and all rights, powers and privileges of ownership or interest in
respect of any and all such investments of every kind and description,
including and without limitation, the right to consent and otherwise
act with respect
C/M: 11212.0012 275064.2
<PAGE>
thereto, with power to designate one or more persons, firms,
associations or corporations to exercise any of said rights, powers
and privileges in respect of any said investments;
(3) to conduct research and investigations in respect of
securities, organizations, business and general business and financial
conditions in the United States of America and elsewhere for the
purpose of obtaining information pertinent to the investment and
employment of the assets of the Corporation and to procure any and all
of the foregoing to be done by others as independent contractors and
to pay compensation therefor;
(4) to borrow money or otherwise obtain credit and to secure
the same by mortgaging, pledging or otherwise subjecting as security
the assets of the Corporation, and to endorse, guarantee or undertake
the performance of any obligation, contract or engagement of any other
person, firm, association or corporation;
(5) to issue, sell, distribute, repurchase, redeem, retire,
cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in, shares of stock of the Corporation, including
shares of stock of the Corporation in fractional denominations, and to
apply to any such repurchase, redemption, retirement, cancellation or
acquisition of shares of stock of the Corporation, any funds or
property of the Corporation, whether capital or surplus or otherwise,
to the full extent now or hereafter permitted by the laws of the State
of Maryland and by these Articles of Incorporation;
(6) to conduct its business, promote its purposes, and carry
on its operations in any and all of its branches and maintain offices
both within and without the State of Maryland, in any and all States
of the United States of America, in the District of Columbia, and in
any or all commonwealths, territories, dependencies, colonies,
possessions, agencies, or instrumentalities of the United States of
America and of foreign governments;
(7) to carry out all or any part of the foregoing purposes or
objects as principal or agent, or in conjunction with any other
person, firm, association, corporation or other entity, or as a
partner or member of a partnership, syndicate or joint venture or
otherwise, and in any part of the world to
-2-
C/M: 11212.0012 275064.2
<PAGE>
the same extent and as fully as natural persons might or
could do;
(8) to have and exercise all of the powers and privileges
conferred by the laws of the State of Maryland upon corporations
formed under the laws of such State; and
(9) to do any and all such further acts and things and to
exercise any and all such further powers and privileges as may be
necessary, incidental, relative, conducive, appropriate or desirable
for the foregoing purposes.
The enumeration herein of the objects and purposes of the Corporation
shall be construed as powers as well as objects and purposes and shall not be
deemed to exclude by inference any powers, objects or purposes which the
Corporation is empowered to exercise, whether expressly by force of the laws of
the State of Maryland now or hereafter in effect, or impliedly by the reasonable
construction of the said law.
FOURTH: The post office address of the principal office of the
Corporation within the State of Maryland is 11 East Chase Street, Baltimore
City, Maryland 21202.
FIFTH: The resident agent of the Corporation in the State of Maryland
is The Prentice-Hall Corporation System, Maryland, at 11 East Chase Street,
Baltimore, Maryland 21202.
SIXTH: (1) The total number of shares of stock of all classes and
series which the Corporation initially has authority to issue is one hundred
million (100,000,000) shares of capital stock (par value of One Tenth of One
Cent $.001 per share), amounting in aggregate par value to $100,000. All of such
shares are classified as "Common Stock".
(2) The Board of Directors may classify or reclassify any unissued
shares of capital stock from time to time by setting or changing in any one or
more respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such shares of stock.
(3) Unless otherwise prohibited by law, so long as the Corporation is
registered as a closed-end management company under the Investment Company Act
of 1940, the Board of Directors shall have the power and authority, without the
approval of the holders of any outstanding shares, to increase or decrease the
number of shares of capital stock or the number of shares of capital stock of
any class that the Corporation has authority to issue.
-3-
C/M: 11212.0012 275064.2
<PAGE>
(4) The following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of Common
Stock of the Corporation:
(a) Asset Belonging to Classes. All consideration received by
the Corporation from the issue or sale of shares of a particular
class, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
investment or reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that class for all purposes,
subject only to the rights of creditors, and shall be so recorded upon
the books of account of the Corporation. Such consideration, assets,
income, earnings, profits and proceeds, together with any General
Items allocated to that class as provided in the following sentence,
are herein referred to collectively as "assets belonging to" that
class. In the event that there are any assets, income, earnings,
profits or proceeds which are not readily identifiable as belonging to
any particular class (collectively, "General Items"), such General
Items shall be allocated by or under the supervision of the Board of
Directors to and among any one or more of the classes established and
designated from time to time in such manner and on such basis as the
Board of Directors, in its sole discretion, deems fair and equitable;
and any General Items so allocated to a particular class shall belong
to that class. Each such allocation by the Board of Directors shall be
conclusive and binding for all purposes.
(b) Liabilities of Class. The assets belonging to each
particular class shall be charged with the liabilities of the
Corporation in respect of that class and all expenses, costs, charges
and reserves attributable to that class, and any general liabilities,
expenses, costs, charges or reserves of the Corporation which are not
readily identifiable as pertaining to any particular class, shall be
allocated and charged by or under the supervision of the Board of
Directors to and among any one or more of the Series established and
designated from time to time in such manner and on such basis as the
Board of Directors, in its sole discretion, deems fair and equitable.
The liabilities, expenses, costs, charges and reserves allocated and
so charged to a class are herein referred
-4-
C/M: 11212.0012 275064.2
<PAGE>
to collectively as "liabilities of" that class. Each allocation
of liabilities, expenses, costs, charges and reserves by or
under the supervision of the Board of Directors shall be conclusive
and binding for all purposes.
(c) Dividends and Distributions. Dividends and capital gains
distributions on shares may be paid with such frequency, in such form
and in such amount as the Board of Directors may determine by
resolution adopted from time to time, or pursuant to a standing
resolution or resolutions adopted only once or with such frequency as
the Board of Directors may determine, after providing for actual and
accrued liabilities of that class. All dividends on shares shall be
paid only out of the income belonging to that class and all capital
gains distributions on shares of a particular series shall be paid
only out of the capital gains belonging to that class. All dividends
and distributions on shares of a particular class shall be distributed
pro rata to the holders of that class in proportion to the number of
shares of that class held by such holders at the date and time of
record established for the payment of such dividends or distributions,
except that in connection with any dividend or distribution program or
procedure, the Board of Directors may determine that no dividend or
distribution shall be payable on shares as to which the stockholder's
purchase order and/or payment have not been received by the time or
times established by the Board of Directors under such program or
procedure.
Dividends and distributions may be paid in cash, property or
additional shares of the same as determined by the Board of Directors
or pursuant to any program that the Board of Directors may have in
effect at the time for the election by stockholders of the form in
which dividends or distributions are to be paid. Any such dividend or
distribution paid in shares shall be paid at the current net asset
value thereof.
(d) Voting. On each matter submitted to a vote of the
stockholders, each holder of shares shall be entitled to one vote for
each share standing in his name on the books of the Corporation.
(e) Liquidation. In the event of the liquidation, the
stockholders of the class shall be entitled to receive, when and as
declared by the Board of Directors, the excess of the assets over the
liabilities. The holders of shares shall not be entitled thereby to
any distribution upon liquidation
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of any other Shares. The assets so distributable to the stockholders
shall be distributed among such stockholders in proportion to the
number of shares held by them and recorded on the books of the
Corporation. The liquidation may be authorized by vote of a majority
of the Board of Directors then in office, subject to the approval of a
majority of the outstanding voting securities class, as defined in the
Investment Company Act of 1940, and without the vote of the holders of
shares of any other class. The liquidation of a particular class may
be accomplished, in whole or in part, by the transfer of assets of
such class to another class or by the exchange of shares for the
shares of another Class.
(f) Net Asset Value Per Share. The net asset value per share
shall be the quotient obtained by dividing the value of the net assets
(being the value of the assets less the liabilities) by the total
number of shares outstanding, all as determined by or under the
direction of the Board of Directors in accordance with generally
accepted accounting principles and the Investment Company Act of 1940.
Subject to the applicable provisions of the Investment Company Act of
1940, the Board of Directors, in its sole discretion, may prescribe
and shall set forth in the By-Laws of the Corporation or in a duly
adopted resolution of the Board of Directors such bases and times for
determining the value of the assets belonging to, and the net asset
value per share of outstanding shares, or the net income attributable
to such shares, as the Board of Directors deems necessary or
desirable. The Board of Directors shall have full discretion, to the
extent not inconsistent with the Maryland General Corporation Law and
the Investment Company Act of 1940, to determine which item shall be
treated as income and which items as capital and whether any item of
expense shall be charged to income or capital. Each such determination
and allocation shall be conclusive and binding for all purposes.
(5) All Shares of Common Stock of the Corporation shall
represent the same interest in the Corporation and have identical voting,
dividend, liquidation and other rights with any other shares of Common Stock;
provided, however, that notwithstanding anything in the charter of the
Corporation to the contrary:
(a) Any class of shares may be subject to such sales loads,
contingent deferred sales charges, Rule 12b-1 fees, administrative
fees, service fees, or other fees, however designated, in such amounts
as may
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be established by the Board of Directors from time to time in
accordance with the Investment Company Act of 1940.
(b) Expenses related solely to a particular class (including,
without limitation, distribution expenses under a Rule 12b-1 plan and
administrative expenses under an administration or service agreement,
plan or other arrangement, however designated) shall be borne by that
class and shall be appropriately reflected (in the manner determined
by the Board of Directors) in the net asset value, dividends,
distributions and liquidation rights of the shares of that class.
(c) As to any matter with respect to which a separate vote of
any class is required by the Investment Company Act of 1940 or by the
Maryland General Corporation Law (including, without limitation,
approval of any plan, agreement or other arrangement referred to in
subsection (b) above), such requirement as to a separate vote by that
class shall apply in lieu of Single Class Voting. As to any matter
which does not affect the interest of a particular class, only the
holders of shares of the affected classes shall be entitled to vote.
(6) The Corporation may issue and sell fractions of shares of
capital stock having pro rata all the rights of full shares, including, without
limitation, the right to vote and to receive dividends, and wherever the words
"share" or "shares" are used in the charter or By-Laws of the Corporation, they
shall be deemed to include fractions of shares where the context does not
clearly indicate that only full shares are intended.
(7) The Corporation shall not be obligated to issue
certificates representing shares of any class of capital stock. At the time of
issue or transfer of shares without certificates, the Corporation shall provide
the stockholder with such information as may be required under the Maryland
General Corporation Law.
(8) No holder of any shares of stock of the Corporation shall
be entitled as of right to subscribe for, purchase, or otherwise acquire any
such shares which the Corporation shall issue or propose to issue; and any and
all of the shares of stock of the Corporation, whether now or hereafter
authorized, may be issued, or may be reissued or transferred if the same have
been reacquired and have treasury status, by the Board of Directors to such
persons, firms, corporations and associations, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine, without first offering same, or any thereof, to any said holder.
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(9) All persons who shall acquire stock or other securities
of the Corporation shall acquire the same subject to the provisions of these
Articles of Incorporation, as from time to time amended.
SEVENTH: The number of directors of the Corporation, until
such number shall be increased pursuant to the By-Laws of the Corporation, shall
be two. The number of directors shall never be less than the number prescribed
by the General Corporation Law of the State of Maryland and shall never be more
than twenty. The names of the persons who shall act as directors of the
Corporation until their successors are duly chosen and qualify are Kenneth C.
Weiss and Louis C. Lucido.
EIGHTH: The following provisions are inserted for the purpose
of defining, limiting and regulating the powers of the Corporation and of the
Board of Directors and stockholders.
(1) The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which shall have and may
exercise all powers of the Corporation except those powers which are by law, by
these Articles of Incorporation or by the By-Laws conferred upon or reserved to
the stockholders. In furtherance and not in limitation of the powers conferred
by law, the Board of Directors shall have power:
(a) to make, alter and repeal the By-Laws of the Corporation;
(b) to issue and sell, from time to time, shares of any class
or series of the Corporation's stock in such amounts and on such terms
and conditions, and for such amount and kind of consideration, as the
Board of Directors shall determine, provided that the consideration
per share to be received by the Corporation shall be not less than the
greater of the net asset value per share of that class of stock at
such time computed in accordance with Article SIXTH hereof or the par
value thereof;
(c) from time to time to set apart out of any assets of the
Corporation otherwise available for dividends a reserve or reserves
for working capital or for any other proper purpose or purposes, and
to reduce, abolish or add to any such reserve or reserves from time to
time as said Board of Directors may deem to be in the best interests
of the Corporation; and to determine in its discretion what part of
the assets of the Corporation available for dividends in excess of
such reserve or reserves shall be declared in dividends and paid to
the stockholders of the Corporation; and
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(d)from time to time to determine to what extent and at what
times and places and under what conditions and regulations the
accounts, books and records of the Corporation, or any of them, shall
be open to the inspection of the stockholders; and no stockholder
shall have any right to inspect any account or book or document of the
Corporation, except as conferred by the laws of the State of Maryland,
unless and until authorized to do so by resolution of the Board of
Directors or of the stockholders of the Corporation.
(2) Notwithstanding any provision of the General Corporation
Law of the State of Maryland requiring a greater proportion than a majority of
the votes of all classes or of any class of the Corporation's stock entitled to
be cast in order to take or authorize any action, any such action may be taken
or authorized upon the concurrence of a majority of the aggregate number of
votes entitled to be cast thereon subject to any applicable requirements of the
Investment Company Act of 1940, as from time to time in effect, or rules or
orders of the Securities and Exchange Commission or any successor thereto.
(3) Except as may otherwise be expressly provided by
applicable statutes or regulatory requirements, the presence in person or by
proxy of the holders of one-third of the shares of stock of the Corporation
entitled to vote shall constitute a quorum at any meeting of the stockholders.
(4) Any determination made in good faith and, so far
as accounting matters are involved, in accordance with generally accepted
accounting principles by or pursuant to the discretion of the Board of
Directors, as to the amount of the assets, debts, obligations, or liabilities of
the Corporation, as to the amount of any reserves or charges set up and the
propriety thereof, as to the time of or purposes for creating such reserves or
charges, as to the use, alteration or cancellation of any reserves or charges
(whether or not any debt, obligation or liability for which such reserves or
charges shall have been created shall have been paid or discharged or shall by
then or thereafter required to be paid or discharged), as to the value of or the
method of valuing any investment owned or held by the Corporation, as to the
market value or fair value of any investment or fair value of any other asset of
the Corporation, as to the allocation of any asset of the Corporation to a
particular class or classes of the Corporation's stock, as to the charging of
any liability of the Corporation to a particular class or classes of the
Corporation's stock, as to the number of shares of the Corporation outstanding,
as to the estimated expense to the Corporation in connection with purchases of
its shares, as to the ability to liquidate investments in orderly fashion, or as
to any other matters relating to the issue, sale, purchase and/or other
acquisition or disposition of investments or shares of the Corporation, shall be
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final and conclusive and shall be binding upon the Corporation and all holders
of its shares, past, present and future, and shares of the Corporation are
issued and sold on the condition and understanding that any and all such
determinations shall be binding as aforesaid.
(5) Except to the extent prohibited by the Investment Company
Act of 1940, as amended, or rules, regulations or orders thereunder promulgated
by the Securities and Exchange Commission or any successor thereto or by the
By-Laws of the Corporation, a director, officer or employee of the Corporation
shall not be disqualified by his position from dealing or contracting with the
Corporation, nor shall any transaction or contract of the Corporation be void or
voidable by reason of the fact that any director, officer or employee or any
firm of which any director, officer or employee is a member or any corporation
of which any director, officer or employee is a stockholder, officer or
director, is in any way interested in such transaction or contract; provided
that in case a director, or a firm or corporation of which a director is a
member, stockholder, officer or director, is so interested, such fact shall be
disclosed to or shall have been known by the Board of Directors or a majority
thereof; and any director of the Corporation who is so interested, or who is a
member, stockholder, officer or director of such firm or corporation, may be
counted in determining the existence of a quorum at any meeting of the Board of
Directors of the Corporation which shall authorize any such transaction or
contract, with like force and effect as if he were not such director, or member,
stockholder, officer or director of such firm or corporation.
(6) Specifically and without limitation of the foregoing
subsection (e) but subject to the exception therein prescribed, the Corporation
may enter into management or advisory, underwriting, distribution and
administration contracts and other contracts, and may otherwise do business,
with Equitable Real Estate Hyperion Capital Advisors, L.L.C., and any parent,
subsidiary, partner, or affiliate of such firm or any affiliates of any such
affiliate, or the stockholders, members, directors, officers, partners and
employees thereof, and may deal freely with one another notwithstanding that the
Board of Directors of the Corporation may be composed in part of directors,
officers, partners or employees of such firm and/or its parents, subsidiaries or
affiliates and that officers of the Corporation may have been, be or become
directors, officers, or employees of such firm, and/or its parents, subsidiaries
or affiliates, and neither such management or advisory, underwriting,
distribution or administration contracts nor any other contract or transaction
between the Corporation and such firm and/or its parents, subsidiaries or
affiliates shall be invalidated or in any way affected thereby, nor shall any
director or officer of the Corporation be liable to the
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Corporation or to any stockholder or creditor thereof or to any person for any
loss incurred by it or him under or by reason of such contract or transaction;
provided that nothing herein shall protect any director or officer of the
Corporation against any liability to the Corporation or to its security holders
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; and provided always that such contract or transaction
shall have been on terms that were not unfair to the Corporation at the time at
which it was entered into.
(7) The duration of the Corporation's existence will
terminate on December 31, 2005, however, the Board of Directors, at their sole
discretion may extend such date two years until December 31, 2007 if it
determines that such extension is in the best interests of the Shareholders.
NINTH: (1) The Corporation shall indemnify (i) its currently
acting and former directors and officers, whether serving the Corporation or at
its request any other entity, to the fullest extent required or permitted by the
General Laws of the State of Maryland now or hereafter in force, including the
advance of expenses under the procedures and to the fullest extent permitted by
law, and (ii) other employees and agents to such extent as shall be authorized
by the Board of Directors or the By-Laws and as permitted by law. Nothing
contained herein shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders 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. The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be entitled. The
Board of Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such by-laws, resolutions or contracts implementing such
provisions or such indemnification arrangements as may be permitted by law. No
amendment of the charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the right of indemnification provided hereunder with
respect to acts or omissions occurring prior to such amendment or repeal.
(2) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, and the Investment Company Act of
1940, no director or officer of the Corporation shall be personally liable to
the Corporation or its stockholders for money damages; provided, however, that
nothing herein shall be construed to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason
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of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office. No amendment of the charter of
the Corporation or repeal of any of its provisions shall limit or eliminate the
limitation of liability provided to directors and officers hereunder with
respect to any act or omission occurring prior to such amendment or repeal.
TENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in these Articles of Incorporation or
in any amendment hereto in the manner now or hereafter prescribed by the laws of
the State of Maryland and all rights conferred upon stockholders herein are
granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned, being the incorporator
of the Corporation, has adopted and signed these Articles of Incorporation for
the purpose of forming the corporation described herein pursuant to the General
Corporation law of the State of Maryland and does hereby acknowledge that said
adoption and signing are her act.
------------------------
Ann M. Smith
Dated: September 8, 1995
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Amendment Dated March __, 2000
To
BY-LAWS
OF
LEND LEASE HYPERION HIGH-YIELD
CMBS FUND, INC.
formerly known as
EQUITABLE REAL ESTATE HYPERION HIGH-YIELD
MORTGAGE FUND, INC.
a Maryland corporation
ARTICLE VIII is amended to state:
ARTICLE VIII
Amendments
The Board of Directors shall have the power, by a majority vote of the
entire Board of Directors at any meeting thereof, with the approval of the
holders of more than 75% of the outstanding shares of the Fund's Common Stock,
to make, alter and repeal By-Laws of the Corporation.
909610.1 Fund II
<PAGE>
BY-LAWS
OF
EQUITABLE REAL ESTATE HYPERION HIGH-YIELD
COMMERCIAL MORTGAGE FUND, INC.
a Maryland corporation
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The Corporation shall have a
principal office in the City of Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have offices also at
such other places within and without the State of Maryland as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders shall be held at
such place, either within the State of Maryland or at such other place within
the United States, as shall be fixed from time to time by the Board of
Directors.
Section 2. Annual Meetings. The Corporation shall not be required to
hold an annual meeting of its stockholders in any year in which none of the
following is required to be acted on by the holders of any class or series of
stock under the Investment Company Act of 1940: (a) election of the directors,
(b) approval of the Corporation's investment advisory agreement with respect to
a particular class or series; (c) ratification of the selection of independent
public accountants; and (d) approval of the Corporation's distribution agreement
with respect to a particular class or series. In the event that the Corporation
shall be required to hold an annual meeting of stockholders by the Investment
Company Act of 1940, such meeting of stockholders shall be held on a date fixed
from time to time by the Board of Directors not less than ninety nor more than
one hundred twenty days following the end of such fiscal year of the
Corporation.
Section 3. Notice of Annual Meeting. Written or printed notice of an
annual meeting, stating the place, date and hour thereof, shall be given to each
stockholder entitled to vote
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thereat not less than ten nor more than ninety days before the date of the
meeting.
Section 4. Special Meetings. Special meetings of stockholders may be
called by the chairman, the president or by the Board of Directors and shall be
called by the secretary upon the written request of holders of shares entitled
to cast not less than twenty-five percent of all the votes entitled to be cast
at such meeting. Such request shall state the purpose or purposes of such
meeting and the matters proposed to be acted on thereat. In the case of such
request for a special meeting, upon payment by such stockholders to the
Corporation of the estimated reasonable cost of preparing and mailing a notice
of such meeting, the secretary shall give the notice of such meeting. The
secretary shall not be required to call a special meeting to consider any matter
which is substantially the same as a matter acted upon at any special meeting of
stockholders held within the preceding twelve months unless requested to do so
by the holders of shares entitled to cast not less than a majority of all votes
entitled to be cast at such meeting.
Section 5. Notice of Special Meeting. Written or printed notice of a
special meeting of stockholders, stating the place, date, hour and purpose
thereof, shall be given by the secretary to each stockholder entitled to vote
thereat not less than ten nor more than ninety days before the date fixed for
the meeting.
Section 6. Business of Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice thereof.
Section 7. Quorum. Except as may otherwise be expressly provided by
applicable statutes or regulations, the holders of one-third of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business.
Section 8. Voting. When a quorum is present at any meeting, the
affirmative vote of a majority of the votes cast shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of the Investment Company Act of 1940, as from time to time in effect,
or other statutes or rules or orders of the Securities and Exchange Commission
or any successor thereto or of the Articles of Incorporation, a different vote
is required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Proxies. Each stockholder shall at every meeting of
stockholders be entitled to one vote in person or by
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proxy for each share of the stock having voting power held by
such stockholder, but no proxy shall be voted after eleven months from its date,
unless otherwise provided in the proxy.
Section 10. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date which shall be
not more than ninety days and, in the case of a meeting of stockholders, not
less than ten days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. In lieu of fixing a record
date, the Board of Directors may provide that the stock transfer books shall be
closed for a stated period, but not to exceed, in any case, twenty days. If the
stock transfer books are closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books shall
be closed for at least ten days immediately preceding such meeting. If no record
date is fixed and the stock transfer books are not closed for the determination
of stockholders: (1) the record date for the determination of stockholders
entitled to notice of, or to vote at, a meeting of stockholders shall be at the
close of business on the day on which notice of the meeting of stockholders is
mailed or the day thirty days before the meeting, whichever is the closer date
to the meeting; and (2) the record date for the determination of stockholders
entitled to receive payment of a dividend or an allotment of any rights shall be
at the close of business on the day on which the resolution of the Board of
Directors, declaring the dividend or allotment of rights, is adopted, provided
that the payment or allotment date shall not be more than ninety days after the
date of the adoption of such resolution.
Section 11. Inspectors of Election. The directors, in advance of any
meeting, may, but need not, appoint one or more inspectors to act at the meeting
or any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his or her
ability. The inspectors, if any, shall determine the number of shares
outstanding and the voting power
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<PAGE>
of each, the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder, the inspector or inspectors, if any, shall make a report in
writing of any challenge, question or matter determined by him or her or them
and execute a certificate of any fact found by him or her or them.
Section 12. Informal Action by Stockholders. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to vote on the
subject matter thereof and any other stockholders entitled to notice of a
meeting of stockholders (but not to vote thereat) have waived in writing any
rights which they may have to dissent from such action, and such consent and
waiver are filed with the records of the Corporation.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of directors shall be fixed
at no less than two nor more than twenty. Within the limits specified above, the
number of directors shall be fixed from time to time by the Board of Directors,
but the tenure of office of a director in office at the time of any decrease in
the number of directors shall not be affected as a result thereof. The directors
shall be elected to hold office at the annual meeting of stockholders, except as
provided in Section 2 of this Article, and each director shall hold office until
the next annual meeting of stockholders or until his successor is elected and
qualified. Any director may resign at any time upon written notice to the
Corporation. Any director may be removed, either with or without cause, at any
meeting of stockholders duly called and at which a quorum is present by the
affirmative vote of the majority of the votes entitled to be cast thereon, and
the vacancy in the Board of Directors caused by such removal may be filled by
the stockholders at the time of such removal. Directors need not be
stockholders.
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Section 2. Vacancies and Newly Created Directorships. Any vacancy
occurring in the Board of Directors for any cause, including an increase in the
number of directors, may be filled by the stockholders or by a majority of the
remaining members of the Board of Directors even if such majority is less than a
quorum. So long as the Corporation is a registered investment company under the
Investment Company Act of 1940, vacancies in the Board of Directors may be
filled by a majority of the remaining members of the Board of Directors only if,
immediately after filing any such vacancy, at least two-thirds of the directors
then holding office shall have been elected to such office at a meeting of
stockholders. A director elected by the Board of Directors to fill a vacancy
shall be elected to hold office until the next annual meeting of stockholders or
until his successor is elected and qualifies.
Section 3. Powers. The business and affairs of the Corporation shall
be managed under the direction of the Board of Directors which shall exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Articles of Incorporation or by these By-Laws conferred
upon or reserved to the stockholders.
Section 4. Annual Meeting. The first meeting of each newly elected
Board of Directors shall be held immediately following the adjournment of the
annual meeting of stockholders and at the place thereof. No notice of such
meeting to the directors shall be necessary in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not so
held, the meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board of
Directors.
Section 5. Other Meetings. The Board of Directors of the Corporation
or any committee thereof may hold meetings, both regular and special, either
within or without the State of Maryland. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors. Special meetings of
the Board of Directors may be called by the chairman, the president or by two or
more directors. Notice of special meetings of the Board of Directors shall be
given by the secretary to each director at least three days before the meeting
if by mail or at least 24 hours before the meeting if given in person or by
telephone or by telegraph. The notice need not specify the business to be
transacted.
Section 6. Quorum and Voting. At meetings of the Board of Directors,
two of the directors in office at the time, but in no event less than one-third
of the entire Board of Directors, shall constitute a quorum for the transaction
of business. When required pursuant to Section 15(c) under the
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<PAGE>
Investment Company Act of 1940 or Rule 12b-1 thereunder a quorum shall also
require the presence in person of a majority of directors who are not parties to
a contract or agreement to be voted upon or interested persons of any such
party. The action of a majority of the directors present at a meeting at which a
quorum is present shall be the action of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 7. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, appoint from among its
members an executive committee and other committees of the Board of Directors,
each committee to be composed of two or more of the directors of the
Corporation. The Board of Directors may, to the extent provided in the
resolution, delegate to such committees, in the intervals between meetings of
the Board of Directors, any or all of the powers of the Board of Directors in
the management of the business and affairs of the Corporation, except the power
to declare dividends, to issue stock, to recommend to stockholders any action
requiring stockholders' approval, to amend the By-Laws or to approve any merger
or share exchange which does not require stockholders' approval. Such committee
or committees shall have the name or names as may be determined from time to
time by resolution adopted by the Board of Directors. Unless the Board of
Directors designates one or more directors as alternate members of any
committee, who may replace an absent or disqualified member at any meeting of
the committee, the members of any such committee present at any meeting and not
disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member of such committee. At
meetings of any such committee, a majority of the members or alternate members
of such committee shall constitute a quorum for the transaction of business and
the act of a majority of the members or alternate members present at any meeting
at which a quorum is present shall be the act of the committee.
Section 8. Minutes of Committee Meetings. The committees shall keep
regular minutes of their proceedings.
Section 9. Informal Action by Board of Directors and Committees. Any
action, except approving the Rule 12b-1 Plan and the Advisory Agreement,
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if a written consent
thereto is signed by all members of the Board of Directors or of such committee,
as the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or committee.
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<PAGE>
Section 10. Meetings by Conference Telephone. Except to the extent
prohibited by the Investment Company Act of 1940, as from time to time in
effect, or rules or orders of the Securities and Exchange Commission or any
successor thereto, the members of the Board of Directors or any committee
thereof may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and such participation shall constitute presence in person at such meeting.
Section 11. Fees and Expenses. The directors may be paid their
expenses of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and stockholders mailed to
them at their post office addresses appearing on the books of the Corporation
shall be deemed to be given at the time when deposited in the United States
mail.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes, of the Articles of Incorporation or
of these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed the equivalent of notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation shall be chosen by
the Board of Directors at its first meeting after each annual meeting of
stockholders and shall be a chairman
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of the Board of Directors, a president, a secretary and a treasurer. The Board
of Directors may also choose such vice presidents and additional officers or
assistant officers as it may deem advisable. Any number of offices, except the
offices of president and vice president, may be held by the same person. No
officer shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law to be executed, acknowledged or
verified by two or more officers.
Section 2. Other Officers and Agents. The Board of Directors may
appoint such other officers and agents as it desires who shall hold their
offices for such terms and shall exercise such power and perform such duties as
shall be determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the Corporation shall
hold office at the pleasure of the Board of Directors. Each officer shall hold
his or her office until his or her successor is elected and qualifies or until
his or her earlier resignation or removal. Any officer may resign at any time
upon written notice to the Corporation. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors when, in
its judgment, the best interests of the Corporation will be served thereby. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise shall be filled by the Board of Directors.
Section 4. Chairman of the Board of Directors. The chairman of the
Board of Directors shall be the chief executive officer of the Corporation,
shall preside at all meetings of the stockholders and of the Board of Directors,
shall have general and active management of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The chairman shall execute on behalf of the Corporation, and may
affix the seal or cause the seal to be affixed to, all instruments requiring
such execution except to the extent that signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
Section 5. President. The president shall, in the absence of the
chairman of the Board of Directors, preside at all meetings of the stockholders
or of the Board of Directors. The president shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The president
shall execute bonds, mortgages and other contracts requiring a seal, under the
seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent of the Corporation.
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Section 6. Vice Presidents. The vice presidents shall act under the
direction of the president and in the absence or disability of the president
shall perform the duties and exercise the power of the president. They shall
perform such other duties and have such other powers as the president or the
Board of Directors may from time to time prescribe. The Board of Directors may
designate one or more executive vice presidents or may otherwise specify the
order of seniority of the vice presidents and, in that event, the duties and
powers of the president shall descend to the vice presidents in the specified
order of seniority.
Section 7. Secretary. The secretary shall act under the direction of
the president. Subject to the direction of the president, the secretary shall
attend all meetings of the Board of Directors and all meetings of stockholders
and record the proceedings in a book to be kept for that purpose and shall
perform like duties for the committees designated by the Board of Directors when
required. The secretary shall give, or cause to be given, notice of all meetings
of stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the president or the Board of
Directors. The secretary shall keep in safe custody the seal of the Corporation
and shall affix the seal or cause it to be affixed to any instrument requiring
it.
Section 8. Assistant Secretaries. The assistant secretaries in the
order of their seniority, unless otherwise determined by the president or the
Board of Directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the president or the Board of
Directors may from time to time prescribe.
Section 9. Treasurer. The treasurer shall act under the direction of
the president. Subject to the direction of the president he shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The treasurer shall disburse the funds of the Corporation as may
be ordered by the president or the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the president and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his or her transactions as treasurer and of the financial
condition of the Corporation.
Section 10. Assistant Treasurers. The assistant treasurers in the
order of their seniority, unless otherwise determined by the president or the
Board of Directors, shall, in
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the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. They shall perform such other duties and have such
other powers as the president or the Board of Directors may from time to time
prescribe.
ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the Corporation who has
made full payment of the consideration for such stock shall be entitled upon
request to have a certificate, signed by, or in the name of the Corporation by,
the president or a vice president and countersigned by the treasurer or an
assistant treasurer or the secretary or an assistant secretary of the
Corporation, certifying the number and class of whole shares of stock owned by
such holder in the Corporation.
Section 2. Fractional Share Interests or Scrip. The Corporation may,
but shall not be obliged to, issue fractions of a share of stock, arrange for
the disposition of fractional interests by those entitled thereto, pay in cash
the fair value of fractions of a share of stock as of the time when those
entitled to receive such fractions are determined, or issue scrip or other
evidence of ownership which shall entitle the holder to receive a certificate
for a full share of stock upon the surrender of such scrip or other evidence of
ownership aggregating a full share. Fractional shares of stock shall have
proportionately to the respective fractions represented thereby all the rights
of whole shares, including the right to vote, the right to receive dividends and
distributions and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate representing such
fractional shares. The Board of Directors may cause such scrip or evidence of
ownership to be issued subject to the condition that it shall become void if not
exchanged for certificates representing full shares of stock before a specified
date or subject to the condition that the shares of stock for which such scrip
or evidence of ownership is exchangeable may be sold by the Corporation and the
proceeds thereof distributed to the holders of such scrip or evidence of
ownership, or subject to any other reasonable conditions which the Board of
Director shall deem advisable, including provision for forfeiture of such
proceeds to the Corporation if not claimed within a period of not less than
three years after the date of the original issuance of scrip certificates.
Section 3. Signatures on Certificates. Any of or all the signatures on
a certificate may be a facsimile. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall cease to be such
officer before
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such certificate is issued, it may be issued with the same effect as if he or
she were such officer at the date of issue. The seal of the Corporation or a
facsimile thereof may, but need not, be affixed to certificates of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his or her legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the registered owner of
shares, and if a certificate has been issued to represent such shares upon
surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares of stock duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, subject to the Corporation's
rights to redeem or purchase such shares, it shall be the duty of the
Corporation, if it is satisfied that all provisions of the Articles of
Incorporation, of the By-Laws and of the law regarding the transfer of shares
have been duly complied with, to record the transactions upon its books, issue a
new certificate to the person entitled thereto upon request for such
certificate, and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be entitled to
recognize the person registered on its books as the owner of shares to be the
exclusive owner for all purposes including, redemption, voting and dividends,
and the Corporation shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in their
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<PAGE>
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for repairing or maintaining any property of the Corporation,
or for the purchase of additional property, or for such other purpose as the
Board of Directors shall think conducive to the interest of the Corporation, and
the Board of Directors may modify or abolish any such reserve.
Section 2. Dividends. Dividends upon the stock of the Corporation may,
subject to the provisions of the Articles of Incorporation and of the provisions
of applicable law, be declared by the Board of Directors at any time. Dividends
may be paid in cash, in property or in shares of the Corporation's stock,
subject to the provisions of the Articles of Incorporation and of applicable
law.
Section 3. Capital Gains Distributions. The amount and number of
capital gains distributions paid to the stockholders during each fiscal year
shall be determined by the Board of Directors. Each such payment shall be
accompanied by a statement as to the source of such payment, to the extent
required by law.
Section 4. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 6. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words, "Corporate
Seal, Maryland". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in another manner reproduced.
Section 7. Filing of By-Laws. A certified copy of the By-Laws,
including all amendments, shall be kept at the principal office of the
Corporation in the State of Maryland.
Section 8. Annual Report. The books of account of the Corporation
shall be examined by an independent firm of public accountants at the close of
each annual fiscal period of the Corporation and at such other times, if any, as
may be directed by the Board of Directors of the Corporation. Within one hundred
and twenty days of the close of each annual fiscal period a report based upon
such examination at the close of that fiscal period shall be mailed to each
stockholder of the Corporation of record at the close of such annual fiscal
period, unless the Board of Directors shall set another record date, at his
address as the same appears on the books of the Corporation. Each such
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<PAGE>
report shall contain such information as is required to be set forth therein by
the Investment Company Act of 1940 and the rules and regulations promulgated by
the Securities and Exchange Commission thereunder. Such report shall also be
submitted at the annual meeting of the stockholders and filed within twenty days
thereafter at the principal office of the Corporation in the State of Maryland.
Section 9. Stock Ledger. The Corporation shall maintain at its
principal office outside of the State of Maryland an original or duplicate stock
ledger containing the names and addresses of all stockholders and the number of
shares of stock hold by each stockholder. Such stock ledger may be in written
form or in any other form capable of being converted into written form within a
reasonable time for visual inspection.
Section 10. Ratification of Accountants by Stockholders. At every
annual meeting of the stockholders of the Corporation otherwise called there
shall be submitted for ratification or rejection the name of the firm of
independent public accountants which has been selected for the current fiscal
year in which such annual meeting is held by a majority of those members of the
Board of Directors who are not investment advisers of, or interested person (as
defined in the Investment Company Act of 1940) of an investment adviser of, or
officers or employees of, the Corporation.
Section 11. Custodian. All securities and similar investments owned by
the Corporation shall be held by a custodian which shall be either a trust
company or a national bank of good standing, having a capital surplus and
undivided profits aggregating not less than two million dollars ($2,000,000), or
a member firm of the New York Stock Exchange, Inc. The terms of custody of such
securities and cash shall include such provisions required to be contained
therein by the Investment Company Act of 1940 and the rules and regulations
promulgated thereunder by the Securities and Exchange Commission.
Upon the resignation or inability to serve of any such custodian the
Corporation shall (a) use its best efforts to obtain a successor custodian, (b)
require the cash and securities of the Corporation held by the custodian to be
delivered directly to the successor custodian, and (c) in the event that no
successor custodian can be found, submit to the stockholders of the Corporation,
before permitting delivery of such cash and securities to anyone other than a
successor custodian, the question whether the Corporation shall be dissolved or
shall function without a custodian; provided, however, that nothing herein
contained shall prevent the termination of any agreement between the Corporation
and any such custodian by the affirmative vote of the holders of a majority of
all the stock of the Corporation at the time outstanding and entitled to vote.
Upon
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its resignation or inability to serve and pending action by the Corporation as
set forth in this section, the custodian may deliver any assets of the
Corporation held by it to a qualified bank or trust company in the City of New
York, or to a member firm of the New York Stock Exchange, Inc. selected by it,
such assets to be held subject to the terms of custody which governed such
retiring custodian.
Section 12. Investment Advisers. The Corporation may enter into one or
more management or advisory, underwriting, distribution or administration
contract with any person, firm, partnership, association or corporation but such
contract or contracts shall continue in effect only so long as such continuance
is specifically approved annually by a majority of the Board of Directors or by
vote of the holders of a majority of the voting securities of the Corporation,
and in either case by vote of a majority of the directors who are not parties to
such contracts or interested persons (as defined in the Investment Company Act
of 1940) of any such party cast in person at a meeting called for the purpose of
voting on such approval.
ARTICLE VIII
Amendments
The Board of Directors shall have the power, by a majority vote of the
entire Board of Directors at any meeting thereof, to make, alter and repeal
By-Laws of the Corporation.
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LEND LEASE HYPERION HIGH-YIELD
CMBS FUND, INC.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT dated as of January 1, 2000 between Lend Lease Hyperion
High-Yield CMBS Fund, Inc. (the "Fund"), a Maryland corporation, and Lend Lease
Hyperion Capital Advisors, L.L.C. (the "Adviser"), a Delaware limited liability
corporation.
WHEREAS, the Fund is engaged in business as a non-diversified,
closed-end management investment company registered under the Investment Company
Act of 1940 (collectively, with the rules and regulations promulgated
thereunder, the "1940 Act");
WHEREAS, the Adviser is a registered investment adviser under the
Investment Adviser's Act of 1940, with the rules and regulations promulgated
thereunder;
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, it is agreed by and between the parties
hereto as follows:
1. In General
The Adviser agrees, all as more fully set forth herein, to act as
investment adviser to the Fund with respect to the investment and the
reinvestment of the Fund's assets.
2. Duties and Obligations of the Adviser with Respect to
Investments of Assets of the Fund
(a) Subject to the succeeding provisions of this paragraph and
subject to the direction and general control of the Fund's Board of Directors,
the Adviser shall act as investment adviser for and supervise and manage the
investment and reinvestment of the portfolio's assets and in connection
therewith have complete discretion in purchasing and selling securities and
other assets for the Fund and in voting and exercising all other rights
appertaining to such securities and other assets on behalf of the Fund. To carry
out such decisions, the Adviser is hereby authorized, as agent for the Fund and
attorney-in-fact for the Fund's account and at the Fund's risk and in the Fund's
name, to place such orders for the investment and reinvestment of the Fund's
assets.
(b) In the performance of its duties under this Agreement, the
Adviser shall at all times conform to, and act in accordance with, any
requirements imposed by (i) the provisions of the 1940 Act, and of any rules or
regulations in force thereunder; (ii) any other applicable provision of law;
(iii) the provisions of the Articles of Incorporation and By-Laws
299812.5
<PAGE>
of the Fund, as such documents are amended from time to time; (iv) the Fund's
Registration Statement filed with the 1940 Act and the Securities Act of 1933,
including the Prospectus and Statement of Additional Information forming a part
thereof (the "Registration Statement"); and (v) any policies and determinations
established by the Board of Directors of the Fund.
(c) The Adviser shall report to the Fund's Board of Directors at
each meeting thereof all changes in the Fund's portfolio and will also keep the
Fund in touch with important developments affecting the portfolio and, on the
Adviser's initiative, will furnish the Fund from time to time with such
information as the Adviser may believe appropriate for this purpose, whether
concerning the individual entities whose securities are included in the
portfolio, the activities in which such entities engage, Federal income tax
policies applicable to the Fund's investments, or the conditions prevailing in
the financial markets or the economy generally. The Adviser shall also furnish
the Fund with such statistical and analytical information with respect to the
portfolio securities as it may believe appropriate or as the Fund may reasonably
request.
(d) The Adviser may from time to time employ, subcontract with or
otherwise associate itself with entirely at its expense, such persons as it
believes to be particularly fitted to assist it in the execution of its duties
hereunder.
(e) The Adviser will bear all costs and expenses of its partners
and employees and any overhead incurred in connection with its duties hereunder
and shall bear the costs of any salaries or directors' fees of any officers or
directors of the Fund who are affiliated persons (as defined in the Act) of the
Adviser.
(f) The Adviser shall give the Fund the benefit of its best
judgment and effort in rendering services hereunder, but the Adviser shall
not be liable for any act or omission or for any loss sustained by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement.
(g) Nothing in this Agreement shall prevent the Adviser or any
director, officer, employee or other affiliate thereof from acting as investment
adviser for any other person, firm or corporation, or from engaging in any other
lawful activity, and shall not in any way limit or restrict the Adviser or any
of its partners, officers, employees or agents from buying, selling or trading
any securities for its or their own accounts or for the accounts of others for
whom it or they may be acting, provided, however, that the Adviser will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations under this Agreement.
299812.5
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<PAGE>
3. Fund Transactions and Brokerage
The Adviser is authorized, for the purchase and sale of the Fund's
portfolio securities, to employ such securities dealers as may, in the judgment
of the Adviser, implement the investment objectives and policies of the Fund to
obtain the best net results taking into account such factors as price, including
dealer spread, the size, type and difficulty of the transaction involved, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. Consistent with these investment objectives
and policies, the Adviser is authorized to direct the execution of the Fund's
portfolio transactions to dealers and brokers furnishing statistical information
or research deemed by the Adviser to be useful or valuable to the performance of
its investment advisory functions for the Fund.
It is understood that the Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Fund or be in breach of
any obligation owing to the Fund under this Agreement, or otherwise, solely by
reason of its having directed a securities transaction on behalf of the Fund to
a broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934.
4. Compensation of the Adviser
(a) The Fund agrees to pay to the Adviser for all services rendered
a fee computed and payable monthly in an amount equal to 0.50% of the Fund's
average weekly net assets on an annualized basis, for the then-current fiscal
year. For any period less than a month during which this Agreement is in effect,
the fee shall be prorated according to the proportion which such period bears to
a full month of 28, 29, 30 or 31 days, as the case may be. The Adviser may use
any portion of this fee for distribution of Fund shares or for making servicing
payments to organizations whose customers or clients are Fund shareholders. The
Adviser may waive its right to any fee to which it is entitled hereunder,
provided such waiver is delivered to the Fund in writing. Any reimbursement of
expenses to which the Fund may become entitled to pursuant to paragraph 2(c)
hereof, will be paid to the Fund at the same time as the Fund pays the Adviser
hereunder.
(b) For purposes of this Agreement, the average daily net assets of
the Fund shall mean the average daily value of the total assets of the Fund,
minus the accrued liabilities (including accrued expenses) of the Fund. The
average daily net assets of the Fund shall be calculated as set forth in the
current prospectus or pursuant to the procedures adopted by resolutions of the
Fund's Board of Directors for calculating the net asset value of the Fund's
shares or delegating such calculations to third parties.
299812.5
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<PAGE>
5. Duration and Termination
(a) This Agreement will become effective on the date hereof and
shall continue in effect until December 31, 2001 and thereafter for successive
twelve-month periods (computed from each May 1st), provided that such
continuation is specifically approved at least annually by (i) the Board of
Directors and by a majority of those directors who are neither party to this
Agreement nor, other than by their service as directors of the Fund, interested
persons (as defined in the 1940 Act and the rules thereunder) of any such person
who is party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval, and (ii) by the vote of more than 75% of the
outstanding shares of the Fund's Common Stock. Upon the effectiveness of this
Agreement, it shall supersede all previous agreements between the Adviser and
the Fund covering the subject matter hereof. This Agreement may be terminated at
any time, without the payment of any penalty, (i) by vote of a majority of the
Fund's outstanding voting securities, as defined in the 1940 Act and the rules
thereunder, or (ii) by a vote of a majority of the entire Board of Directors, on
sixty days' written notice to the Adviser, or (iii) by the Adviser on sixty
days' written notice to the Fund.
(b) This Agreement may not be transferred, assigned, sold or
in any manner hypothecated or pledged by either party and this Agreement shall
terminate automatically in the event of any such transfer, assignment, sale,
hypothecation or pledge by either party. The terms "transfer", "assignment" and
"sale" as used in this paragraph shall have the meanings ascribed thereto by
governing law and in applicable rules or regulations of the Securities and
Exchange Commission.
6. Amendment
This Agreement may not be amended without the approval of the
holders of more than 75% of the Fund's outstanding Common Stock.
7. Notices
Any notice under this Agreement shall be in writing to the other
party at such address as the other party may designate from time to time for the
receipt of such notice and shall be deemed to be received on the earlier of the
date actually received or on the fourth day after the postmark if such notice is
mailed first class postage prepaid.
8. Governing Law
This Agreement shall be construed in accordance with the laws of the
State of New York and in accordance with the applicable provisions of the 1940
Act.
299812.5
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers and their respective
seals to be hereunto affixed, all as of the day and the year first above
written.
[SEAL] LEND LEASE HYPERION HIGH-YIELD CMBS FUND, INC.
By:___________________________________________
Name:
Title:
[SEAL] LEND LEASE HYPERION CAPITAL ADVISORS, L.L.C.
By:___________________________________________
Name:
Title:
299812.5
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LEND LEASE HYPERION HIGH-YIELD
CMBS FUND, INC.
DISTRIBUTION AGREEMENT
AGREEMENT, dated as of January 1, 2000, by and between Lease Lend
Hyperion High-Yield CMBS Fund, Inc. (the "Fund"), a Maryland corporation and
Lend Lease Capital Markets Inc. (the "Distributor"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as a non-diversified,
closed-end investment company registered under the Investment Company Act of
1940 (collectively with the rules and regulations promulgated thereunder, the
"1940 Act");
WHEREAS, the Fund wishes to engage the Distributor to provide certain
services with respect to the distribution of shares of common stock (par value
$.001 per share) of the Fund ("Shares"), and the Distributor is willing to
provide such services to the Fund on the terms and conditions hereinafter set
forth;
WHEREAS, the Distributor is registered as a broker-dealer under the
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers in good standing;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is agreed by and between the parties hereto as
follows:
1. In General
The Distributor agrees, all as more fully set forth herein, to act as
distributor to the Fund to provide certain services with respect to the
distribution of Shares.
2. Duties and the Obligation of the Distributor
(a) The Fund grants to the Distributor the right, as agent of the
Fund, to sell the unsold portion of the Shares in accordance with the Fund's
prospectus.
(b) The Distributor shall act as Fund agent and is hereby appointed
to offer, and to solicit offers to subscribe to, the unsold balance of Shares.
All subscriptions for Shares obtained by the Distributor shall be directed to
the Fund for acceptance and shall not be binding until accepted by the Fund. The
Distributor shall have no authority to make binding subscriptions on the Fund's
behalf. The Fund reserves the right to sell Shares through other
299809.5
<PAGE>
distributors or directly to investors through subscriptions received by the Fund
at its principal office in New York, New York. The right given to the
Distributor under this Agreement shall not apply to Shares issued in connection
with (a) the merger or consolidation of any other investment company with the
Fund, (b) the Fund's acquisition by purchase or otherwise of all or
substantially all of the assets or stock of any other investment company, or (c)
the reinvestment in Shares by the Fund's stockholders of dividends or other
distributions or any other offering by the Fund of securities to Fund
stockholders.
(c) The Distributor shall use its best efforts to obtain
subscriptions to Shares upon the terms and conditions contained herein and in
the Fund's Prospectus, as in effect from time to time. The Distributor shall
send to the Fund promptly all subscriptions placed with the Distributor. The
Fund shall furnish the Distributor from time to time, for use in connection with
the offering of Shares such other information with respect to the Fund and
Shares as the Distributor may reasonably request. The Fund shall supply the
Distributor with such copies of the Fund's Registration Statement and
Prospectus, as in effect from time to time, as the Distributor may request.
Except as the Fund may authorize in writing, the Distributor is not authorized
to give any information or to make any representation that is not contained in
the Registration Statement or Prospectus, as then in effect. The Distributor may
use employees, agents and other persons, at its own cost and expense, to assist
it in carrying out its obligations hereunder, but no such employee, agent or
other person shall be deemed to be the Fund's agent or have any rights under
this Agreement. The Distributor may sell Shares to or through qualified brokers,
dealers and financial institutions under selling and servicing agreements
provided that no dealer, financial institution or other person shall be
appointed or authorized to act as agent of the Fund without written consent. All
sales of Shares effected through the Distributor will be made in compliance with
all applicable federal securities laws and regulations and the Constitution,
rules and regulations of the National Association of Securities Dealers, Inc.
("NASD").
(d) The Fund reserve the right to suspend the offering of Shares at
any time, in the absolute discretion of the Board of Directors, and upon notice
of such suspension the Distributor shall cease to offer our shares hereunder.
(e) Both parties will cooperate with one another in taking such
action as may be necessary to qualify Shares for sale under the securities laws
of such states as the Fund may designate, provided, that the Distributor shall
not be required to register as a broker-dealer or file a consent to service of
process in any such state where the Distributor is not now so registered.
Pursuant to the Investment Management Contract in effect between the Fund and
the Adviser, the Fund will pay all fees and expenses of registering Shares under
the 1940 Act and of qualification of Shares and to the extent necessary, the
Fund's qualification under applicable state securities laws. The Distributor
will pay all expenses relating to its broker-dealer qualification.
299809.5
-2-
<PAGE>
(f) The Fund represents to the Distributor that the Registration
Statement and Prospectus have been carefully prepared to date in conformity with
the requirements of the 1940 Act and the rules and regulations of the Securities
and Exchange Commission (the "SEC") thereunder. The Fund represents and warrants
to the Distributor, as of the date hereof, that the Registration Statement and
Prospectus contain all statements required to be stated therein in accordance
with the 1940 Act and the SEC's rules and regulations thereunder; that all
statements of fact contained therein are or will be true and correct at the time
indicated or the effective date as the case may be; and that neither the
Registration Statement nor the Prospectus, when they shall become effective or
be authorized for use, will include 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 not misleading to a purchaser of Shares. The Fund will
from time to time file such amendment or amendments to the Registration
Statement and Prospectus as, in the light of future development, shall, in the
opinion of Fund counsel, be necessary in order to have the Registration
Statement and Prospectus at all times contain all material facts required to be
stated therein or necessary to make any statements therein not misleading to a
purchaser of Shares. If the Fund shall not file such amendment or amendments
within fifteen days after the receipt of a written request from the Distributor
to do so, the Distributor may, at the Distributor's option, terminate this
agreement immediately. The Fund will not file any amendment to the Registration
Statement or Prospectus without giving the Distributor reasonable notice thereof
in advance; provided, however, that nothing in this agreement shall in any way
limit the Fund's right to file such amendments to the Registration Statement or
Prospectus, of whatever character, as the Fund may deem advisable, such right
being in all respects absolute and unconditional. The Fund represents and
warrants to the Distributor that any amendment to the Registration Statement or
Prospectus hereafter filed by the Fund will be carefully prepared in conformity
within the requirements of the 1940 Act and the SEC's rules and regulations
thereunder and will, when it becomes effective, contain all statements required
to be stated therein in accordance with the 1940 Act and the SEC's rules and
regulations thereunder; that all statements of fact contained therein will, when
the same shall become effective, be true and correct; and that no such
amendment, when it becomes effective, will include 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 not misleading to a purchaser of
Shares.
3. Indemnification
(a) The Fund agrees to indemnify, defend and hold the Distributor,
and any person who controls the Distributor within the meaning of Section 15 of
the 1933 Act, free and harmless from and against any and all claims, liabilities
and expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection therewith)
which the Distributor or any such controlling person may incur, under the
Securities Act of 1933 (the "1933 Act") or the 1940 Act, or under common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or Prospectus in effect
from time to time or arising out
299809.5
-3-
<PAGE>
of or based upon any alleged omission to state a material fact required to be
stated in either of them or necessary to make the statements in either of them
not misleading; provided, however, that in no event shall anything herein
contained be so construed as to protect the Distributor against any liability to
the Fund or its security holders to which the Distributor would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of the Distributor's duties, or by reason of the Distributor's
reckless disregard of the Distributor's obligations and duties under this
Agreement. The Fund's agreement to indemnify the Distributor and any such
controlling person is expressly conditioned upon the Fund being notified of any
action brought against the Distributor or any such controlling person, such
notification to be given by letter or by telegram addressed to the Fund at its
principal office in New York, New York, and sent to the Fund by the person
against whom such action is brought within ten days after the summons or other
first legal process shall have been served. The failure so to notify the Fund of
any such action shall not relieve the Fund from any liability which the Fund may
have to the person against whom such action is brought other than on account of
the Fund's indemnity agreement contained in this paragraph 3a. The Fund will be
entitled to assume the defense of any suit brought to enforce any such claim,
and to retain counsel of good standing chosen by the Fund and approved by the
Distributor. In the event the Fund does elect to assume the defense of any such
suit and retain counsel of good standing approved by the Distributor, the
defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Fund does not elect
to assume the defense of any such suit, or in case the Distributor, in good
faith, does not approve of counsel chosen by the Fund, the Fund will reimburse
the Distributor or the controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses of any counsel retained by
the Distributor or them. The Fund's indemnification agreement contained in this
paragraph 3a and its representations and warranties in this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Distributor or any controlling person and shall survive the sale
of any of Shares made pursuant to subscriptions obtained by the Distributor.
This agreement of indemnity will inure exclusively to the Distributor's benefit,
to the benefit of the Distributor's successors and assigns, and to the benefit
of any of its controlling persons and their successors and assigns. The Fund
agrees promptly to notify the Distributor of the commencement of any litigation
or proceeding against the Fund in connection with the issue and sale of any
Shares.
(b) The Distributor agrees to indemnify, defend and hold the Fund, its
several officers and trustees, and any person who controls the Fund within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Fund, its
officers or trustees, or any such controlling person may incur under the 1933
Act or under common law or otherwise, but only to the extent that such liability
or expense incurred by the Fund, its officers or trustees or such controlling
person shall arise out of or be based upon any alleged untrue statement of a
material fact contained in information furnished in writing by the Distributor
to the Fund for use in the Registration Statement or Prospectus as in effect
from
299809.5
-4-
<PAGE>
time to time, or shall arise out of or be based upon any alleged omission
to state a material fact in connection with such information required to be
stated in the Registration Statement or Prospectus or necessary to make such
information not misleading. The Distributor's agreement to indemnify the Fund,
its officers and trustees, and any such controlling person is expressly
conditioned upon the Distributor being notified of any action brought against
the Fund, its officers or trustees or any such controlling person, such
notification to be given by letter or telegram addressed to the Distributor at
the Distributor's principal office in New York, New York, and sent to the
Distributor by the person against whom such action is brought, within ten days
after the summons or other first legal process shall have been served. The
Distributor shall have a right to control the defense of such action, with
counsel of the Distributor's own choosing, satisfactory to the Fund, if such
action is based solely upon such alleged misstatement or omission on the
Distributor part, and in any other event the Distributor and the Fund, its
officers or trustees or such controlling person shall each have the right to
participate in the defense or preparation of the defense of any such action. The
failure so to notify the Distributor of any such action shall not relieve the
Distributor from any liability which the Distributor may have to the Fund, to
its officers or trustees, or to such controlling person other than on account of
the Distributor indemnity agreement contained in this paragraph 3b.
(c) The Fund agrees to advise the Distributor immediately:
(i) of any request by the SEC for amendments to the Registration
Statement or Prospectus or for additional information,
(ii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or Prospectus or the initiation of
any proceedings for that purpose,
(iii) of the happening of any material event which makes untrue
any statement made in the Registration Statement or Prospectus or which requires
the making of a change in either of them in order to make the statements therein
not misleading, and
(iv) of all action of the SEC with respect to any amendments to
the Registration Statement or Prospectus.
4. Duration and Termination
(a) This Agreement will become effective on the date hereof and will
remain in effect thereafter for successive twelve-month periods (computed from
each November 1st), provided that such continuation is specifically approved at
least annually (i) by vote of the Board of Directors and of a majority of those
of the directors who are not interested persons (as defined in the 1940 Act )
and the rules thereunder) of any such person who is party to this Agreement,
cast in person at a meeting called for the purpose of voting on this
299809.5
-5-
<PAGE>
Agreement, and (ii) by the vote of more than 75% of the holders of the Fund's
Common Stock. This Agreement may be terminated at any time, without the payment
of any penalty, (i) by vote of a majority of the entire Board of Directors, and
by a vote of a majority of the Directors who are not interested persons (as
defined in the 1940 Act) or (ii) by vote of a majority of the Fund's outstanding
voting securities, as defined in the Act, on sixty days' written notice to the
Distributor, or (iii) by the Distributor on sixty days' written notice to the
Fund.
(b) This Agreement may not be transferred, assigned, sold or in any
manner hypothecated or pledged by the Distributor and this Agreement shall
terminate automatically in the event of any such transfer, assignment, sale,
hypothecation or pledge by the Distributor. The terms "transfer", "assignment"
and "sale" as used in this paragraph shall have the meanings ascribed thereto by
governing law and in applicable rules or regulations of the SEC thereunder.
5. Amendment
This Agreement may not be amended without the approval of the
holders of more than 75% of the Fund's outstanding Common Stock.
6. Compensation of the Distributor and Fees Paid by the Fund.
(a) The Fund will pay, or cause to be paid--
(i) all costs and expenses of the Fund, including fees and
disbursements of its counsel, in connection with the preparation and filing of
the Registration Statement, Prospectus and Statement of Additional Information,
and preparing and mailing to shareholders Prospectuses, Statements of Additional
Information with respect to Shares, statements and confirmations and periodic
reports (including the expense of setting in type the Registration Statement,
Prospectus and Statement of Additional Information or any periodic report with
respect to Shares);
(ii) the cost of preparing temporary or permanent certificates
for Shares;
(iii) the cost and expenses of delivering to the Distributor at
its office in New York all Shares purchased through it as agent hereunder;
(iv) a nominal fee to the Distributor of $1.00;
(v) all fees and disbursements of the Transfer Agent and
Custodian with respect to the Fund;
299809.5
-6-
<PAGE>
(vi) a fee to the Administrator of the Fund (pursuant to the
Administrative Services Agreement); and
(vii) a fee to the Adviser of the Fund (pursuant to the
investment advisory agreement with such investment adviser).
(b) The Distributor agrees that with respect to the sale of Shares,
subject to the Fund's obligations under clause (iv) above, (a) after the
Prospectus and Statement of Additional Information and periodic reports with
respect to the Fund have been - set in type, it will bear the expense (other
than the cost of mailing to shareholders of the Fund) of printing and
distributing any copies thereof ordered by it which are to be used in connection
with the offering or sale of Shares to any dealer or prospective investor, (b)
it will bear the expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use by any dealer in
connection with the offering of Shares for sale to the public and any expense of
sending confirmations and statements to any dealer having a sales agreement with
the Distributor.
7. Notices
Any notice under this Agreement shall be in writing to the other party
at such address as the other party may designate from time to time for the
receipt of such notice and shall be deemed to be received on the earlier of the
date actually received or on the fourth day after the postmark if such notice is
mailed first class postage prepaid.
8. Governing Law
This Agreement shall be construed in accordance with the laws of the
State of New York and in accordance with the applicable provisions of the 1940
Act.
299809.5
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers and their respective seals to be
hereto affixed, all as of the day and year first above written.
[SEAL] LEND LEASE HYPERION HIGH-YIELD CMBS
FUND, INC.
By__________________________________
Name:
Title:
[SEAL] LEND LEASE CAPITAL MARKETS, INC.
By__________________________________
Name:
Title:
299809.5
-8-
AMENDMENT
TO
CUSTODIAN CONTRACT
This amendment to the Custodian Contract (this "Amendment") is made as of
March 7, 2000 by and between EQUITABLE REAL ESTATE HYPERION HIGH YIELD
COMMERCIAL MORTGAGE FUND, INC., a corporation organized and existing under the
laws of the State of Maryland (the "Fund") and STATE STREET BANK AND TRUST
COMPANY, a trust company organized and existing under the laws of the
Commonwealth of Massachusetts (the "Custodian").
WITNESSETH:
WHEREAS, the Fund and the Custodian are party to a Custodian Contract dated
as of October 31, 1995 (as may be amended from time to time, the "Agreement");
and
WHEREAS, the name of the Fund was changed to "Lend Lease Hyperion
High-Yield CMBS Fund, Inc." on or about March 3, 2000 pursuant to an amendment
to the Articles of Incorporation of the Fund and the Fund and the Custodian wish
to amend the Agreement to reflect the change in the name of the Fund.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration the receipt and
adequacy of which is hereby acknowledged, the parties hereto do hereby agree to
amend the Agreement as follows:
1. The Agreement is hereby amended by deleting all references to "Equitable
Real Estate Hyperion High Yield Commercial Mortgage Fund, Inc." and inserting in
place thereof "Lend Lease Hyperion High-Yield CMBS Fund, Inc."
2. Except as otherwise expressly amended by the terms of this Agreement,
the Agreement shall remain in full force and effect as originally executed.
3. This Amendment may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.
4. This Amendment shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
930448.1
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the day and year first written above.
LEND LEASE HYPERION HIGH-YIELD CMBS
FUND, INC.
FORMERLY KNOWN AS:
EQUITABLE REAL ESTATE HYPERION HIGH
YIELD COMMERCIAL MORTGAGE FUND, INC.
By: -----------------------------------
Name: Joseph Tropeano
Title: Secretary
STATE STREET BANK AND TRUST COMPANY
By: -----------------------------------
Ronald E. Logue, Vice Chairman
-2-
930448.1
<PAGE>
Table of Contents
-----------------
Section 1. Appointment of Agent..........................................1
Section 2. Standard Services..............................................2
Section 3. Fees and Expenses..............................................3
Section 4. Representations and Warranties of the Bank....................5
Section 5. Representations and Warranties of the Company..................6
Section 6. Indemnification................................................7
Section 7. Standard of Care...............................................8
Section 8. Responsibilities of the Bank...................................8
Section 9. Covenants of the Company and the Bank..........................9
Section 10. Data Access and Proprietary Information........................10
Section 11. Term and Termination...........................................12
Section 12. Assignment.....................................................13
Section 13. Unaffiliated Third Parties.....................................13
Section 14. Notices........................................................13
Section 15. Successors.....................................................14
Section 16. Amendment......................................................14
Section 17. Severability...................................................14
Section 18. Governing Law..................................................14
Section 19. Force Majeure..................................................14
Section 20. Consequential Damages..........................................15
Section 21. Descriptive Headings...........................................15
Section 22. Third Party Beneficiaries......................................15
i
<PAGE>
Section 23. Survival.......................................................15
Section 24. Merger of Agreement............................................15
Section 25. Counterparts...................................................16
ii
<PAGE>
TRANSFER AGENCY AND STOCK TRANSFER SERVICES AGREEMENT
This Transfer Agency and Stock Transfer Services Agreement (the
"Agreement"), dated as of March 13, 2000 is between Lend Lease Hyperion High
Yield CMBS Fund, Inc. (the "Company") and State Street Bank and Trust Company, a
Massachusetts trust company (the "Bank").
WHEREAS, the Board of Directors of the Company has approved and
authorized the appointment of the Bank as transfer agent and registrar and
exchange agent.
WHEREAS, the Bank desires to accept such appointment and perform the
services related to such appointment;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree as follows:
Section 1 Appointment of Agent
---------------------
1.01 The Company hereby appoints the Bank to act as sole transfer agent
and registrar for the common stock of the Company (the "Shares") in accordance
with the terms and conditions hereof, and the Bank hereby accepts such
appointment.
1.02 In connection with the appointment of the Bank as transfer agent
and registrar for the Company, the Company will file the following documents
with the Bank:
(a) Copies of Registration Statements and amendments thereto, filed
with the Securities and Exchange Commission;
(b) Specimens of all forms of outstanding stock certificates, in the
forms approved by the Board of Directors of the Company, with a certificate of
the Secretary of the Company as to such approval;
(c) Specimens of the signatures of the officers of the Company
authorized to sign stock certificates and individuals authorized to sign written
instructions and requests; and
1
<PAGE>
(d) An opinion of counsel for the Company with respect to:
(i) The Company's organization and existence under the laws of
its state of organization;
(ii) The status of all shares of stock of the Company covered by
the appointment under the Securities Act of 1933, as
amended, and any other applicable federal or state statute;
and
(iii) That all issued shares are, and all unissued shares will be,
when issued, validly issued, fully paid and nonassessable.
Section 2 Standard Services
-----------------
2.01 The Bank will perform the following services:
In accordance with the procedures established from time to time by
agreement between the Company and the Bank, the Bank shall:
(a) issue and record the appropriate number of Shares as
authorized and hold such shares in the appropriate shareholder
("Shareholder") account;
(b) effect transfers of Shares by the registered owners
thereof upon receipt of appropriate documentation;
(c) prepare and transmit payments for dividends and
distributions declared by the Company, provided good funds for said
dividends or distributions are received by the Bank prior to the
scheduled mailing date for said dividends or distributions;
(d) act as agent for Shareholders pursuant to the dividend
reinvestment plan, cash purchase plan, and other investment programs as
amended from time to time in accordance with the terms of the
agreements relating thereto to which the Bank is or will be a party;
and
2
<PAGE>
(e) issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon receipt by the Bank
of an open penalty surety bond satisfactory to it and holding it and
the Company harmless, absent notice to the Company and the Bank that
such certificates have been acquired by a bona fide purchaser. The
Bank, at its option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof without such
indemnity.
2.02 The Bank shall perform all the customary services of a transfer
agent, dividend disbursing agent, agent of dividend reinvestment plan, cash
purchase plan and other investment programs as described in Section 2.01
consistent with those requirements in effect as of the date of this Agreement.
The detailed services and definition, frequency, limitations and associated
costs (if any) are set out in the attached fee and service schedule ("Fee and
Service Schedule").
2.03 The Bank may provide such additional services to or on behalf of
the Company (e.g., escheatment services) as may be agreed upon in writing
between the Company and the Bank.
Section 3 Fees and Expenses
-----------------
3.01 Fees.
-----
(a) The Company agrees to pay the Bank fees for the services performed
pursuant to this Agreement as set forth in the Fee and Service Schedule attached
hereto, for the initial term of the Agreement as shall also be set forth in the
Fee and Service Schedule (hereinafter, the "Initial Term").
(b) After the Initial Term of the Agreement, providing that service mix
and volumes remain constant, the fees listed in the Fee and Service Schedule
shall be increased by the accumulated change in the National Employment Cost
Index for Service Producing Industries (Finance, Insurance, Real Estate) for the
preceding years of the contract, as published by the Bureau of Labor Statistics
of the United States Department of Labor. Fees will be increased on this basis
on each successive contract anniversary thereafter.
(c) Notwithstanding Section 3.01(b) above, fees, and the out-of-pocket
expenses and advances identified under Section 3.02 below, may be changed from
time to time as agreed upon in writing between the Bank and the Company.
3
<PAGE>
3.02 Out of Pocket Expenses.
-----------------------
(a) In addition to the fees paid under Section 3.01 above, the Company
agrees to reimburse the Bank for out-of-pocket expenses, including, but not
limited to, check stock, stationery, envelopes, confirmation production,
postage, forms, insurance, telephone usage, facsimile charges, microfilm,
microfiche, printing of proxies, expenses incurred attending annual meeting,
records storage or advances incurred by the Bank for the items set out in the
Fee and Service Schedule attached hereto. In addition, any other expenses
incurred by the Bank at the request or with the consent of the Company will be
reimbursed by the Company.
(b) All out-of-pocket expenses described in Section 3.02(a) above, will
be billed as incurred subject to Section 3.03(b), provided, however, that
payment for postage expenses in excess of $5,000 must be received by the Bank in
collected funds by 12:00 p.m. Eastern time on the scheduled mailing date.
(c) The Bank reserves the right to receive compensation from vendors
for services rendered to vendors which relate to services to be provided under
this Agreement, to the extent such services rendered reduce the overall costs of
the services.
3.03 Payment of Fees and Expenses.
-----------------------------
(a) The Company agrees to pay all fees and reimbursable expenses within
thirty (30) days following the receipt of the respective billing notice.
Interest charges will accrue on unpaid balances outstanding for more than
forty-five (45) days.
3.04 Services Required by Legislation.
---------------------------------
Services required by legislation or regulatory mandate that become
effective after the effective date of this Agreement shall not be part of the
standard services, and shall be billed by appraisal.
4
<PAGE>
3.05 Overtime Charges.
-----------------
Overtime charges will be assessed in the event of a late delivery to
the Bank of Company material for mailings to shareholders unless the mail date
is rescheduled. Such material includes, but is not limited to, proxy statements,
quarterly and annual reports, dividend enclosures and news releases.
Section 4 Representations and Warranties of the Bank
-------------------------------------------
The Bank represents and warrants to the Company that:
4.01 It is a trust company duly organized and existing in good standing
under the laws of The Commonwealth of Massachusetts;
4.02 It is duly qualified to carry on its business in The Commonwealth
of Massachusetts;
4.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement;
4.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement; and
4.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
Section 5 Representations and Warranties of the Company
---------------------------------------------
The Company represents and warrants to the Bank that:
5.01 It is a corporation duly organized and existing and in good
standing under the laws of Maryland;
5.02 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
5
<PAGE>
5.03 All corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable law have been taken to authorize it to
enter into and perform this Agreement; and
5.04 A registration statement under the Securities Act of 1933, as
amended (the "1933 Act") has been filed and is currently effective, or will be
effective prior to the sale of any Shares, and will remain so effective, and all
appropriate state securities law filings have been made with respect to all the
Shares of the Company being offered for sale except for any Shares which are
offered in a transaction or series of transactions which are exempt from the
registration requirements of the 1933 Act and state securities laws; information
to the contrary will result in immediate notification to the Bank.
Section 6 Indemnification
---------------
6.01 The Bank shall not be responsible for, and the Company shall
indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees and expenses, payments, expenses and
liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors
required to be taken pursuant to this Agreement, provided such actions
are taken in good faith and without negligence or willful misconduct;
(b) The Company's lack of good faith, negligence or willful
misconduct or the breach of any representation or warranty of the
Company hereunder;
(c) The reliance or use by the Bank or its agents or
subcontractors of information, records and documents which (i) are
received by the Bank or its agents or subcontractors and furnished to
it by or on behalf of the Company, and (ii) have been prepared and/or
maintained by the Company or any other person or firm on behalf of the
Company. Such other person or firm shall include any former transfer
agent or former registrar, or co-transfer agent or co-registrar or any
current registrar where the Bank is not the current registrar;
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of the
Company's representatives; and
6
<PAGE>
(e) The offer or sale of Shares in violation of any federal or
state securities laws requiring that such shares be registered or in
violation of any stop order or other determination or ruling by any
federal or state agency with respect to the offer or sale of such
Shares; and
(f) The negotiations and processing of checks, including
checks made payable to prospective or existing Shareholders which are
tendered to the Bank for the purchase of Shares (commonly known as
"third party checks").
6.02 At any time the Bank may apply to any officer of the Company for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents and subcontractors shall not be liable
and shall be indemnified by the Company for any action taken or omitted by it in
reliance upon such instructions or upon the advice or opinion of such counsel.
The Bank, its agents and subcontractors shall be protected and indemnified in
acting upon any paper or document reasonably believed to be genuine and to have
been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents or
subcontractors by telephone, in person, machine readable input, telex, CRT data
entry or similar means authorized by the Company, and shall not be held to have
notice of any change of authority of any person, until receipt of written notice
thereof from the Company. The Bank, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of officers of the
Company, and the proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
6.03 In order that the indemnification provisions contained in this
Section 6 shall apply, upon the assertion of a claim for which the Company may
be required to indemnify the Bank, the Bank shall promptly notify the Company of
such assertion, and shall keep the Company advised with respect to all
developments concerning such claim. The Company shall have the option to
participate with the Bank in the defense of such claim or to defend against said
claim in its own name or the name of the Bank. The Bank shall in no case confess
any claim or make any compromise in any case in which the Company may be
required to indemnify it except with the Company's prior written consent.
7
<PAGE>
Section 7 Standard of Care
----------------
The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable time limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith or willful misconduct or that of its employees.
Section 8 Responsibilities of the Bank
----------------------------
The Bank undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company,
by its acceptance hereof, shall be bound:
8.01 Whenever in the performance of its duties hereunder the Bank shall
deem it necessary or desirable that any fact or matter be proved or established
by the Company prior to taking or suffering any action hereunder, such fact or
matter may be deemed to be conclusively proved and established by a certificate
signed by the Chairman of the Board, the President, any Vice President, the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of
the Company and delivered to the Bank. Such certificate shall be full
authorization to the Bank for any action taken or suffered in good faith by it
under the provisions of this Agreement in reliance upon such certificate.
8.02 The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Bank for the carrying out or performing by the Bank of the provisions of
this Agreement.
8.03 The Bank, any of its affiliates or subsidiaries, and any
stockholder, director, officer or employee of the Bank may buy, sell or deal in
the securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
appointed as agent under this Agreement. Nothing herein shall preclude the Bank
from acting in any other capacity for the Company or for any other legal entity.
8
<PAGE>
8.04 No provision of this Agreement shall require the Bank to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder or in the exercise of its rights if it shall
believe in good faith that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.
Section 9 Covenants of the Company and the Bank
-------------------------------------
9.01 The Company shall furnish to the Bank the following:
(a) A copy of the Articles of Incorporation and By-Laws of the
Company;
(b) Copies of all material amendments to its Articles of
Incorporation or Bylaws made after the date of this Agreement, promptly
after such amendments are made; and
(c) A certificate of the Company as to the Shares authorized,
issued and outstanding, as well as a description of all reserves of
unissued Shares relating to the exercise of options, warrants or a
conversion of debentures or otherwise.
9.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Company for the safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any,
and for the preparation, use, and recordkeeping of such certificates, forms and
devices.
9.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. The Bank
agrees that all such records prepared or maintained by it relating to the
services performed hereunder are the property of the Company and will be
preserved, maintained and made available in accordance with the requirements of
law, and will be surrendered promptly to the Company on and in accordance with
its request.
9.04 The Bank and the Company agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
9
<PAGE>
9.05 In the event that any requests or demands are made for the
inspection of the Shareholder records of the Company, other than requests for
records of shareholders pursuant to standard subpoenas from state or federal
government authorities (e.g., in divorce or criminal actions), the Bank will
endeavor to notify the Company and to secure instructions from an authorized
officer of the Company as to such inspection. The Bank expressly reserves the
right, however, to exhibit the Shareholder records to any person whenever it is
advised by counsel that it may be held liable for the failure to exhibit the
Shareholder records to such person.
Section 10 Data Access and Proprietary Information
---------------------------------------
10.01 The Company acknowledges that the data bases, computer programs,
screen formats, report formats, interactive design techniques, and documentation
manuals furnished to the Company by the Bank as part of the Company's ability to
access certain Company related data ("Customer Data") maintained by the Bank on
data bases under the control and ownership of the Bank or other third party
("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of substantial
value to the Bank or other third party. In no event shall Proprietary
Information be deemed Customer Data. The Company agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it shall not
divulge any Proprietary Information to any person or organization except as may
be provided hereunder. Without limiting the foregoing, the Company agrees for
itself and its employees and agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with the
Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any
portion of the Proprietary Information, and if such access is
inadvertently obtained, to inform the Bank in a timely manner of such
fact and dispose of such information in accordance with the Bank's
instructions;
(d) to refrain from causing or allowing the data acquired
hereunder from being retransmitted to any other computer facility or
other location, except with the prior written consent of the Bank;
10
<PAGE>
(e) that the Company shall have access only to those
authorized transactions agreed upon by the parties; and
(f) to honor all reasonable written requests made by the Bank
to protect at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under other
federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 10.
10.02 If the Company notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain certain
data included in the Data Access Services are solely responsible for the
contents of such data and the Company agrees to make no claim against the Bank
arising out of the contents of such third party data, including, but not limited
to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND
SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
10.03 If the transactions available to the Company include the ability
to originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder information
or other information, then in such event the Bank shall be entitled to rely on
the validity and authenticity of such instructions without undertaking any
further inquiry as long as such instructions are undertaken in conformity with
security procedures established by the Bank from time to time.
Section 11 Term and Termination
--------------------
11.01 As noted in Section 3.01(a) above, the Initial Term of this
Agreement shall be set forth in the Fee and Service Schedule attached hereto.
After the Initial Term, this Agreement shall be self-renewing.
11
<PAGE>
11.02 Either party may terminate this Agreement after written notice to
the other if one party has materially breached its obligation under this
Agreement, and the breaching party has failed to cure such material breach
within thirty (30) calendar days of receipt of such notice.
11.03 Should the Company exercise its right to terminate this Agreement
for reasons other than a material breach by the Bank as provided in Section
11.02 above, the Company shall pay the Bank for all reasonable out-of-pocket
expenses associated with the movement of records and material. In addition, the
Bank will charge the Company a conversion fee of 25% of the fees billed during
the preceding twelve (12) months (with a minimum charge of $3,750.00). The
charge will cover the coordination of the Bank's conversion process and the cost
of transferring the Company's records to a successor Transfer Agent or to the
Company, as directed by the Company, and the Bank will perform its services in
assisting with the transfer of records in a diligent and professional manner.
11.04 This Agreement may be terminated by either party upon ninety (90)
days written notice to the other.
Section 12 Assignment
----------
12.01 Except as provided in Section 12.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
12.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
12.03 The Bank may, without further consent on the part of the Company,
(i) subcontract for the performance hereof with Boston EquiServe Limited
Partnership, a Delaware limited partnership which is duly registered as a
transfer agent pursuant to Section 17A(c)(2) of the Securities Exchange Act of
1934, as amended, or (ii) subcontract with other subcontractors for telephone
and mailing services as may be required from time to time; provided, however,
that the Bank shall be as fully responsible to the Company for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
12
<PAGE>
Section 13 Unaffiliated Third Parties
--------------------------
Nothing herein shall impose any duty upon the Bank in connection with
or make the Bank liable for the actions or omissions to act of unaffiliated
third parties such as, by way of example and not limitation, Airborne Services,
the U.S. mails and telecommunication companies, provided, if the Bank selected
such company, the Bank shall have exercised due care in selecting the same.
Section 14 Notices
-------
Any notice or communication by the Bank or the Company to the other is
duly given if in writing and delivered in person or mailed by first class mail,
postage prepaid, telex, telecopier or overnight air courier guaranteeing next
day delivery, to the other's address:
If to Lend Lease Hyperion High-Yield CMBS Fund, Inc.
Lend Lease Hyperion Capital Advisors, L.L.C.
One Liberty Plaza
36th Floor
New York, NY 10006
Telecopy No.: (212) 549-8300
Attn: Compliance Officer
If to the Bank:
State Street Bank and Trust Company
c/o Boston EquiServe Limited Partnership
150 Royall Street
Canton, MA 02021
Telecopy No.: (617) 575-2549
Attn: President
The Bank and the Company may, by notice to the other, designate
additional or different addresses for subsequent notices or communications.
Section 15 Successors
----------
13
<PAGE>
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Bank shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 16 Amendment
---------
This Agreement may be amended or modified by a written amendment
executed by both parties hereto and authorized or approved by a resolution of
the Board of Directors of the Company.
Section 17 Severability
------------
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
Section 18 Governing Law
-------------
This Agreement shall be governed by the laws of The Commonwealth of
Massachusetts.
Section 19 Force Majeure
--------------
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other party resulting from such failure to perform or otherwise from such
causes.
Section 20 Consequential Damages
---------------------
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or any consequential
damages arising out of any act or failure to act hereunder.
14
<PAGE>
Section 21 Descriptive Headings
--------------------
Descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
Section 22 Third Party Beneficiaries
-------------------------
The provisions of this Agreement are intended to benefit only the Bank
and the Company and their respective permitted successors and assigns. No rights
shall be granted to any other person by virtue of this Agreement, and there are
no third party beneficiaries hereof.
Section 23 Survival
--------
All provisions regarding indemnification, warranty, liability and
limits thereon, and confidentiality and protection of proprietary rights and
trade secrets shall survive the termination of this Agreement.
Section 24 Merger of Agreement
-------------------
This agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
15
<PAGE>
Section 25 Counterparts
------------
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by one of its officers thereunto duly authorized, all
as of the date first written above.
LEND LEASE HYPERION HIGH-YIELD CMBS FUND, INC.
By:
---------------------
Name: Clifford E. Lai
-------------------
Title: President
------------------
STATE STREET BANK AND TRUST COMPANY
By:
---------------------
Name: Charles V. Rossi
-------------------
Title: Vice President
------------------
16
<PAGE>
STATE STREET BANK AND TRUST COMPANY
DOMESTIC CUSTODY AND ACCOUNTING FEE SCHEDULE
LEND LEASE HYPERION HIGH-YIELD CMBS FUND, INC.
I. CUSTODY, PORTFOLIO AND FUND ACCOUNTING
Custody: Maintain custody of fund assets. Settle portfolio purchases and
sales. Report buy and sell fails. Determine and collect portfolio income.
Make cash disbursements and report cash transactions. Monitor corporate
actions. Report portfolio positions.
Portfolio and Fund Accounting: Maintain investment ledgers, provide
selected portfolio transactions, position and income reports. Maintain
general ledger and capital stock accounts. Prepare daily trial balance.
Calculate net asset value daily. Provide selected general ledger reports.
Securities yield or market value quotations will be provided to State
Street via State Street's Automated Pricing System (see Section V) or by
the fund.
The fee shown below is an annual charge, billed and payable monthly, based
on average monthly net assets.
ANNUAL FEES PER PORTFOLIO
-------------------------
Custody, Portfolio
Fund Net Assets and Fund Accounting
--------------- -------------------
First $20 Million 1/15 of 1%
Next $80 Million 1/30 of 1%
Excess 1/100 of 1%
Minimum Monthly Charges $3,000
II. PORTFOLIO TRANSACTIONS
State Street Bank Repos $7.00
DTC or Fed Book Entry $12.00
New York Physical Settlements $25.00
Maturity Collections $8.00
PTC Purchase, Sale, Deposit or Withdrawal $20.00
Per paydown $2.00
All Other Trades $25.00
930512.1
<PAGE>
III. FUTURES AND OPTIONS
Option charge for each option written or closing contract,
per issue, per broker $25.00
Option expiration or exercised charge, per issue, per broker $15.00
Futures transactions - no security movement $8.00
IV. HOLDINGS CHARGE
For each issue maintained - monthly charge $5.00
V. NAVIGATOR AUTOMATED PRICING
Monthly Base Charge $175.00
Monthly Quote Charge:
Municipal Bonds via Kenny/S&P or Muller Data $16.00
Corporate, Municipal, Convertible, Government Bond
and Adjustable Rate Preferred Stocks Via IDSI $13.00
Government, Corporate Bonds via Kenny/S&P or
Muller $11.00
Government, Corporate and Convertible Bonds via
Merrill Lynch $11.00
Foreign Bonds via Extel $10.00
Options, Futures and Private Placements $6.00
Listed Equities (including International) and OTC Equities $6.00
For billing purposes, the monthly quote charge will be based on the average
number of positions in the portfolio at month end.
VI. SPECIAL SERVICES
Fees for activities of a non-recurring nature such as fund consolidations
or reorganizations, extraordinary security shipments and the preparation of
special reports will be subject to negotiation. Fees for SEC yield
calculation, fund administration activities, self directed securities
lending transactions, SaFiRe financial reporting, multiple class and
core/feeder accounting, and other special items will be negotiated
separately.
-2-
930512.1
<PAGE>
VII. OUT-OF-POCKET EXPENSES
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but are
not limited to, the following:
<TABLE>
<S> <C>
- Telephone - Transfer Fees
- Wire Charges ($5.25 in and $5 out) - Sub-custodian Charges
- Postage and Insurance - Price Waterhouse Audit Letter
- Courier Service - Federal Reserve Fee for Return Check items
- Duplicating over $2,500 ($4.25 each)
- Legal Fees - GNMA Transfer ($15 each)
- Supplies Related to Fund Records - PTC Deposit/Withdrawal for same day
- Rush Transfer ($8 each) turnaround ($50 each)
- Items held in Street name over
record date at the request of traders
$50 each)
</TABLE>
VIII. PAYMENT
The above fees will be charged against the fund's custodian checking
account five (5) days after the invoice is mailed to the fund's offices.
LEND LEASE HYPERION HIGH-YIELD CMBS STATE STREET BANK & TRUST COMPANY
FUND, INC.
By By
---------------------------- -----------------------------
Title Title
---------------------------- -----------------------------
Date Date
---------------------------- -----------------------------
-3-
930512.1
<PAGE>
STATE STREET BANK AND TRUST COMPANY
Transfer Agent and Register Services
Fee Agreement for
EQUITABLE REAL ESTATE HYPERION HIGH-YIELD
COMMERCIAL MORTGAGE FUND, INC.
ONGOING TRANSFER AGENT FEES
- ---------------------------
$9.00 per shareholder account per annum. Includes the issuance and registration
of the first 2,000 credit certificates in a calendar year. Excess credits beyond
2,000 to be billed at $1.25 each within a calendar year.
For each dividend reinvestment per participant $.75
For each optional cash infusion $.75
TRANSFER AGENT SERVICES
-----------------------
ACCOUNT MAINTENANCE SERVICES
- ----------------------------
o Establishing new accounts
o Preparation and mailing of W-9 solicitation to new accounts without
T.I.N.s.
o Address changes
o Processing T.I.N. changes
o Processing routine and non-routine transfers of ownership
o Issuance of credit certificates (see limits)
o Posting debit and credit transactions
o Providing a daily transfer journal of ownership changes
o Responding to written shareholder communications
o Responding to shareholder telephone inquiries; toll-free number
o Placing and releasing stop transfers
o Replacing lost certificates
930945.1
<PAGE>
o Registration of credit certificates (see limits)
DIVIDEND DISBURSEMENT SERVICES
- ------------------------------
o Generate and mail twelve dividend checks with one enclosure
o Replace lost dividend checks
o Processing of backup withholding and remittance
o Preparation and filing of Federal Tax Forms 1099 and 1042
o Preparation and filing of State Tax information as directed
o Processing of non-resident alien withholding and remittance
o Preparation of escheatment information (shares and dividends)
DIVIDEND REINVESTMENT SERVICES PROVIDED
- ---------------------------------------
o Processing optional cash investments and acknowledging same
o The reinvestment of dividend proceeds for participants
o Participant withdrawal or sell requests
o Preparation, mailing and filing of Federal Tax Form 1099B for sales
o Preparation and mailing of monthly reinvestment statements
ANNUAL MEETING SERVICES
- -----------------------
o Coordination of mailing of proxies, proxy statement, annual report and
business reply envelope (out-of-pocket expenses such as typesetting of
proxy card, envelopes, and postage will be billed as incurred)
o Providing one set of labels of banks, brokers and nominees for broker
search
o Providing record date list
o Tabulation of returned proxies
o Daily reporting of tabulation results
o Interface support during solicitation effort
o Providing one inspector of election at annual meeting (out-of-pocket
expenses billed at cost as incurred)
o Providing an annual meeting voted list
930945.1
<PAGE>
ADDRESSING AND MAILING SERVICES
- -------------------------------
o Providing for the mailing of three (3) quarterly reports
o Addressing and mailing new shareholder welcome materials on a biweekly
basis or as agreed
INFORMATION SERVICES PROVIDED
- -----------------------------
o One complete statistical report per calendar year
-- shareholders by state
-- shareholders by classification code
-- shareholders by share grouping
TERMS OF FEE AGREEMENT
- ----------------------
o Minimum $1,000 per month
o Escalation Clause - The per account annual fee in upon renewal shall be
equal to the current fee increased by the lesser of (i) 6% or, (ii) the
percentage increase in the U.S. Department of Labor national index of "Cost
of Services Less Rent" for the period current at renewal.
MISCELLANEOUS
- -------------
o All out-of-pocket expenses such as postage, stationery, etc. will be billed
as incurred.
ADDITIONAL SERVICES
- -------------------
o Services over and above this Fee Schedule will be invoiced in accordance
with our current Schedule of Services or priced by appraisal.
EQUITABLE REAL ESTATE HYPERION
HIGH-YIELD COMMERCIAL MORTGAGE
FUND, INC. STATE STREET BANK AND TRUST CO.
By: By:
------------------------------ ----------------------------
Title: Title:
--------------------------- -------------------------
Date: Date:
---------------------------- --------------------------
930945.1
LEND LEASE HYPERION HIGH-YIELD
CMBS FUND, INC.
ADMINISTRATIVE SERVICES CONTRACT
AGREEMENT dated as of January 1, 2000 between Lend Lease Hyperion
High-Yield CMBS Fund, Inc. (the "Fund"), a Maryland corporation, and Hyperion
Capital Management, Inc. (the "Administrator"), a Delaware corporation.
WHEREAS, the Fund is engaged in business as a non-diversified, closed-end
management investment company registered under the Investment Company Act of
1940 (collectively, with the rules and regulations promulgated thereunder, the
"1940 Act");
WHEREAS, the Fund wishes to engage the Administrator to provide certain
services with respect to the administration of the Fund, and the Administrator
is willing to provide such services to the Fund on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, it is agreed by and between the parties hereto as
follows:
1. In General
The Administrator agrees, all as more fully set forth herein, to act as
administrator to the Fund with respect to the investment and the reinvestment of
the Fund's assets.
2. Duties and Obligations of the Administrator
(a) Subject to the succeeding provisions of this paragraph and subject
to the direction and general control of the Fund's Board of Directors, the
Administrator shall act as administrator to provide all management and
administrative services reasonably necessary for the Fund's operation, other
than those services Lend Lease Hyperion Capital Advisors, L.L.C. provides to the
Fund pursuant to the Investment Management Contract or are provided by a
sub-administrator pursuant to a written contract with the Administrator. The
services to be provided by the Administrator shall include but not be limited to
those enumerated on Exhibit A hereto. The personnel providing these services may
be the Administrator's employees or employees of its affiliates or of other
organizations. The Administrator shall make periodic reports to the Fund's Board
of Directors in the performance of its obligations under this Agreement.
(b) The Administrator may from time to time employ, subcontract with or
otherwise associate itself with entirely at its expense, such persons as it
believes to be
299815.5
<PAGE>
particularly fitted to assist it in the execution of its duties hereunder. While
this agreement is in effect, the Administrator or persons or its affiliates
other than the Fund ("the affiliates"), will provide persons satisfactory to
Board of Directors to be elected or appointed officers or employees of the Fund.
These shall be a president, a secretary, a treasurer, and such additional
officers and employees as may be necessary for the conduct of Fund business.
(c) The Administrator or its affiliates will also provide persons, who
may be Fund officers, to (i) supervise the performance of bookkeeping and
related services and calculation of net asset value and yield by the Fund
bookkeeping agent, (ii) prepare reports to and the filings with regulatory
authorities, and (iii) perform such clerical, other office and shareholder
services for the Fund as it may from time to time request. Such personnel may be
employees of the Administrator or employees of the Administrator affiliates or
of other organizations. Notwithstanding the preceding, the Administrator shall
not be required to perform any accounting services not expressly provided for
herein. The Fund will pay to the Administrator the cost of such personnel for
rendering such services at such rates as shall from time to time be agreed upon
between the parties, provided that the Fund shall not bear or pay any costs in
respect of any services performed for the Fund by officers of the
Administrator's affiliates.
(d) The Administrator or its affiliates will also furnish the Fund such
administrative and management supervision and assistance and such office
facilities as it may believe appropriate or as the Fund may reasonably request
subject to the requirements of any applicable regulatory authority. The
Administrator or its affiliates will also pay the expenses of promoting the sale
of Fund shares (other than the costs of preparing, printing and filing the
Registration Statement, printing copies of the prospectus contained therein and
complying with other applicable regulatory requirements), except to the extent
that the Fund is permitted to bear such expenses under a plan that may in the
future be adopted pursuant to Rule 12b-1 under the 1940 Act or a similar rule.
(e) The Administrator shall give the Fund the benefit of its best
judgment and efforts in rendering these services hereunder but the Administrator
shall not be liable hereunder for any mistake of judgment or for any other
cause, provided that nothing herein shall protect the Administrator against any
liability to the Fund or to its security holders by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties
hereunder, or by reason of its reckless disregard of its obligations and duties
hereunder.
(f) Nothing in this Agreement shall prevent the Administrator or any
director, officer, employee or other affiliate thereof from acting as
administrator for any other person, firm or corporation, or from engaging in any
other lawful activity, and shall not in any way limit or restrict the
Administrator or any of its partners, officers, employees or agents from buying,
selling or trading any securities for its or their own accounts or for the
accounts of others for whom it or they may be acting, provided, however, that
the Administrator will
299815.5
-2-
<PAGE>
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations under this Agreement.
3. Compensation of the Administrator
The Fund agrees to pay the Administrator a fee of .15% of the Fund's
average weekly net assets. The Administrator's fee will be accrued daily, and
will be payable on the last day of each calendar month for services performed
hereunder during that month or on such other schedule as may be used may be
agreed in writing. Any portion of this fee may be used for distribution of Fund
shares, or for making servicing payments to organizations whose customers or
clients are Fund shareholders. The Administrator may waive its right to any fee
to which it is entitled hereunder, provided such waiver is delivered to the Fund
in writing.
4. Duration and Termination
(a) This Agreement will become effective on the date hereof and will
remain in effect thereafter for successive twelve-month periods (computed from
each November 1st), provided that such continuation is specifically approved at
least annually by (i) the Board of Directors and of a majority of those of the
directors who are neither party to this Agreement nor, other than by their
service as directors of the Fund, interested persons (as defined in the 1940 Act
and the rules thereunder) of any such person who is party to this Agreement,
cast in person at a meeting called for the purpose of voting on this Agreement
and (ii) by the vote of more than 75% of the holders of the Fund's Common Stock.
This Agreement may be terminated at any time, without the payment of any
penalty, (i) by vote of a majority of the Fund's outstanding voting securities,
as defined in the 1940 Act, or (ii) by a vote of a majority of the entire Board
of Directors on sixty days' written notice to the Administrator, or (iii) by the
Administrator on sixty days' written notice to the Fund.
(b) This Agreement may not be transferred, assigned, sold or in any
manner hypothecated or pledged by either party and this Agreement shall
terminate automatically in the event of any such transfer, assignment, sale,
hypothecation or pledge. The terms "transfer", "assignment" and "sale" as used
in this paragraph shall have the meanings ascribed thereto by governing law and
in applicable rules or regulations of the Securities and Exchange Commission.
5. Notices
Any notice under this Agreement shall be in writing to the other party at
such address as the other party may designate from time to time for the receipt
of such notice and shall be deemed to be received on the earlier of the date
actually received or on the fourth day after the postmark if such notice is
mailed first class postage prepaid.
299815.5
-3-
<PAGE>
6. Amendment
This Agreement may not be amended without the approval of the holders of
more than 75% of the shares of the Fund's outstanding Common Stock.
7. Governing Law
This Agreement shall be construed in accordance with the laws of the
State of New York and in accordance with the applicable provisions of the 1940
Act.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers and their respective
seals to be hereunto affixed, all as of the day and the year first above
written.
[SEAL] LEND LEASE HYPERION HIGH-YIELD CMBS FUND, INC.
By:___________________________________________
Name:
Title:
[SEAL] HYPERION CAPITAL MANAGEMENT, INC.
By: __________________________________________
Name:
Title:
299815.5
-4-
<PAGE>
Exhibit A
Administration Services To Be Performed
By Hyperion Capital Management, Inc.
Administration Services
1. In conjunction with Fund counsel, prepare and file all
Post-Effective Amendments to the Registration Statement, all
state and federal tax returns and all other required
regulatory filings.
2. In conjunction with Fund counsel, prepare and file all Blue
Sky filings, reportsand renewals.
3. Coordinate, but not pay for, required Fidelity Bond and
Directors and Officers Insurance (if any) and monitor their
compliance with Investment Company Act.
4. Coordinate the preparation and distribution of all materials
for Directors, including the agenda for meetings and all
exhibits thereto, and actual and projected quarterly
summaries.
5. Negotiate contracts and fees with and coordinate the
activities of the Fund's Manager, Custodian, Legal Counsel
and Independent Accountants.
6. Prepare and file all periodic reports to shareholders and
proxies and provide support for shareholder meetings.
7. Monitor daily and periodic compliance with respect to all
requirements and restrictions of the Investment Company Act,
the Internal Revenue Code and the Prospectus.
8. Monitor daily the Fund's bookkeeping services agent's
calculation of all income and expense accruals, sales and
redemptions of capital shares outstanding.
9. Evaluate expenses, project future expenses, and process
payments of expenses.
10. Monitor and evaluate performance of accounting and accounting
related services by Fund's bookkeeping services agent. Nothing
herein shall be construed to require you to perform any
accounting services not expressly provided for in this
Agreement.
299815.5
BATTLE FOWLER LLP
A LIMITED LIABILITY PARTNERSHIP
75 East 55th Street
New York, New York 10022
(212) 856-7000
(212) 856-6858
(212) 856-7816
March 15, 2000
Lend Lease Hyperion
High-Yield CMBS Fund, Inc.
One Liberty Plaza
New York, New York 10006
Gentlemen:
We have acted as counsel to Lend Lease Hyperion High-Yield
CMBS Fund, Inc., a Maryland corporation (the "Fund"), in connection with the
preparation and filing of Registration Statement No. 811- 07359 on Form N-2 and
all amendments thereto (the "Registration Statement") covering shares of Common
Stock, par value $.001 per share, of the Fund.
We have examined copies of the following documents relating to
the creation of the Fund and the issuance and sale of the Common Stock: (a) the
Articles of Incorporation, as amended, (b) a Certificate of Good Standing issued
by the State of Maryland, (c) the By-Laws, as amended, of the Fund certified by
an officer of the Fund, (d) the Notification of Registration on Form N-8A
relating to the Fund, as filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Investment Company Act of 1940 (the "1940 Act"),
(e) the Registration Statement and all amendments thereto (said registration
Statement, as amended by said amendments being herein call the "Registration
Statement"), (f) the proposed form of the final Private Placement Memorandum,
the Statement of Additional Information and the Subscription Agreement relating
to the Common Stock which is expected to be filed with the Commission this day,
(g) the consent of the Board of Directors and the minutes of the meeting of the
Board of Directors of the Fund, as we have deemed necessary for the purpose of
this opinion, and (h) a
908051.1
<PAGE>
2
Lend Lease Hyperion
High-Yield CMBS Fund, Inc. March 15, 2000
certificate of an authorized officer of the Fund attached hereto as Exhibit A
with respect to certain factual matters contained therein. In our examination of
such material, we have assumed the genuineness of all signatures and the
conformity to original documents of all copies submitted to us.
We are not admitted to the practice of law in any jurisdiction
but the State of New York and we do not express any opinion as to the laws of
other states or jurisdictions except as to matters of Federal law and, with
respect to the limited scope of this opinion, Maryland General Corporation Law.
Based exclusively on the foregoing, we are of the opinion that
under existing law:
(i) The Common Stock, par value $.001 per share, of the Fund,
to be issued in accordance with the terms of the offering, as set forth in the
Private Placement Memorandum and Statement of Additional Information included as
part of the Registration Statement, and when issued and paid for, will
constitute validly authorized and legally issued shares of Common Stock, fully
paid and non-assessable; and
(ii) The Fund is duly and validly organized and validly
existing as a corporation under the laws of the State of Maryland, and has all
requisite power and authority under the Articles of Incorporation and Bylaws, as
amended and such laws to enter into and carry out the terms of the Subscription
Agreements, to conduct its business as described in the Articles of
Incorporation, Bylaws and Private Placement Memorandum, and to issue and sell
Common Stock of the Fund.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us in the Registration
Statement under the heading in the Prospectus and in the Statement of
Information: "Counsel and Independent Auditors".
Very truly yours,
Battle Fowler LLP
908051.1
Equitable Real Estate Hyperion Capital Advisors, L.L.C.
520 Madison Avenue
New York, New York 10020
September 22 , 1995
Board of Directors of
Equitable Real Estate Hyperion High-Yield
Commercial Mortgage Fund, Inc.
520 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
I hereby subscribe for 10,000 shares of Common Stock, $0.001 par value
per share, of Equitable Real Estate Hyperion High-Yield Commercial Mortgage
Fund, Inc., a Maryland corporation (the "Fund"), at $10.00 per share for an
aggregate purchase price of $100,000. My payment in full is confirmed.
I hereby represent and agree that I am purchasing these shares of stock
for investment purposes, for my own account and risk and not with a view to any
sale, division or other distribution thereof within the meaning of the
Securities Act of 1933 as amended, nor with any present intention of
distributing or selling such shares. I further agree that if any of such shares
are redeemed during the period that the deferred organizational expenses of the
Fund are being amortized, I will reimburse the Fund the then unamortized
organizational expenses in the same ratio as the number of shares redeemed bears
to the number of such shares held at the time of redemption.
Very truly yours,
EQUITABLE REAL ESTATE HYPERION
CAPITAL ADVISORS, L.L.C.
By:__________________________
Confirmed and Accepted:
EQUITABLE REAL ESTATE HYPERION HIGH-YIELD
COMMERCIAL MORTGAGE FUND, INC.
By:___________________________
275092.2
CODE OF ETHICS FOR
LEND LEASE HYPERION HIGH-YIELD
CMBS FUND, INC.
Lend Lease Hyperion High-Yield CMBS Fund, Inc. (the "Fund") has determined
to adopt this Code of Ethics (the "Code") as of December 7, 1999, to specify and
prohibit certain types of personal securities transactions deemed to create a
conflict of interest and to establish reporting requirements and preventive
procedures pursuant to the provisions of Rule 17j-l(b)(1) under the Investment
Company Act of 1940 (the "1940 Act").1
I. DEFINITIONS
A. An "Access Person" means (i) any Trustee, Director, Officer or Advisory
Person (as defined below) of the Fund or any investment adviser
thereof, or (ii) any director or officer of a principal underwriter of
the Fund who, in the ordinary course of his/her business, makes,
participates in or obtains information regarding the purchase or sale
of securities for the Fund for which the principal underwriter so acts
or whose functions or duties as part of the ordinary course of his/her
business relate to the making of any recommendation to the Fund
regarding the purchase or sale of securities or (iii) notwithstanding
the provisions of clause (i) above, where the investment adviser is
primarily engaged in a business or businesses other than advising
registered investment companies or other Fund, any trustee, director,
officer or Advisory Person of the investment adviser who, with respect
to the Fund, makes any recommendation or participates in the
determination of which recommendation shall be made, or whose principal
function or duties relate to the determination of which recommendation
shall be made to the Fund or who, in connection with his/her duties,
obtains any information concerning securities recommendations being
made by such investment adviser to the Fund.
B. An "Advisory Person" means any employee of the Fund or any investment
adviser thereof (or of any company in a control relationship to the
Fund or such investment adviser), who, in connection with his/her
regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of securities by the Fund or
whose functions relate to any recommendations with respect to such
purchases or sales and any natural person in a control relationship
with the Fund or adviser who obtains information regarding the purchase
or sale of securities.
- --------
1 Lend Lease Hyperion Capital Advisors, L.L.C., the investment adviser to the
Fund, has adopted a similar Code of Ethics.
930055.1
<PAGE>
C. A "Portfolio Manager" means any person or persons with the direct
responsibility and authority to make investment decisions affecting the
Fund.
D. "Access Persons," "Advisory Persons" and "Portfolio Managers" shall not
include any individual who is required to and does file quarterly
reports with any investment adviser, sub-adviser, administrator or the
principal underwriter substantially in conformity with Rule 17j-1 of
the 1940 Act or Rule 204-2 of the Investment Advisers Act of 1940,
provided however, that the compliance officer of any investment
adviser, sub-adviser, administrator, or the principal underwriter shall
(i) file an annual certification with the Adviser stating that such
entity has adopted or approved the continuation of its Code of Ethics,
substantially in the form that was provided to the Fund's Board of
Directors at the time when the Fund's Code of Ethics was adopted; and
(ii) notify the Fund's compliance officer of any violation of such
entity's Code of Ethics upon actual knowledge by such compliance
officer that a violation had occurred. The Fund's compliance officer
shall report any such violations to the Fund's Board of Directors in
accordance with the provisions of the Fund's Code of Ethics as if the
report of the violation had been made under the Fund's Code of Ethics..
E. "Beneficial Ownership" shall be interpreted subject to the provisions
of Rule 16a-l(a) (exclusive of Section (a)(1) of such Rule) of the
Securities Exchange Act of 1934.
F. The "Compliance Officer" is the person designated by the Fund's Board
of Directors to monitor the overall compliance with this Code. In
addition, the Compliance Officer will provide preclearance of any
personal security transaction as required by this Code of Ethics.
G. "Control" shall have the same meaning as set forth in Section 2(a)(9)
of the 1940 Act.
H. "Disinterested Director" means a Director who is not an "interested
person" within the meaning of Section 2(a)(19) of the 1940 Act. An
"interested person" includes any person who is a trustee, director,
officer, employee or owner of 5% or more of the outstanding stock of
the Adviser. Affiliates of brokers or dealers are also "interested
persons", except as provided in Rule 2(a)(19)(1) under the 1940 Act.
930055.1
2
<PAGE>
I. "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security or the purchase or
sale of a future or index on a security or option thereon.
J. "Security" shall have the meaning as set forth in Section 2(a)(36) of
the 1940 Act (in effect, all securities), except-that it-shall not
include securities issued by the U.S. Government (or any other
"government security" as that term is defined in the 1940 Act),
bankers' acceptances, bank certificates of deposit, commercial paper
and such other money market instruments as may be designated by the
Board of Directors of the Fund and shares of registered open-end
investment companies.
K. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and
communicated and, with respect to the person making the recommendation,
when such person seriously considers making such a recommendation.
II. STATEMENT OF GENERAL PRINCIPLES
The following general fiduciary principles shall govern the personal
investment activities of all Access Persons.
Each Access Person shall adhere to the highest ethical standards and
shall:
A. at all times, place the interests of the Fund before his/her personal
interests;
B. conduct all personal securities transactions in a manner consistent
with this Code, so as to avoid any actual or potential conflicts of
interest, or an abuse of position of trust and responsibility; and
C. not take any inappropriate advantage of his position with or on behalf
of the Fund.
III. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES.
A. Blackout Periods
1. No Access Person (other than a Disinterested Director) shall
purchase or sell, directly or indirectly, any security in which
he/she
930055.1
3
<PAGE>
has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership on a day during which he/she knows
or should have known the Fund has a pending "buy" and "sell" order
in that same security until that order is executed or withdrawn.
2. No Advisory Person shall purchase or sell, directly or indirectly,
any security in which he/she has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership within at
least seven calendar days before and after the Fund trades (or has
traded) in that security.
B. Initial Public Offerings
No Advisory Person shall acquire any security in an initial public
offering for his/her personal account.
C. Private Placements
With regard to private placements, each Advisory Person shall:
1. obtain express prior written approval from the Compliance Officer
(who, in making such determination, shall consider among other
factors, whether the investment opportunity should be reserved for
the Fund, and whether such opportunity is being offered to such
Advisory Person by virtue of his position with the Fund) for any
acquisition of securities in a private placement; and
2. after authorization to acquire securities in a private placement
has been obtained, disclose such personal investment with respect
to any subsequent consideration by the Fund (or any other
investment company for which he/she acts in a capacity as an
Advisory Person) for investment in that issuer.
Any express prior written approval received from the Compliance
Officer shall be valid only on the day on which it was issued. If
the Fund decides to purchase securities of an issuer, the shares
of which have been previously obtained for personal investment by
an Advisory Person, that decision shall be subject to an
independent review by Advisory Persons with no personal interest
in the issuer.
D. Short-Term Trading Profits
930055.1
4
<PAGE>
No Advisory Person shall profit from the purchase and sale, or sale and
purchase, of the same (or equivalent) securities of which such Advisory
Person has beneficial ownership within 60 calendar days without the
prior written approval of the Compliance Officer. Any short-term
trading profits realized without preclearance shall, unless the Fund's
Board of Directors approves otherwise, be disgorged as directed by the
Adviser's Board of Directors.
E. Gifts
No Advisory Person shall receive any gift (i.e., anything of more than
de minimis value) from any person or entity that does business with or
on behalf of the Fund that poses a potential conflict of interest.
F. Service as a Director
1. No Advisory Person shall serve on a board of directors of a
publicly traded company without prior authorization from the Board
of Directors of the Fund, based upon a determination that such
board service would be consistent with the interests of the Fund
and its investors.
2. If board service of an Advisory Person is authorized by the Board
of Directors of the Fund such Advisory Person shall be isolated
from the investment making decisions of the Fund with respect to
the company of which he/she is a director.
G. Exempted Transactions
The prohibition of Section III shall not apply to:
1. purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
2. purchases or sales that are non-volitional on the part of the
Access Person or the Fund, including mergers, recapitalizations or
similar transactions;
3. purchases which are part of an automatic dividend reinvestment
plan;
930055.1
5
<PAGE>
4. purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the
extent such rights were acquired from such issuer, and sales of
such rights so acquired; and
5. purchases and sales that receive prior approval in writing by the
Compliance Officer as (a) only remotely potentially harmful to the
Fund because they would be very unlikely to affect a highly
institutional market, (b) clearly not economically related to the
securities to be purchased or sold or held by the Fund or (c) not
representing any danger of the abuses prescribed by Rule 17j-1,
but only if in each case the prospective purchaser has identified
to the Compliance Officer all factors of which he/she is aware
which are potentially relevant to a conflict of interest analysis,
including the existence of any substantial economic relationship
between his/her transaction and securities held or to be held by
the Fund.
IV. COMPLIANCE PROCEDURES
A. Preclearance Procedures
An Access Person (other than a Disinterested Director) may not,
directly or indirectly, acquire or dispose of beneficial ownership of a
security except as provided below unless:
1. such purchase or sale has been precleared and approved by the
Compliance Officer;
2. the approved transaction is completed on the same day approval is
received; and
3. the Compliance Officer has not rescinded such approval prior to
execution of the transaction.
B. Security Transactions Requiring Preclearance
An Access Person (other than a Disinterested Director) may not,
directly or indirectly, acquire or dispose of beneficial ownership of
the following securities except as provided in the above preclearance
procedures:
1. Lend Lease Hyperion High-Yield CMBS Fund, Inc.
930055.1
6
<PAGE>
2. any eligible investment of the Fund;
3. any mortgage-backed securities (including commercial mortgage
backed securities);
4. any private placements.
C. Reporting
1. Coverage: Each Access Person (other than a Disinterested Director)
shall file with the Compliance Officer confidential quarterly
reports containing the information required in Section IV.C.2. of
this Code with respect to all --- transactions during the
preceding quarter in any securities in which such person has, or
by reason of such transaction acquires, any direct or indirect
beneficial ownership, provided that no Access Person shall be
required to -------- report transactions effected for any account
over which such Access Person has no direct or indirect influence
or control (except that such an Access Person must file a written
certification stating that he or she has no direct or indirect
influence or control over the account in question). All such
Access Persons shall file reports, even when no transactions have
been effected, representing that no transactions subject to
reporting requirements were effected.
2. Filings: Every report shall be made no later than 10 days after
the end of the calendar quarter in which the transaction to which
the report relates was effected, and shall contain the following
information:
a. the date of the transaction, the title and the number of
shares and the principal amount of each security involved;
b. the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
c. the price at which the transaction was effected; and
930055.1
7
<PAGE>
d. the name of the broker, dealer or bank with or through whom
the transaction was effected.
3. Any report may contain a statement that it shall not be construed
as an admission by the person making the report that he or she has
any direct or indirect beneficial ownership in the security to
which the report relates.
4. Confirmations: All Access Persons (other than a Disinterested
Director) shall direct their brokers to supply the Fund's
Compliance Officer on a timely basis, duplicate copies of
confirmations of all personal securities transactions.
D. Review
In reviewing transactions, the Compliance Officer shall take into
account the exemptions allowed under Section III.G. Before making a
determination that a violation has been committed by an Access Person,
the Compliance Officer shall give such person an opportunity to supply
additional information regarding the transaction in question.
E. Disclosure of Personal Holdings
All Advisory Persons shall disclose all personal securities holdings
upon commencement of employment and thereafter on an annual basis.
F. Certification of Compliance
Each Access Person is required to certify quarterly that he/she has
read and understood the Fund's Code and recognizes that he/she is
subject to such Code. Further, each Access Person is required to
certify quarterly that he/she has complied with all the requirements of
the Code and that he/she has disclosed or reported all personal
securities transactions pursuant to the requirements of the Code.
V. REQUIREMENTS FOR DISINTERESTED DIRECTORS
A. Every Disinterested Director shall file with the Compliance Officer a
quarterly report indicating that he/she had no reportable transactions
or a report containing the information required in Section IV.C. of
this Code with respect to transactions (other than exempted
transactions listed under
930055.1
8
<PAGE>
Section III.G.) in any securities in which such persons has, or by
reason of such transaction acquires, any direct or indirect beneficial
ownership, if such Director, at the time of that transaction, knew or
should have known, in the ordinary course of pursuing his/her official
duties as Director, that during the 15-day period immediately preceding
or after the transaction by the Director:
1. such security was being purchased or sold by the Fund; or
2. such security was being considered for purchase or sale by the
Fund.
All Disinterested Directors shall file reports, even when no
transactions have been effected, representing that no transactions
subject to reporting requirement were effected.
B. Notwithstanding the preceding section, any Disinterested Director may,
at his/her option, report the information described in section IV.C.
with respect to any one or more transactions and may include a
statement that the report shall not be construed as an admission that
the person knew or should have known of portfolio transactions by the
Fund in such securities.
VI. REVIEW BY THE BOARD OF DIRECTORS
At least annually, the Compliance Officer shall report to the Board of
Directors regarding:
A. All existing procedures concerning Access Persons' personal trading
activities and any procedural changes made during the past year;
B. Any recommended changes to the Fund's Code or procedures; and
C. A summary of any violations which occurred during the past year with
respect to which significant remedial action was taken.
VII. SANCTIONS
A. Sanctions for Violations by Access Persons
If the Compliance Officer determines that a violation of this Code has
occurred, he/she shall so advise the Board of Directors and the Board
may
930055.1
9
<PAGE>
impose such sanctions as it deems appropriate, including, inter alia,
disgorgement of profits, censure, suspension or termination of the
employment of the violator. All material violations of the Code and any
sanctions imposed as a result thereto shall be reported periodically to
the Board of Directors.
B. Sanctions for Violations by Disinterested Directors
If the Compliance Officer determines that any Disinterested Director
has violated this Code, he/she shall so advise the President of the
Fund and also a committee consisting of the Disinterested Directors
(other than the person whose transaction is at issue) and shall provide
the committee with a report, including the record of pertinent actual
or contemplated portfolio transactions of the Fund and any additional
information supplied by the person whose transaction is at issue. The
committee, at its option, shall either impose such sanctions as it
deems appropriate or refer the matter to the full Board of Directors of
the Fund, which shall impose such sanctions as it deems appropriate.
VIII.MISCELLANEOUS
A. Access Persons
The Compliance Officer of the Fund Adviser will identify all Access
Persons who are under a duty to make reports to the Fund and will
inform such persons of such duty. Any failure by the Compliance Officer
to notify any person of his/her duties under this Code shall not
relieve such person of his/her obligations hereunder.
B. Records
The Fund's Compliance Officer shall maintain records in the manner and
to the extent set forth below, which records may be maintained on
microfilm under the conditions described in Rule 31a-2(f) under the
1940 Act, and shall be available for examination by representatives of
the Securities and Exchange Commission ("SEC"):
1. a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place;
930055.1
10
<PAGE>
2. a record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
3. a copy of each report made pursuant to this Code shall be
preserved for a period of not less than five years from the end of
the fiscal year in which it is made, the first two years in an
easily accessible place; and
4. a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code
shall be maintained in an easily accessible place.
C. Confidentiality
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential, except to the
extent required by law.
D. Interpretation of Provisions
The Board of Directors of the Fund may from time to time adopt such
interpretations of this Code as it deems appropriate.
930055.1
11
<PAGE>
CODE OF ETHICS
FOR
LEND LEASE HYPERION CAPITAL ADVISORS, LLC
Lend Lease Hyperion Capital Advisors, LLC (the "Advisor") has determined to
adopt this Code of Ethics (the "Code") as of October 1, 1995, to specify and
prohibit certain types of personal securities transactions deemed to create a
conflict of interest and to establish reporting requirements and preventive
procedures pursuant to the provisions of Rule 204-2 of the Investment Advisers
Act of 1940 ("Advisers Act") and Rule 17j-l(b)(1) under the Investment Company
Act of 1940 ("Investment Company Act").
I. DEFINITIONS
A. An "Access Person" means (i) any Trustee, Director, Officer or Advisory
Person (as defined below) of the Advisor or of any company in a control
relationship to the Advisor or (ii) any Trustee, Director, Officer or
Advisory Person of the Advisor who, with respect to Advisory Clients
(as defined below), makes any recommendation or participates in the
determination of which recommendation shall be made, or whose principal
function or duties relate to the determination of which recommendation
shall be made to the Advisory Clients or who, in connection with his or
her duties, obtains any information concerning securities
recommendations being made by such Advisor to the Advisory Clients.
B. An "Advisory Client" means any individual, group of individuals,
partnership, trust or company, including a registered investment
company, for whom the Advisor acts as an investment Advisor.
C. An "Advisory Person" means any employee of the Advisor or of any
company in a control relationship to the Advisor, who, in connection
with his or her regular functions or duties, makes, participates in or
obtains information regarding the purchase or sale of securities by the
Advisory Clients or whose functions relate to any recommendations with
respect to such purchases or sales and any natural person in a control
relationship with the Advisor who obtains information regarding the
purchase or sale of securities.
D. A "Portfolio Manager" means any person or persons with the direct
responsibility and authority to make investment decisions affecting the
Advisory Clients.
930057.1
<PAGE>
E. "Access Persons," "Advisory Persons" and "Portfolio Managers" shall not
include any individual who is required to and does file quarterly
reports with any investment Advisor, sub-Advisor, administrator or the
principal underwriter substantially in conformity with Rule 17j-1 of
the Investment Company Act or Rule 204-2 of the Advisers Act, provided
however, that the compliance officer of any investment Advisor,
sub-Advisor, administrator, or the principal underwriter shall (i) file
an annual certification with the Advisor stating that such entity has
adopted or approved the continuation of its Code of Ethics,
substantially in the form that was provided to the Board of Managers of
the Advisor, at the time when the Advisor's Code of Ethics was adopted;
and (ii) notify the Advisor's compliance officer of any violation of
such entity's Code of Ethics upon actual knowledge by such compliance
officer that a violation had occurred. The Advisor's compliance officer
shall report any such violations to the Board of Managers of the
Advisor in accordance with the provisions of this Code of Ethics.
F. "Beneficial Ownership" shall be interpreted subject to the provisions
of Rule 16a-l(a) (exclusive of Section (a)(1) of such Rule) of the
Securities Exchange Act of 1934.
G. The "Compliance Officer" is the person designated by the Board of
Managers of the Advisor to monitor the overall compliance with this
Code. In addition, the Compliance Officer will provide preclearance of
any personal security transaction as required by this Code of Ethics.
H. "Control" shall have the same meaning as set forth in Section 2(a)(9)
of the Investment Company Act.
I. "Purchase or sale of a security" includes, among other things, the
writing of an option to purchase or sell a security or the purchase or
sale of a future or index on a security or option thereon.
J. "Security" shall have the meaning as set forth in Section 2(a)(36) of
the Investment Company Act (in effect, all securities), except-that
it-shall not include securities issued by the U.S. Government (or any
other "government security" as that term is defined in the Investment
Company Act), bankers' acceptances, bank certificates of deposit,
commercial paper and such other money market instruments as may be
designated by the Board of Managers of the Advisor and shares of
registered open-end investment companies.
930057.1
2
<PAGE>
K. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell the security has been made and
communicated and, with respect to the person making the recommendation,
when such person seriously considers making such a recommendation.
II. STATEMENT OF GENERAL PRINCIPLES
The following general fiduciary principles shall govern the personal
investment activities of all Access Persons.
Each Access Person shall adhere to the highest ethical standards and
shall:
A. at all times, place the interests of the Advisory Clients before his
personal interests;
B. conduct all personal securities transactions in a manner consistent
with this Code, so as to avoid any actual or potential conflicts of
interest, or an abuse of position of trust and responsibility; and
C. not take any inappropriate advantage of his position with or on behalf
of the Advisory Clients.
III. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES.
A. Blackout Periods
1. No Access Person shall purchase or sell, directly or indirectly,
any security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership on a day
during which he knows or should have known the Advisory Clients
have a pending "buy" and "sell" order in that same security until
that order is executed or withdrawn.
2. No Advisory Person shall purchase or sell, directly or indirectly,
any security in which he has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership within at
least seven calendar days before and after the Advisory Clients
trade (or has traded) in that security.
B. Initial Public Offerings
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No Advisory Person shall acquire any security in an initial public
offering for his or her personal account.
C. Private Placements
With regard to private placements, each Advisory Person shall:
1. obtain express prior written approval from the Compliance Officer
(who, in making such determination, shall consider among other
factors, whether the investment opportunity should be reserved for
the Advisory Clients, and whether such opportunity is being
offered to such Advisory Person by virtue of his position with the
Advisory Clients) for any acquisition of securities in a private
placement; and
2. after authorization to acquire securities in a private placement
has been obtained, disclose such personal investment with respect
to any subsequent consideration by the Advisory Clients for
investment in that issuer.
Any express prior written approval received from the Compliance Officer
shall be valid only on the day on which it was issued. If the Advisory
Clients decide to purchase securities of an issuer, the shares of which
have been previously obtained for personal investment by an Advisory
Person, that decision shall be subject to an independent review by
Advisory Persons with no personal interest in the issuer.
D. Short-Term Trading Profits
No Advisory Person shall profit from the purchase and sale, or sale and
purchase, of the same (or equivalent) securities of which such Advisory
Person has beneficial ownership within 60 calendar days without the
prior written approval of the Compliance Officer. Any short-term
trading profits realized without preclearance shall, unless the
Advisor's Board of Managers approves otherwise, be disgorged as
directed by the Advisor's Board of Managers.
E. Gifts
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No Advisory Person shall receive any gift (i.e., anything of more than
de minimis value) from any person or entity that does business with or
on behalf of the Advisory Clients that poses a potential conflict of
interest.
F. Service as a Director
1. No Advisory Person shall serve on a board of directors of a
publicly traded company without prior authorization from the Board
of Managers of the Advisor, based upon a determination that such
board service would be consistent with the interests of the
Advisor and its investors.
2. If board service of an Advisory Person is authorized by the Board
of Managers of the Advisor such Advisory Person shall be isolated
from the investment making decisions of the Advisor with respect
to the company of which he is a director.
G. Exempted Transactions
The prohibition of Section III shall not apply to:
1. purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control;
2. purchases or sales that are non-volitional on the part of the
Access Person or the Advisory Clients, including mergers,
recapitalizations or similar transactions;
3. purchases which are part of an automatic dividend reinvestment
plan;
4. purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the
extent such rights were acquired from such issuer, and sales of
such rights so acquired; and
5. purchases and sales that receive prior approval in writing by the
Compliance Officer as (a) only remotely potentially harmful to the
Advisory Clients because they would be very unlikely to affect a
highly institutional market, (b) clearly not economically related
to the securities to be purchased or sold or held by the
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Advisory Clients or (c) not representing any danger of the abuses
prescribed by Rule 17j-1, but only if in each case the prospective
purchaser has identified to the Compliance Officer all factors of
which- he- or she is aware which are potentially relevant to a
conflict of interest analysis, including the existence of any
substantial economic relationship between his or her transaction
and securities held or to be held by the Advisory Clients.
IV. COMPLIANCE PROCEDURES
A. Preclearance Procedures
An Access Person may not, directly or indirectly, acquire or dispose of
beneficial ownership of a security except as provided below unless:
1. such purchase or sale has been precleared and approved by the
Compliance Officer;
2. the approved transaction is completed on the same day approval is
received; and
3. the Compliance Officer has not rescinded such approval prior to
execution of the transaction.
B. Security Transactions Requiring Preclearance
An Access Person may not, directly or indirectly, acquire or dispose of
beneficial ownership of the following securities except as provided in
the above preclearance procedures:
1. Any registered investment company or other investment company
affiliated with the Advisor or any members of the Advisor;
2. any securities issued by the Advisor, its affiliates, or its
Advisory Clients;
3. any eligible investment of the Advisory Clients;
4. any mortgage-backed securities (including commercial mortgage
backed securities);
5. any private placements.
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C. Reporting
1. Coverage: Each Access Person shall file with the Compliance
Officer confidential quarterly reports containing the information
required in Section IV.C.2. of this Code with respect to all
transactions during the preceding quarter in any securities in
which such person has, or by reason of such transaction acquires,
any direct or indirect beneficial ownership, provided that no
Access Person shall be required to report transactions effected
for any account over which such Access Person has no direct or
indirect influence or control (except that such an Access Person
must file a written certification stating that he or she has no
direct or indirect influence or control over the account in
question). All such Access Persons shall file reports, even when
no transactions have been effected, representing that no
transactions subject to reporting requirements were effected.
2. Filings: Every report shall be made no later than 10 days after
the end of the calendar quarter in which the transaction to which
the report relates was effected, and shall contain the following
information:
a. the date of the transaction, the title and the number of
shares and the principal amount of each security involved;
b. the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
c. the price at which the transaction was effected; and
d. the name of the broker, dealer or bank with or through whom
the transaction was effected.
3. Any report may contain a statement that it shall not be construed
as an admission by the person making the report that he or she has
any direct or indirect beneficial ownership in the security to
which the report relates.
4. Confirmations: All Access Persons shall direct their brokers to
supply the Advisor's Compliance Officer on a timely basis,
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duplicate copies of confirmations of all personal securities
transactions.
D. Review
In reviewing transactions, the Compliance Officer shall take into
account the exemptions allowed under Section III.G. Before making a
determination that a violation has been committed by an Access Person,
the Compliance Officer shall give such person an opportunity to supply
additional information regarding the transaction in question.
E. Disclosure of Personal Holdings
All Advisory Persons shall disclose all personal securities holdings
upon commencement of employment and thereafter on an annual basis.
F. Certification of Compliance
Each Access Person is required to certify quarterly that he or she has
read and understood the Advisor's Code and recognizes that he or she is
subject to such Code. Further, each Access Person is required to
certify quarterly that he or she has complied with all the requirements
of the Code and that he or she has disclosed or reported all personal
securities transactions pursuant to the requirements of the Code.
V. REVIEW BY THE BOARD OF MANAGERS
At least annually, the Compliance Officer shall report to the Board of
Managers of the Advisor regarding:
A. All existing procedures concerning Access Persons' personal trading
activities and any procedural changes made during the past year;
B. Any recommended changes to the Advisor's Code or procedures; and
C. A summary of any violations which occurred during the past year with
respect to which significant remedial action was taken.
VI. SANCTIONS
A. Sanctions for Violations by Access Persons
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If the Compliance Officer determines that a violation of this Code has
occurred, he or she shall so advise the Board of Managers and the Board
may impose such sanctions as it deems appropriate, including, inter
alia, disgorgement of profits, censure, suspension or termination of
the employment of the violator. All material violations of the Code and
any sanctions imposed as a result thereto shall be reported
periodically to the Board of Managers of the Advisor.
VII. MISCELLANEOUS
A. Access Persons
The Compliance Officer of the Advisor will identify all Access Persons
who are under a duty to make reports to the Advisor and will inform
such persons of such duty. Any failure by the Compliance Officer to
notify any person of his or her duties under this Code shall not
relieve such person of his or her obligations hereunder.
B. Records
The Advisor's Compliance Administrator shall maintain records in the
manner and to the extent set forth below, which records may be
maintained on microfilm under the conditions described in Rule 31a-2(f)
under the Investment Company Act, and shall be available for
examination by representatives of the Securities and Exchange
Commission ("SEC"):
1. a copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place;
2. a record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
3. a copy of each report made pursuant to this Code shall be
preserved for a period of not less than five years from the end of
the fiscal year in which it is made, the first two years in an
easily accessible place; and
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4. a list of all persons who are required, or within the past five
years have been required, to make reports pursuant to this Code
shall be maintained in an easily accessible place.
C. Confidentiality
All reports of securities transactions and any other information filed
pursuant to this Code shall be treated as confidential, except to the
extent required by law.
D. Interpretation of Provisions
The Board of Managers of the Advisor may from time to time adopt such
interpretations of this Code as it deems appropriate.
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