<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1998
SECURITIES ACT OF 1933 FILE NO. 333-49969
INVESTMENT COMPANY ACT OF 1940 FILE NO. 811-08747
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1
POST-EFFECTIVE AMENDMENT NO. ________
AND/OR
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 1
CHARTWELL DIVIDEND AND INCOME FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
C/O PFPC INC.
400 BELLEVUE PARKWAY
WILMINGTON, DELAWARE 19809
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(302) 791-1700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
STEVEN TUROWSKI
C/O PFPC INC.
400 BELLEVUE PARKWAY
WILMINGTON, DELAWARE 19809
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
HENRY S. HILLES, JR., ESQ. SARAH E. COGAN, ESQ.
DRINKER BIDDLE & REATH LLP SIMPSON THACHER & BARTLETT
PHILADELPHIA NATIONAL BANK BUILDING 425 LEXINGTON AVENUE
1345 CHESTNUT STREET NEW YORK, NEW YORK 10017
PHILADELPHIA, PENNSYLVANIA 19107-3496
</TABLE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
It is proposed that this filing will become effective
[X] when declared effective pursuant to section 8(c)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
PROPOSED PROPOSED
TITLE OF MAXIMUM MAXIMUM
SECURITIES BEING AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1)(2) PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(3)
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value per share
$.01................................. 4,600,000 Shares $15.00 $69,000,000 $20,355
</TABLE>
================================================================================
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 600,000 shares of Common Stock which the Underwriters may purchase
to cover over-allotments.
(3) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
THE CHARTWELL DIVIDEND AND INCOME FUND, INC.
CROSS REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
ITEM NUMBER AND HEADING
<TABLE>
<CAPTION>
PART A CAPTION IN PROSPECTUS
- ------ ---------------------
<C> <S> <C>
1. Outside Front Cover....................... Outside Front Cover Page
2. Inside Front and Outside Back Cover
Page...................................... Inside Front Cover Page
3. Fee Table and Synopsis.................... Prospectus Summary; Fee Table
4. Financial Highlights...................... **
5. Plan of Distribution...................... Outside Front Cover Page; Underwriting
6. Selling Shareholders...................... **
7. Use of Proceeds........................... Use of Proceeds
8. General Description of the Registrant..... Prospectus Summary; The Fund
9. Management................................ Management of the Fund
10. Capital Stock, Long-Term Debt, and Other
Securities................................ Dividends and Distributions; Taxes;
Automatic Dividend Reinvestment Plan;
Description of Capital Stock
11. Defaults and Arrears on Senior
Securities................................ **
12. Legal Proceedings......................... **
13. Table of Contents of the Statement of
Additional Information.................... **
PART B
- -----------------------------------------------
14. Cover Page................................ **
15. Table of Contents......................... **
16. General Information and History........... The Fund; Investment Objectives and
Polices; Other Investment Practices;
Investment Rationale
17. Investment Objective and Policies......... Investment Objectives and Policies; Other
Investment Practices; Investment
Restrictions; Portfolio Transactions
18. Management................................ Management of the Fund
19. Control Persons and Principal Holders..... Investment Advisory and Management
Arrangements of Securities
20. Investment Advisory and Other Services.... Management of the Fund; Investment
Advisory and Management Arrangements
21. Brokerage Allocation and Other
Practices................................. Portfolio Transactions
22. Tax Status................................ Taxes
23. Financial Statements...................... Experts; Report of Independent
Accountants; Statement of Assets and
Liabilities
</TABLE>
- ---------------
* Pursuant to the General Instructions to Form N-2, all information required
to be set forth in Part B: Statement of Additional Information has been
included in Part A: The Prospectus.
** Not applicable.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS 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 STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT 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 STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 26, 1998
PROSPECTUS
- ----------------------
4,000,000 SHARES
['CHARTWELL DIVIDEND LOGO']
CHARTWELL DIVIDEND AND INCOME FUND, INC.
COMMON STOCK
------------------------
Chartwell Dividend and Income Fund, Inc. (the "Fund") is a newly organized,
diversified, closed-end management investment company. The Fund's primary
investment objective is to seek high current income. Capital appreciation is a
secondary objective. The Fund will seek to achieve its objectives by investing,
under normal circumstances, at least 50% of its total assets in income
generating equity securities, including dividend paying common stocks,
convertible securities, preferred stocks, and other equity related securities
(collectively, "Income Generating Equity Securities"). In addition, the Fund may
invest the balance of its total assets in non-convertible debt securities,
consisting primarily of corporate bonds ("Debt Securities"). There is no
assurance that the Fund will achieve its investment objectives. The Fund's
investment manager is Chartwell Investment Partners, L.P. (the "Manager").
BECAUSE THE FUND IS NEWLY ORGANIZED, ITS SHARES HAVE NO HISTORY OF PUBLIC
TRADING. Shares of closed-end investment companies frequently trade at a
discount from their net asset value. This risk may be greater for investors
expecting to sell their shares in a relatively short period after completion of
the public offering.
THE DEBT SECURITIES IN WHICH THE FUND MAY INVEST WILL GENERALLY BE HIGH
YIELD, HIGH RISK SECURITIES WHICH ARE RATED BELOW INVESTMENT GRADE OR ARE
UNRATED. SUCH DEBT SECURITIES ARE CONSIDERED SPECULATIVE AND SUBJECT TO CERTAIN
RISKS THAT GENERALLY WILL BE GREATER THAN THOSE OF HIGHER RATED SECURITIES. IN
ADDITION, CERTAIN INCOME GENERATING EQUITY SECURITIES IN WHICH THE FUND MAY
INVEST MAY BE RATED BELOW INVESTMENT GRADE AND GENERALLY WILL HAVE
CHARACTERISTICS SIMILAR TO THOSE OF LOWER RATED DEBT SECURITIES. SEE "INVESTMENT
OBJECTIVES AND POLICIES" AND "SPECIAL RISK CONSIDERATIONS."
This Prospectus sets forth information about the Fund that a prospective
investor should know before investing in the Fund. Investors should read and
retain this Prospectus for future reference.
(Continued on next page)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================================================
PRICE TO SALES LOAD PROCEEDS TO
PUBLIC (1)(2) FUND(3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $15.00 None $15.00
- ---------------------------------------------------------------------------------------------------------------
Total(4)............................ $ None $
===============================================================================================================
</TABLE>
(Footnotes on the following page)
------------------------
The shares are offered by the several Underwriters, subject to prior sale,
when, as and if issued by the Fund and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares will be made in New York, New York on or about
, 1998.
------------------------
<TABLE>
<S> <C>
MERRILL LYNCH & CO. PRUDENTIAL SECURITIES INCORPORATED
ADVEST, INC. EVEREN SECURITIES, INC. JANNEY MONTGOMERY SCOTT INC.
ROBERT W. BAIRD & CO. LEGG MASON WOOD WALKER
INCORPORATED FAHNESTOCK & CO. INC. INCORPORATED
A.G. EDWARDS & SONS, INC.
GRUNTAL & CO., L.L.C.
</TABLE>
------------------------
The date of this Prospectus is , 1998.
<PAGE> 4
(Continued from page 1)
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY OVER-ALLOT OR ENGAGE IN
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE PRICE OF THE COMMON STOCK AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS
MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. SUCH TRANSACTIONS MAY BE EFFECTED
ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The address of the Fund is c/o PFPC Inc., 400 Bellevue Parkway, Wilmington,
Delaware 19809.
At times, the Fund expects to utilize leverage through borrowings, the
issuance of short-term debt securities or the issuance of shares of preferred
stock. Within six months after this offering, the Fund intends to utilize
leverage in an initial amount equal to approximately 20% of its total assets
(including the amount obtained from leverage). The Fund generally will not
utilize leverage if it anticipates that the Fund's leveraged capital structure
would result in a lower return to holders of the Common Stock than that
obtainable if the Common Stock were unleveraged for any significant amount of
time. Use of leverage creates an opportunity for increased income and capital
appreciation, but, at the same time, creates special risks. There can be no
assurance that a leveraging strategy will be successful during any period in
which it is employed. See "SPECIAL LEVERAGE CONSIDERATIONS AND RISKS."
Prior to this offering, there has been no public market for the Fund's
shares of Common Stock. The Common Stock has been approved for listing on the
New York Stock Exchange (the "NYSE"), under the symbol "CWF," subject to
official notice of issuance.
------------------------
(1) The Manager will pay the several Underwriters and Merrill Lynch commissions
in the amount of % and up to %, respectively, of the Price to Public
per share in connection with the sale of shares of Common Stock offered
hereby. See "Underwriting."
(2) The Fund and the Manager have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(3) Before deducting organizational and offering expenses payable by the Fund
estimated at $ .
(4) The Fund has granted the several Underwriters an option exercisable for 45
days after the date hereof to purchase up to an additional shares
to cover over-allotments. If all such shares are purchased, the total Price
to Public and Proceeds to Fund will be $ . See "Underwriting."
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Investors should carefully
consider the information set forth under the heading "Special Risk
Considerations."
The Fund................... Chartwell Dividend and Income Fund, Inc. (the
"Fund") is a newly organized, diversified,
closed-end management investment company. See "The
Fund."
The Offering............... The Fund is offering 4,000,000 shares of Common
Stock at an initial offering price of $15.00 per
share (the "Common Stock"), through a group of
underwriters (the "Underwriters") represented by
Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Prudential Securities
Incorporated, Advest, Inc., Robert W. Baird & Co.
Incorporated, A.G. Edwards & Sons, Inc., EVEREN
Securities, Inc., Fahnestock & Co. Inc., Gruntal &
Co., L.L.C., Janney Montgomery Scott Inc. and Legg
Mason Wood Walker, Incorporated. The number of
shares offered may be substantially different in
the final prospectus. The Underwriters have been
granted an option exercisable for 45 days from the
date of this Prospectus to purchase up to 600,000
additional shares of Common Stock to cover
over-allotments, if any, which number may also be
substantially different in the final prospectus.
See "Underwriting."
Investment Rationale....... The Fund has been developed for investors who seek
high current income and capital appreciation
potential in their investment portfolios through
Income Generating Equity Securities and Debt
Securities. The Manager believes that a portfolio
of combined investments in such securities could
provide an income return which would exceed that of
investment exclusively in equity securities. By
investing at least 50% of the Fund's total assets
in Income Generating Equity Securities, the Fund's
portfolio will also be structured to seek capital
appreciation. See "Investment Rationale."
No Sales Charge............ The shares of Common Stock will be sold during this
offering without any sales load or underwriting
discounts payable by investors or the Fund. The
Manager will pay a commission to the Underwriters
in connection with the sale of shares of Common
Stock in this offering. See "Underwriting."
Investment Objectives and
Policies................. The Fund's primary investment objective is to seek
high current income. Capital appreciation is a
secondary objective. The Fund will seek to
3
<PAGE> 6
achieve its objectives by investing, under normal
circumstances, at least 50% of its total assets in
income generating equity securities, including
dividend paying common stocks, convertible
securities, or preferred stocks and other equity
related securities (collectively, "Income
Generating Equity Securities"). In addition, the
Fund may invest the balance of its total assets in
non-convertible debt securities consisting
primarily of corporate bonds ("Debt Securities").
The Debt Securities in which the Fund may invest
will generally be high yield, high risk securities
which are rated below investment grade or are
unrated, and are considered speculative and subject
to certain risks that may be greater than those of
higher rated securities. The Fund will not invest
more than 50% of its total assets in such
securities, commonly known as junk bonds. In
addition, certain Income Generating Equity
Securities in which the Fund may invest may be
rated below investment grade and generally will
have characteristics similar to those of lower
rated Debt Securities. Such investments are in
addition to investments in high yield, high risk
Debt Securities. See "Investment Objectives and
Policies" and "Special Risk Considerations."
The Fund is not intended to be a complete
investment program and there is no assurance that
the Fund will achieve its investment objectives.
See "Investment Objectives and Policies," "Other
Investment Practices" and "Special Risk
Considerations."
Investment Strategy........ In selecting Income Generating Equity Securities
for the Fund's investment portfolio, the
preponderance of the securities in that portion of
the Fund's portfolio will be selected by the
Manager from among those Income Generating Equity
Securities with a yield greater than that of the
average dividend yield of the Standard & Poor's 500
Composite Index ("S&P 500"). After identifying
qualifying Income Generating Equity Securities, the
Manager will apply fundamental investment analysis
to select the Fund's specific portfolio securities.
With respect to the Debt Securities component of
the Fund's investment portfolio, individual
securities will be screened by the Manager and in-
depth credit research will then be conducted to
arrive at a core group of securities presenting, in
the Manager's opinion, the potential for investment
returns consistent with the Fund's objectives.
The Manager intends to shift investments between
Income Generating Equity Securities and Debt
Securities within the investment policies
established for such securities while analyzing the
yield differential
4
<PAGE> 7
between the two sectors. See "Investment Objectives
and Policies -- Investment Strategy."
Leverage................... At times, the Fund expects to utilize leverage
through borrowings, the issuance of short-term debt
securities or the issuance of shares of preferred
stock (collectively, "Senior Securities"). Within
approximately three to six months after completion
of this offering, the Fund intends to utilize
leverage in an initial amount equal to
approximately 20% of its total assets (including
the amount obtained from leverage). It is
anticipated that dividends on any preferred stock
or interest payments on borrowings or short-term
debt securities will reflect short-term rates, and
that the net return on the Fund's portfolio,
including the proceeds from any offering of Senior
Securities, will exceed the dividend or interest
rate on such securities. Whether to offer Senior
Securities and, if offered, the terms of such
Senior Securities and the timing and other terms of
their offering will be determined by the Fund's
Board of Directors. Through these leveraging
techniques, the Fund will seek to obtain a higher
return for holders of Common Stock than if no
Senior Securities were issued. The proceeds of the
offering of any Senior Securities will be invested
in accordance with the Fund's investment objectives
and policies. Issuance and ongoing expenses of the
Senior Securities will be borne by the Fund and
will reduce the net asset value of the Common
Stock. There can be no assurance that any Senior
Securities will be issued or that a leveraging
strategy will be successful during any period in
which it is employed. Investors should note that
there are special risks and costs associated with
the leveraging of the Common Stock. See "Special
Leverage Considerations and Risks."
Upon issuance of any Senior Securities, holders of
Common Stock will receive all net income of the
Fund remaining after payment of distributions to
the holders of Senior Securities. Upon any
liquidation of the Fund, the holders of shares of
preferred stock, if any preferred stock is issued,
will be entitled to receive liquidating
distributions (expected to equal the original
purchase price per share of preferred stock plus
any accumulated and unpaid dividends thereon) and
principal plus any accrued interest on borrowings
or short-term debt securities will be paid before
any distribution is made to holders of Common
Stock. See "Description of Capital
Stock -- Preferred Stock." Until any Senior
Securities are issued, the Common Stock will not be
leveraged, and the special leverage considerations
described herein will not apply. See "Special
Leverage Considerations and Risks."
5
<PAGE> 8
Investment Manager......... Chartwell Investment Partners, L.P. (the "Manager")
is the investment manager for the Fund and is
responsible for the management of the Fund's
investment portfolio in accordance with the Fund's
investment objectives and policies. At March 31,
1998, the Manager served as advisor or sub-advisor
with respect to approximately $1.7 billion of
assets for institutional and individual clients,
approximately $725 million of which represented
Income Generating Equity Securities and
approximately $200 million of which represented
Debt Securities; it also served as sub-advisor with
respect to $300 million in assets of four
registered investment companies.
The Manager manages the Fund's portfolio and makes
investment decisions, subject to the oversight of
the Board of Directors of the Fund. Under the terms
of an investment management agreement, the Fund
will pay the Manager a monthly fee at the annual
rate of 0.95% of the Fund's Managed Assets (as
defined herein). This fee is higher than fees paid
by other comparable investment companies. See
"Investment Advisory and Management Arrangements."
During periods in which the Fund is utilizing
leverage, the fees which are payable to the Manager
will be greater, and will be higher as a percentage
of the Fund's net assets, than if the Fund did not
utilize a leveraged capital structure because the
fees are calculated as a percentage of the Fund's
assets, including those purchased with leverage.
Administrator.............. Princeton Administrators, L.P. (the
"Administrator") is the Fund's administrator. The
Administrator is an affiliate of Merrill Lynch, one
of the Underwriters. The Fund will pay the
Administrator a monthly fee computed at the annual
rate of 0.15% of the Fund's Managed Assets, subject
to a monthly minimum fee of $12,500. See
"Investment Advisory and Management
Arrangements -- Administrator." During periods in
which the Fund is utilizing leverage, the fees
which are payable to the Administrator will be
greater, and will be higher as a percentage of the
Fund's net assets, than if the Fund did not utilize
a leveraged capital structure because the fees are
calculated as a percentage of the Fund's assets,
including those purchased with leverage.
Share Repurchases and
Tender Offers.............. If, at any time after the second year following
this offering, shares of the Fund's Common Stock
publicly trade for a substantial period of time at
a substantial discount from net asset value, the
Fund's Board of Directors will consider, at its
next regularly scheduled meeting, authorizing
various
6
<PAGE> 9
actions designed to eliminate the discount, which
may include periodic repurchases of or tender
offers for the Fund's shares. No assurance can be
given that the Board of Directors will undertake
any such action or that if repurchases are
undertaken, the Fund's shares will trade at a price
that is close to or equal to net asset value. Under
certain circumstances, a shareholder vote may be
required to authorize periodic repurchases of the
Fund's shares of Common Stock. See "Description of
Capital Stock -- Share Repurchases."
Dividends and
Distributions.............. The Fund intends to distribute a monthly fixed
amount to shareholders, commencing approximately 60
days from the date of this Prospectus. If, for any
monthly distribution, net investment income (which
term includes net realized short-term capital gain)
is less than the amount of the distribution, the
difference will be distributed from the Fund's
assets. The Fund's final distribution for each
calendar year will include any remaining net
investment income undistributed during the year, as
well as all net capital gain realized during the
year. If, for any calendar year, the total
distributions exceed net investment income and net
realized capital gain, the excess, distributed from
the Fund's assets, will generally be treated as a
tax-free return of capital (up to the amount of the
shareholder's tax basis on his shares). The amount
treated as a tax-free return of capital will reduce
a shareholder's adjusted basis on his shares,
thereby increasing his potential gain or reducing
his potential loss on the sale of his shares. Such
excess, however, will be treated as ordinary
dividend income up to the amount of the Fund's
current and accumulated earnings and profits.
Pursuant to the requirements of the Investment
Company Act of 1940, as amended (the "Investment
Company Act") and other applicable laws, a notice
will accompany each monthly distribution with
respect to the estimated source of the distribution
made. Such distribution policy may, under certain
circumstances, have certain adverse consequences to
the Fund and its shareholders. The distributions to
holders of Common Stock will only be payable after
the payment of any interest payments on debt or
dividends on preferred stock required to be paid by
the Fund. See "Dividends and Distributions,"
"Automatic Dividend Reinvestment Plan" and "Taxes"
for a discussion of the Fund's distribution policy
and the circumstances under which such consequences
may occur.
Automatic Dividend
Reinvestment Plan........ The Fund has established an Automatic Dividend
Reinvestment Plan (the "Plan"). Under the Plan, all
dividends and capital gain distributions
7
<PAGE> 10
will be automatically reinvested in additional
shares of Common Stock of the Fund unless a
shareholder elects to receive cash. Shareholders
whose shares are held in the name of a broker or
nominee should contact such broker or nominee to
confirm that they may participate in the Fund's
dividend reinvestment plan. See "Automatic Dividend
Reinvestment Plan."
Listing.................... Prior to this offering, there has been no market
for the shares of Common Stock. The Common Stock
has been approved for listing on the NYSE, under
the symbol "CWF," subject to official notice of
issuance.
Net Asset Value............ The Fund will determine and make available for
publication the net asset value of its Common Stock
on a weekly basis. Currently, the net asset value
of shares of publicly traded closed-end investment
companies are published in Barron's, the Monday
edition of the Wall Street Journal and the Saturday
edition of The New York Times. See "Calculation of
Net Asset Value Per Share."
Custodian, Transfer Agent,
Dividend Disbursing Agent
and Registrar............ PNC Bank, National Association will act as
custodian for the Fund's assets. PFPC Inc. will act
as transfer agent, dividend disbursing agent and
registrar for the Fund's Common Stock.
RISK FACTORS AND SPECIAL CONSIDERATIONS
General.................... The Fund is a newly organized, diversified,
closed-end management investment company and has no
operating history. The net asset value of the
Fund's Common Stock will fluctuate with interest
rate changes as well as with price changes of the
Fund's portfolio securities, and these fluctuations
are likely to be greater in the case of a fund
having a leveraged capital structure, as
contemplated for the Fund. See "Special Leverage
Considerations and Risks." At any time, the Fund
may invest up to 50% of its total assets in high
yield, high risk Debt Securities that are rated
below investment grade or which are unrated but are
of comparable quality as determined by the Manager.
These securities are commonly known as junk bonds.
Debt Securities rated below investment grade are
those rated "Ba1" or lower by Moody's Investors
Service, Inc. ("Moody's") or "BB+" or lower by
Standard & Poor's Corporation ("S&P") or have
similar ratings by other comparable nationally
recog-
8
<PAGE> 11
nized statistical rating organizations. Such
securities are considered by those organizations to
be subject to greater risk of loss of principal and
interest than higher rated securities and are
considered to be speculative with respect to the
issuer's capacity to pay interest and repay
principal in accordance with the terms of the
obligations. In addition, lower rated securities
may be more susceptible to real or perceived
adverse economic and competitive industry
conditions than investment grade securities.
Accordingly, these types of factors could, in
certain instances, reduce the value and liquidity
of securities held by the Fund with a commensurate
negative effect on the value of the Fund's shares.
The market values of Debt Securities which are
rated below investment grade and comparable unrated
securities tend to be more sensitive to
company-specific developments and changes in
economic conditions than higher rated securities.
Issuers of these securities are often highly
leveraged, so that their ability to service their
debt obligations during an economic downturn or
during sustained periods of rising interest rates
may be impaired. In addition, such issuers may not
have more traditional methods of financing
available to them, and may be unable to repay debt
at maturity by refinancing. The risk of loss due to
default in payment of interest or principal by such
issuers is significantly greater than with
investment grade securities because such Debt
Securities frequently are subordinated to the prior
payment of senior indebtedness. See "Investment
Objectives and Policies" and "Special Risk
Considerations."
Lower Rated Convertible
Securities and Preferred
Stock.................... The Fund may invest in convertible securities rated
below investment grade or which are unrated but are
of comparable quality as determined by the Manager.
The Fund includes these securities in its Income
Generating Equity Securities category and they are
in addition to the high yield, high risk Debt
Securities discussed above. Such securities are
judged to have speculative elements and may be
subject to greater risks with respect to the timely
repayment of principal and timely payment of
interest and dividends. See "Investment Objectives
and Policies" and "Special Risk Considerations."
Other Investment
Practices.................. The Fund may employ various additional investment
strategies, such as writing (i.e., selling) covered
call options on equity securities for hedging and
other non-speculative risk management purposes,
entering into repurchase agreements, lending
portfolio securities and purchasing secu-
9
<PAGE> 12
rities on a when-issued or delayed delivery basis,
that entail certain special considerations. For
further discussion of these practices and the
associated risks and special considerations, see
"Other Investment Practices," "Special Risk
Considerations" and "Taxes."
Discount to Net Asset
Value...................... The Fund is a closed-end investment company, and
its shares are not redeemable at the option of the
shareholders. Shares of closed-end investment
companies have in the past frequently traded at
discounts from their net asset values and initial
offering prices. The Fund cannot predict whether
its shares will trade at, above or below net asset
value. The risk may be greater for investors
expecting to sell their shares in a relatively
short period after completion of the public
offering. The Fund is intended primarily for
long-term investors and should not be considered as
a vehicle for trading purposes. See "Special
Leverage Considerations and Risks."
Anti-Takeover Provisions... The Fund's Articles of Incorporation include
provisions that could have the effect of limiting
the ability of other entities or persons to acquire
control of the Fund or to change the composition of
its Board of Directors and could have the effect of
depriving shareholders of an opportunity to sell
their shares at a premium over prevailing market
prices by discouraging a third party from seeking
to obtain control of the Fund. See "Description of
Capital Stock -- Certain Provisions of the Articles
of Incorporation."
10
<PAGE> 13
FEE TABLE
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load (as a percentage of offering price).... None
Dividend Reinvestment Plan Fees........................... None
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE
TO COMMON STOCK):
Management Fees(a)(b)..................................... .95%
Interest Payments on Borrowed Funds(b).................... 1.15
Other Expenses (estimated)(b)............................. .45
----
Total Annual Expenses(b).......................... 2.55%
====
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The expenses set forth under "Other Expenses" are based on estimated
amounts through the end of the Fund's first fiscal year on an annualized basis.
The Example set forth below assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Securities
and Exchange Commission ("Commission") regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND
ACTUAL EXPENSES, LEVERAGE AMOUNT OR ANNUAL RATE OF RETURN MAY BE MORE OR LESS
THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE.
<TABLE>
<CAPTION>
1 3 5 10
EXAMPLE: YEAR YEARS YEARS YEARS
-------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) total annual expenses of 2.55%
(assuming leverage of 20% of the Fund's total assets) and
(2) a 5% annual return throughout the periods and
reinvestment of all dividends and distributions at net
asset value............................................... $26 $79 $136 $289
--- --- ---- ----
</TABLE>
- ---------------
(a) See "Investment Advisory and Management Arrangements."
(b) Assumes that the Fund utilizes leverage by borrowing in an amount equal to
approximately 20% of the Fund's total assets (including the amount obtained
from leverage). The Fund may utilize leverage in an amount up to 33 1/3% of
the Fund's total assets (including the amount obtained from leverage),
depending on economic conditions. If the Fund does not utilize leverage, it
is estimated that, as a percentage of net assets attributable to Common
Stock, the Management Fees would be 0.95%, Other Expenses would be 0.40% and
Total Annual Expenses would be 1.35%. See "Special Leverage Considerations
and Risks."
11
<PAGE> 14
THE FUND
Chartwell Dividend and Income Fund, Inc. (the "Fund") is a newly organized,
diversified, closed-end management investment company. The Fund was incorporated
under the laws of the State of Maryland on April 6, 1998, and has registered
under the Investment Company Act. See "Description of Capital Stock." The Fund's
principal office is located at 400 Bellevue Parkway, Wilmington, Delaware 19809.
The Fund has been organized as a closed-end investment company. Closed-end
investment companies differ from open-end investment companies (commonly
referred to as mutual funds) in that closed-end investment companies do not
redeem their securities at the option of the shareholder, whereas open-end
investment companies issue securities redeemable at net asset value at any time
at the option of the shareholder and typically engage in a continuous offering
of their shares. Accordingly, open-end investment companies are subject to
continuous asset in-flows and out-flows that can complicate portfolio
management. However, shares of closed-end investment companies frequently trade
at a discount from net asset value.
USE OF PROCEEDS
The net proceeds of this offering will be approximately $ (or
approximately $ assuming the Underwriters exercise the over-allotment
option in full) after payment of organizational and offering costs.
The net proceeds of the offering are expected to be fully invested in
accordance with the Fund's investment objectives and policies within a period
not expected to exceed three months from the completion of the offering. Pending
such investment, it is anticipated that all or a portion of the offering
proceeds will be invested in U.S. Government securities or high grade,
short-term money market instruments. See "Investment Objectives and Policies."
INVESTMENT RATIONALE
The Manager believes that the Fund may serve as an attractive investment
vehicle for those investors who seek to earn supplemental income in their
investment portfolios through Income Generating Equity Securities and Debt
Securities.
The Manager believes that greater stability in returns from equity
investments can be achieved by investing in Income Generating Equity Securities.
The income component could then be supplemented further through investments in
high-yielding Debt Securities. Consequently, the Manager believes that the
combined investments in Income Generating Equity Securities and Debt Securities
could provide an income return which would exceed that of an investment
exclusively in equity securities. By investing at least 50% of the Fund's total
assets in Income Generating Equity Securities, the Fund's portfolio will also
seek capital appreciation.
12
<PAGE> 15
Total return from an equity investment is derived from two components,
income and capital appreciation. For the period 1926 through 1997, the income
component, with dividends reinvested, has represented 41% of total return of
large capitalization stocks. Within that period, returns from the income
component of total return have tended to be, over the long term, more stable
than returns from capital appreciation. As an example, annual returns from the
securities comprising the Standard & Poor's 500 Composite Index ("S&P 500") and
its predecessor since its inception in 1926 varied due to the income component
from 2.1% to 8.8%. During the same period, annual returns from capital
appreciation varied from (47.1)% to 46.6%.* Additionally, the Manager has
observed from the historical performance of the S&P 500 that, following periods
of higher relative capital appreciation returns, such as occurred in the late
1920s and the 1950s, returns from income have represented a relatively more
significant component of total return. The 1980s and late 1990s were also
periods of higher relative capital appreciation returns.
The Manager believes that investment opportunities exist in the high yield,
high risk Debt Securities market due to attractive yields and favorable supply
and demand fundamentals. In the current interest rate environment, high yield,
high risk Debt Securities offer attractive yields relative to other investments.
For example, as of March 31, 1998, high yield, high risk Debt Securities were
yielding approximately 324 basis points over duration-equivalent U.S. Treasuries
and approximately 222 basis points over duration-equivalent investment grade
corporate bonds.** Of course, for similar duration instruments, there is greater
volatility in market value with respect to high yield, high risk Debt
Securities, than with respect to investment grade corporate bonds or U.S.
Treasuries. Unlike maturity, which indicates when a security repays principal,
"duration" incorporates the cash flows of all interest and principal payments
and the proceeds from calls and redemptions over the life of a security. These
payments are multiplied by the number of years over which they are received to
produce the "duration" of a security, which is expressed in years. The Manager
also believes that steady demand from current owners of high yield, high risk
Debt Securities, as well as new investors seeking to maximize income, may result
in favorable fundamentals in the high yield, high risk Debt Securities market.
If the economy continues to grow, the Manager believes that corporate earnings
could increase, which would be beneficial to highly leveraged companies. For
example, 1997 default rates have returned to historic lows and the Manager
believes that the overall issue quality is currently satisfactory.
Of course, the S&P 500 is an unmanaged index comprised exclusively of
certain common stocks. Thus, neither the Fund's overall portfolio, which will be
comprised of both equity and debt securities, nor its equity components alone,
which will consist of Income Generating Equity Securities, will duplicate the
composition of the S&P 500. Consequently, there can be no assurance that the
Fund will perform in a manner consistent with the S&P 500 or that the income
component of total return will be as significant and stable a component as it
has been historically. In addition, there is no assurance that the historic
pattern discussed above will be repeated in the future or that the Fund's
investment objectives will be achieved even if this pattern were repeated.
Further, of course, investors should be aware that unlike U.S. Treasuries, high
yield, high risk Debt
- ---------------
* Ibbotson Associates, Stocks, Bonds, Bills, and Inflation 1998 Yearbook.
** Derived from data provided by Merrill Lynch.
13
<PAGE> 16
Securities are not guaranteed as to the payment of interest and principal. Also,
high yield, high risk Debt Securities present investment risks which are greater
than those presented by investment grade corporate debt and U.S. Treasuries. The
Manager believes, however, that the Fund should be well-positioned to provide
for investors favorable results built upon the income component of total return.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Fund's primary investment objective is to seek high current income.
Capital appreciation is a secondary objective. The Fund will seek to achieve its
objectives by investing, under normal circumstances, at least 50% of its total
assets in income generating equity securities, including dividend paying common
stocks, convertible securities, preferred stocks, and other equity related
securities (collectively, "Income Generating Equity Securities"). In addition,
the Fund may invest the balance of its total assets in non-convertible debt
securities consisting primarily of corporate bonds ("Debt Securities"). The
investment objectives of the Fund are fundamental policies that may not be
changed without a vote of a majority of the Fund's outstanding voting
securities, as defined below under "Investment Restrictions." There can be no
assurance that the investment objectives of the Fund will be realized. At times
the Fund may seek to hedge its portfolio through the use of futures transactions
and options to reduce volatility in the net asset value of its shares of Common
Stock.
INVESTMENT STRATEGY
The Fund may invest in a variety of Income Generating Equity Securities and
Debt Securities. In selecting Income Generating Equity Securities for the Fund's
investment portfolio, the preponderance of the securities in the Fund's
portfolio will be selected by the Manager from among those Income Generating
Equity Securities with a dividend yield greater than that of the S&P 500. After
identifying qualifying Income Generating Equity Securities, the Manager will
then apply fundamental investment analysis to select the Fund's specific
portfolio securities. The industry sector weightings in the Income Generating
Equity Securities portion of the Fund's portfolio will be determined based on
the Manager's investment research efforts. No more than 25% of the Fund's total
assets will be invested in any one industry sector nor, as to 75% of the Fund's
total assets, will more than 5% be invested in securities of any one issuer.
Preferred stocks or convertible securities in which the Fund may invest may
be rated below investment grade (i.e., "Ba" or lower for convertible securities
or "ba" or lower for preferred stock by Moody's or "BB" or lower for both
convertible securities and preferred stock by S&P or similarly rated by other
comparable rating agencies) or, if unrated, determined to be of comparable
quality by the Manager. The Fund will not acquire convertible debt securities
that are rated below "C" by Moody's or "CC" by S&P. The Fund includes these
assets in its Income Generating Equity Securities category and they are in
addition to the high yield, high risk Debt Securities discussed below. Such
securities are judged to have speculative elements, and pose a greater
14
<PAGE> 17
risk as to the timely repayment of principal and timely payment of interest and
dividends. See "Special Risk Considerations" and Appendix A to this Prospectus.
The Debt Securities component of the Fund's portfolio will be structured to
earn as high a level of current income as is consistent with reasonable risk in
light of the nature of such investments. The Manager will screen individual
securities for such characteristics as minimum yield and issue size, issue
liquidity, and financial and operational strength. In-depth credit research will
then be conducted to arrive at a core group of securities within this universe
from which the portfolio will be constructed. Ongoing credit monitoring and
adherence to sell disciplines associated with both price appreciation and
depreciation will be utilized to pursue the overall yield and price objectives
of the Fund.
The Fund may invest up to 50% of its total assets in high yield, high risk
Debt Securities that are rated below investment grade or which are unrated but
are of comparable quality as determined by the Manager. These securities are
commonly known as junk bonds. Debt Securities rated below investment grade
include those rated "Ba1" or lower by Moody's or "BB+" or lower by S&P and are
considered by those organizations to be subject to greater risk of loss of
principal and interest than higher rated securities. These securities are
considered to be predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal, which may in any case decline during
sustained periods of deteriorating economic conditions or rising interest rates.
Certain of the Debt Securities in which the Fund may invest may be considered
comparable to securities having the lowest ratings for interest paying debt
instruments by Moody's or S&P (i.e., rated "C" by Moody's or "CC" by S&P). See
"Special Risk Considerations" and Appendix A to this Prospectus.
The Manager intends to shift investments between Income Generating Equity
Securities and Debt Securities based upon its analysis of the yield differential
between the two sectors. Under normal circumstances, the Income Generating
Equity Securities portion of the Fund's portfolio will represent at least 50% of
the Fund's total assets and the Debt Securities portion will represent the
balance of the Fund's total assets.
The Manager considers the following factors, among others, in determining
when to sell Income Generating Equity Securities. If the anticipated yield of
any security declines below the prevailing yield on the S&P 500 as a result of
capital appreciation or a reduction in dividends, the Manager, in its
discretion, may sell the security. With respect to Income Generating Equity
Securities and Debt Securities the Manager will monitor the fundamentals
attributable to the issues of securities held by the Fund and sell a security if
those fundamentals begin to deteriorate. The Manager may also sell Income
Generating Equity Securities or Debt Securities if continuing research
identifies securities that the Manager believes to be more attractive than those
held in the Fund's portfolio.
The following is a more detailed description of some of the securities in
which the Fund may invest and some of the investment techniques which may be
utilized by the Fund.
15
<PAGE> 18
COMMON STOCK
Common stock is defined as shares of a corporation that entitle the holder
to a pro rata share of the profits of the corporation, if any, without a
preference over any other shareholder or class of shareholders, including
holders of the corporation's preferred stock and other senior equity. Common
stock usually carries with it the right to vote and frequently an exclusive
right to do so. Holders of common stock also have the right to participate in
the remaining assets of the corporation after all other claims are paid,
including those of debt securities and preferred stock. In selecting common
stocks for investment, the Manager will focus primarily on a security's
dividend-paying capacity rather than on its potential for appreciation.
PREFERRED STOCK
Generally, preferred stock receives dividends prior to distributions on
common stock and usually has a priority of claim over common stockholders if the
issuer of the stock is liquidated. Unlike common stock, preferred stock does not
usually have voting rights absent the occurrence of specified events; preferred
stock, in some instances, is convertible into common stock. In order to be
payable, dividends on preferred stock must be declared by the issuer's board of
directors. There is, however, no assurance that dividends will be declared by
the boards of directors of issuers of the preferred stocks in which the Fund
invests. Preferred stock in which the Fund may invest may be rated below
investment grade (i.e., "ba" or lower by Moody's or "BB" or lower by S&P or
similarly rated by other comparable rating agencies) or, if unrated, determined
to be of comparable quality by the Manager. See "Special Risk Considerations"
and Appendix A to this Prospectus.
CONVERTIBLE SECURITIES
Traditional convertible securities include corporate bonds, notes and
preferred stocks that may be converted into or exchanged for common stock, and
other securities that also provide an opportunity for equity participation.
These securities are generally convertible either at a stated price or a stated
rate (that is, for a specific number of shares of common stock or other
security). As with other fixed income securities, the price of a convertible
security to some extent varies inversely with interest rates. While providing a
fixed income stream (generally higher in yield than the income derivable from a
common stock but lower than that afforded by a non-convertible debt security), a
convertible security also affords the investor an opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible. As the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the price of a convertible security tends to rise as a reflection of
the value of the underlying common stock. To obtain such a higher yield, the
Fund may be required to pay for a convertible security an amount in excess of
the value of the underlying common stock. Common stock acquired by the Fund upon
conversion of a convertible security will generally be held for so long as the
Manager anticipates such stock will provide the Fund with opportunities which
are consistent with the Fund's investment objectives and policies. Convertible
securities in which the Fund may invest may be rated below investment grade
(i.e., "Ba" or lower by Moody's or "BB" or lower by
16
<PAGE> 19
S&P or similarly rated by other comparable rating agencies) or, if unrated,
determined to be of comparable quality by the Manager. See "Special Risk
Considerations" and Appendix A to this Prospectus.
AMERICAN DEPOSITORY RECEIPTS
The Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American Depository Receipts ("ADRs"). ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. "Sponsored"
ADRs are issued jointly by the issuer of the underlying security and a
depository, whereas "unsponsored" ADRs are issued without participation of the
issuer of the deposited security. Holders of unsponsored ADRs generally bear all
the costs of such facilities and the depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
Therefore, there may not be a correlation between information concerning the
issuer of the security and the market value of an unsponsored ADR. Investments
in ADRs involve risks similar to those accompanying direct investments in
foreign securities. Certain of these risks are described below under "Special
Risk Considerations -- Foreign Securities."
DEBT SECURITIES
A debt security represents money borrowed that must be repaid and has a
fixed amount, a specific maturity or maturities and usually a specific rate of
interest or original purchase discount. Debt securities include bills, bonds,
notes, debentures and commercial paper. Unlike common and preferred stock, a
debt security does not represent an equity interest in the issuer. However, a
debt security has a priority of claim over stockholders if the issuer is
liquidated. The Fund may invest in a wide variety of debt securities, although
it is anticipated that under normal market conditions, the Debt Securities
portion of the Fund's portfolio will be invested primarily in corporate bonds.
Such bonds may be rated below investment grade (i.e., "Ba1" or lower by Moody's
or "BB+" or lower by S&P or similarly rated by other comparable rating agencies)
or, if unrated, determined to be of comparable quality by the Manager. See
"Special Risk Considerations" and Appendix A to this Prospectus.
FUTURE DEVELOPMENTS
From time to time, the Fund may also invest in certain Income Generating
Equity Securities or Debt Securities which have features other than those that
are typical for such securities and which have in the past been offered or may
be offered in the future. In the past, for example, such securities have been
issued to replicate the performance of a certain component or components of a
particular security or combination of securities and/or to hedge or reduce the
risks associated with certain securities or market trends. The Fund may invest
in these securities if the Manager believes that doing so would be consistent
with the Fund's investment objectives and policies. Since the market for these
securities may be new, the Fund may have difficulty disposing of them at a
suitable price and time. In addition to limited liquidity, these instruments may
17
<PAGE> 20
present other risks, such as high price volatility. The unavailability of such
innovative securities would not adversely affect the Fund's ability to achieve
its investment objectives.
DEFENSIVE STRATEGIES
For temporary defensive purposes, the Fund may invest without limit a
portion of its assets in (i) debt securities issued by the U.S. Government, its
agencies or instrumentalities, (ii) commercial paper, (iii) certificates of
deposit and bankers' acceptances or (iv) repurchase agreements with respect to
any of the foregoing investments. The Fund will only invest in commercial paper
of companies rated "A-2" or better by S&P or "P-2" or better by Moody's or
similarly rated by another comparable rating agency or, if not so rated, of
comparable investment quality as determined by the Manager. See Appendix A to
this Prospectus for additional ratings information. The Fund may also invest
without limit in such securities pending the investment of the proceeds of
certain sales of portfolio securities and pending the investment of the initial
proceeds of this offering of Common Stock, or at such other times when suitable
Income Generating Equity Securities or Debt Securities are not available. It is
impossible to predict whether, or for how long, the Fund will use any of such
temporary defensive strategies. Further, the Fund is authorized to borrow up to
5% of its total assets for temporary purposes, such as the clearance of
portfolio transactions, the payment of dividends or in connection with tender
offers or share repurchases.
In addition, the yields on short-term high quality obligations may approach
or be less than the then current dividend or interest rate payable to holders of
any Senior Securities issued by the Fund. In such event, the benefit of
financial leverage to the holders of Common Stock will diminish and the Fund's
leveraged capital structure may work to the disadvantage of the holders of
Common Stock. See "Special Risk Considerations" and "Special Leverage
Considerations and Risks."
OTHER INVESTMENT PRACTICES
COVERED CALL OPTIONS
The Fund may write (i.e., sell) call options on equity securities on a
covered basis only, and will not engage in option writing strategies for
speculative purposes. The Fund may write covered call options from time to time
on such portion of its equity portfolio, in an amount not to exceed 10% of its
total assets, as the Manager determines is appropriate for hedging purposes and
in seeking to achieve the Fund's investment objectives. The Fund may write such
call options on securities that are listed on national securities exchanges or
are traded over the counter. For a discussion of the risks associated with
covered call options, see "Special Risk Considerations -- Covered Call Options."
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery
basis. Securities purchased on a when-issued or delayed delivery basis are
purchased for delivery beyond the normal settlement date at a stated
18
<PAGE> 21
price and yield. No income accrues to the purchaser of a security on a
when-issued or delayed delivery basis prior to delivery. Such securities are
recorded as an asset and are subject to changes in value based upon changes in
the general level of interest rates. Purchasing a security on a when-issued or
delayed delivery basis can involve a risk that the market price at the time of
delivery may be lower than the agreed-upon purchase price, in which case there
could be an unrealized loss at the time of delivery. The Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities but may sell them before
the settlement date if the Manager deems it advisable. The Fund will maintain
cash, U.S. Government securities and other liquid high grade debt securities in
an amount at least equal in value from time to time to the Fund's commitments to
purchase securities on a when-issued or delayed delivery basis.
REPURCHASE AGREEMENTS
A repurchase agreement is a short-term investment by which the purchaser
acquires ownership of a debt security and the seller agrees to repurchase the
obligation at a future time and set price, thereby determining the yield during
the purchaser's holding period. Should an issuer (i.e., the seller) of a
repurchase agreement fail to repurchase the underlying security, the loss to the
Fund, if any, would be the difference between the repurchase price and the
market value of the security. The Fund will limit its investments in repurchase
agreements to those which the Manager, under the guidelines of the Board of
Directors, determines to present minimal credit risks and which are of high
quality. In addition, the Fund must have collateral of at least 100% of the
repurchase price, including the portion representing the Fund's yield under such
agreements which is monitored on a daily basis.
ILLIQUID AND RULE 144A SECURITIES
The Fund may invest up to 15% of its total assets in illiquid securities,
which include securities with contractual restrictions on resale, repurchase
agreements maturing in greater than seven days, and other securities which may
not be readily marketable. In addition, the Fund may purchase securities sold in
reliance on Rule 144A of the Securities Act of 1933, as amended (the "Securities
Act").
While maintaining oversight, the Board of Directors has delegated to the
Manager the day-to-day functions of determining whether or not individual
securities sold to the Fund in reliance on Rule 144A are liquid for purposes of
the Fund's 15% limitation on investments in illiquid assets. The Board has
instructed the Manager to consider the following factors in determining the
liquidity of a security sold to the Fund in reliance on Rule 144A: (i) the
frequency of trades and trading volume for the security; (ii) whether at least
three dealers are willing to purchase or sell the security and the number of
potential purchasers; (iii) whether at least two dealers are making a market in
the security; and (iv) the nature of the security and the nature of the
marketplace trades in the security (e.g., the timing needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer).
If the Manager determines that a security sold to the Fund in reliance on
Rule 144A which was previously determined to be liquid is no longer liquid and,
as a result, the Fund's holdings of illiquid securities
19
<PAGE> 22
exceed the Fund's 15% limit on investment in such securities, the Manager will
determine what action shall be taken to ensure that the Fund continues to adhere
to such limitation. For a discussion of the risks associated with investments in
illiquid securities, see "Special Risk Considerations -- Illiquid Securities."
PORTFOLIO LENDING TRANSACTIONS
The Fund may lend up to 25% of its total assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions. By lending its portfolio securities, the Fund attempts to
increase its income through the receipt of interest on the loan.
The Manager understands that the staff of the SEC permits portfolio lending
by registered investment companies if certain conditions are met. These
conditions are as follows: (i) each transaction must have 100% collateral in the
form of cash, short-term U.S. Government securities, or irrevocable letters of
credit payable by banks acceptable to the Fund from the borrower; (ii) this
collateral must be valued daily and should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund; (iii) the Fund must be able to terminate the loan after notice, at any
time; (iv) the Fund must receive reasonable interest on any loan, and any
dividends, interest or other distributions on the lent securities, and any
increase in the market value of such securities; (v) the Fund may pay reasonable
custodian fees in connection with the loan; and (vi) the voting rights on the
lent securities may pass to the borrower; however, if the Directors of the Fund
know that a material event will occur affecting an investment loan, they must
either terminate the loan in order to vote the proxy or enter into an
alternative arrangement with the borrower to enable the Directors to vote the
proxy. For a discussion of the risks associated with lending portfolio
securities, see "Special Risk Considerations -- Portfolio Lending Transactions."
20
<PAGE> 23
SPECIAL LEVERAGE CONSIDERATIONS AND RISKS
General Leverage Considerations. At times, the Fund expects to utilize
leverage through borrowings, the issuance of short-term debt securities or the
issuance of shares of preferred stock (collectively, "Senior Securities").
Within approximately three to six months after completion of this offering, the
Fund intends to utilize leverage in an initial amount equal to approximately 20%
of its total assets (including the amount obtained from leverage). The Fund may
be leveraged in an amount up to 33 1/3% of its total assets immediately after
the issuance of any Senior Securities. There can be no assurance, however, that
the Fund will engage in any leveraging techniques. Although the terms of any
Senior Securities offering will be determined by the Fund's Board of Directors,
it is anticipated that any dividends paid on any preferred stock or interest
paid on any borrowings or short-term debt securities will be based on short-term
rates, and that the net return on the Fund's portfolio, including the proceeds
of any offering of Senior Securities, will exceed the dividend or interest rate
applicable to the Senior Securities. The proceeds of the offering of any Senior
Securities will be invested in accordance with the Fund's investment objectives
and policies.
Utilization of leverage, however, involves certain risks to the holders of
Common Stock. These include a higher volatility of the net asset value of the
Common Stock and potentially more volatility in the market value of the Common
Stock. So long as the Fund is able to realize a higher net return on its
investment portfolio than the then current dividend or interest rate related to
the Senior Securities, the effect of leverage will be to cause holders of Common
Stock to realize a higher current rate of return than if the Fund were not
leveraged. Similarly, if net capital gains are realized by the Fund, the effect
of leverage will be to increase the amount of such gains distributed to holders
of Common Stock. To the extent that the current dividend or interest rate
related to any Senior Securities approaches the net return on the Fund's
investment portfolio, the benefit of leverage to holders of Common Stock will be
reduced. In addition, the costs of borrowing or the issuance of preferred stock
may exceed the income from the portfolio securities purchased with the proceeds
of the borrowing or the issuance of preferred stock. In that event, the Fund's
leveraged capital structure would result in a lower rate of return to holders of
Common Stock than if the Fund were not leveraged. Similarly, since any decline
in the value of the Fund's investments will be borne entirely by holders of
Common Stock, the effect of leverage in a declining market would result in a
greater decrease in net asset value to holders of Common Stock than if the Fund
were not leveraged, which would likely be reflected in a greater decline in the
market price for shares of Common Stock.
If the Fund leverages through issuing Senior Securities, such Senior
Securities will be subject to the provisions of the Investment Company Act
governing their issuance, including asset coverage requirements and restrictions
on the declaration of dividends and distributions to holders of Common Stock or
purchases of Common Stock in the event such asset coverage requirements are not
met.
The Fund intends to apply for a rating from Moody's or S&P on any preferred
stock or short-term debt securities which it issues although obtaining such a
rating will not eliminate the risks associated with the Fund's use of leverage.
The Fund believes that obtaining one or both ratings for any preferred stock or
short-term debt securities would enhance the marketability of such Senior
Securities and thereby reduce the dividend rate on the preferred stock or the
interest rate on the short-term debt securities from that which the
21
<PAGE> 24
Fund would be required to pay if such Senior Securities were not so rated. The
rating agencies for any preferred stock or short-term debt securities may
require asset coverage maintenance tests that are more stringent than those
imposed by the Investment Company Act. This requirement may also restrict the
amount of any preferred stock or short-term debt securities that may be
outstanding from time to time. It is expected that the terms of any preferred
stock or short-term debt securities will provide for mandatory redemption of
such Senior Securities in the event the Fund fails to meet such asset coverage
maintenance ratios. In such circumstances, the Fund may be required to liquidate
portfolio securities in order to meet redemption requirements. This would have
the effect of reducing the net asset value to holders of the Common Stock.
The ability of the Fund to comply with the asset coverage maintenance
ratios imposed by the Investment Company Act and the rating agencies, may be
subject to circumstances beyond the control of the Fund such as market
conditions for its portfolio securities. The requirements of the Investment
Company Act, any rating agency or the applicable provisions of the documents
establishing the terms of such Senior Securities may limit the Fund's ability to
make dividend or distribution payments to holders of its Common Stock for so
long as any dividend or interest payments on Senior Securities are in arrears or
in default, may limit the Fund's ability to take advantage of certain
investments which might otherwise be available to it, may require the Fund to
invest a greater portion of its assets in more highly rated, potentially lower
yielding securities than it might otherwise do, and may require the Fund to sell
a portion of its assets when it might otherwise be disadvantageous to do so. In
the event that the Fund is required to restructure its portfolio by selling
assets in order to satisfy the requirements set forth above, such sales of
portfolio securities would cause the Fund to incur related transaction costs. In
addition, because of the limitation on payments of dividends or distributions on
Common Stock, as described above, the Fund may be unable to distribute all of
its net investment income to shareholders of Common Stock. To qualify for
federal income taxation as a regulated investment company, the Fund must
distribute in each fiscal year at least 90% of its net investment income. In the
event that the Fund is precluded from making distributions on the Common Stock
because of any applicable asset coverage requirements, the Fund intends to
redeem, repay or call sufficient Senior Securities to enable the Fund to pay
such distributions.
The issuance of any Senior Securities will entail certain initial costs and
expenses such as underwriting discounts or placement fees, fees associated with
any registration of Senior Securities with the Commission, filings under state
securities laws, rating agency fees, legal and accounting fees, printing costs
and certain other ongoing expenses such as administrative and accounting fees.
These costs and expenses will be borne by the Fund and will reduce net assets
available to holders of Common Stock.
Until any Senior Securities are issued, the Fund's Common Stock will not be
leveraged, and the special leverage considerations described in this Prospectus
will not apply. Such leveraging of the Common Stock cannot be fully achieved
until the proceeds of the borrowing or offering of Senior Securities have been
invested in accordance with the Fund's investment objectives and policies. In
addition, the leveraging of the Common Stock would be eliminated during any
period when there are no Senior Securities outstanding.
The timing and the terms of any financial leveraging by the Fund will be
determined by the Fund's Board of Directors based upon prevailing market
conditions and a determination that financial leveraging is expected
22
<PAGE> 25
to achieve the benefits to the holders of Common Stock described in this
Prospectus. If, as a result of intervening changes in market conditions, the
Board of Directors were to determine that the financial leveraging by the Fund
at that time would not increase the potential yield of the Fund to the holders
of Common Stock, the Fund would delay such leveraging until such market
conditions changed. There can be no assurance that the Fund will leverage its
Common Stock.
The Fund's willingness to borrow money and issue new securities for
investment purposes, and the amount it will borrow or issue, will depend on many
factors, the most important of which are investment outlook, market conditions
and interest rates. Successful use of a leveraging strategy depends on the
Manager's ability correctly to predict interest rates and market movements, and
there is no assurance that a leveraging strategy will be successful during any
period in which it is employed.
Preferred Stock. If the Fund leverages through the issuance of preferred
stock, under the requirements of the Investment Company Act, the value of the
Fund's total assets, less all liabilities and indebtedness of the Fund not
represented by senior securities, as defined in the Investment Company Act, must
at least be equal, immediately after any issuance of preferred stock, to 200% of
the aggregate amount of senior securities representing indebtedness plus the
aggregate liquidation value of any outstanding preferred stock. The Investment
Company Act requires that such percentage also be met any time the Fund declares
a dividend or distribution on Common Stock (other than a distribution in Common
Stock) or any time the Fund makes tender offers for or repurchases Common Stock,
in each case after giving effect to such dividend, distribution or repurchase.
The liquidation value of preferred stock is expected to equal the aggregate
original purchase price plus any accumulated and unpaid dividends thereon. See
"Description of Capital Stock -- Preferred Stock."
The Fund will have the authority to redeem any preferred stock that is
issued for any reason and may redeem all or part of such preferred stock if it
anticipates that the Fund's leveraged capital structure will result in a lower
rate of return to holders of the Common Stock than that obtainable if the Common
Stock were unleveraged for any significant amount of time.
Under the Investment Company Act, the holders of any preferred stock,
voting as a class, must have the right to elect at least two Directors at all
times, and, subject to the prior rights, if any, of the holders of any other
class of senior securities outstanding, to elect a majority of the Directors if
at any time dividends on such class of securities shall be unpaid in an amount
equal to two full years' dividends on such securities, and to continue to be so
represented until all dividends in arrears shall have been paid or otherwise
provided for. In addition, the vote of a majority of the preferred stock, voting
as a class, is required to approve any plan of reorganization adversely
affecting the preferred stock, or any action requiring a vote of security
holders pursuant to Section 13(a) of the Investment Company Act, including,
among other things, changes in the Fund's subclassification as a closed-end
investment company or changes in its fundamental policies. The Fund's Articles
of Incorporation also require the approval of at least 75% of all votes entitled
to be cast by the holders of the preferred stock, voting as a separate class,
for certain transactions involving conversion of the Fund to open-end status.
See "Description of Capital Stock -- Certain Provisions of the Articles of
Incorporation."
23
<PAGE> 26
It is anticipated that if the Fund issues preferred stock, it may, from
time to time, attempt to reduce the degree to which it is leveraged by redeeming
or otherwise purchasing shares of preferred stock pursuant to applicable
provisions of the corporate documents establishing the rights and preferences of
the preferred stock. Purchases and redemptions of preferred stock, whether on
the open market or in negotiated transactions, are subject to limitations under
the Investment Company Act. If market conditions subsequently change, the Fund
may sell previously unissued shares of preferred stock or shares of preferred
stock that the Fund previously issued but later repurchased or redeemed.
SPECIAL RISK CONSIDERATIONS
The Fund is a newly organized, diversified, closed-end management
investment company and has no operating history. Shares of closed-end investment
companies frequently trade at a discount from their net asset value. This risk
may be greater for investors expecting to sell their shares in a relatively
short period after completion of the public offering. Accordingly, the Common
Stock of the Fund is designed primarily for long-term investors and should not
be considered a vehicle for trading purposes. The net asset value of the Fund's
Common Stock will fluctuate with interest rate changes as well as with price
changes of the Fund's portfolio securities, and these fluctuations are likely to
be greater in the case of a fund having a leveraged capital structure, as
contemplated for the Fund.
High Yield, High Risk Debt Securities. Investing in high yield, high risk
Debt Securities rated "Ba1" or lower by Moody's or "BB+" or lower by S&P entails
certain risks, including the risk of loss of principal, which may be greater
than the risks involved in investing in investment grade bonds, and which should
be considered by investors contemplating an investment in the Fund. The net
asset value of the Fund's shares will change with fluctuations in the value of
its portfolio securities. The high yield, high risk Debt Securities in which the
Fund will invest generally will be rated below investment grade, or if unrated,
will be of comparable quality as determined by the Manager. These lower rated
and comparable unrated securities involve greater risks than higher rated
securities. Under rating agency guidelines, lower rated securities and
comparable unrated securities will likely have some quality and protective
characteristics that are outweighed by large uncertainties or major risk
exposures to adverse conditions. Such securities are considered speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. Accordingly, it is possible that
these types of factors could, in certain instances, reduce the value and
liquidity of securities held by the Fund with a commensurate effect on the value
of the Fund's shares. See "Special Leverage Considerations and Risks."
The secondary market for high yield, high risk Debt Securities is not as
liquid as the secondary market for higher rated securities. The high yield, high
risk market is characterized by relatively few market makers, participants in
the market being mostly institutional investors including insurance companies,
banks, other financial institutions and mutual funds. In addition, the trading
volume for high yield, high risk Debt Securities is generally lower than that
for higher rated securities and the secondary market could contract under
adverse market or economic conditions independent of any specific adverse
changes in the condition of a particular issuer. These factors may have an
adverse effect on the Fund's ability to dispose of particular
24
<PAGE> 27
portfolio investments and may limit the ability of the Fund to obtain accurate
market quotations for purposes of valuing securities and calculating net asset
value. If the Fund is not able to obtain a precise or accurate market quotation
for a particular security, it will become more difficult for the Board of
Directors to value the Fund's portfolio securities and the Board may have to use
a greater degree of judgment in making such valuations. Less liquid secondary
markets may also affect the Fund's ability to sell securities at their fair
value. The Fund may invest only up to 15% of its total assets in illiquid
securities, which may be more difficult to value and to sell at fair value. If
the secondary market for high yield, high risk Debt Securities contracts due to
adverse economic conditions or for other reasons, certain liquid securities in
the Fund's portfolio may become illiquid and the proportion of the Fund's assets
invested in illiquid securities may increase.
The market values of Debt Securities rated below investment grade and
comparable unrated securities tend to be more sensitive to company-specific
developments and changes in economic conditions than higher rated securities.
Issuers of these securities are often highly leveraged, so that their ability to
service their debt obligations during an economic downturn or during sustained
periods of rising interest rates may be impaired. In addition, such issuers may
not have more traditional methods of financing available to them, and may be
unable to repay debt at maturity by refinancing. The risk of loss due to default
in payment of interest or principal by such issuers is significantly greater
than with investment grade securities because such securities frequently are
subordinated to the prior payment of senior indebtedness.
Certain of the Debt Securities in which the Fund may invest may be
considered comparable to securities having the lowest ratings for interest
paying debt instruments assigned by Moody's or S&P (i.e., rated "C" by Moody's
or "CC" by S&P). These securities are considered to have extremely poor
prospects of ever attaining any real investment standing, to have a current
identifiable vulnerability to default, to be unlikely to have the capacity to
pay interest and repay principal when due in the event of adverse business,
financial or economic conditions, and/or to be in default or not current in the
payment of interest or principal. The Fund will not acquire Debt Securities that
are then in default on their obligations to pay interest. A description of the
bond ratings used by Moody's and S&P is set forth in Appendix A to this
Prospectus.
The Manager will attempt to reduce the risks attendant to investing in high
yield, high risk Debt Securities through portfolio diversification, credit
analysis and attention to trends in the economy, industries and financial
markets.
Lower Rated Convertible Securities and Preferred Stock. The Fund may
invest in lower rated convertible securities and preferred stock (i.e., "Ba" or
lower for convertible securities or "ba" or lower for preferred stock by Moody's
or "BB" or lower for convertible securities or preferred stock by S&P or
similarly rated by other comparable rating agencies) or, if unrated, determined
to be of comparable quality by the Manager. The Fund may have difficulty
disposing of such securities because the trading market for such securities may
be thinner than the market for higher rated convertible securities on preferred
stock. To the extent a secondary trading market for these securities does exist,
it generally is not as liquid as the secondary trading market for higher rated
securities. The lack of a liquid secondary market as well as adverse publicity
with respect to these securities, may have an adverse impact on market price and
the Fund's ability to dispose of particular issues in response to a specific
economic event such as a deterioration in the creditworthiness of
25
<PAGE> 28
the issuer. The lack of a liquid secondary market for certain securities also
may make it more difficult for the Fund to obtain accurate market quotations for
purposes of pricing the Fund's portfolio and calculating its net asset value.
The market behavior of convertible securities and preferred stocks in lower
rating categories is often more volatile than that of higher quality securities.
Lower quality convertible securities and preferred stocks are judged by Moody's
and S&P to have speculative elements or characteristics; their future cannot be
considered as well assured and earnings and asset protection may be moderate or
poor in comparison to investment grade securities. In addition, such lower
quality securities face major ongoing uncertainties or exposure to adverse
business, financial or economic conditions, which could lead to inadequate
capacity to meet timely payments. Certain of the lower rated convertible
securities and preferred stock in which the Fund may invest may be considered
comparable to securities having the lowest ratings for interest paying debt
instruments or dividend paying preferred stock, respectively, assigned by
Moody's or S&P. The lowest ratings for interest paying debt instruments are
stated above. The lowest ratings for preferred stock that is currently paying
dividends are "b" by Moody's (an issue which generally lacks the characteristics
of a desirable investment with small assurance of dividend payments over time)
or "CC" by S&P (an issue in arrears on dividends or sinking fund payments but
that is currently paying). A description of the ratings used by Moody's and S&P
for such securities is set forth in Appendix A to this Prospectus.
Foreign Securities. The Fund may invest in securities of issuers domiciled
outside of the U.S. through the purchase of sponsored or unsponsored ADRs.
Investing in the securities of foreign companies may involve additional risks
and considerations which are not typically associated with investing in the
securities of U.S. companies. Since the securities of foreign companies are
normally denominated in foreign currencies, the Fund may be affected favorably
or unfavorably by changes in currency rates and in exchange control regulations,
and may incur costs in connection with conversions between various currencies.
As foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to U.S. companies, comparable information may not be readily
available about certain foreign companies. Some securities of foreign companies
may be less liquid and more volatile than securities of comparable U.S.
companies. In addition, in certain foreign countries, there is the possibility
of expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in the securities of
issuers domiciled in those countries.
Covered Call Options. A covered call option writer, such as the Fund, may,
during the option period, be assigned an exercise notice by the broker/dealer
through whom the call option was sold requiring the writer to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time as
the writer effects a closing purchase transaction. A closing purchase
transaction cannot be effected with respect to an option once the option writer
has received an exercise notice with respect to such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
Fund to write another call option on the underlying security with a different
exercise price and/or expiration date. The Fund may realize a net gain or loss
from a closing purchase transaction depending upon
26
<PAGE> 29
whether the net amount of the original premium received on the call option is
more or less than the cost of effecting the closing purchase transaction.
The market value of a call option generally reflects the market price of
the underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
Illiquid Securities. The Fund may invest up to 15% of its total assets in
illiquid securities and other securities which may not be readily marketable. In
addition, the Fund may purchase securities sold in reliance on Rule 144A of the
Securities Act. Liquidity relates to the ability of the Fund to sell a security
in a timely manner at a price which reflects the value of that security. The
relative illiquidity of some of the Fund's portfolio securities may adversely
affect the ability of the Fund to dispose of such securities in a timely manner
and at a fair price at times when it might be necessary or advantageous for the
Fund to liquidate portfolio securities. Investing in Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. The risks associated with these investments will be
accentuated in situations in which the Fund's operations require cash, such as
when the Fund tenders for its shares of Common Stock or pays distributions, and
could result in the Fund borrowing to meet short-term cash requirements or
incurring capital losses on the sale of these investments. The market for less
liquid securities tends to be more volatile than the market for more liquid
securities and market values of relatively illiquid securities may be more
susceptible to change as a result of adverse publicity and investor perceptions
than are the market values of more liquid securities. The Manager values the
Fund's investments pursuant to guidelines adopted and periodically reviewed by
the Board of Directors. To the extent that there is no established retail market
for some of the securities in which the Fund may invest, there may be relatively
inactive trading in such securities and the ability of the Manager to accurately
value such securities may be adversely affected. During periods of reduced
market liquidity and in the absence of readily available market quotations for
portfolio securities held in the Fund's portfolio, the responsibility of the
Manager to value the Fund's securities becomes more difficult and the Manager's
judgment may play a greater role in the valuation of the Fund's securities due
to the reduced availability of reliable objective data. To the extent that the
Fund invests in illiquid securities and securities which are restricted as to
resale, the Fund may incur additional risks and costs because such securities
are particularly difficult to dispose of.
Certain securities in which the Fund may invest are subject to legal or
contractual restrictions as to resale ("Restricted Securities") and may
therefore be illiquid by their terms. Restricted Securities may involve added
expense to the Fund should the Fund be required to bear registration costs with
respect to such securities. In the absence of registration, the Fund would be
required to dispose of its Restricted Securities pursuant to an exemption from
registration under the Securities Act, including a transaction in reliance on
Rule 144, which permits only limited sales under specified conditions unless the
Fund has held the securities for at least two years and is unaffiliated with the
issuer. Companies whose securities are not publicly traded are also not subject
to the same disclosure and other legal requirements as are applicable to
companies with publicly traded securities.
27
<PAGE> 30
Portfolio Lending Transactions. The major risk to which the Fund would be
exposed on a portfolio lending transaction is the risk that the borrower would
fail financially at a time when the value of the security increases. In
addition, should the borrower become insolvent, the Fund could be faced with
loss of rights in the collateral. Therefore, the Fund will enter into loan
arrangements only after a review of all pertinent facts by the Manager, subject
to overall supervision by the Board of Directors, including the creditworthiness
of the borrowing broker, dealer or institution and then only if the
consideration to be received from such loans would justify the risk.
Creditworthiness will be monitored on an ongoing basis by the Manager.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Manager and the Fund's other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This possibility is commonly known as
the "Year 2000 Problem." The Manager is taking steps to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by the Fund's other major
service providers. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund which may
not be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, voting as a single class, and the approval of the
holders of a majority of the Fund's preferred stock, if any, voting as a
separate class. A "majority of the Fund's outstanding voting securities" for
this purpose and under the Investment Company Act means the lesser of (i) 67% or
more of the shares of Common Stock and preferred stock, if any, represented at a
meeting at which more than 50% of the outstanding shares of Common Stock and
preferred stock, if any, are represented, voting as a single class or as
separate classes, as the case may be, or (ii) more than 50% of the outstanding
shares of Common Stock and preferred stock, if any, voting as a single class or
as separate classes, as the case may be. The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of
its total assets in securities of any one issuer (except the U.S.
Government, its agencies or instrumentalities or repurchase agreements
collateralized by any of such obligations) or purchase more than 10% of the
outstanding voting securities of any one issuer.
2. Invest for the purpose of exercising control over any issuer.
3. Purchase or sell real estate except securities secured by real
estate or interests therein.
4. Make short sales of securities or purchase securities on margin
except for delayed delivery or when-issued transactions or such short-term
credits as are necessary for the clearance of transactions and the writing
of call options on securities described above.
5. Purchase or sell commodities, commodity futures contracts or
commodity contracts.
28
<PAGE> 31
6. Borrow money or issue senior securities, as defined in the
Investment Company Act, except as permitted by the Investment Company Act.
7. Make loans except through purchasing fixed income securities,
lending portfolio securities and entering into repurchase agreements
consistent with the Fund's investment objectives and policies.
8. Act as an underwriter of securities of other issuers, except that
the Fund may acquire restricted or not readily marketable securities under
circumstances where, if such securities are sold, the Fund might be deemed
to be an underwriter for purposes of the Securities Act, as amended.
9. Invest 25% or more of its total assets in any one industry, except
that there is no limitation with respect to investment in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or repurchase agreements collateralized by any of such
obligations.
If a percentage restriction under one of the Fund's investment policies or
restrictions or the use of assets set forth in this Prospectus is adhered to at
the time a transaction is effected, later changes in percentage resulting from
changing values will not be considered a violation (except with respect to any
restrictions that may apply to borrowings or senior securities issued by the
Fund).
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The business and affairs of the Fund are managed under the direction of its
Board of Directors. Each Director will initially serve until the Fund's 1999
Annual Meeting of Shareholders, when Directors will be divided as equally as
possible into three classes. The terms of office of the classes of Directors
elected at the Fund's Annual Meeting of Shareholders shall expire at the times
of the annual meetings of shareholders as follows: class I in 2000, class II in
2001 and class III in 2002. Thereafter, the Directors will serve staggered
three-year terms. Directors and principal officers of the Fund and their
business experience for the past five years follow. Unless otherwise noted, the
address of each officer and Director is c/o Chartwell Investment Partners, L.P.,
1235 Westlakes Drive, Suite 330, Berwyn, Pennsylvania 19312.
The Fund has one director, Mr. Herlihy, who is not an "interested person",
as defined in the Investment Company Act. An additional director, who is not an
interested person, will be named before the Fund commences operations.
WINTHROP S. JESSUP* (52) -- Chairman, President and Director -- Partner of
the Manager and of Chartwell G.P., Inc. since 1997; from 1977 to 1997, Mr.
Jessup held a series of positions with Delaware Management Company, Inc., an
investment management firm, and certain affiliated companies, most recently the
positions of Executive Vice President and Director.
- ---------------
* This director is an "interested person", as defined in the Investment Company
Act, of the Fund.
29
<PAGE> 32
KEVIN F. HERLIHY (69) -- Director -- Sculptor, who has worked independently
since his retirement from mutual fund management approximately ten years ago.
BERNARD P. SCHAFFER* (53) -- Vice President and Director -- Partner of the
Manager and of Chartwell G.P., Inc. since 1997; from 1978 to 1988, Mr. Schaffer
was Associate Managing Director of Wertheim Schroder & Co., a brokerage firm,
from 1988 until 1990, Senior Vice President of Prudential Securities, and from
1990 to 1997, Portfolio Manager of Delaware Investment Advisers, a division of
Delaware Management Company, Inc.
KEVIN A. MELICH* (55) -- Vice President and Director -- Partner of the
Manager and of Chartwell G.P., Inc. since 1997; from 1964 to 1981, Mr. Melich
was Portfolio Manager of Security Trust Co., from 1981 to 1983, Vice President
of A.B. Laffer Associates, an economic consulting firm, and from 1983 to 1997,
Portfolio Manager of Delaware Investment Advisers, a division of Delaware
Management Company, Inc.
TIMOTHY J. RIDDLE (42) -- Vice President and Treasurer -- Partner of the
Manager and of Chartwell G.P., Inc. since 1997; from 1986 to 1997, Mr. Riddle
was a Senior Vice President in Client Services for Delaware Investment Advisers,
a division of Delaware Management Company, Inc.
G. GREGORY HAGAR (29) -- Vice President -- Controller of the Manager since
1997; in 1990, Mr. Hagar was Senior Auditor of Northwest Administrators, Inc.,
an employee benefits administration firm, from 1991 to 1995, Supervisor of the
Financial Services Group of Hemming Morse CPAs and Consultants, and from 1996 to
1997, National Accounting and Systems Adviser of Land Title Insurance Company.
LESLIE M. VARRELMAN (38) -- Vice President -- Director of Fixed Income for
the Manager since 1997; from 1981 to 1994, Ms. Varrelman was Vice President
Portfolio Manager of CoreStates Investment Advisers and from 1994 to 1997, Vice
President of Meridian Investment Company.
MICHAEL P. MALLOY (38) -- Secretary -- Partner in the law firm of Drinker
Biddle & Reath LLP since 1993.
MARIA E. POLLACK (52) -- Assistant Secretary -- Director of Client
Administration for the Manager since 1997; from 1982 to 1997, Ms. Pollack held a
series of positions with Delaware Investment Advisers, a division of Delaware
Management Company, Inc., most recently the position of Assistant Vice
President.
Under the Investment Company Act, holders of shares of preferred stock
(when and if issued) will be entitled to elect two Directors if and when
submitted to a vote, and the remaining Directors, subject to the provisions of
the Investment Company Act and the Fund's Articles of Incorporation, as
supplemented or amended, will be elected by the holders of Common Stock and
preferred stock, if any, voting together as a single class. When dividends are
in arrears for two full years, such provisions permit the holders of shares of
preferred stock, if any, to elect the minimum number of additional Directors
that when combined with the two Directors elected by the holders of preferred
stock would allow the holders of such shares to elect a majority of the
Directors.
- ---------------
* This director is an interested person, as defined in the Investment Company
Act, of the Fund.
30
<PAGE> 33
Under the Investment Company Act, the terms of any Senior Securities
consisting of debt which are offered, must provide either that (i) the holders
of Senior Securities consisting of debt, voting as a class, have the right to
elect at least a majority of the members of the Board of Directors if on the
last business day of each of 12 consecutive calendar months such Senior
Securities have an asset coverage of less than 100% and such voting right shall
continue until such Senior Securities have an asset coverage of 110% or more on
the last business day of each of three consecutive calendar months, or (ii) an
event of default shall be deemed to have occurred if such Senior Securities
consisting of debt do not have an asset coverage of 100% on the last business
day of each of 24 consecutive calendar months. If required by an agency rating
any such Senior Securities or if the Board of Directors determines it to be in
the best interest of the holders of Common Stock, more restrictive voting
provisions may be imposed than those required by the Investment Company Act.
COMPENSATION OF DIRECTORS
The Fund pays each Director not affiliated with the Manager an annual fee
of $4,000 per year plus $250 per meeting attended, together with such Director's
actual out-of-pocket expenses relating to attendance at meetings. The Fund also
pays members of the Audit Committee of the Board of Directors, which consists of
all of the Directors not affiliated with the Manager, an annual fee of $250. The
Chairman of the Audit Committee receives an additional fee of $ per
year.
The following table sets forth compensation to be paid by the Fund to the
non-affiliated Directors projected through the end of the Fund's first full
fiscal year.
<TABLE>
<CAPTION>
AGGREGATE
NAME OF DIRECTOR COMPENSATION FROM FUND*
---------------- -----------------------
<S> <C>
Kevin F. Herlihy....................................... $2,500
</TABLE>
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* As the Fund is not part of a fund complex, the Directors do not receive fees
from any related funds.
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS
Chartwell Investment Partners, L.P., a Pennsylvania limited partnership
(the "Manager"), furnishes investment management services to the Fund. The
Manager's business address is 1235 Westlakes Drive, Suite 330, Berwyn,
Pennsylvania 19312.
Chartwell G.P., Inc. is the general partner of the Manager, which is the
sole business of Chartwell G.P., Inc. Chartwell G.P., Inc. may be deemed to be a
controlling person of the Manager, and is in turn controlled by the following
persons who are active partners and portfolio managers of the Manager: Edward
Antoian, Terry Bovarnick, David Dalrymple, Winthrop Jessup, Michael McCloskey,
Kevin Melich, Harold Ofstie, Timothy Riddle and Bernard Schaffer.
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<PAGE> 34
The Manager manages the Fund's portfolio and makes investment decisions.
For these services, the Fund pays the Manager a monthly fee at the annual rate
of 0.95% of the Fund's Managed Assets. "Managed Assets" means the average weekly
value of the Fund's total assets minus the Fund's liabilities, other than debt
relating to leverage, which liabilities exclude the aggregate liquidation
preference of any outstanding preferred stock or short-term debt. The fee is
higher than fees paid by other comparable investment companies. During periods
in which the Fund is utilizing leverage, the fees which are payable to the
Manager will be greater, and will be higher as a percentage of the Fund's net
assets, than if the Fund did not utilize a leveraged capital structure because
the fees are calculated as a percentage of the Fund's assets, including those
purchased with leverage.
The Income Generating Equity Securities portion of the Fund's portfolio
will be managed by Mr. Bernard P. Schaffer, Partner of the Manager and Vice
President of the Fund. Mr. Schaffer is a founding partner of the Manager. Mr.
Schaffer earned a Bachelor's degree in Economics from Villanova University and a
Master's degree in Business Administration from the University of Pennsylvania's
Wharton School. From 1990 to 1997, he was employed as a Senior Portfolio Manager
at Delaware Investment Advisers, an affiliate of Delaware Management Company,
Inc., as senior manager of two closed-end funds, the Delaware Group Dividend and
Income Fund, Inc. and the Delaware Group Global Dividend and Income Fund, Inc.
He was also responsible for managing approximately $1.0 billion in institutional
accounts in the equity income, value style.
The Debt Securities portion of the Fund's portfolio will be managed by
Leslie M. Varrelman, Director of Fixed Income for the Manager and Vice President
of the Fund. Ms. Varrelman earned a Bachelor's degree in Business Administration
from Juniata College. Prior to joining the Manager, Ms. Varrelman was a Vice
President at Meridian Investment Company from 1994 to 1997, where she was a
manager of close to $2.0 billion in institutional fixed income accounts, as well
as the core value fixed income mutual funds. From 1981 to 1994, she was a Vice
President at CoreStates Investment Advisers where she was a manager for all
fixed income mutual funds and developed the limited maturity fixed income
product.
ADMINISTRATOR
Under the terms of an administration agreement between Princeton
Administrators, L.P. (the "Administrator") and the Fund (the "Administration
Agreement"), the Administrator performs or arranges for the performance of
certain administrative services necessary for the operation of the Fund,
including maintaining certain of the books and records of the Fund, preparing
certain reports and other documents required by the U.S. federal securities laws
and regulations, responding to inquiries from Fund shareholders, calculating and
distributing for publication the net asset value of the Fund's shares and
providing the Fund with certain administrative office facilities. For the
services rendered to the Fund and the facilities furnished, the Fund will pay
the Administrator a monthly fee at the annual rate of 0.15% of the Fund's
average weekly Managed Assets, subject to a monthly minimum fee of $12,500. The
Administration Agreement will continue in effect until terminated by either
party upon 60 days' prior written notice. During periods in which the Fund is
utilizing leverage, the fees which are payable to the Administrator will be
greater, and will be higher as a
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<PAGE> 35
percentage of the Fund's net assets, than if the Fund did not utilize a
leveraged capital structure because the fees are calculated as a percentage of
the Fund's assets, including those purchased with leverage.
TERMS OF INVESTMENT MANAGEMENT AGREEMENT
Under the terms of an investment management agreement between the Fund and
the Manager (the "Investment Management Agreement"), the Manager will manage the
investment and reinvestment of the assets of the Fund, subject to the direction
of the Board of Directors and officers of the Fund. Directors, officers and
employees of the Manager may be Directors, officers and employees of the Fund.
Those individuals shall not receive any compensation from the Fund for acting in
such dual capacity. In the conduct of the respective business of the Fund and
Manager and in the performance of the Investment Management Agreement, the
parties may share facilities, with appropriate proration of expenses between
them, except that the Manager shall pay all executive salaries and executive
expenses of the Fund. The Fund shall bear all its other expenses. See "Expenses
of the Fund" below. The Investment Management Agreement provides that the
Manager may render similar investment services to others.
Unless earlier terminated as described below, the Investment Management
Agreement will remain in effect until , 2000 and may be renewed
thereafter if such renewal is approved annually by (i) a majority of the
Directors who are not parties to the Investment Management Agreement or
interested persons (as defined in the Investment Company Act) of any such party,
and (ii) the Board of Directors of the Fund or a majority of the outstanding
voting securities of the Fund. The Investment Management Agreement may be
terminated without penalty at any time by the Fund upon the vote of a majority
of the Fund's Board of Directors or a majority of the outstanding voting
securities of the Fund or by the Manager, on 60 days' written notice by either
party to the other. In addition, the Investment Management Agreement will
terminate in the event it is assigned (as defined in the Investment Company
Act).
The Investment Management Agreement provides that, in the absence of
willful misfeasance, bad faith, gross negligence, or a reckless disregard of the
performance of its duties thereunder, the Manager is not liable to the Fund or
to any stockholder of the Fund for any action or omission in the course of
rendering services under the Investment Management Agreement or for any losses
that may be sustained in the purchase, holding or sale of any security.
EXPENSES OF THE FUND
Except as indicated above, the Fund will pay all of its expenses, including
fees of the Directors not affiliated with the Manager and Board meeting
expenses; fees of the Manager and the Administrator; interest charges; taxes;
organizational expenses; charges and expenses of the Fund's legal counsel and
independent auditors, and of the transfer agent, registrar and dividend
disbursing agent of the Fund; expenses of repurchasing shares; expenses of
issuing any short-term debt securities or preferred stock; expenses of printing
and mailing share certificates, stockholder reports, notices, proxy statements
and reports to governmental offices; brokerage and other expenses connected with
the execution, recording and settlement of portfolio security transactions;
expenses connected with negotiating, effecting purchase or sale, or registering
privately
33
<PAGE> 36
issued portfolio securities; custodial fees and expenses for all services to the
Fund, including safekeeping of funds and securities and maintaining required
books and accounts; expenses of calculating and publishing the net asset value
of the Fund's shares; expenses of membership in investment company associations;
expenses of fidelity bonding and other insurance expenses including insurance
premiums; expenses of stockholders meetings; Commission and state registration
and filing fees; New York Stock Exchange listing fees; fees payable to the
National Association of Securities Dealers, Inc. in connection with this
offering and fees of any rating agencies retained to rate any senior securities
issued by the Fund; and any extraordinary expenses. The Fund also is obligated
to repay any borrowings it may incur.
PORTFOLIO TRANSACTIONS
The Manager is responsible for the execution of the Fund's portfolio
transactions. The primary consideration is prompt execution of orders at the
most favorable net price. The Manager takes into account such factors as the
applicable brokerage commission or dealer spread, size of order and difficulty
of execution, operational facilities of the firm involved, the firm's risk in
positioning a block of securities, whether supplemental research has been
received from the firm, and whether it has sold shares of the Fund's Common
Stock. While the Manager generally seeks reasonably competitive commission
rates, the Fund does not necessarily pay the lowest commission or spread
available.
The Manager allocates brokerage transactions in its best judgment and in a
manner deemed fair and reasonable to shareholders. The Fund may pay a firm which
furnishes supplemental research services a higher brokerage commission than that
which might be charged by another firm for effecting the same transaction,
provided that such commission is deemed reasonable in terms of either that
particular transaction or the overall responsibilities of the Manager to the
Fund. Supplemental research services may include analyses and reports concerning
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. Information so received is in addition to and not in
lieu of services performed by the Manager, and its fees are not reduced as a
consequence of the receipt of such supplemental information. Such information
may be useful to the Manager in serving both the Fund and other accounts which
it advises and, conversely, supplemental information obtained by the placement
of business of other clients may be useful to the Manager in carrying out its
obligations to the Fund.
On occasions when the Manager deems the purchase or sale of a security to
be in the best interest of the Fund as well as other clients, the Manager may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for such other clients in order to obtain the best net price
and most favorable execution under the circumstances. In such event, allocation
of the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Manager in the manner it considers to be
equitable and consistent with its fiduciary obligations to the Fund and such
other clients. In some instances, this procedure may adversely affect the price
and size of the position obtainable for a Fund.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes
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<PAGE> 37
a profit to the dealer. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount.
The Fund normally will not invest for short-term trading purposes. However,
the Fund may sell portfolio securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund. Given the Fund's investment objectives, its annual portfolio turnover
rate is not expected to exceed 100%. A turnover rate of 100% would occur, for
example, if all the investments in the Fund's portfolio at the beginning of the
year were replaced by the end of the year.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute a monthly fixed amount to shareholders,
commencing approximately 60 days from the date of this Prospectus. If, for any
monthly distribution, net investment income (which term includes net realized
short-term capital gain) is less than the amount of the distribution, the
difference will be distributed from the Fund's assets. The Fund's final
distribution for each calendar year will include any remaining net investment
income undistributed during the year, as well as all net capital gain realized
during the year. If, for any calendar year, the total distributions exceed net
investment income and net realized capital gain, the excess, distributed from
the Fund's assets, will generally be treated as a tax-free return of capital (up
to the amount of the shareholder's tax basis on his shares). The amount treated
as a tax-free return of capital will reduce a shareholder's adjusted basis on
his shares, thereby increasing his potential gain or reducing his potential loss
on the sale of his shares. Such excess, however, will be treated as ordinary
dividend income up to the amount of the Fund's current and accumulated earnings
and profits. In calculating the amount of each monthly distribution, the Fund's
net asset value will be measured as of the business day immediately preceding
the declaration date of such distribution. Pursuant to the requirements of the
Investment Company Act and other applicable laws, a notice will accompany each
monthly distribution with respect to the estimated source of the distribution
made. The Board of Directors reserves the right to change the aforementioned
dividend policy from time to time.
In the event the Fund distributes amounts in excess of its net investment
income and net capital gain, such distributions will decrease the Fund's total
assets and, therefore, have the likely effect of increasing the Fund's expense
ratio. In addition, in order to make such distributions, the Fund may have to
sell a portion of its investment portfolio at a time when independent investment
judgment might not dictate such action. See "Taxes."
Additionally, under the Investment Company Act, the Fund may not declare
any dividend or other distribution upon any class of its capital stock, or
purchase any such capital stock, unless the aggregate indebtedness of the Fund
has, at the time of the declaration of any such dividend or distribution or at
the time of any such purchase, an asset coverage of at least 300% after
deducting the amount of such dividend, distribution, or purchase price, as the
case may be. While any shares of preferred stock are outstanding, the Fund may
not declare any cash dividend or other distribution on its Common Stock, unless
at the time of such declaration, (1) all accumulated preferred stock dividends
have been paid and (2) the net asset value of the
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<PAGE> 38
Fund's portfolio (determined after deducting the amount of such dividend or
other distribution) is at least 200% of the liquidation value of the outstanding
preferred stock (expected to be equal to the original purchase price per share
plus any accumulated and unpaid dividends thereon). In addition to the
limitations imposed by the Investment Company Act described in this paragraph,
certain lenders may impose additional restrictions on the payment of dividends
or distributions on the Fund's Common Stock in the event of a default on the
Fund's borrowings. Any limitation on the Fund's ability to make distributions on
its Common Stock could under certain circumstances impair the ability of the
Fund to maintain its qualification for taxation as a regulated investment
company. See "Special Leverage Considerations and Risks" and "Taxes."
See "Automated Dividend Reinvestment Plan" for information concerning the
manner in which dividends and distributions to holders of Common Stock may be
automatically reinvested in shares of Common Stock of the Fund. Dividends and
distributions may be taxable to shareholders whether they are reinvested in
shares of the Fund or received in cash.
The Fund expects that it will commence paying dividends within
approximately 60 days after the completion of this offering.
TAXES
GENERAL
The following summary reflects the existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and other relevant federal income
tax authorities as of the date of this Prospectus. The federal income tax
consequences described below are merely statements of general tax principles.
The discussion does not deal with the federal income tax consequences applicable
to all categories of investors, some of whom may be subject to special rules. A
shareholder in the Fund should consult his or her own tax adviser concerning
these matters.
FEDERAL TAX TREATMENT OF THE FUND
The Fund intends to qualify annually to be taxed as a regulated investment
company ("RIC") under Subchapter M of the Code. To so qualify, the Fund must,
among other things: (a) derive at least 90% of its annual gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock or securities, foreign currencies or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the end of each fiscal
quarter of the Fund, (i) at least 50% of the market value of the Fund's total
assets is represented by cash, cash items, U.S. Government securities,
securities of other RICs and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and not greater than 10% of the outstanding
voting securities of such issuer; and (ii) not more than 25% of the market value
of the Fund's total assets are invested in the securities of any one issuer
(other than U.S. Government securities or securities of
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<PAGE> 39
other RICs) or two or more issuers which are controlled by the Fund and are
determined, pursuant to Department of Treasury regulations, to be in the same,
similar or related trades or businesses. In meeting these requirements, the Fund
may be restricted in the utilization of certain of the investment techniques
described under "Other Investment Practices -- Covered Call Options."
As a RIC, the Fund will not be subject to federal income tax on the part of
its net investment income (i.e., its investment company taxable income, as that
term is defined in the Code, without regard to the deduction for dividends paid)
and net capital gain (i.e., the excess of its net long-term capital gain over
net short-term capital loss), if any, that it distributes to its shareholders,
provided the Fund distributes at least 90% of its net investment income for its
taxable year to Fund shareholders. If in any year the Fund should fail to
qualify under Subchapter M for tax treatment as a RIC, the Fund would incur a
regular federal corporate income tax upon its taxable income for that year and
distributions to its shareholders would not be deductible by the Fund in
computing its taxable income. Furthermore, distributions in such case would be
taxable to such shareholders as ordinary income to the extent of earnings and
profits of the Fund.
The Fund will be subject to a non-deductible 4% excise tax to the extent
that the Fund does not distribute by the end of each calendar year an amount
equal to the sum of (a) 98% of the Fund's ordinary income for such year; (b) 98%
of the capital gain net income for the one-year period ending on October 31 of
such year; and (c) the undistributed income and gain, if any, from the previous
years.
FEDERAL TAX TREATMENT OF SHAREHOLDERS
Distributions. Dividends from net investment income (which term includes
net realized short-term capital gain) will be taxable to shareholders as
ordinary income, whether received in cash or reinvested in additional Fund
shares. Distributions of net capital gain, if any, that the Fund designates as
"capital gain dividends" in a notice to its shareholders will be taxable to
shareholders as long-term capital gain, whether received in cash or reinvested
in additional shares, regardless of the length of time the shareholder has owned
Fund shares. For individuals, long-term capital gain is subject to a maximum tax
rate of 28% (with respect to capital assets held more than 12 months but not
more than 18 months) or 20% (with respect to capital assets held more than 18
months), while ordinary income is subject to a maximum tax rate of 39.6%.
For a corporate shareholder, dividends from net investment income may
generally qualify in part for the corporate dividends-received deduction. The
portion of dividends paid by the Fund that so qualifies will be designated each
year in a notice from the Fund to its shareholders, and cannot exceed the gross
amount of dividends received by the Fund that would have qualified for the
dividends-received deduction in the hands of the Fund if the Fund were a regular
corporation. A dividend received by the Fund will not be treated as a qualifying
dividend (1) if it has been received with respect to any share of stock that the
Fund has held for less than 46 days (91 days in the case of certain preferred
stock) during the 90-day period beginning on the date which is 45 days before
the date on which such share becomes ex-dividend with respect to such dividend
(during the 180-day period beginning 90 days before such date in the case of
certain preferred stock), excluding for this purpose any period during which the
Fund has an option to sell, is under a contractual obligation to sell, has made
and not closed a short sale of, is the grantor of a deep-in-the-money or
otherwise
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<PAGE> 40
nonqualified option to buy, or has otherwise diminished its risk of loss by
holding other positions with respect to, such (or substantially identical)
stock; (2) to the extent that the Fund is under an obligation (pursuant to a
short sale or otherwise) to make related payments with respect to positions in
substantially similar or related property; or (3) to the extent the stock on
which the dividend is paid is treated as debt-financed under the rules of Code
Section 246A. Moreover, the dividends-received deduction for a corporate
shareholder may be disallowed or reduced (1) if the corporate shareholder fails
to satisfy the foregoing requirements with respect to its shares of the Fund or
(2) by application of Code Section 246(b) which in general limits the dividends-
received deduction to 70% of the shareholder's taxable income (determined
without regard to the dividends-received deduction and certain other items). For
purposes of the corporate alternative minimum tax, the corporate
dividends-received deduction is not itself an item of tax preference that must
be added back to taxable income or is otherwise disallowed in determining a
corporation's alternative minimum tax. However, corporate shareholders will
generally be required to take the full amount of any dividend received from the
Fund into account (without a dividends-received deduction) in determining its
adjusted current earnings.
Although dividends generally will be treated as distributed when paid,
dividends declared by the Fund in October, November or December payable to
shareholders of record on a specified date in one of those months and paid
during the following January will be treated as having been distributed by the
Fund (and received by the shareholders) on December 31 of the year declared.
Shareholders will be notified not later than 60 days after the close of the
Fund's taxable year as to the federal tax status of dividends and distributions
from the Fund.
Shareholders should consider the tax implications of buying shares of the
Fund just prior to a distribution by the Fund. The price of shares purchased at
that time may reflect the amount of the forthcoming distribution. Such
distribution may have the effect of reducing the net asset value of shares below
a shareholder's cost and thus would be a return on investment in an economic
sense, but would nevertheless be taxable to the shareholder.
The Internal Revenue Service has taken the position in a revenue ruling
that a RIC that has two or more classes of shares must designate distributions
made to each class in any year as consisting of no more than such class's
proportionate share of each type of income for each tax year based on the total
dividends distributed to each class for such year, including income qualifying
for the corporate dividends-received deduction and net capital gains.
Consequently, when both Common Stock and preferred stock are outstanding, the
Fund intends to allocate, to the fullest extent practicable, income distributed
to the classes as consisting of particular types of income in accordance with
the class's proportionate shares of such income. Thus, the Fund will designate
dividends qualifying for the corporate dividends-received deduction, income not
qualifying for the dividends-received deduction and net capital gain income in a
manner that allocates such income between the holders of Common Stock and
preferred stock in proportion to the total distributions made to each class
during the taxable year, or otherwise as required by applicable law.
If at any time when any Senior Securities are outstanding the Fund does not
meet the asset coverage requirements of the Investment Company Act or of any
rating agency that has rated such Senior Securities, the Fund will be required
to suspend distributions to holders of Common Stock until the asset coverage is
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<PAGE> 41
restored. See "Other Investment Practices -- Leverage." This may prevent the
Fund from distributing at least 90% of its net investment income, and may
therefore jeopardize the Fund's qualification for taxation as a RIC or cause the
Fund to incur a tax liability or a non-deductible 4% excise tax on the
undistributed taxable income (including gain), or both. Upon any failure to meet
the asset coverage requirements of the Investment Company Act, or imposed by a
rating agency, the Fund may, in its sole discretion, purchase or redeem any
Senior Securities in order to maintain or restore the requisite asset coverage
and avoid the adverse consequences to the Fund and its shareholders of failing
to qualify as a RIC. There can be no assurance, however, that any such
redemption would achieve such objectives.
Sale of Shares. A shareholder may realize a taxable gain or loss on the
sale of shares in the Fund depending on the shareholder's basis in the shares
for federal income tax purposes. If the shares are capital assets in the
shareholder's hands the gain or loss will be treated as a capital gain or loss
and will be long-term or short-term, depending on the shareholder's holding
period for the shares. As a general rule, a shareholder's gain or loss will be a
long-term capital gain or loss if the shares have been held for more than one
year and a short-term capital gain or loss if the shares have been held one year
or less. Any loss incurred on sale or exchange of the Fund's shares, held for
six months or less, will be treated as a long-term capital loss to the extent of
any distributions or deemed distributions of net capital gain received by the
shareholder with respect to such shares. Any loss realized on a sale or exchange
will also be disallowed to the extent the shares disposed of are replaced,
including a replacement pursuant to the Fund's Automatic Dividend Reinvestment
Plan, within a period of 61 days beginning 30 days before and ending 30 days
after the disposition of the shares. In such case, the basis of the shares
acquired will be increased to reflect the disallowed loss.
Foreign Shareholders. Taxation of a shareholder who, as to the United
States, is a nonresident alien individual, a foreign trust or estate, a foreign
corporation or a foreign partnership (a "foreign shareholder") depends on
whether the income from a fund is "effectively connected" with a U.S. trade or
business carried on by such shareholder. If the income from a fund is not
effectively connected with a U.S. trade or business carried on by a foreign
shareholder, dividends paid from net investment income will be subject to U.S.
withholding tax at a rate of 30% unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gain
realized on the sale of shares of the Fund, capital gain dividends and amounts
retained by the Fund that are designated as undistributed capital gain.
If the income from a fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gain realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax on a net basis at the rates
applicable to U.S. citizens or domestic corporations. Foreign shareholders are
urged to consult their own tax advisers concerning the applicability of the U.S.
withholding tax and any foreign taxes.
Back-up Withholding. Under certain provisions of the Code, some
shareholders may be subject to a 31% "back-up withholding" on ordinary
dividends, capital gain dividends and redemption payments. Generally,
shareholders subject to back-up withholding will be those for whom a taxpayer
identification number is not on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number.
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<PAGE> 42
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.
Other Taxation. Ordinary dividends and capital gain dividends may also be
subject to state, local and foreign taxes.
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, local or foreign tax matters.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"),
unless a shareholder otherwise elects, all dividend and capital gains
distributions will be automatically reinvested in additional shares of Common
Stock of the Fund by , as agent for shareholders in administering
the Plan (the "Plan Agent"). Shareholders who elect not to participate in the
Plan will receive all dividends and contributions in cash, paid by check mailed
directly to the shareholder of record (or, if the shares are held in street or
other nominee name, then to such nominee) by , as dividend paying
agent. Such participants may elect not to participate in the Plan and to receive
all distributions of dividends and capital gains in cash by sending written
instructions to , as dividend paying agent, at the address set forth
below. Participation in the Plan is completely voluntary and may be terminated
or resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date. Otherwise such
termination will be effective with respect to any subsequently declared dividend
or distribution.
Whenever the Fund declares a distribution, an ordinary income dividend or a
capital gain dividend (collectively referred to as "dividends") payable either
in shares or in cash, non-participants in the Plan will receive cash, and
participants in the Plan will receive the equivalent in shares of Common Stock.
The shares will be acquired by the Plan Agent for the participant's account,
depending upon the circumstances described below, either (i) through receipt of
additional unissued but authorized shares of Common Stock from the Fund ("newly
issued shares") or (ii) by purchase of outstanding shares of Common Stock on the
open market ("open-market purchases") on the NYSE or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Common Stock
is equal to or less than the market price per share of the Common Stock plus
estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
Common Stock to be credited to the participant's account will be determined by
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<PAGE> 43
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases. Prior to the time the shares of Common
Stock commence trading on the NYSE, participants in the Plan will receive any
dividends in newly issued shares.
In the event of a market discount on the dividend payment date, the Plan
Agent will have until the last business day before the next date on which the
shares trade on the "ex-dividend" basis or in no event more than 30 days after
the dividend payment date (the "last purchase date") to invest the dividend
amount in shares acquired in open-market purchases. It is contemplated that the
Fund will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of Common Stock exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, the Plan provides that if the Plan Agent is
unable to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market purchases and will
invest the uninvested portion of the dividend amount in newly issued shares at
the close of business on the last purchase date.
The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant will be held by the Plan Agent on behalf of the Plan
participant, and each shareholder's proxy will include those shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for shares held pursuant
to the Plan in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
record shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There will be no brokerage charges with respect to shares issued directly
by the Fund as a result of dividends or capital gains distributions payable
either in shares or in cash. However, each participant will pay a pro rata share
of brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
41
<PAGE> 44
The automatic reinvestment of dividends and distributions will not relieve
participants of any federal, state or local income tax that may be payable (or
required to be withheld) on such dividends. See "Taxes."
Shareholders participating in the Plan may receive benefits not available
to shareholders not participating in the Plan. If the market price plus
commissions of the Fund's shares is above the net asset value, participants in
the Plan will receive shares of the Fund at less than they could otherwise
purchase them and will have shares with a cash value greater than the value of
any cash distribution they would have received on their shares. If the market
price plus commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem its
shares, the price on resale may be more or less than the net asset value. See
"Taxes" for a discussion of tax consequences of the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants.
All correspondence concerning the Plan should be directed to the Plan Agent
at .
CALCULATION OF NET ASSET VALUE PER SHARE
The net asset value per share of the Fund is computed as of the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m., Eastern
time), once a week on the last business day of each week on which the Exchange
is open and on the last business day of each month on which the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. When the New York Stock Exchange is closed, the Fund
will generally be closed and net asset value calculations will not be made.
The Fund's net asset value per share of Common Stock is computed by adding
the value of all securities and other assets in the Fund's portfolio, deducting
any liabilities (including accrued expenses, dividends payable on Common Stock
and any borrowings of the Fund) and the liquidation value of any outstanding
shares of preferred stock (which is expected to equal the original purchase
price per share plus any accumulated and unpaid dividends thereon, whether or
not earned or declared), and dividing the result by the number of shares of
Common Stock outstanding. In determining the Fund's total net assets, portfolio
securities listed or traded on a national securities exchange, except for debt
securities, are valued at the last sale price prior to the time of determination
if there was a sale price on the date of determination on the exchange upon
which such securities are primarily traded. Securities not traded on a
particular day, over-the-counter securities and government and agency securities
are valued at the mean value between bid and asked prices. Short-term
investments having a maturity of less than 60 days are valued at amortized cost.
Debt Securities (other than short-term obligations) are valued on the basis of
valuations provided by a pricing service when such prices are believed to
reflect the fair value of such securities. Use of a pricing service has
42
<PAGE> 45
been approved by the Board of Directors. Prices provided by a pricing service
take into account appropriate factors such as institutional trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data. If no quotations are available,
all other securities and assets are valued at fair value as determined in good
faith and pursuant to a method approved by the Board of Directors.
Currently, the net asset values of publicly traded closed-end investment
companies are published in Barron's, the Monday edition of The Wall Street
Journal and the Saturday edition of The New York Times.
DESCRIPTION OF CAPITAL STOCK
The Fund is authorized to issue 100,000,000 shares of capital stock, par
value $0.01 per share, all of which shares initially are classified as Common
Stock. The Board of Directors is authorized, however, to classify and reclassify
any unissued shares of capital stock into one or more additional or other
classes or series as may be established from time to time by setting or changing
in any one or more respects the designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock and pursuant to
such classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series. In the event that the Board
of Directors determines to leverage the Fund's Common Stock through the issuance
of preferred stock, the Fund would reclassify an amount of unissued capital
stock as preferred stock and at that time offer shares of preferred stock
representing up to approximately 50% of the Fund's total assets immediately
after the issuance of such preferred stock.
COMMON STOCK
Shares of Common Stock, when issued and outstanding, will be fully paid and
non-assessable. All shares of Common Stock are equal as to dividends,
distributions and voting privileges and the Fund's Common Stock has no
preemptive, conversion, exchange or redemption rights. Shareholders are entitled
to share pro rata in the net assets of the Fund available for distribution to
shareholders upon liquidation of the Fund. Shareholders are entitled to one vote
for each share held.
In the event that the Fund issues preferred stock and so long as any shares
of the Fund's preferred stock are outstanding, holders of Common Stock will not
be entitled to receive any net income of or other distributions from the Fund
unless all accumulated dividends on preferred stock have been paid, and unless
asset coverage (as defined in the Investment Company Act) with respect to the
preferred stock would be at least 200% after giving effect to such
distributions. See "Special Leverage Considerations and Risks."
The Fund will send unaudited reports at least semi-annually and audited
annual financial statements to all of its shareholders of record.
The Manager provided the initial capital for the Fund by purchasing 6,667
shares of Common Stock of the Fund for $100,005. As of the date of this
Prospectus, the Manager owned 100% of the outstanding shares
43
<PAGE> 46
of Common Stock of the Fund. The Manager may be deemed to control the Fund until
such time as it owns less than 25% of the outstanding shares of the Fund.
SHARE REPURCHASES AND TENDER OFFERS
Shares of closed-end investment companies frequently trade at discounts
from net asset value, especially shortly after the completion of the initial
public offering. The Fund cannot predict whether its shares of Common Stock will
trade above, at or below net asset value. The market price of the Fund's shares
of Common Stock will be determined by, among other things, the supply and demand
for the Fund's shares, the Fund's investment performance and investor perception
of the Fund's overall attractiveness as an investment as compared with
alternative investments. If, at any time after the second year following this
offering, shares of the Fund's Common Stock publicly trade for a substantial
period of time at a substantial discount from the Fund's then current net asset
value per share, the Fund's Board of Directors will consider, at its next
regularly scheduled meeting, authorizing various actions designed to eliminate
the discount. The actions considered by the Board of Directors may include
periodic repurchases of or tender offers for the Fund's shares. The Board of
Directors would consider all relevant factors in determining whether to take any
such actions, including the effect of such actions on the Fund's status as a
regulated investment company under the Code and the availability of cash to
finance these repurchases in view of the restrictions on the Fund's ability to
borrow. No assurance can be given that share repurchases will be made or that,
if made, they will reduce or eliminate market discount. Should any such
repurchases be made in the future, it is expected that they would be made at
prices at or below the current net asset value per share. Any such repurchases
would cause the Fund's net assets to decrease, which may have the effect of
increasing the Fund's expense ratio.
Under certain circumstances, a shareholder vote may be required to
authorize periodic repurchases of the Fund's shares of Common Stock. In
considering whether to recommend to shareholders such authorization, the Board
of Directors similarly would consider a number of factors including limitations
that may be placed on the Fund's investment policies as a consequence of such
repurchase policy.
PREFERRED STOCK
It is anticipated that if the Fund's Board of Directors determines to issue
preferred stock, the Fund's shares of preferred stock will be issued in one or
more series, with rights as determined by the Board of Directors, by action of
the Board of Directors without the approval of the holders of Common Stock.
Under the Investment Company Act, the Fund is permitted to have outstanding more
than one series of preferred stock so long as no single series has a priority
over another series as to the distribution of assets of the Fund or the payment
of dividends. Holders of Common Stock have no preemptive right to purchase any
shares of preferred stock that might be issued. It is anticipated that the net
asset value per share of the preferred stock, if issued, will equal its original
purchase price per share plus accumulated dividends per share.
Although the terms of any preferred stock that may be issued, including its
dividend rate, voting rights, liquidation preference and redemption provisions,
would be determined by the Board of Directors (subject to applicable law and the
Fund's Articles of Incorporation), it is likely that any preferred stock that is
issued would be structured to carry a relatively short-term dividend rate
reflecting interest rates on short-term debt securities, by providing for the
periodic redetermination of the dividend rate at relatively short intervals
44
<PAGE> 47
through an auction, remarketing or other procedure. Auction or remarketing
procedures are mechanisms by which dividend payments on the subject securities
are redetermined on a periodic basis. The Board of Directors also has indicated
that it is likely that the liquidation preference, voting rights and redemption
provisions of any preferred stock that is issued will be as stated below.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of shares of
preferred stock will be entitled to receive a preferential liquidating
distribution (expected to equal the original purchase price per share plus an
amount equal to accumulated and unpaid dividends, whether or not earned or
declared) before any distribution of assets is made to holders of Common Stock.
After payment of the full amount of the liquidating distribution to which they
are entitled, the holders of preferred stock will not be entitled to any further
participation in any distribution of assets by the Fund. A consolidation or
merger of the Fund with or into any other corporation or corporations or a sale
of all or substantially all of the assets of the Fund will not be deemed to be a
liquidation, dissolution or winding up of the Fund.
Voting Rights. The Investment Company Act requires that the holders of any
preferred stock, voting separately as a single class, have the right to elect at
least two Directors at all times and, subject to the prior rights, if any, of
holders of any other class of senior securities outstanding, to elect a majority
of the Directors at any time that two full years' dividends on any preferred
stock are unpaid. In addition to any approval by stockholders that might
otherwise be required, the Investment Company Act also requires the approval of
the holders of a majority of any outstanding preferred stock, voting separately
as a class, to (a) adopt any plan of reorganization that would adversely affect
the preferred stock and (b) take any action requiring a vote of security holders
pursuant to Section 13(a) of the Investment Company Act, including, among other
things, changes in the Fund's subclassification as a closed-end investment
company or changes in its fundamental investment restrictions. See "Certain
Provisions of the Articles of Incorporation" below concerning voting
requirements for conversion of the Fund to an open-end investment company. In
addition, the Board of Directors presently intends that, except as otherwise
indicated in this Prospectus and except as otherwise required by applicable law,
holders of shares of any preferred stock that is issued will have equal voting
rights with holders of Common Stock (one vote per share, unless otherwise
required by the Investment Company Act), and will vote together with holders of
Common Stock as a single class.
The affirmative vote of the holders of a majority of the outstanding shares
of preferred stock. voting as a separate class, will be required to amend, alter
or repeal any of the preferences, rights or powers of holders of shares of
preferred stock so as to affect materially and adversely such preferences,
rights, or powers, or increase or decrease the number of shares of preferred
stock. The class vote of holders of preferred stock described above will in each
case be in addition to any other vote required to authorize the action in
question.
Redemption, Purchase and Sale of Preferred Stock by the Fund. The terms of
any preferred stock that is issued are expected to provide that such preferred
stock is redeemable by the Fund in whole or in part at the original purchase
price per share plus accumulated dividends per share, that the Fund may tender
for or purchase shares of preferred stock and that the Fund may subsequently
resell any shares so tendered for or purchased. Any redemption or purchase of
shares of preferred stock by the Fund will reduce the leverage
45
<PAGE> 48
applicable to shares of Common Stock, while any resale of shares by the Fund
will increase such leverage. See "Special Leverage Considerations and Risks."
The discussion above describes the present intention of the Board of
Directors with respect to an offering of preferred stock if the Board elects to
utilize preferred stock in order to leverage the Fund's Common Stock. If the
Board of Directors determines to proceed with such an offering, the terms of the
preferred stock may be the same as, or different from, the terms described
above, subject to applicable law and the Fund's Articles of Incorporation, as
amended or supplemented. The Board of Directors, without the approval of the
holders of Common Stock, may authorize an offering of preferred stock or may
determine not to authorize such an offering, and may fix the terms of the
preferred stock to be offered.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Fund's Articles of Incorporation include provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Directors and could
have the effect of depriving shareholders of an opportunity to sell their shares
at a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund. A Director may be removed from office
only for cause, and only by action of shareholders taken by the holders of
shares with at least 75% of the votes then entitled to be cast in an election of
directors or, in the case of directors elected by the holders of preferred
stock, only by action of 75% of such holders.
In addition, the Articles of Incorporation require the favorable vote of
the holders of at least 75% of the Fund's shares to approve, adopt or authorize
the following:
(i) a merger or consolidation or statutory share exchange of the Fund
with any other corporations;
(ii) a sale of all or substantially all of the Fund's assets (other
than in the regular course of the Fund's investment activities); or
(iii) a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of at least 75% of the total number of Directors fixed in accordance with
the by-laws, in which case the affirmative vote of a majority of the Fund's
shares of capital stock is required. Following any issuance of preferred stock
by the Fund, it is anticipated that the approval, adoption or authorization of
the foregoing also would require the favorable vote of a majority of the Fund's
shares of preferred stock then entitled to be voted, voting as a separate class.
In addition, conversion of the Fund to an open-end investment company would
require an amendment to the Fund's Articles of Incorporation. The amendment
would have to be declared advisable by the Board of Directors by the affirmative
vote of at least 75% of the total number of Directors fixed in accordance with
the by-laws, including a majority of disinterested directors, prior to its
submission to shareholders. Such an amendment would require the favorable vote
of the holders of at least 75% of the Fund's outstanding shares (including any
preferred stock) entitled to be voted on the matter, voting as a single class,
and, if preferred stock is issued, the affirmative vote of at least 75% of
outstanding shares of preferred stock of the Fund, voting
46
<PAGE> 49
as a separate class. There is no assurance that a favorable shareholder vote
could be achieved. Such a vote also would satisfy a separate requirement in the
Investment Company Act that the change be approved by the shareholders.
Conversion of the Fund to an open-end investment company would require the
redemption of any outstanding preferred shares and any indebtedness not
constituting bank loans, which could eliminate or alter the leveraged capital
structure of the Fund with respect to the shares of Common Stock. Following any
such conversion, it is also possible that certain of the Fund's investment
policies and strategies would have to be modified to assure sufficient portfolio
liquidity. Such requirement could cause the Fund to dispose of portfolio
securities or other assets at a time when it is not advantageous to do so, and
could adversely affect the ability of the Fund to meet its investment
objectives. In the event of conversion, the shares of Common Stock would cease
to be listed on the NYSE or other national securities exchange or market system.
Shareholders of an open-end investment company may require the company to redeem
their shares at any time (except in certain circumstances as authorized by or
under the Investment Company Act) at their net asset value, less such redemption
charge, if any, as might be in effect at the time of a redemption. The Fund
expects to pay all such redemption requests in cash, but intends to reserve the
right to pay redemption requests in a combination of cash or securities. If a
payment in securities were made, investors may incur brokerage costs in
converting such securities to cash. If the Fund were converted to an open-end
fund, it is likely that new shares of common stock would be sold at net asset
value plus a sales load.
The Board of Directors has determined that the 75% voting requirements
described above, which are greater than the minimum requirements under Maryland
law or the Investment Company Act, are in the best interests of shareholders.
PRINCIPAL SHAREHOLDER
As of the date of this Prospectus, the Manager was the record and
beneficial owner of all of the outstanding shares of Common Stock and thus it
may be deemed to control the Fund until the public offering of the Fund's shares
is completed. These shares were issued in respect of the Manager's contribution
of the Fund's initial capital. These shares were acquired for investment
purposes only and the Manager has no present intention of selling such shares.
LISTING
The Common Stock has been approved for listing on the NYSE under the symbol
"CWF," subject to official notice of issuance. It is expected that a liquid
trading market for the Fund's shares will exist on the NYSE and on other markets
where shares are traded. Shares of closed-end investment companies frequently
trade at a discount to net asset value, but in some cases trade at net asset
value or a premium. Because the market price of the Fund's shares will be
determined by factors including trading volume, general market and economic
conditions, and other factors beyond the control of the Fund, the Fund cannot
predict whether its shares will trade at, below or above their net asset value.
The Fund's shares do not have any right of redemption.
47
<PAGE> 50
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Fund has agreed to sell to each of the Underwriters
named below, and each of the Underwriters, for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Prudential Securities Incorporated, Advest, Inc.,
Robert W. Baird & Co. Incorporated, A.G. Edwards & Sons, Inc., EVEREN
Securities, Inc., Fahnestock & Co. Inc., Gruntal & Co., L.L.C., Janney
Montgomery Scott Inc. and Legg Mason Wood Walker, Incorporated are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Fund the number of shares of Common Stock set forth opposite its name below.
The several Underwriters are committed to purchase all of such shares of Common
Stock if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Prudential Securities Incorporated..........................
Advest, Inc.................................................
Robert W. Baird & Co. Incorporated..........................
A.G. Edwards & Sons, Inc. ..................................
EVEREN Securities, Inc. ....................................
Fahnestock & Co. Inc. ......................................
Gruntal & Co., L.L.C. ......................................
Janney Montgomery Scott Inc. ...............................
Legg Mason Wood Walker, Incorporated........................
---------
Total.............................................
=========
</TABLE>
The Representatives have advised the Fund that they propose initially to
offer the shares of Common Stock to the public at the public offering price set
forth on the cover page of this Prospectus. There is no sales charge or
underwriting discount charged to investors on purchases of shares of Common
Stock in the offering. The Manager has agreed to pay the Underwriters from its
own assets a commission in connection with the sale of shares of Common Stock in
the offering in the amount of $0. per share. Such payment is equal to
48
<PAGE> 51
% of the initial public offering price per share. The Representatives also have
advised the Fund that from this amount the Underwriters may pay a concession to
certain dealers not in excess of $0. per share on sales by such dealers, and
such dealers may reallow not in excess of $0. per share to certain other
dealers. After the initial public offering, the public offering price,
concession and other selling terms may be changed. Investors must pay for shares
of Common Stock purchased in the offering on or before , 1998.
The Manager has agreed to pay from its own assets an additional commission
to Underwriters selling 1,000,000 shares or more of Common Stock. This
additional commission will be payable quarterly at the annual rate of 0.25% of
the Fund's Managed Assets during the continuance of the Investment Management
Agreement or other advisory agreement between the Manager and the Fund. Each
qualifying Underwriter will be entitled to receive its pro rata portion of the
additional commission payments; provided, that, Merrill Lynch shall also receive
the entire pro rata portion of the additional commission for shares sold by any
Underwriter selling less than 1,000,000 shares. The total amount of these
additional commission payments will not exceed 5% of the total Price to Public
of the shares of Common Stock offered hereby; provided, that in determining when
the maximum additional commission amount has been paid, the value of each of the
quarterly payments shall be discounted to the closing date of this offering. The
Underwriters that will receive these payments have agreed to provide certain
after-market support services designed to maintain the visibility of the Fund on
an ongoing basis, and Merrill Lynch has additionally agreed to (i) provide to
the Manager relevant information, studies or reports regarding general trends in
the closed-end investment company and asset management industries and (ii) at
the request of the Manager, provide information to and consult with
representatives of the Manager with respect to issues regarding utilizing
leverage in the Fund and applicable strategies designed to address market value
discounts.
The Fund has granted the Underwriters a 45-day option, exercisable at one
or more times after the date hereof, to purchase up to additional
shares of Common Stock to cover over-allotments, if any, at the initial offering
price. To the extent that the Underwriters exercise this option, each of the
Underwriters will be obligated, subject to certain conditions, to purchase a
number of additional shares of Common Stock proportionate to such Underwriter's
number of shares reflected in the foregoing table.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Underwriters may
reduce that short position by purchasing Common Stock in the open market. The
Underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
49
<PAGE> 52
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase shares of
Common Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Stock to the extent that it
discourages resales of the Common Stock.
Neither the Fund nor any of the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the shares of Common Stock. In
addition, neither the Fund nor any of the Underwriters makes any representation
that the Underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Prior to this offering, there has been no public market for the shares of
Common Stock. The Fund's Common Stock has been approved for listing on the NYSE
under the symbol "CWF," subject to official notice of issuance. In order to meet
the requirements for listing, the Underwriters have undertaken to sell lots of
100 or more shares to a minimum of 2,000 beneficial owners.
The Fund and the Manager have agreed to indemnify the Underwriters against
certain liabilities, including certain liabilities under the Securities Act or
to contribute to payments the Underwriters may be required to make in respect
thereof.
The Fund has agreed not to offer or sell any additional shares of Common
Stock for a period of 180 days after the date of the Purchase Agreement without
the prior written consent of the Underwriters, except for the sale of shares of
Common Stock to the Underwriters pursuant to the Purchase Agreement and the
issuance of shares of Common Stock pursuant to the Automatic Dividend
Reinvestment Plan.
The Fund anticipates that the Representatives and certain other
Underwriters may from time to time act as brokers or dealers in connection with
the execution of the Fund's portfolio transactions. See "Portfolio
Transactions."
Princeton Administrators, L.P., an affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, expects to enter into an Administration Agreement
with the Fund. See "Investment Advisory and Management
Arrangements -- Administrator" and "-- Terms of Agreements."
50
<PAGE> 53
CUSTODIAN
The Fund's securities and cash are held under a custodial agreement with
PNC Bank, National Association. The address of PNC Bank, National Association is
1600 Market Street, Philadelphia, Pennsylvania 19103.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The transfer agent, dividend disbursing agent and registrar for the shares
of Common Stock of the Fund will be PFPC Inc. The address of PFPC Inc. is P.O.
Box 8950, Wilmington, Delaware 19885.
LEGAL OPINIONS
Certain legal matters with respect to the Fund's shares offered hereby will
be passed on for the Fund by Drinker Biddle & Reath LLP, Philadelphia,
Pennsylvania. Certain legal matters in connection with the offering of the
shares will be passed on for the Underwriters by Simpson Thacher & Bartlett, New
York, New York. Counsel for the Fund and the Underwriters will rely, as to
matters of Maryland law, on Venable, Baetjer and Howard, LLP, Baltimore,
Maryland.
EXPERTS
The statement of assets and liabilities of the Fund included in this
Prospectus has been audited and so included in reliance on the report of Coopers
& Lybrand L.L.P., independent auditors, and on their authority as experts in
auditing and accounting.
51
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Chartwell Dividend and Income Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Chartwell Dividend and Income Fund, Inc. (the "Fund") as of . This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly,
in all material respects, the financial position of the Fund, as of in
conformity with generally accepted accounting principles.
52
<PAGE> 55
CHARTWELL DIVIDEND AND INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
, 1998
<TABLE>
<S> <C>
ASSETS:
Cash...................................................... $
-------
Deferred organizational and offering costs................
-------
Total assets......................................
-------
LIABILITIES:
Organizational and offering costs payable.................
-------
Net assets equivalent to $ per share (applicable
to outstanding shares of Common Stock, $
par value; million shares of capital stock
authorized, of which million shares are authorized
as Common Stock)....................................... $
=======
</TABLE>
NOTE 1. ORGANIZATION:
Chartwell Dividend and Income Fund, Inc. (the "Fund") is a diversified,
closed-end management investment company incorporated on April 6, 1998, which
has had no operations through other than those relating to
organizational matters [and the sale and issuance of shares of Common Stock to
Chartwell Investment Partners, L.P. (the "Manager")].
The Manager has advanced certain organizational and offering costs of the
Fund and is to be reimbursed by the Fund. Organizational costs will be deferred
and amortized on a straight line basis over a period not to exceed 60 months
from the date the Fund commences operation. In the event that any of the
original Common Stock owned by the Manager (or any subsequent holder) is
repurchased by the Fund prior to the end of the 60 month period, the proceeds
from the repurchase shall be reduced by the pro rata share of the unamortized
deferred organizational costs as of the date of such repurchase. In the event
that the Fund is liquidated prior to the end of the 60 month period, the Manager
(or any subsequent holder) shall bear the remaining unamortized deferred
organizational costs. Offering costs will be charged to capital upon completion
of the initial public offering of the Common Stock.
NOTE 2. AGREEMENTS:
The Fund has entered into an Investment Management Agreement with the
Manager which provides for payment of a monthly fee computed at the annual rate
of 0.95% of the Fund's Managed Assets. The Fund also has entered into an
Administration Agreement with Princeton Administrators, L.P. which provides for
payment, subject to a monthly minimum fee of $12,500, of a monthly fee computed
at the annual rate of 0.15% per annum of the Fund's Managed Assets. "Managed
Assets" means the average weekly value of the Fund's total assets minus the sum
of the Fund's liabilities, other than debt relating to leverage, which
liabilities exclude the aggregate liquidation preference of any outstanding
preferred stock or short-term debt.
53
<PAGE> 56
NOTE 3. FEDERAL INCOME TAXES:
Normally, no provision for federal income taxes will be made since it is
the intention of the Fund to comply with the provisions of the Internal Revenue
Code available to regulated investment companies and to make requisite
distributions to shareholders.
54
<PAGE> 57
APPENDIX A -- DESCRIPTION OF RATINGS
A rating by a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, the Manager believes that the quality of securities
in which the Fund invests should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell or hold a security,
because it does not take into account market value or suitability for a
particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons. The following is a description of the ratings used by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P")
with respect to bonds, commercial paper, preferred stocks and convertible
securities.
BONDS AND CONVERTIBLE SECURITIES
The following excerpts are from Moody's description of its bond ratings
(also used for convertible securities): Aaa -- judged to be of the best quality.
They carry the smallest degree of investment risk; Aa -- judged to be of high
quality by all standards; A -- possess many favorable investment attributes and
are to be considered as upper medium grade obligations; Baa -- considered as
medium grade obligations. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time; Ba -- judged to
have speculative elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B -- generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa -- 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 -- represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings; C -- the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
The following excerpts are from S&P's description of its bond ratings:
AAA -- the highest rating assigned by S&P. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong; AA -- differs from
the higher rated issues only in small degree; the obligor's capacity to meet its
financial commitment on the obligation is very strong; A -- somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories, however, the obligor's capacity
to meet its financial commitment on the obligation is still strong;
BBB -- exhibits adequate protection parameters; BB, B, CCC, CC, C -- regarded as
having significant speculative characteristics. "BB" indicates the lowest degree
of speculation and "C" the highest degree of speculation. While such debt will
A-1
<PAGE> 58
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions. C1 -- reserved
for income bonds on which no income is being paid; D -- Debt rated "D" is in
payment default.
COMMERCIAL PAPER
The following are excerpts from Moody's description of its two highest
commercial paper ratings: PRIME-1 -- have a superior capacity for repayment of
short-term promissory obligations; PRIME-2 -- have a strong capacity for
repayment of short-term promissory obligations.
The following are excerpts from S&P's description of its two highest
commercial paper ratings: A-1 -- This highest category indicates that the
obligor's capacity to meet its financial commitment is strong. Within this
category, certain obligations are denoted with a plus (+) designation. This
indicates that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong; A-2 -- Obligations are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations rated A-1. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory for issues designated
"A-1".
PREFERRED STOCK
The following are excerpts from S&P's description of its preferred stock
ratings:
An S&P preferred stock rating is an assessment of the capacity and
willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the debt rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment -- capacity and willingness of the issuer to
meet the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with terms of the obligation.
2. Nature of, and provisions of, the issue.
3. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
A-2
<PAGE> 59
<TABLE>
<S> <C>
AAA This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a
high-quality fixed income security. The capacity to pay
preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a
preferred stock in this category than for issues in the "A"
category.
BB, B, Preferred stocks rated "BB," "B," and "CCC" are regarded, on
CCC balance, as predominately speculative with respect to the
issuer's capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation. While such
issues will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
CC The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is
currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue with the
issuer in default on debt instruments.
</TABLE>
NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
PLUS (+) OR MINUS (-) To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
A-3
<PAGE> 60
The following are excerpts from Moody's description of its preferred stock
ratings:
<TABLE>
<S> <C>
"aaa" An issue which is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good
asset protection and the least risk of dividend impairment
within the universe of preferred stocks.
"aa" An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will
remain relatively well-maintained in the foreseeable future.
"a" An issue which is rated "a" is considered to be an
upper-medium grade preferred stock. While risks are judged
to be somewhat greater than in the "aaa" and "aa"
classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
"baa" An issue which is rated "baa" is considered to be a
medium-grade preferred stock, neither highly protected nor
poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great
length of time.
"ba" An issue which is rated "ba" is considered to have
speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in
this class.
"b" An issue which is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
"caa" An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport
to indicate the future status of payments.
"ca" An issue which is rated "ca" is speculative in a high degree
and is likely to be in arrears on dividends with little
likelihood of eventual payments.
"c" This is the lowest rated class of preferred or preference
stock. Issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment
standing.
</TABLE>
Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification; 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.
A-4
<PAGE> 61
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY STATE OR JURISDICTION OF THE UNITED STATES OR ANY COUNTRY WHERE
SUCH OFFER WOULD BE UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Fee Table................................ 11
The Fund................................. 12
Use of Proceeds.......................... 12
Investment Rationale..................... 12
Investment Objectives and Policies....... 14
Other Investment Practices............... 18
Special Leverage Considerations and
Risks.................................. 21
Special Risk Considerations.............. 24
Investment Restrictions.................. 28
Management of the Fund................... 29
Investment Advisory and Management
Arrangements........................... 31
Portfolio Transactions................... 34
Dividends and Distributions.............. 35
Taxes.................................... 36
Automatic Dividend Reinvestment Plan..... 40
Calculation of Net Asset Value Per
Share.................................. 42
Description of Capital Stock............. 43
Underwriting............................. 48
Custodian................................ 51
Transfer Agent, Dividend Disbursing Agent
and Registrar.......................... 51
Legal Opinions........................... 51
Experts.................................. 51
Report of Independent Accountants........ 52
Statement of Assets and Liabilities...... 53
Appendix A -- Description of Ratings..... A-1
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
4,000,000 SHARES
['CHARTWELL DIVIDEND LOGO']
CHARTWELL DIVIDEND
AND INCOME FUND, INC.
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
ADVEST, INC.
ROBERT W. BAIRD & CO.
INCORPORATED
A.G. EDWARDS & SONS, INC.
EVEREN SECURITIES, INC.
FAHNESTOCK & CO. INC.
GRUNTAL & CO., L.L.C.
JANNEY MONTGOMERY SCOTT INC.
LEGG MASON WOOD WALKER
INCORPORATED
, 1998
======================================================
<PAGE> 62
THE CHARTWELL DIVIDEND AND INCOME FUND, INC.
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements
(a) Form of Statement of Assets and Liabilities.
(b) Form of Report of Independent Accountants.
2. Exhibits:
(a)(i) Articles of Incorporation of Registrant.*
(ii) Form of Articles of Amendment and Restatement.
(b)(i) By-Laws of Registrant.*
(ii) Form of Amended and Restated By-Laws.
(c) Inapplicable.
(d) Inapplicable.
(e) Automatic Dividend Reinvestment Plan.**
(f) Inapplicable.
(g) Form of Investment Management Agreement between Registrant
and Chartwell Investment Partners, L.P.
(h) (1) Form of Purchase Agreement.
(2) Form of Master Agreement Among Underwriters.
(3) Form of Selected Dealer Agreement.
<PAGE> 63
(i) Inapplicable.
(j) Form of Custody Agreement between Registrant and PNC Bank,
National Association.**
(k) (1) Form of Administration Agreement between Registrant and
Princeton Administrators, L.P.**
(2) Form of Stock Transfer Agreement.**
(l) Opinion and Consent of Counsel.**
(m) Inapplicable.
(n) Consent of Independent Accountants.**
(o) Inapplicable.
(p) Investment Letter of Initial Shareholder.**
(q) Inapplicable.
(r) Inapplicable.
ITEM 25. MARKETING ARRANGEMENTS
See Forms of Purchase Agreement, Master Agreement Among
Underwriters and Master Selected Dealer Agreement filed as Exhibits (h) (1), (2)
and (3).
- -------------
* Previously filed.
** To be filed by amendment.
<PAGE> 64
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to
be incurred in connection with the offering described in this Registration
Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission
Registration fee....................................... $ 20,355
National Association of Securities
Dealers, Inc. fee .................................... $ 7,400
New York Stock Exchange listing fee .................... $ *
Printing ................................................ $ *
Accounting fees and expenses............................. $ *
Legal fees and expenses.................................. $ *
Blue Sky fees and expenses............................... $ *
Miscellaneous............................................ $ *
=========
Total.................................................... $ *
</TABLE>
--------------------
* To be completed by amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
As of __________ , 1998:
(1) Title of Class: Common Stock par value $0.01
(2) Number of Record Holders: _____________
ITEM 29. INDEMNIFICATION
Section 2-418 of the Maryland General Corporation Law authorizes the
indemnification of directors and officers of Maryland corporations
under specified circumstances.
Article V, Section 5, of the form of Articles of Amendment and
Restatement (Exhibit 2(a)(ii) to this Registration Statement, which
is incorporated by reference) provides that the Registrant shall
indemnify its directors and officers to the fullest extent permitted
by the Maryland General Corporation Law. In no event will Registrant
indemnify its directors or officers against any liability to the
Registrant or its security holders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
<PAGE> 65
Section 6.2 of the form of Amended and Restated By-Laws (Exhibit
(2)(b) (ii) to this Registration Statement, which is incorporated by
reference), provides that the Registrant shall indemnify its
directors and officers to the fullest extent permissible under
applicable state corporation law, the Securities Act of 1933, and
the Investment Company Act of 1940, provided that such
indemnification shall not protect any such person against any
liability to the Corporation or any stockholder thereof to which
such person would otherwise by subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office.
Registrant expects to obtain from an insurance carrier a directors'
and officers' liability policy covering certain types of errors and
omissions.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to the Registrant's
directors, officers, and controlling persons pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is
asserted against the Registrant by such director, officer, or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The Form of Purchase Agreement filed as Exhibit (h)(1) hereto
contains provisions requiring indemnification of the Registrant's
underwriters by the Manager.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
A description of Chartwell Investment Partners, L.P. (the "Manager")
is included in Part A of this Registration Statement. For
information regarding the business, profession, vocation, or
employment of a substantial nature that each director and executive
officer or partner of the Manager has been engaged in for his or her
own account or in the capacity of director, officer, employee or
partner, reference is made to the Form ADV, as amended (File
#801-54124), filed by the Manager under the Investment Advisers Act
of 1940.
<PAGE> 66
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Each person maintaining physical possession of accounts, books and
other documents required to be maintained pursuant to Section 31(a)
of the Investment Company Act is listed below:
(a) Chartwell Investment Partners, L.P., 1235 Westlakes Drive,
Suite 330, Berwyn, PA 19312 (records relating to its function
as investment advisor).
(b) PNC Bank, National Association, 1600 Market Street,
Philadelphia, Pennsylvania 19103 (records relating to its
function as custodian).
(c) Princeton Administrators, L.P., 500 College Road East, Floor 3
East, Princeton, NJ 08540 (records relating to its function as
administrator).
(d) Drinker Biddle & Reath LLP, Philadelphia National Bank
Building, 1345 Chestnut Street, Philadelphia, PA 19107
(Registrant's Articles of Incorporation, By-Laws, and Minute
Books).
(e) PFPC Inc., 400 Bellevue Parkway, Wilmington Delaware 19809
(records relating to its function as transfer agent).
ITEM 32. MANAGEMENT SERVICES
Inapplicable.
ITEM 33. UNDERTAKINGS
Registrant undertakes to suspend the offering of shares until the
prospectus is amended if (1) subsequent to the effective date of its
registration statement, the net asset value declines more than 10%
from its net asset value as of the effective date of the
registration statement or (2) the net asset value increases to an
amount greater than its net proceeds as stated in the prospectus.
The Registrant undertakes that (1) for the purpose of determining
any liability under the 1933 Act, the information omitted from the
form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed
by the Registrant under Rule 497(h) under the 1933 Act shall be
deemed to be part of this registration statement as of the time it
was declared effective, and (2) for the purpose of determining any
liability under the 1933 Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of the securities at that time shall be deemed to
be the initial bona fide offering thereof.
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and 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,
thereunto duly authorized, in the City of Philadelphia, Commonwealth of
Pennsylvania on the 26th day of May 1998.
Chartwell Dividend and Income Fund, Inc.
By /s/ Winthrop S. Jessup
------------------------------
Winthrop S. Jessup
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Winthrop S. Jessup Director and President May 26, 1998
- ------------------------------ (Principal Executive
Winthrop S. Jessup Officer)
/s/ Timothy J. Riddle Treasurer (Principal May 26, 1998
- ------------------------------ Financial Officer)
Timothy J. Riddle
</TABLE>
<PAGE> 68
EXHIBIT INDEX
EXHIBIT NO. ITEM
2(a) Form of Articles of Amendment of Restatement
2(b) Form of Amended and Restated By-laws
2(g) Form of Investment Management Agreement between
Registrant and Chartwell Investment Partners, L.P.
2(h)(1) Form of Purchase Agreement
2(h)(2) Form of Master Agreement Among Underwriters
2(h)(3) Form of Selected Dealer Agreement
<PAGE> 1
Exhibit 2(a)
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
CHARTWELL DIVIDEND AND INCOME FUND, INC.
Chartwell Dividend and Income Fund, Inc., a Maryland corporation,
having its principal office in the State of Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland:
FIRST: The Articles of Incorporation of Chartwell Dividend and Income
Fund, Inc. are amended and restated as follows:
ARTICLE I.
NAME
The name of the corporation is CHARTWELL DIVIDEND AND INCOME FUND, INC.
(the "Corporation").
ARTICLE II.
PURPOSES AND POWERS
The Corporation is expressly empowered to invest, reinvest, own, hold
or trade its assets in securities and other investments or to hold part or all
of its assets in cash. The Corporation shall be authorized to exercise and enjoy
all of the powers, rights and privileges granted to, or conferred upon,
corporations by the General Laws of the State of Maryland now or hereafter in
force, and the enumeration of the foregoing shall not be deemed to exclude any
powers, rights or privileges so granted or conferred.
ARTICLE III.
PRINCIPAL OFFICE AND RESIDENT AGENT
The post-office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 300 East
Lombard Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a corporation
of this State, and the post-office address of the resident agent is The
Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland
21202.
ARTICLE IV.
CAPITAL STOCK
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is 100,000,000
<PAGE> 2
shares, all initially classified as one class called Common Stock, of the par
value of $0.01 per share, and of the aggregate par value of $1,000,000.
(2) The Board of Directors is expressly authorized to classify or
reclassify any unissued stock, whether now or hereafter authorized, by setting
or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of such stock.
(3) Unless otherwise expressly provided in the Charter of the
Corporation, the holders of each class or series of capital stock shall be
entitled to dividends and distributions in such amounts and at such times as may
be determined by the Board of Directors, and the dividends and distributions
paid with respect to the various classes or series of capital stock may vary
among such classes and series.
(4) Unless otherwise expressly provided in the Charter of the
Corporation, on each matter submitted to a vote of stockholders, each holder of
a share of capital stock of the Corporation shall be entitled to one vote for
each share standing in such holder's name on the books of the Corporation,
irrespective of the class or series thereof, and all shares of all classes and
series shall vote together as a single class; provided, however, that as to any
matter with respect to which a separate vote of any class or series is required
by the Investment Company Act of 1940, as amended (the "Investment Company
Act"), or any rules, regulations or orders issued thereunder, or by the Maryland
General Corporation Law, such requirement as to a separate vote by that class or
series shall apply in lieu of a general vote of all classes and series as
described above.
(5) Notwithstanding any provision of the Maryland General Corporation
Law requiring any action to be taken or authorized by the affirmative vote of
the holders of a greater proportion of the votes of all classes or of any class
of stock of the Corporation, such action shall be effective and valid if taken
or authorized by the affirmative vote of the holders of shares with a majority
of all votes entitled to be cast on the matter, except as otherwise required by
applicable law or otherwise provided in the Charter of the Corporation.
(6) Unless otherwise expressly provided in the Charter of the
Corporation, in the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of each class or
series of capital stock of the Corporation shall be entitled, after payment or
provision
-2-
<PAGE> 3
for payment of the debts and other liabilities of the Corporation to share
ratably in the remaining net assets of the Corporation.
(7) The Corporation may issue shares of stock in fractional
denominations to the same extent as its whole shares, and shares in fractional
denominations shall be shares of stock having proportionately, to the respective
fractions represented thereby, all the rights of whole shares, including without
limitation, the right to vote, the right to receive dividends and distributions,
and the right to participate upon liquidation of the Corporation, but excluding
any right to receive a stock certificate representing fractional shares.
ARTICLE V.
PROVISIONS FOR DEFINING, LIMITING AND REGULATING
CERTAIN POWERS OF THE CORPORATION AND OF THE
DIRECTORS AND STOCKHOLDERS
(1) The number of initial directors of the Corporation shall be one
provided that: (a) the number of directors of the Corporation may be increased
or decreased pursuant to the By-Laws of the Corporation but shall never be less
than three, except as provided in this Article V Section 1; (b) if there is no
capital stock of the Corporation outstanding the number of directors may be less
than three but not less than one; and (c) if there is capital stock of the
Corporation outstanding and so long as there are less than three stockholders of
the Corporation, the number of directors may be less than three but not less
than the number of stockholders. The name of the director who shall act until
the first annual meeting of stockholders or until his successor is duly elected
and qualified is Winthrop S. Jessup.
(2) Beginning with the first annual meeting of stockholders held after
the initial public offering of the shares of the Corporation ("the initial
annual meeting"), the Board of Directors shall be divided into three classes;
class I, class II, and class III. The terms of office of the classes of
directors elected at the initial annual meeting shall expire at the times of the
annual meetings of the stockholders as follows -- class I in 2000, class II in
2001, and class III in 2002 -- or thereafter in each case when their respective
successors are elected and qualified. At each subsequent annual election, the
directors chosen to succeed those whose terms are expiring shall be identified
as being of the same class as the directors whom they succeed, and shall be
elected for a term expiring at the time of the third succeeding annual meeting
of stockholders, or thereafter in each case when their respective successors are
elected and qualified. The number of directorships shall be apportioned among
the classes so as to maintain the classes as nearly equal in number as possible.
-3-
<PAGE> 4
(3) The Board of Directors of the Corporation is hereby empowered
without the assent or vote of the stockholders, to authorize the issuance and
sale from time to time of shares of the stock of the Corporation, whether now or
hereafter authorized, and securities convertible into shares of stock of the
Corporation, whether now or hereafter authorized for such consideration as the
Board of Directors may deem advisable.
(4) No holder of any stock or other security of the Corporation shall,
as such holder, have any preemptive right to purchase or subscribe for any stock
or other security of the Corporation other than such right, if any, as the Board
of Directors, in its discretion, may determine.
(5) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, no
director or officer of the Corporation shall have any liability to the
Corporation or its stockholders for money damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted. The Corporation shall
indemnify and advance expenses to its currently acting and its former directors
to the fullest extent that indemnification of directors is permitted by the
Maryland General Corporation Law. The Corporation shall indemnify and advance
expenses to its currently acting and former officers to the same extent as its
directors and to such further extent as is consistent with law. The Board of
Directors may by By-Law, resolution or agreement make further provision for
indemnification of directors, officers, employees and agents to the fullest
extent permitted by the Maryland General Corporation Law. No provision of this
Article shall be effective to protect or purport 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. References to the Maryland General
Corporation Law in this Article are to that law as from time to time amended. No
amendment to the Charter of the Corporation shall affect any right of any person
under this Article based on any event, omission or proceeding prior to such
amendment.
(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal the
By-Laws of the Corporation, except where such power is reserved by the By-Laws
to the stockholders, and except as otherwise required by the Investment Company
Act.
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(7) A director may be removed only for cause, and only by action of the
shareholders taken by the holders of shares with at least seventy-five (75)
percent of the votes then entitled to be cast in an election of directors, or,
in the case of directors elected by holders of senior securities, only by action
of the holders of such senior securities with at least seventy-five (75) percent
of the votes then entitled to be cast by the holders of such senior securities.
As used in this Section (7), "senior securities" has the meaning assigned to
such term by Section 18 of the Investment Company Act.
(8) The enumeration and definition of the particular powers of the
Board of Directors included in the Charter of the Corporation shall in no way be
limited or restricted by reference to or inference from the terms of any other
clause of this or any other Article of the Charter of the Corporation, or
construed as or deemed by inference or otherwise in any manner to exclude or
limit any powers conferred upon the Board of Directors under the General Laws of
the State of Maryland now or hereafter in force.
ARTICLE VI.
DETERMINATION BINDING
Any determination made in good faith and consistent with applicable
law, and so far as accounting matters are involved, in accordance with accepted
accounting practice by or pursuant to the direction of the Board of Directors,
as to the amount of assets, obligations or liabilities of the Corporation, as to
the amount of net income of the Corporation from dividends and interest for any
period or amounts at any time legally available for the payment of dividends, as
to the amount of any reserves or charges set up and the propriety thereof, as to
the time of or purpose for creating reserves or as to the use, alteration or
cancellation of any reserves or charges (whether or not any obligation or
liability for which such reserves, or as to the use, alteration or cancellation
of any reserves or charges shall have been created, shall have been paid or
discharged or shall be then or thereafter required to be paid or discharged), as
to the price of any security owned by the Corporation or as to any other matters
relating to the issuance, sale, redemption or other acquisition or disposition
of securities or shares of capital stock of the Corporation, and any reasonable
determination made in good faith by the Board of Directors as to whether any
transaction constitutes a purchase of securities on "margin," a sale of
securities "short," or an underwriting or the sale of, or a participation in any
underwriting or selling group in connection with the public distribution of, any
securities, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its capital stock, past, present and future, and
shares of the capital stock of the Corporation are
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issued and sold on the condition and understanding, evidenced by the purchase of
shares of capital stock or acceptance of share certificates, that any and all
such determinations shall be binding as aforesaid. No provision in the Charter
of the Corporation shall be effective to (a) require a waiver of compliance with
any provision of the Securities Act of 1933, as amended, or the Investment
Company Act, or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder or (b) protect or purport 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.
ARTICLE VII.
CONVERSION TO OPEN-END COMPANY
Notwithstanding any other provisions of the Charter of the Corporation
or its By-Laws, a favorable vote of (a) at least seventy-five (75) percent of
the total number of directors fixed in accordance with the By-Laws of the
Corporation, including a majority of the directors who are not interested
persons (as defined in the Investment Company Act) of the Corporation, (b) at
least seventy-five (75) percent of all shares of capital stock of the
Corporation entitled to be voted on the matter (which includes Common Stock and
preferred stock together) and (c) at least seventy-five (75) percent of all
votes of preferred stock, if any, of the Corporation, voting as a separate
class, shall be required to approve, adopt or authorize an amendment to the
Charter of the Corporation that makes the Common Stock a "redeemable security"
(as that term is defined in section 2(a)(32) of the Investment Company Act).
ARTICLE VIII.
MERGER, SALE OF ASSETS, LIQUIDATION
Notwithstanding any other provisions of the Charter of the Corporation,
its By-Laws, the Maryland General Corporation Law or any other provisions of
Maryland law, a favorable vote of the holders of at least seventy-five (75)
percent of the outstanding shares of capital stock of the Corporation entitled
to be voted on the matter shall be required to approve, adopt or authorize (i) a
merger or consolidation or statutory share exchange of the Corporation with any
other corporation, other than a corporation ninety percent or more of which is
owned by the Corporation, (ii) a sale of all or substantially all of the assets
of the Corporation (other than in the regular course of its investment
activities), or (iii) a liquidation or dissolution of the Corporation, unless
such action has previously been
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approved, adopted or authorized by the affirmative vote of at least seventy-five
(75) percent of the total number of directors fixed in accordance with the
By-Laws of the Corporation, in which case the affirmative vote of the holders of
a majority of the outstanding shares of capital stock of the Corporation
entitled to vote thereon shall be required.
ARTICLE IX.
MORTGAGES, PLEDGES AND OTHER SECURITY INTERESTS
Notwithstanding any other provision of the Charter of the Corporation,
the approval of the stockholders and articles of transfer shall not be required
for any mortgage, pledge, or creation of any other security interest in any or
all of the assets of the Corporation, whether or not in the ordinary course of
its business, or for the exercise of the rights and remedies provided with
respect thereto.
ARTICLE X.
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in the Charter of the Corporation, in any manner now or
hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the Charter, of any outstanding stock
and substantially adversely affects the stockholders' rights, and all rights
conferred upon stockholders herein are granted subject to this reservation.
Notwithstanding any other provisions of the Charter of the Corporation or its
By-Laws (and notwithstanding the fact that a lesser percentage may be specified
by law), the amendment or repeal of Section (5) of Article IV, Section (2),
Section (5), Section (6) and Section (7) of Article V, Article VII, Article VIII
or this Article X, of these Articles of Incorporation shall require the
affirmative vote of the holders of at least seventy-five (75) percent of the
outstanding shares of capital stock of the Corporation entitled to be voted on
the matter, and the amendment or repeal of Article VII shall also require the
affirmative vote of at least seventy-five (75) percent of all votes of preferred
stock, if any, of the Corporation voting as a separate class and the affirmative
vote of seventy-five (75) percent of the total number of directors fixed in
accordance with the By-Laws of the Corporation, including a majority of the
directors who are not interested persons (as defined in the Investment Company
Act) of the Corporation.
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ARTICLE XI.
DEFINITION
As used herein, the "Charter of the Corporation" means these Articles
of Incorporation as amended and supplemented from time to time.
SECOND:
(1) These Articles of Amendment and Restatement have been duly approved
by the sole director of the Corporation. No stock entitled to be voted thereon
was outstanding or subscribed for at the time of approval.
(2) The Corporation desires to amend and restate its Charter as
currently in effect. The provisions set forth in these Articles of Amendment and
Restatement are all of the provisions of the Charter currently in effect as
herein amended. The current name and address of the Corporation's resident
agent, address of the Corporation, and number and name of directors currently in
office are as set forth herein.
IN WITNESS WHEREOF, Chartwell Dividend and Income Fund, Inc. has caused
these Articles of Amendment and Restatement to be signed in its name and on its
behalf by its President and witnessed by its Secretary, as of this ___ day of
_____________, 1998.
The undersigned President acknowledges these Articles of Amendment and
Restatement to be the corporate act of the Corporation and states that to the
best of his knowledge, information and belief, the matters and facts set forth
in these Articles with respect to the authorization and approval thereof are
true in all material respects and that this statement is made under penalties of
perjury.
CHARTWELL DIVIDEND AND INCOME FUND, INC.
By: ____________________________________
Name: Winthrop S. Jessup
Title: President
Witness:
_______________________
Name: Michael P. Malloy
Title: Secretary
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Exhibit 2(b)
BY-LAWS
OF
CHARTWELL DIVIDEND AND INCOME FUND, INC.
AMENDED AND RESTATED ____________, 1998
ARTICLE I
STOCKHOLDERS
SECTION 1.1 ANNUAL MEETINGS. The annual meeting of the stockholders of
the Corporation shall be held on such date within the month of May and at such
place, within or without the State of Maryland, as may be determined by the
Board of Directors and as shall be designated in the notice of said meeting, for
the purpose of electing directors and for the transaction of such other business
as may properly be brought before the meeting.
SECTION 1.2 SPECIAL MEETINGS. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
Charter of the Corporation, may be held at any place, within or without the
State of Maryland, and may be called at any time by the Board of Directors or by
the President, and shall be called at the request in writing of stockholders
entitled to cast at least a majority of all the votes entitled to be cast at
such meeting. Such request shall state the purpose or purposes of the proposed
meeting and the matters proposed to be acted on at it. The Secretary shall
inform such stockholders of the reasonably estimated costs of preparing and
mailing the notice of the meeting and on payment of these costs to the
Corporation shall notify each stockholder entitled to notice of the meeting.
SECTION 1.3 NOTICE OF MEETINGS. Written or printed notice of the time
and place of every meeting, and of the purpose of any special meeting, of the
stockholders shall be given by the Secretary of the Corporation to each
stockholder of record entitled to vote at the meeting and each other stockholder
entitled to notice of the meeting, by placing such notice in the mail at least
ten (10) days, but not more than ninety (90) days, and in any event within the
period prescribed by law, prior to the date named for the meeting addressed to
each stockholder at his address appearing on the books of the Corporation or
supplied by him to the Corporation for the purposes of notice. The notice of
every meeting of stockholders may be accompanied by a form of proxy approved by
the Board of Directors in favor of such actions or persons as the Board of
Directors may select.
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SECTION 1.4 RECORD DATE. The Board of Directors may fix a date not more
than ninety (90) days preceding the date of any meeting of stockholders, or the
date fixed for the payment of any dividend, or the date of the allotment of
rights, as a record date for the determination of stockholders entitled to
notice of, or to vote at, any such meeting (or any adjournment thereof) or
entitled to receive payment of any dividend, or to receive such allotment of
rights. In such case, only stockholders of record at the time so fixed shall be
entitled to vote, to receive notice, or receive dividends or rights,
notwithstanding any subsequent transfer on the books of the Corporation. The
Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period. In the case of
a meeting of stockholders, the record date shall be fixed not less than ten (10)
days prior to the date of the meeting.
SECTION 1.5 QUORUM AND SHAREHOLDER ACTION. Except as otherwise provided
by statute or by the Charter, the presence in person or by proxy of stockholders
of the Corporation entitled to cast at least a majority of all the votes
entitled to be cast at the meeting shall constitute a quorum and a majority of
all the votes cast at a meeting at which a quorum is present shall be sufficient
to approve any matter which properly comes before the meeting (except with
respect to the election of directors, which will be by a plurality of votes
cast). In the absence of a quorum, the stockholders present in person or by
proxy, by majority vote and without notice other than by announcement at the
meeting, may adjourn the meeting from time to time as provided in Section 1.7 of
this Article I until a quorum shall attend.
SECTION 1.6 ORGANIZATION. At every meeting of the stockholders, the
Chairman of the Board, if one has been selected and is present or, if not, the
President, or in the absence of the Chairman of the Board and the President, a
Vice-President, or in the absence of the Chairman of the Board, the President
and all the Vice-Presidents, a chairman chosen by the Board of Directors of the
Corporation or, in the absence of the Chairman, the President, all the
Vice-Presidents and a chairman chosen by the Board of Directors, a chairman
chosen by the stockholders, shall act as chairman; and the Secretary, or in his
absence, an Assistant Secretary, or in the absence of the Secretary and all the
Assistant Secretaries, a person appointed by the chairman, shall act as
secretary of the meeting.
SECTION 1.7 ADJOURNMENT. Any meeting of the stockholders may be
adjourned from time to time, without notice other than by announcement at the
meeting at which such adjournment is taken, and at any such adjourned meeting at
which a quorum shall be present any action may be taken that could have been
taken at the meeting originally called; provided, that the
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meeting may not be adjourned to a date more than the number of days after the
original record date for the meeting permitted by law, and if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting.
SECTION 1.8 BENEFICIAL OWNERS. The Board of Directors may adopt by
resolution a procedure by which a stockholder of the Corporation may certify in
writing to the Corporation that any shares of stock registered in the name of
the stockholder are held for the account of a specified person other than the
stockholder in such a manner and for such purposes as may be permitted by
Maryland law.
SECTION 1.9 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the stockholders may be taken without a meeting if a
unanimous consent which sets forth the action is signed by the stockholders and
is filed with the minutes of proceedings of the stockholders.
SECTION 1.10 NOTICE OF STOCKHOLDER BUSINESS. At any annual or special
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual or special meeting, the business must be (i) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly brought before
the meeting by a stockholder.
For business to be properly brought before an annual or special meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, any such notice must
be delivered to or mailed and received at the principal executive office of the
Corporation not later than sixty (60) days prior to the date of the meeting;
provided, however, that if less than seventy (70) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, any such
notice by a stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which notice of the date
of the annual or special meeting was given or such public disclosure was made.
Any such notice by a stockholder shall set forth as to each matter the
stockholder proposes to bring before the annual or special meeting (i) a brief
description of the business desired to be brought before the annual or special
meeting and the reasons for conducting such business at the annual or special
meeting, (ii) the name and address, as they appear on the
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Corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the capital stock of the Corporation which are
beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be conducted at any annual or special meeting except in accordance with
the procedures set forth in this Section 1.10. The chairman of the annual or
special meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 1.10, and, if he should so determine, he
shall so declare to the meeting that any such business not properly brought
before the meeting shall not be considered or transacted.
SECTION 1.11 ADVANCE NOTICE REQUIREMENTS FOR NOMINATION OF DIRECTORS.
Only persons who are nominated in accordance with the following procedures shall
be eligible for election as directors of the Corporation, except as may be
otherwise provided in the Charter of the Corporation with respect to the rights
of any holders of preferred stock of the Corporation to nominate and elect a
specified number of directors in certain circumstances. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders (a) by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (b) by any stockholder of the Corporation (i)
who is a stockholder of record on the date of the giving of the notice provided
for in this Section 1.11 and on the record date for the determination of
stockholders entitled to vote at such annual meeting and (ii) who complies with
the notice procedures set forth in this Section 1.11.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive office of the Corporation
not less than sixty (60) days nor more than ninety (90) days prior to the date
of the annual meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by the stockholder in order to
be timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs.
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To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person, and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder; and (b) as to the
stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (iv) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to nominate the persons named in its
notice and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. If the chairman of the annual meeting determines that a nomination was
not made in accordance with the foregoing procedures, the chairman shall declare
to the meeting that the nomination was defective and such defective nomination
shall be disregarded.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 ELECTION AND POWERS. The number of directors shall be fixed
from time to time by resolution adopted by a majority of the entire Board of
Directors; provided, however, that the number of directors shall in no event be
less than three (3) unless there are fewer than three stockholders nor more than
fifteen (15). The business, affairs and property of the Corporation shall be
managed by or under the direction of the Board of Directors, which may exercise
all such powers of the
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Corporation and do all such lawful acts and things as are not by statute, the
Charter of the Corporation or these By-Laws required to be exercised or done by
the stockholders. Beginning with the first annual meeting of stockholders held
after the initial public offering of the shares of the Corporation ("the initial
annual meeting"), the Board of Directors shall be divided into three classes:
class I, class II and class III. The terms of office of the classes of directors
elected at the initial annual meeting shall expire at the times of the annual
meetings of the stockholders as follows -- class I in 2000, class II in 2001 and
class III in 2002 -- or thereafter in each case when their respective successors
are elected and qualified. At each subsequent annual meeting, the directors
chosen to succeed those whose terms are expiring shall be identified as being of
the same class as the directors whom they succeed, and shall be elected for a
term expiring at the time of the third succeeding annual meeting of
stockholders, or thereafter in each case when their respective successors are
elected and qualified. The number of directorships shall be apportioned among
the classes so as to maintain the classes as nearly equal in number as possible.
SECTION 2.2 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice on such dates as the Board may from time to
time determine.
SECTION 2.3 SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, the
President or by a majority of the entire Board of Directors either in writing or
by vote at a meeting.
SECTION 2.4 NOTICE OF SPECIAL MEETINGS. Notice of the place, day and
hour of every special meeting shall be given personally to each director at
least one (1) day before the meeting or otherwise at least two (2) days before
the meeting. Notice may be given in any one of the following ways: personally by
delivery to such director or by telephone communication with such director or by
telephone facsimile transmission; otherwise by telegram, cablegram, radiogram,
first class mail or by delivery service providing confirmation of delivery,
addressed to such director at the address appearing on the books of the
Corporation. The time when such notice shall be consigned to a communication
company for delivery shall be deemed to be the time of the giving of such
notice; if mailed, such notice shall be deemed given 48 hours after the time it
is deposited in the mail, postage prepaid. It shall not be requisite to the
validity of any meeting of the Board of Directors that notice thereof shall have
been given to any director who is present thereat, or, if absent, waives notice
thereof in writing filed with the records of the meeting either before or after
the holding thereof.
SECTION 2.5 PLACE OF MEETINGS. The Board of Directors may hold its
regular and special meetings at such place or places
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within or without the State of Maryland as the Board may from time to time
determine.
SECTION 2.6 QUORUM AND BOARD ACTION. Except as otherwise provided by
statute or by the Charter: (a) one-third (1/3) of the entire Board of Directors,
but in no case less than two (2) directors, unless there is only one (1)
director, shall be necessary to constitute a quorum for the transaction of
business at each meeting of the Board; (b) 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; and (c) if at any meeting there be less than a quorum present, a
majority of those directors present may adjourn the meeting from time to time,
but not for a period greater than thirty (30) days at any one time, without
notice other than by announcement at the meeting until a quorum shall attend. At
any such adjourned meeting at which a quorum shall be present, any business may
be transacted which might have been transacted at the meeting as originally
scheduled.
SECTION 2.7 ACTION WITHOUT MEETING. Except as otherwise provided by
statute, any action required or permitted to be taken at a meeting of the Board
of Directors or a committee of the Board may be taken without a meeting if an
unanimous consent which sets forth the action is signed by each member of the
Board or committee and is filed with the minutes of proceedings of the Board or
committee.
SECTION 2.8 ORGANIZATION. At every meeting of the Board of Directors,
the Chairman of the Board, if one has been selected and is present, and, if not,
or in the absence of the Chairman of the Board, a chairman chosen by a majority
of the directors present, shall preside; and the Secretary, or in his absence,
an Assistant Secretary, or in the absence of the Secretary and all the Assistant
Secretaries, a person appointed by the chairman, shall act as secretary.
SECTION 2.9 VACANCIES. Any vacancy on the Board of Directors occurring
by reason of any increase in the number of directors may be filled by a majority
of the entire Board of Directors. Any vacancy on the Board of Directors
occurring for any other cause may be filled by a majority of the remaining
members of the Board of Directors, whether or not these members constitute a
quorum under Section 2.6 of this Article II. Any director so chosen to fill a
vacancy shall hold office until the next annual meeting of stockholders, or
special meeting called for such purpose, and until his successor shall have been
duly elected and qualified.
SECTION 2.10 RESIGNATIONS. Any director may resign at any time by
giving written notice to the Board of Directors, the President or the Secretary.
Any such resignation shall take
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effect at the time of the receipt of such notice or at any later time specified
therein; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 2.11 COMMITTEES. The Board of Directors may appoint from among
its members an executive and other committees of the Board composed of one (1)
or more directors. To the extent permitted by law, the Board of Directors may
delegate to any such committee or committees any of the powers of the Board of
Directors in the management of the business, affairs and property of the
Corporation. Such committee or committees shall have such name or names as may
be determined from time to time by resolution adopted by the Board of Directors.
Each Committee shall keep regular minutes of its meetings and report the same to
the Board of Directors when required. The members of a committee present at any
meeting, whether or not they constitute a quorum, may appoint a director to act
in the place of an absent member.
SECTION 2.12 TELEPHONE CONFERENCE. Except as otherwise provided by
statute, members of the Board of Directors or any committee thereof may
participate in a meeting of the Board or such 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
participation by such means shall constitute presence in person at the meeting.
SECTION 2.13 COMPENSATION OF DIRECTORS. Any director, whether or not he
is a salaried officer, employee, or agent of the Corporation, may be compensated
for his services as director or as a member of a committee, or as Chairman of
the Board or chairman of a committee, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the
directors may from time to time determine.
ARTICLE III
OFFICERS
SECTION 3.1 NUMBER. The officers of the Corporation shall be a
President, a Secretary, and a Treasurer, and may include a Chairman of the
Board, one or more Vice-Presidents, one or more Assistant Secretaries, one or
more Assistant Treasurers, and such other officers as the Board of Directors may
from time to time determine. Any officer may hold more than one office in the
Corporation, except that an officer may not serve concurrently as both the
President and a Vice-President.
SECTION 3.2 ELECTION AND TERM OF OFFICE. The officers of the
Corporation shall be elected by the Board of Directors at the first meeting of
the Board of Directors following the annual
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election of directors and, subject to earlier termination of office, each
officer shall hold office for one year and until his successor shall have been
elected and qualified.
SECTION 3.3 RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President, or the Secretary
of the Corporation. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3.4 REMOVAL. If the Board of Directors in its judgment finds
that the best interests of the Corporation will be served, the Board may remove
any officer of the Corporation at any time.
SECTION 3.5 CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall have the responsibility for the implementation of the policies
determined by the Board of Directors and for the administration of the business
affairs of the Corporation. He shall preside over the meetings of the Board and
of the stockholders at which he is present. The Chairman of the Board shall also
be the chief executive officer of the Corporation and shall have general
supervision over the business and operations of the Corporation, subject,
however, to the control of the Board of Directors. He, or such persons as he
shall designate, shall sign, execute, acknowledge, verify deliver and accept, in
the name of the Corporation, deeds, mortgages, bonds, contracts and other
instruments authorized by the Board of Directors, except in the case where the
signing, execution, acknowledgement, verification, delivery or acceptance
thereof shall be delegated by the Board to some other officer or agent of the
Corporation; and, in general, he shall have general executive powers as well as
other powers and duties as from time to time may be conferred upon or assigned
to him by the Board.
SECTION 3.6 PRESIDENT. Unless a Chairman of the Board has been elected,
the President shall be the chief executive officer of the Corporation and shall
preside over the meetings of the Board and of the stockholders at which he is
present. The President shall also have such powers and duties as from time to
time may be conferred upon or assigned to him by the Board of Directors or the
Chairman of the Board.
SECTION 3.7 THE VICE-PRESIDENTS. In the absence or disability of the
President, or when so directed by the President, any Vice-President designated
by the Board of Directors may perform any or all of the duties of the President,
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President; provided, however, that no Vice-President
shall act as a member of or as chairman of
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<PAGE> 10
any committee of which the President is a member or chairman by designation of
ex-officio, except when designated by the Board. Each Vice-President shall
perform such other duties as from time to time may be conferred upon or assigned
to him by the Board or the President.
SECTION 3.8 THE SECRETARY. The Secretary shall record all the votes of
the stockholders and of the directors and the minutes of the meetings of the
stockholders and of the Board of Directors in a book or books to be kept for
that purpose; he shall see that notices of meetings of the stockholders and the
Board of Directors are given and that all records and reports are properly kept
and filed by the Corporation as required by law; he shall be the custodian of
the seal of the Corporation and shall see that it is affixed to all documents to
be executed on behalf of the Corporation under its seal, provided that in lieu
of affixing the corporate seal to any document, it shall be sufficient to meet
the requirements of any law, rule or regulation relating to a corporate seal to
affix the word ("SEAL") adjacent to the signature of the authorized officer of
the Corporation; and, in general, he shall perform all duties incident to the
office of Secretary, and such other duties as from time to time may be conferred
upon or assigned to him by the Board or the President.
SECTION 3.9 ASSISTANT SECRETARIES. In the absence or disability of the
Secretary, or when so directed by the Secretary, any Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
SECTION 3.10 THE TREASURER. The Treasurer, unless another officer has
been so designated, shall be the chief financial officer of the Corporation.
Subject to the provisions of any contract which may be entered into with any
custodian pursuant to authority granted by the Board of Directors, the Treasurer
shall have charge of all receipts and disbursements of the Corporation and shall
have or provide for the custody of its funds and securities; he shall have full
authority to receive and give receipts for all money due and payable to the
Corporation, and to endorse checks and drafts, in its name and on its behalf,
and to give full discharge for the same; he shall deposit all funds of the
Corporation, except such as may be required for current use, in such banks or
other places of deposit as the Board of Directors may from time to time
designate; and, in general, he shall perform all duties incident to the office
of Treasurer and such other duties as from time to time may be conferred upon or
assigned to him by the Board or the President.
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<PAGE> 11
SECTION 3.11 ASSISTANT TREASURERS. In the absence or disability of the
Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
SECTION 3.12 COMPENSATION OF OFFICERS. The compensation of all officers
shall be fixed from time to time by the Board of Directors, or any committee or
officer authorized by the Board so to do. No officer shall be precluded from
receiving such compensation by reason of the fact that he is also a director of
the Corporation.
ARTICLE IV
STOCK
SECTION 4.1 CERTIFICATES. The Board of Directors may authorize the
issuance of stock either in certificated or in uncertificated form. If shares
are issued in certificated form, each stockholder of an uncertificated security
shall be entitled upon written request to a stock certificate or certificates,
representing and certifying the number and kind of full shares held by him,
signed by the President, a Vice-President or the Chairman of the Board and
countersigned by the Secretary, an Assistant Secretary, the Treasurer or an
Assistant Treasurer, which signatures may be either manual or facsimile
signatures, and sealed with the seal of the Corporation, which seal may be
either facsimile or any other form of seal. Stock certificates shall be in such
form not inconsistent with law or with the Charter, as shall be approved by the
Board of Directors.
SECTION 4.2 TRANSFER OF SHARES. Transfers of shares shall be made on
the books of the Corporation at the direction of the person named on the
Corporation's books or named in the certificate or certificates for such shares
(if issued), or by his attorney lawfully constituted in writing, upon surrender
of such certificate or certificates (if issued) properly endorsed, to the
Corporation's Transfer Agent, with such evidence of the authenticity of such
transfer, authorization and such other matters as the Corporation or its agents
may reasonably require, and subject to such other reasonable terms and
conditions as may be required by the Corporation or its agents; or, if the Board
of Directors shall by resolution so provide, transfer of shares may be made in
any other manner provided by law.
SECTION 4.3 TRANSFER AGENTS AND REGISTRARS. The Corporation may have
one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of
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<PAGE> 12
Directors may, from time to time, define. No certificate of stock shall be valid
until countersigned by a Transfer Agent, if the Corporation shall have a
Transfer Agent, or until registered by a Registrar, if the Corporation shall
have a Registrar. The duties of Transfer Agent and Registrar may be combined.
SECTION 4.4 STOCK LEDGERS. The Corporation shall not be required to
keep original or duplicate stock ledgers at its principal office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the respective offices
of the Transfer Agent of the Corporation's capital stock.
SECTION 4.5 LOCATION OF CORPORATE BOOKS. So long as permitted by
Maryland law, the books of the Corporation may be kept outside the State of
Maryland at such place or places as may be designated from time to time by the
Board of Directors.
ARTICLE V
SEAL
SECTION 5.1 SEAL. The seal of the Corporation shall be in such form as
the Board of Directors shall prescribe.
ARTICLE VI
SUNDRY PROVISIONS
SECTION 6.1 AMENDMENTS.
(a) BY STOCKHOLDERS. By-Laws may be adopted, altered, amended or
repealed in the manner provided in Section 1.5 of Article I hereof at any annual
or special meeting of the stockholders.
(b) BY DIRECTORS. By-Laws may be adopted, altered, amended or
repealed in the manner provided in Sections 2.6 or 2.7 of Article II hereof by
the Board of Directors at any regular or special meeting of the Board.
SECTION 6.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS. (A)
INDEMNIFICATION. Subject to Section 6.2(b) of this Article, any person who was
or is a party or is threatened to be made a party in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is a current or former
director or officer of the Corporation, or is or was serving while a director or
officer of the Corporation, at the request of the Corporation, as a director,
officer, partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, enterprise or employee benefit plan, shall be
indemnified by the Corporation against judgments,
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<PAGE> 13
penalties, fines, excise taxes, settlements and reasonable expenses (including
attorney's fees) actually incurred by such person in connection with such
action, suit or proceeding to the maximum extent permissible under applicable
state corporation law, the Securities Act of 1933 and the Investment Company Act
of 1940, as such statutes are now or hereafter in force, provided, that such
indemnification shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person 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
("disabling conduct").
(b) DETERMINATION. Unless a court orders otherwise, any
indemnification made pursuant to Section 6.2(a) of this Article shall be made by
the Corporation only as authorized in the specific case (i) after a final
decision on the merits is made by a court or other body before whom the
proceeding was brought that the person to be indemnified was not liable by
disabling conduct, or (ii) upon a determination, based on a review of the facts,
that the person to be indemnified was not liable by reason of disabling conduct,
which determination shall be made by (A) the vote of a majority of a quorum of
directors who are neither "interested persons" as defined under the Investment
Company Act of 1940 nor parties to the proceeding ("disinterested non-party
directors"), or (B) independent legal counsel in a written opinion.
(c) ADVANCES. Any current or former director or officer of the
Corporation claiming indemnification within the scope of this Section 6.2 shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with the proceedings to which he is a
party in the manner and to the maximum extent permissible under applicable state
corporation law, the Securities Act of 1933 and the Investment Company Act of
1940, as such statutes are now or hereafter in force, provided, that (i) he
undertakes to repay the advance unless it is ultimately determined that he is
entitled to indemnification, and (ii) (A) he provides a security for his
undertaking, (B) the Corporation is insured against losses arising from a
failure to repay if required pursuant to clause (i), or (C) a majority of a
quorum of disinterested, non-party directors or independent legal counsel in a
written opinion, determine, based on a review of readily available facts, that
there is reason to believe that the person to be indemnified ultimately will be
found entitled to indemnification.
(d) OTHER RIGHTS. The Board of Directors may make further
provision consistent with law for indemnification and advance of expenses to
directors, officers, employees and agents by resolution, agreement or otherwise.
The indemnification provided by this Section 6.2 shall not be deemed
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<PAGE> 14
exclusive of any other right, with respect to indemnification or otherwise, to
which those seeking indemnification may be entitled under any insurance or other
agreement or resolution of stockholders or disinterested directors or otherwise.
The rights provided to any person by this Section 6.2 shall be enforceable
against the Corporation by such person who shall be presumed to have relied upon
it in serving or continuing to serve as a director or officer as provided above.
SECTION 6.3 DEFINITION. As used herein, the "Charter of the
Corporation" means the Articles of Incorporation of the Corporation as amended
and supplemented from time to time.
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<PAGE> 1
Exhibit 2(g)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of ____________________, 1998 between
CHARTWELL DIVIDEND AND INCOME FUND, INC., a Maryland corporation (the "Fund"),
and CHARTWELL INVESTMENT PARTNERS, L.P., a Pennsylvania limited partnership (the
"Manager").
WHEREAS, the Fund is registered as a closed-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Manager is engaged principally in the business of
rendering investment management services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"); and
WHEREAS, the Fund desires to retain the Manager to furnish
investment advisory services to the Fund and the Manager is willing to furnish
such services;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints the Manager to act as
its investment manager for the period and on the terms set forth in this
Agreement. The Manager accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. MANAGEMENT. Subject to the supervision of the Fund's Board
of Directors, the Manager will perform the following services:
(i) Provide a continuous investment program
and strategy for the Fund, including investment research and
management with respect to all securities and investments and
cash equivalents in the Fund, determining from time to time
what securities and other investments will be invested,
reinvested, owned, held or traded by the Fund. The Manager
will provide the services under this Agreement in accordance
with the Fund's investment objective, policies and
restrictions as stated in the Prospectus of the Fund and
resolutions of the Fund's Board of Directors adopted from time
to time;
(ii) The Manager shall, to the extent requested
by the Board of Directors, provide the personnel to act as
officers of the Fund and pay the salaries of such
<PAGE> 2
officers, and shall furnish office facilities and equipment,
and related services necessary for the operation of the Fund;
(iii) Transmit information concerning purchases
and sales of the Fund's portfolio securities to the custodian
for proper settlement;
(iv) Supply the Fund and its Board of Directors
with reports and statistical data as requested; and
(v) Prepare a quarterly brokerage allocation
summary and monthly security transaction listing for the Fund.
3. OTHER COVENANTS.
The Manager further agrees that:
(i) It will maintain its registration under
the Advisers Act, adopt a Code of Ethics and provide reports
with respect thereto to the Board of Directors of the Fund,
and will conform with all applicable Rules and Regulations of
the Securities and Exchange Commission;
(ii) It will place orders pursuant to its
investment determinations for the Fund either directly with
the issuer or with any broker or dealer. In executing
portfolio transactions and selecting brokers or dealers, the
Manager will use its best efforts to seek on behalf of the
Fund the best overall terms available. In assessing the best
overall terms available for any transaction, the Manager shall
consider all factors that it deems relevant, including the
breadth of the market in the security, the price of the
security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a
continuing basis. In evaluating the best overall terms
available, and in selecting the broker dealer to execute a
particular transaction, the Manager may also consider the
brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided
to the Fund and/or other accounts over which the Manager or an
affiliate of the Manager exercises investment discretion. The
Manager is authorized to pay to a broker or dealer who
provides such brokerage and research services a commission for
executing a portfolio transaction for the Fund which is in
excess of the amount of commission another broker or
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<PAGE> 3
dealer would have charged for effecting that transaction if,
but only if, the Manager determines in good faith that such
commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or
dealer, viewed in terms of that particular transaction or in
terms of the overall responsibilities of the Manager to the
Fund. In addition, the Manager is authorized to take into
account the sale of shares of the Fund in allocating to
brokers or dealers purchase and sale orders for the Fund's
portfolio securities, provided that the Manager believes that
the quality of the transaction and the commission are
comparable to what they would be with other qualified firms.
The Manager will make investment decisions for the Fund
independently from those of other clients of the Manager.
However, the same security may be held in the portfolio of
more than one client when the same security is believed suited
for the investment objectives of more than one client. Should
two or more clients of the Manager simultaneously be engaged
in the purchase or sale of the same security, to the extent
possible, the transactions will be allocated as to price and
amount in a manner fair and equitable to each client;
(iii) It will maintain or supervise the
maintenance of all books and records with respect to the
securities transactions of the Fund and will furnish the
Fund's Board of Directors with such periodic and special
reports as the Board may request;
(iv) It will treat confidentially and as
proprietary information of the Fund all records and other
information relative to the Fund and prior, present or
potential shareholders, and will not use such records and
information for any purpose other than performance of its
responsibilities and duties hereunder (except after prior
notification to and approval in writing by the Fund, which
approval may not be withheld where the Manager would be
exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly
constituted authorities); and
(v) All software code owned by the Manager or
under its control, used in the performance of its obligations
under this Agreement, will be Year 2000 Compliant. For
purposes of this paragraph, "Year 2000 Compliant" means that
the software will continue to operate after December 31, 1999
without creating any logical or mathematical inconsistencies
concerning any date after December 31, 1999 and without
decreasing the
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<PAGE> 4
functionality of the system applicable to dates prior to
January 1, 2000 including, but not limited to, making changes
to (i) date and data century recognition; (ii) calculations
which accommodate same- and multi-century formulas and date
values; and (iii) input/output of date values which reflect
century dates.
4. SUB-ADVISOR. The Manager may employ or contract with other
persons to assist it in the performance of this Agreement (each, a
"Sub-Advisor"); provided, however, that the retention of any Sub-Advisor shall
be approved as may be required by the 1940 Act. A Sub-Advisor may perform under
the supervision of the Manager any or all services described elsewhere in this
Agreement. Sub-Advisors may include other investment advisory or management
firms and officers or employees who are employed by both the Manager and the
Fund. The fees or other compensation of any Sub-Advisor shall be paid by the
Manager and no obligation may be incurred on the Fund's behalf to any such
person.
In the event that the Manager appoints a Sub-Advisor, the
Manager will review, monitor, and report to the Fund's Board of Directors on the
performance and investment procedures of any such Sub-Advisor, and assist and
consult with any Sub-Advisor in connection with the Fund's continuous investment
program. In the event that any Sub-Advisor appointed hereunder is terminated,
the Manager may provide investment management services pursuant to this
Agreement to the Fund without further shareholder approval.
5. SERVICES NOT EXCLUSIVE. The investment management services
furnished by the Manager hereunder are deemed not to be exclusive, and the
Manager shall be free to furnish similar services to others so long as its
services under this Agreement are not impaired thereby. The Manager will for all
purposes herein be deemed to be an independent contractor and will, unless
otherwise expressly authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed to be its agent.
6. BOOKS AND RECORDS. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Manager hereby agrees that all records which
it maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request. The
Manager further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act, and to permit the Fund access to the Manager's records upon the Fund's
request.
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<PAGE> 5
7. EXPENSES. During the term of this Agreement, the Manager
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Fund.
8. COMPENSATION. For the services provided to the Fund
pursuant to this Agreement, the Fund will pay to the Manager and the Manager
will accept as full compensation therefor, a fee, payable on or before the tenth
(10th) day of each calendar month, at the annual rate of 0.95% of the Fund's
Managed Assets (as defined below). Such fees shall be reduced as required by
expense limitations imposed upon the Fund by any state in which shares of the
Fund are sold. Reductions shall be made at the time of each monthly payment on
an estimated basis, if appropriate, and an adjustment to reflect the reduction
on an annual basis shall be made, if necessary, in the fee payable with respect
to the last month in any calendar year of the Fund. The Manager shall within ten
(10) days after the end of each calendar year refund any amount paid in excess
of the fee determined to be due for such year.
If this Agreement shall become effective subsequent to the
first day of a month, or shall terminate before the last day of a month, the
Manager's compensation for such fraction of the month shall be determined by
applying the foregoing percentage to the Fund's Managed Assets during such
fraction of a month (calculated on an average daily basis if such fraction of a
month is less than a week) and in the proportion that such fraction of a month
bears to the entire month.
"Managed Assets" means the average weekly value of the Fund's
total assets minus the Fund's liabilities, other than debt relating to leverage,
which liabilities exclude the aggregate liquidation preference of any
outstanding preferred stock or short-term debt.
9. LIMITATION OF LIABILITY. The Manager shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of this Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Manager in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement. Any
person, even though also an officer, partner, employee, or agent of the Manager,
who may be or become an officer, director, employee or agent of the Fund, shall
be deemed, when rendering service to the Fund or acting on any business of the
Fund (other than services or business in connection with the Manager's duties as
investment advisor hereunder), to be rendering such services to or acting
solely,
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<PAGE> 6
for, the Fund and not as an officer, partner, employee or agent or one under the
control or direction of the Manager even though paid by it.
10. DURATION AND TERMINATION. This Agreement will become
effective on the date first written above, and unless sooner terminated as
provided herein, shall continue in effect for two (2) years. Thereafter, if not
terminated, this Agreement shall continue in effect for successive annual
periods, provided such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Fund's Board of Directors
who are not interested persons of any party to this Agreement, cast in person at
a meeting called for the purpose of voting on such approval, and (b) by the
Fund's Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund. Notwithstanding the foregoing, this Agreement may be
terminated at any time, without the payment of any penalty, by the Fund (by vote
of the Fund's Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund), or by the Manager on sixty days' written notice.
This Agreement will immediately and automatically terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the same
meaning of such terms in the 1940 Act.)
11. AMENDMENT OF THIS AGREEMENT. No provision of this
Agreement may be amended or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective until approved in accordance with the requirements of the 1940 Act.
12. MISCELLANEOUS. Any notice made pursuant to this Agreement
shall be given in writing, addressed and delivered or mailed postage prepaid,
return-receipt requested, to the other party to this Agreement at its principal
place of business. Notice given by a party's attorney shall be deemed to be
notice given by the party. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provisions of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Maryland law.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
CHARTWELL DIVIDEND AND INCOME
FUND, INC.
---------------------------------------
Authorized Officer
CHARTWELL INVESTMENT PARTNERS, L.P.
---------------------------------------
Authorized Officer
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<PAGE> 1
Exhibit 2(h)(1)
CHARTWELL DIVIDEND AND INCOME FUND, INC.
(a Maryland corporation)
_______________ Shares of Common Stock
(Par Value $.01 Per Share)
FORM OF
PURCHASE AGREEMENT
June ___, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Advest, Inc.
Robert W. Baird & Co. Incorporated
A.G. Edward & Sons, Inc.
EVEREN Securities, Inc.
Fahnestock & Co. Inc.
Gruntal & Co., L.L.C.
Janney Montgomery Scott Inc.
Legg Mason Wood Walker, Incorporated
Prudential Securities Incorporated
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Chartwell Dividend and Income Fund, Inc., a Maryland corporation (the
"Fund"), and Chartwell Investment Partners, L.P., a Pennsylvania limited
partnership (the "Manager"), each confirms its agreement with Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
each of the other Underwriters named in Schedule A hereto (collectively, the
"Underwriters", which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom Merrill Lynch and Advest,
Inc., Robert W. Baird & Co. Incorporated, A.G. Edward & Sons, Inc., EVEREN
Securities, Inc., Fahnestock & Co. Inc., Gruntal & Co., L.L.C., Janney
Montgomery Scott Inc., Legg
<PAGE> 2
Mason Wood Walker, Incorporated, and Prudential Securities Incorporated are
acting as representatives (in such capacity, the "Representatives"), with
respect to the issue and sale by the Fund and the purchase by the Underwriters,
acting severally and not jointly, of the respective numbers of shares of Common
Stock, par value $.01 per share, of the Fund ("Common Stock") set forth in said
Schedule A, and with respect to the grant by the Fund to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b) hereof
to purchase all or any part of _______________ additional shares of Common Stock
to cover over-allotments, if any. The aforesaid _______________ shares of Common
Stock (the "Initial Securities") to be purchased by the Underwriters and all or
any part of the _______________ shares of Common Stock subject to the option
described in Section 2(b) hereof (the "Option Securities") are hereinafter
called, collectively, the "Securities."
The Fund understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Fund has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (No. 333-49969 and No.
811-08747) covering the registration of the Securities under the Securities Act
of 1933, as amended (the "1933 Act"), including the related preliminary
prospectus or prospectuses, and a notification on Form N-8A of registration of
the Fund as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations of the Commission under
the 1933 Act and the 1940 Act (the "Rules and Regulations"). Promptly after
execution and delivery of this Agreement, the Fund will either (i) prepare and
file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A")
of the Rules and Regulations and paragraph (c) or (h) of Rule 497 ("Rule 497")
of the Rules and Regulations or (ii) if the Fund has elected to rely upon Rule
434 ("Rule 434") of the Rules and Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 497. The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations is herein referred to as the "Rule 462(b) Registration Statement,"
and after such filing the term "Registration Statement" shall include the Rule
462(b) Registration Statement. The final prospectus in the form first furnished
to the Underwriters for use in connection with the offering of the Securities is
herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus"
shall refer to the preliminary prospectus dated _____, 1998 together with the
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<PAGE> 3
Term Sheet and all references in this Agreement to the date of the Prospectus
shall mean the date of the Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
Prospectus or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
The Manager confirms its agreement to make the payments to the
Underwriters when and as required by Section 2 hereof.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Fund and the Manager. The
Fund and the Manager jointly and severally represent and warrant to each
Underwriter as of the date hereof, as of the Closing Time referred to in Section
2(c) hereof, and as of each Date of Delivery (if any) referred to in Section
2(b) hereof, and agree with each Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act, or order of
suspension or revocation of registration pursuant to Section 8(e) of
the 1940 Act, and no proceedings for any such purpose have been
instituted or are pending or, to the knowledge of the Fund or the
Manager, are contemplated by the Commission, and any request on the
part of the Commission for additional information has been complied
with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), the Registration Statement,
the Rule 462(b) Registration Statement, the notification of Form N-8A
and any amendments and supplements thereto complied and will comply in
all material respects with the requirements of the 1933 Act, the 1940
Act and the Rules and Regulations and did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. Neither the Prospectus nor any amendments or
supplements thereto, at the time the Prospectus or any such amendment
or supplement was issued and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. If Rule 434 is used, the Fund will comply with the
requirements of Rule 434 and the Prospectus shall not be "materially
different", as such term is used in Rule 434, from the prospectus
included in the
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<PAGE> 4
Registration Statement at the time it became effective. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Fund in writing by any Underwriter through Merrill
Lynch expressly for use in the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 497 under the 1933 Act,
complied when so filed in all material respects with the Rules and
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) Independent Accountants. The accountants who certified
the statement of assets and liabilities included in the Registration
Statement are independent public accountants as required by the 1933
Act and the Rules and Regulations.
(iii) Financial Statements. The statement of assets and
liabilities included in the Registration Statement and the Prospectus,
together with the related notes, presents fairly the financial position
of the Fund at the date indicated; said statement has been prepared in
conformity with generally accepted accounting principles ("GAAP").
(iv) Expense Summary. The information set forth in the
Prospectus in the Fee Table has been prepared in accordance with the
requirements of Form N-2 and to the extent estimated or projected, such
estimates or projections are reasonably believed to be attainable and
reasonably based.
(v) No Material Adverse Change. Since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Fund,
whether or not arising in the ordinary course of business (a "Material
Adverse Effect"), (B) there have been no transactions entered into by
the Fund, other than those in the ordinary course of business, which
are material with respect to the Fund, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the Fund
on any class of its capital stock.
(vi) Good Standing of the Fund. The Fund has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Maryland and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Fund is duly qualified as
a foreign corporation to transact business and is in good standing in
each other jurisdiction in which such qualification is required,
whether by reason of the
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<PAGE> 5
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(vii) No Subsidiaries. The Fund has no subsidiaries.
(viii) Investment Company Status. The Fund is duly registered
with the Commission under the 1940 Act as a closed-end diversified
management investment company, and no order of suspension or revocation
of such registration has been issued or proceedings therefor initiated
or threatened by the Commission.
(ix) Officers and Directors. No person is serving or acting
as an officer, director or investment adviser of the Fund except in
accordance with the provisions of the 1940 Act and the Rules and
Regulations and the Investment Advisers Act of 1940, as amended (the
"Advisers Act"), and the rules and regulations of the Commission
promulgated under the Advisers Act (the "Advisers Act Rules and
Regulations"). Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement to either of them), no
director of the Fund is an "interested person" (as defined in the 1940
Act) of the Fund or an "affiliated person" (as defined in the 1940 Act)
of any Underwriter.
(x) Capitalization. The authorized, issued and outstanding
capital stock of the Fund is as set forth in the Prospectus as of the
date thereof under the caption "Description of Capital Stock." The
shares of issued and outstanding capital stock of the Fund have been
duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the
Fund was issued in violation of the preemptive or other similar rights
of any securityholder of the Fund.
(xi) Authorization and Description of Securities. The
Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered
by the Fund pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued and fully paid
and non-assessable; the Common Stock conforms to all statements
relating thereto contained in the Prospectus and such description
conforms to the rights set forth in the instruments defining the same;
no holder of the Securities will be subject to personal liability by
reason of being such a holder; and the issuance of the Securities is
not subject to the preemptive or other similar rights of any
securityholder of the Fund.
(xii) Absence of Defaults and Conflicts. The Fund is not in
violation of its charter or by-laws, or in default in the performance
or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument to which
it is a party or by which it may be bound, or to which any of the
property or assets of the Fund is subject (collectively, "Agreements
and Instruments") except for such defaults that would not result in a
Material Adverse Effect; and the execution, delivery and performance of
this Agreement, the Investment Management Agreement,
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<PAGE> 6
the Administration Agreement, the Custody Agreement and the Transfer
Agency Agreement referred to in the Registration Statement (as used
herein, the "Management Agreement," the "Administration Agreement," the
"Custody Agreement" and the "Transfer Agency Agreement," respectively)
and the consummation of the transactions contemplated herein and in the
Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities
as described in the Prospectus under the caption "Use of Proceeds") and
compliance by the Fund with its obligations hereunder have been duly
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of, or default or Repayment
Event (as defined below) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Fund pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of
the Fund or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Fund or any of
its assets, properties or operations. As used herein, a "Repayment
Event" means any event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on
such holder's behalf) the right to require the repurchase, redemption
or repayment of all or a portion of such indebtedness by the Fund.
(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Fund or the Manager, threatened, against or
affecting the Fund, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect
the properties or assets of the Fund or the consummation of the
transactions contemplated in this Agreement or the performance by the
Fund of its obligations hereunder; the aggregate of all pending legal
or governmental proceedings to which the Fund is a party or of which
any of its property or assets is the subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits thereto by the
1933 Act, the 1940 Act or by the Rules and Regulations which have not
been so described and filed as required.
(xv) Possession of Intellectual Property. The Fund owns or
possesses, or can acquire on reasonable terms, adequate patents, patent
rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or
6
<PAGE> 7
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by the Fund; the Fund has not
received any notice or is not otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any
Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Fund therein, and which infringement or conflict (if
the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Fund of its
obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act, the 1940
Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
or state securities laws.
(xvii) Possession of Licenses and Permits. The Fund possesses
such permits, licenses, approvals, consents and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate
federal, state, local or foreign regulatory agencies or bodies
necessary to operate its properties and to conduct the business as
contemplated in the Prospectus; the Fund is in compliance with the
terms and conditions of all such Governmental Licenses, except where
the failure so to comply would not, singly or in the aggregate, have a
Material Adverse Effect; all of the Governmental Licenses are valid and
in full force and effect, except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to
be in full force and effect would not have a Material Adverse Effect;
and the Fund has not received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xviii) Advertisements. Any advertisement approved for use by
the Fund or the Manager used in connection with the public offering of
the Securities pursuant to Rule 482 under the Rules and Regulations (an
"Omitting Prospectus"), in the form approved, complies with the
requirements of such Rule 482, and does not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
(xix) Subchapter M. The Fund intends to direct the
investment of the proceeds of the offering described in the
Registration Statement in such a manner as to comply with the
requirements of Subchapter M of the Internal Revenue Code of 1986,
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<PAGE> 8
as amended ("Subchapter M of the Code" and the "Code," respectively),
and intends to qualify as a regulated investment company under
Subchapter M of the Code.
(xx) Material Agreements. This Agreement, the Management
Agreement, the Administration Agreement, the Custody Agreement and the
Transfer Agency Agreement have each been duly authorized by all
requisite action on the part of the Fund, executed and delivered by the
Fund, as of the dates noted therein and each complies with all
applicable provisions of the 1940 Act. Assuming due authorization,
execution and delivery by the other parties thereto with respect to the
Administration Agreement, the Custody Agreement and the Transfer Agency
Agreement, each of the Management Agreement, the Administration
Agreement, the Custody Agreement and the Transfer Agency Agreement
constitutes a valid and binding agreement of the Fund, enforceable in
accordance with its terms, except as affected by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally,
general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair
dealing.
(xxi) Registration Rights. There are no persons with
registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise
registered by the Fund under the 1933 Act.
(b) Representations and Warranties by the Manager. The Manager
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof as follows:
(i) Good Standing of the Manager. The Manager has been
duly organized and is validly existing and in good standing as a
limited partnership under the laws of the Commonwealth of Pennsylvania
with power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus and is duly
qualified as a foreign limited partnership to transact business and is
in good standing in each other jurisdiction in which such qualification
is required.
(ii) No Subsidiaries. The Manager has no subsidiaries.
(iii) Investment Adviser Status. The Manager is duly
registered and in good standing with the Commission as an investment
adviser under the Advisers Act, and is not prohibited by the Advisers
Act or the 1940 Act, or the rules and regulations under such acts, from
acting under the Management Agreement for the Fund as contemplated by
the Prospectus.
(iv) Description of Manager. The description of the Manager
in the Prospectus is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in
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<PAGE> 9
order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(v) Capitalization. The Manager has the financial resources
available to it necessary for the performance of its services and
obligations as contemplated in the Prospectus.
(vi) Authorization of Agreements; Absence of Defaults and
Conflicts. This Agreement and the Management Agreement have each been
duly authorized, executed and delivered by the Manager, and the
Management Agreement constitutes a valid and binding obligation of the
Manager, enforceable in accordance with its terms, except as affected
by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith
and fair dealing; and neither the execution and delivery of this
Agreement or the Management Agreement nor the performance by the
Manager of its obligations hereunder or thereunder will conflict with,
or result in a breach of any of the terms and provisions of, or
constitute, with or without the giving of notice or lapse of time or
both, a default under, any agreement or instrument to which the Manager
is a party or by which it is bound, the certificate of limited
partnership, the limited partnership agreement or other organizational
documents of the Manager, or to the best of the Manager's knowledge, by
any law, order, decree, rule or regulation applicable to it of any
jurisdiction, court, federal or state regulatory body, administrative
agency or other governmental body, stock exchange or securities
association having jurisdiction over the Manager or its respective
properties or operations; and no consent, approval, authorization or
order of any court or governmental authority or agency is required for
the consummation by the Manager of the transactions contemplated by
this Agreement or the Management Agreement, except as have been
obtained or may be required under the 1933 Act, the 1940 Act, the 1934
Act or state securities laws.
(vii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Manager, threatened against or affecting the
Manager or any "affiliated person" of the Manager (as such term is
defined in the 1940 Act) or any partners, directors, officers or
employees of the foregoing, whether or not arising in the ordinary
course of business, which might reasonably be expected to result in any
material adverse change in the condition, financial or otherwise, or
earnings, business affairs or business prospects of the Manager,
materially and adversely affect the properties or assets of the Manager
or materially impair or adversely affect the ability of the Manager to
function as an investment adviser or perform its obligations under the
Management Agreement, or which is required to be disclosed in the
Registration Statement and the Prospectus.
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<PAGE> 10
(viii) Absence of Violation or Default. The Manager is not in
violation of its certificate of limited partnership, limited
partnership agreement or other organizational documents or in default
under any agreement, indenture or instrument.
(c) Officer's Certificates. Any certificate signed by any officer of
the Fund or the Manager delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the Fund or the
Manager, as the case may be, to each Underwriter as to the matters covered
thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Fund agrees to sell to each Underwriter, severally and not jointly,
and each Underwriter, severally and not jointly, agrees to purchase from the
Fund, at the price per share set forth in Schedule B, the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter, plus
any additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Fund hereby grants an option to the Underwriters, severally and
not jointly, to purchase up to an additional _______________ shares of Common
Stock at the price per share set forth in Schedule B, less an amount per share
equal to any dividends or distributions declared by the Fund and payable on the
Initial Securities but not payable on the Option Securities. The option hereby
granted will expire 45 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Securities upon notice by the Representatives to the Fund setting forth
the number of Option Securities as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for such
Option Securities. Any such time and date of delivery (a "Date of Delivery")
shall be determined by the Representatives, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the Option Securities, each of the Underwriters, acting
severally and not jointly, will purchase that proportion of the total number of
Option Securities then being purchased which the number of Initial Securities
set forth in Schedule A opposite the name of such Underwriter bears to the total
number of Initial Securities, subject in each case to such adjustments as the
Representatives in their discretion shall make to eliminate any sales or
purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Simpson
Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017, or at such
other place as shall be agreed upon by the Representatives and the Fund, at 9:00
A.M. (Eastern time) on the third (fourth, if the pricing
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<PAGE> 11
occurs after 4:30 P.M. (Eastern time) on any given day) business day after the
date hereof (unless postponed in accordance with the provisions of Section 10),
or such other time not later than ten business days after such date as shall be
agreed upon by the Representatives and the Fund (such time and date of payment
and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Fund, on each Date of Delivery as specified in the notice from the
Representatives to the Fund.
Payment shall be made to the Fund by wire transfer of immediately
available funds to a bank account designated by the Fund, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.
Simultaneously with the delivery to the Underwriters of and payments by
the Underwriters for (i) Initial Securities at the Closing Time and (ii) Option
Securities on the relevant Date of Delivery, the Manager will pay to the
Underwriters an amount equal to ____ percent of the purchase price, calculated
using the initial public offering price per share set forth in Schedule B, for
the Securities to be purchased by the Underwriters on such date by wire transfer
or immediately available funds to a bank account on such Closing Time or Date of
Delivery, as the case may be, as shall be specified by Merrill Lynch.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in the City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
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SECTION 3. Covenants. (a) The Fund covenants with each Underwriter as
follows:
(i) Compliance with Securities Regulations and Commission
Requests. The Fund, subject to Section 3(a)(ii), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Representatives immediately, and confirm the notice in writing, (i)
when any post-effective amendment to the Registration Statement shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Fund will promptly effect the
filings necessary pursuant to Rule 497 and will take such steps as it
deems necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 497 was received for filing by the
Commission and, in the event that it was not, it will promptly file
such prospectus. The Fund will make every reasonable effort to prevent
the issuance of any stop order, or order of suspension or revocation of
registration pursuant to Section 8(e) of the 1940 Act, and, if any such
stop order or order of suspension or revocation of registration is
issued, to obtain the lifting thereof at the earliest possible moment.
(ii) Filing of Amendments. The Fund will give the
Representatives notice of its intention to file or prepare any
amendment to the Registration Statement (including any filing under
Rule 462(b)), any Term Sheet or any amendment, supplement or revision
to either the prospectus included in the Registration Statement at the
time it became effective or to the Prospectus will furnish the
Representatives with copies of any such documents a reasonable amount
of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or
counsel for the Underwriters shall object.
(iii) Delivery of Registration Statements. The Fund has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will
also deliver to the Representatives, without charge, a conformed copy
of the Registration Statement as originally filed and of each amendment
thereto (without exhibits) for each of the Underwriters. The copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
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<PAGE> 13
(iv) Delivery of Prospectuses. The Fund has delivered to
each Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Fund
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Fund will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably
request. The Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(v) Continued Compliance with Securities Laws. If at any
time when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriters or for the Fund, to amend the
Registration Statement or amend or supplement the Prospectus in order
that the Prospectus will not include any untrue statements of a
material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or
if it shall be necessary, in the opinion of such counsel, at any such
time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or
the Rules and Regulations, the Fund will promptly prepare and file with
the Commission, subject to Section 3(a)(ii), such amendment or
supplement as may be necessary to correct such statement or omission or
to make the Registration Statement or the Prospectus comply with such
requirements, and the Fund will furnish to the Underwriters such number
of copies of such amendment or supplement as the Underwriters may
reasonably request.
(vi) Blue Sky Qualifications. The Fund will use its best
efforts, in cooperation with the Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions of the United States as the
Representatives may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Fund shall not be
obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Fund will file such statements
and reports as may be required by the laws of such jurisdiction to
continue such qualification in effect for a period of not less than one
year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(vii) Rule 158. The Fund will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon
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<PAGE> 14
as practicable an earnings statement for the purposes of, and to
provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(viii) Use of Proceeds. The Fund will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds".
(ix) Listing. The Fund will use its best efforts to effect
the listing of the Securities on the NYSE.
(x) Restriction on Sale of Securities. During a period of
180 days from the date of the Prospectus, the Fund will not, without
the prior written consent of Merrill Lynch, (A) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any
share of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (B) enter
into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, whether any such swap or transaction
described in clause (A) or (B) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (1) the Securities to be sold
hereunder or (2) any shares of Common Stock issued pursuant to any
dividend reinvestment plan.
(xi) Reporting Requirements. The Fund, during the period
when the Prospectus is required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1940 Act and the 1934 Act within the time
periods required by the 1940 Act and the Rules and Regulations and the
1934 Act and the rules and regulations of the Commission thereunder,
respectively.
(xii) Subchapter M. The Fund will use its best efforts to
maintain its qualification as a regulated investment company under
Subchapter M of the Code.
(b) The Manager covenants with each Underwriter that for a period of
180 days from the date of the Prospectus, the Manager will not, without your
prior written consent which consent shall not be unreasonably withheld, act as
investment adviser to any other closed-end registered investment company having
an investment objective, policies and restrictions substantially similar to
those of the Fund.
SECTION 4. Payment of Expenses. (a) Expenses. The Fund will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing
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<PAGE> 15
and delivery to the Underwriters of this Agreement, any Agreement among
Underwriters and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Securities to the
Underwriters, (iv) the fees and disbursements of the Fund's counsel, accountants
and other advisors, (v) the qualification of the Securities under securities
laws in accordance with the provisions of Section 3(a)(vi) hereof, including
filing fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection therewith and in connection with the preparation of
the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery
to the Underwriters of copies of each preliminary prospectus, any Term Sheets
and of the Prospectus and any amendments or supplements thereto, (vii) the
preparation, printing and delivery to the Underwriters of copies of the Blue Sky
Survey and any supplement thereto, (viii) the fees and expenses of any transfer
agent or registrar for the Securities, (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the NASD of the terms of the sale of the Securities, (x) the
fees and expenses incurred in connection with the listing of the Securities on
the NYSE and (xi) the printing of any Omitting Prospectus.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Fund or the Manager shall reimburse the Underwriters for all
of their out-of-pocket expenses, including the reasonable fees and disbursements
of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Fund and the Manager contained in Section
1 hereof or in certificates of any officer of the Fund or the Manager delivered
pursuant to the provisions hereof, to the performance by the Fund and the
Manager of their respective covenants and other obligations hereunder, and to
the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued
under the 1933 Act, no notice or order pursuant to Section 8(e) of the
1940 Act shall have been issued, and no proceedings with respect to
either shall have been initiated or threatened by the Commission, and
any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of counsel
to the Underwriters. A prospectus containing the Rule 430A Information
shall have been filed with the Commission in accordance with Rule 497
(or a post-effective amendment providing such information shall have
been filed and declared effective in accordance with the requirements
of Rule 430A) or, if the Fund has elected to rely upon Rule 434, a Term
Sheet shall have been filed with the Commission in accordance with Rule
497.
15
<PAGE> 16
(b) Opinion of Counsel for Fund and the Manager. At Closing
Time, the Representatives shall have received the favorable opinions,
dated as of Closing Time, of Drinker Biddle & Reath LLP, counsel for
the Fund and the Manager, in form and substance satisfactory to counsel
for the Underwriters, together with signed or reproduced copies of such
letters for each of the other Underwriters to the effect set forth in
Exhibit A hereto and to such further effect as counsel to the
Underwriters may reasonably request.
(c) Opinion of Counsel for Underwriters. At Closing Time,
the Representatives shall have received the favorable opinion, dated as
of Closing Time, of Simpson Thacher & Bartlett, counsel for the
Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters with respect to the matters set
forth in clauses (i), (ii), (vi), (vii) (solely as to preemptive or
other similar rights arising by operation of law or under the charter
or by-laws of the Fund), (viii) through (x), inclusive, (xii), (xiv)
(solely as to the information in the Prospectus under "Description of
Capital Stock") and the penultimate paragraph of Exhibit A hereto. In
giving such opinion such counsel may rely, as to all matters governed
by the laws of jurisdictions other than the law of the State of New
York and the federal law of the United States, upon the opinions of
counsel satisfactory to the Representatives. Such counsel may also
state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers
of the Fund and certificates of public officials.
(d) Officers' Certificates. At Closing Time, there shall
not have been, since the date hereof or since the respective dates as
of which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Fund, whether or not
arising in the ordinary course of business, and the Representatives
shall have received a certificate of the President or a Vice President
of the Fund and of the chief financial or chief accounting officer of
the Fund and of the President or a Vice President of the Manager, dated
as of Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) the representations and warranties in
Sections 1(a) and (b) hereof are true and correct with the same force
and effect as though expressly made at and as of Closing Time, (iii)
each of the Fund and the Manager, respectively, has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement, or order of
suspension or revocation of registration pursuant to Section 8(e) of
the 1940 Act, has been issued and no proceedings for any such purpose
have been instituted or are pending or are contemplated by the
Commission.
(e) Accountant's Comfort Letter. At the time of the
execution of this Agreement, the Representatives shall have received
from Coopers & Lybrand L.L.P. a letter dated such date, in form and
substance satisfactory to the Representatives, together with signed or
reproduced copies of such letter for each of the other
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<PAGE> 17
Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(f) Bring-down Comfort Letter. At Closing Time, the
Representatives shall have received from Coopers & Lybrand L.L.P. a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities
shall have been approved for listing on the NYSE, subject only to
official notice of issuance.
(h) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(i) Conditions to Purchase of Option Securities. In the
event that the Underwriters exercise their option provided in Section
2(b) hereof to purchase all or any portion of the Option Securities,
the representations and warranties of the Fund contained herein and the
statements in any certificates furnished by the Fund hereunder shall be
true and correct as of each Date of Delivery and, at the relevant Date
of Delivery, the Representatives shall have received:
(i) Officers' Certificates. Certificates, dated
such Date of Delivery, of the President or a Vice President of
the Fund and of the chief financial or chief accounting
officer of the Fund and of the President or a Vice President
of the Manager confirming that the information contained in
the certificate delivered by each of them at the Closing Time
pursuant to Section 5(d) hereof remains true and correct as of
such Date of Delivery.
(ii) Opinions of Counsel for the Fund and the
Manager. The favorable opinion of Drinker Biddle & Reath LLP,
counsel for the Fund and the Manager, together with the
favorable opinion of Venable, Baetjer and Howard, LLP, special
Maryland counsel for the Fund, each in form and substance
satisfactory to counsel for the Underwriters, dated such Date
of Delivery, relating to the Option Securities to be purchased
on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(b) hereof.
(iii) Opinion of Counsel for the Underwriters. The
favorable opinion of Simpson Thacher & Bartlett, counsel for
the Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of
17
<PAGE> 18
Delivery and otherwise to the same effect as the opinion
required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from
Coopers & Lybrand L.L.P., in form and substance satisfactory
to the Representatives and dated such Date of Delivery,
substantially in the same form and substance as the letter
furnished to the Representatives pursuant to Section 5(f)
hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more
than five days prior to such Date of Delivery.
(j) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with
such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Fund and
the Manager in connection with the organization and registration of the
Fund under the 1940 Act and the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
(k) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities, on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase
the relevant Option Securities, may be terminated by the
Representatives by notice to the Fund at any time at or prior to
Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Fund and the Manager, jointly
and severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectus (or any
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<PAGE> 19
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(e) below) any such settlement is effected
with the written consent of the Fund; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund or the
Manager by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(b) Indemnification of Fund, Manager, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Fund and the
Manager, their respective directors, each of the Fund's officers who signed the
Registration Statement, and each person, if any, who controls the Fund or the
Manager within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Fund or the Manager by such Underwriter
through Merrill Lynch expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(c) Indemnification for Marketing Materials. In addition to the
foregoing indemnification, the Fund and the Manager also, jointly and severally,
agree to indemnify and
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<PAGE> 20
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in Section 6(a), as limited by the proviso
set forth therein, with respect to any Omitting Prospectus in the form approved
by the Fund and the Manager or its affiliates for use by the Underwriters and
securities firms to whom the Fund or the Manager shall have disseminated
materials in connection with the public offering of the Securities.
(d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(b) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Fund and the Manager. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(e) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
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<PAGE> 21
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Fund and the
Manager on the one hand and the Underwriters on the other hand from the offering
of the Securities pursuant to this Agreement or (ii) if the allocation provided
by clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Fund and the Manager on the one hand
and of the Underwriters on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Fund and the Manager on the one
hand and the Underwriters on the other hand in connection with the offering of
the Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Fund and the total underwriting commissions received by the Underwriters
(whether from the Fund or otherwise), in each case as set forth on the cover of
the Prospectus, or, if Rule 434 is used, the corresponding location on the Term
Sheet, bear to the aggregate initial public offering price of the Securities as
set forth on such cover.
The relative fault of the Fund and the Manager on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Fund or the Manager or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Fund, the Manager and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds
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<PAGE> 22
the amount of any damages which such Underwriter has otherwise been required to
pay by reason of any such untrue or alleged untrue statement or omission or
alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Fund and each partner of the Manager, respectively, each
officer of the Fund who signed the Registration Statement, and each person, if
any, who controls the Fund or the Manager, within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Fund and the Manager, respectively. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Fund or the Manager submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Underwriter or controlling
person, or by or on behalf of the Fund or the Manager, and shall survive
delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Fund, at any time at or prior to Closing Time (i) if
there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Fund or the Manager,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or the international financial markets, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Representatives, impracticable to market the Securities
or to enforce contracts for the sale of the Securities, or (iii) if trading in
the Common Stock of the Fund has been suspended or materially limited by the
Commission or the NYSE, or if trading generally on the American Stock Exchange
or the NYSE or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the NASD or any other governmental authority, or
(iv) if a banking moratorium has been declared by either Federal or New York
authorities.
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<PAGE> 23
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters to purchase and of the Fund to
sell the Option Securities to be purchased and sold on such Date of
Delivery shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Fund to sell the relevant Option Securities, as
the case may be, either the Representatives or the Fund shall have the right to
postpone Closing Time or the relevant Date of Delivery, as the case may be, for
a period not exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
As used herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives, c/o Merrill Lynch & Co.,
North Tower, World Financial Center, New York, New York 10281-1201, attention of
_______________; and notices to the Fund or the
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<PAGE> 24
Manager shall be directed, as appropriate, to the Fund, c/o PFPC Inc., 400
Bellevue Parkway, Wilmington, Delaware 19809, attention of Steven Turowski, or
to the Manager at 1235 Westlakes Drive, Suite 330, Berwyn, Pennsylvania 19312,
attention of ____________.
SECTION 12. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters, the Fund, the Manager and their respective
partners and successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters, the Fund, the Manager and their respective successors and
the controlling persons and officers and directors referred to in Sections 6 and
7 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Underwriters, the Fund, the
Manager and their respective partners and successors, and said controlling
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation. No purchaser of
Securities from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
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<PAGE> 25
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the Underwriters, the Fund and the Manager in accordance with its terms.
Very truly yours,
CHARTWELL DIVIDEND AND INCOME
FUND, INC.
By:________________________________________
Title:
CHARTWELL INVESTMENT PARTNERS, L.P.
By Chartwell G.P., Inc., its general partner
By:________________________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
ADVEST, INC.
ROBERT W. BAIRD & CO. INCORPORATED
A.G. EDWARD & SONS, INC.
EVEREN SECURITIES, INC.
FAHNESTOCK & CO. INC.
GRUNTAL & CO., L.L.C.
JANNEY MONTGOMERY SCOTT INC.
LEGG MASON WOOD WALKER, INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
25
<PAGE> 26
By___________________________
Authorized Signatory
For themselves and as
Representatives of the
other Underwriters named
in Schedule A hereto.
26
<PAGE> 27
SCHEDULE A
Number of
Name of Underwriter Initial Securities
- ------------------- ------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
Prudential Securities Incorporated........................
Advest, Inc. .............................................
Robert W. Baird & Co. Incorporated........................
A. G. Edwards & Sons, Inc. ...............................
EVEREN Securities, Inc. ..................................
Fahnestock & Co. Inc. ....................................
Gruntal & Co., L. L. C. ..................................
Janney Montgomery Scott Inc. .............................
Legg Mason Wood Walker, Incorporated......................
-------------
Total............................................
=============
Sch A-1
<PAGE> 28
SCHEDULE B
CHARTWELL DIVIDEND AND INCOME FUND, INC.
_______________ Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall be $______.
2. The purchase price per share for the Securities to be paid
by the several Underwriters shall be $______, being an amount equal to
the initial public offering price set forth above; provided that the
purchase price per share for any Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall
be reduced by an amount per share equal to any dividends or
distributions declared by the Fund and payable on the Initial
Securities but not payable on the Option Securities.
Sch B-1
<PAGE> 29
Exhibit A
FORM OF OPINION OF FUND'S AND MANAGER'S
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(b)
With respect to the Fund:
(i) The Fund has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Maryland.
(ii) The Fund has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in
the Prospectus and to enter into and perform its obligations under the
Purchase Agreement.
(iii) The Fund is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(iv) To the best of our knowledge, the Fund does not have any
subsidiaries.
(v) The authorized, issued and outstanding capital stock of
the Fund is as set forth in the Prospectus under the caption
"Description of Shares -- Common Stock" (except for subsequent
issuances, if any, pursuant to the Purchase Agreement); the shares of
issued and outstanding capital stock of the Fund have been duly
authorized and validly issued and are fully paid and non-assessable;
the Common Stock conforms as to legal matters to all statements
relating thereto contained in the Prospectus and such description
conforms to the rights set forth in the instruments defining the same;
and none of the outstanding shares of capital stock of the Fund was
issued in violation of the preemptive or other similar rights of any
securityholder of the Fund.
(vi) The Securities have been duly authorized for issuance and
sale to the Underwriters pursuant to the Purchase Agreement and, when
issued and delivered by the Fund pursuant to the Purchase Agreement
against payment of the consideration set forth in the Purchase
Agreement, will be validly issued and fully paid and non-assessable and
no holder of the Securities is or will be subject to personal liability
by reason of being such a holder.
(vii) The issuance of the Securities is not subject to
preemptive or other similar rights of any securityholder of the Fund.
A-1
<PAGE> 30
(viii) The Purchase Agreement has been duly authorized,
executed and delivered by the Fund.
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act
and the 1940 Act; any required filing of the Prospectus pursuant to
Rule 497(c) or Rule 497(h) has been made in the manner and within the
time period required by Rule 497; and, to the best of our knowledge, no
stop order suspending the effectiveness of the Registration Statement
or any Rule 462(b) Registration Statement has been issued under the
1933 Act, and, to the best of our knowledge, no order of suspension or
revocation of registration pursuant to Section 8(e) of the 1940 Act has
been issued, and no proceedings for any such purpose have been
instituted or are pending or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectus and each amendment or
supplement to the Registration Statement and Prospectus as of their
respective effective or issue dates (other than the financial
statements and supporting schedules included therein or omitted
therefrom, as to which we need express no opinion), and the
notification on Form N-8A complied as to form in all material respects
with the requirements of the 1933 Act, the 1940 Act and the Rules and
Regulations.
(xi) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time it became
effective.
(xii) The form of certificate used to evidence the Common
Stock complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the charter and
by-laws of the Fund and the requirements of the New York Stock
Exchange.
(xiii) To the best of our knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to
which the Fund is a party, or to which the property of the Fund is
subject, before or brought by any court or governmental agency or body,
domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets of the Fund or
the consummation of the transactions contemplated in the Purchase
Agreement or the performance by the Fund of its obligations thereunder.
(xiv) The information in the Prospectus under "Description of
Capital Stock" and "Taxes" and in the Registration Statement under Item
29 (Indemnification), to the extent that it constitutes matters of law,
summaries of legal matters, the Fund's charter
A-2
<PAGE> 31
and by-laws or legal proceedings, or legal conclusions, has been
reviewed by us and is correct in all material respects.
(xv) Each of the Management Agreement, the Administration
Agreement, the Custody Agreement, the Transfer Agency Agreement and the
Purchase Agreement comply in all material respects with all applicable
provisions of the 1940 Act, Advisers Act, the Rules and Regulations and
the Advisers Act Rules and Regulations.
(xvi) The Fund is duly registered with the Commission under
the 1940 Act as a closed-end diversified management investment company;
and, to the best of our knowledge, no order of suspension or revocation
of such registration has been issued or proceedings therefor initiated
or threatened by the Commission.
(xvii) To the best of our knowledge, no person is serving as
an officer, director or investment adviser of the Fund except in
accordance with the 1940 Act and the Rules and Regulations and the
Investment Advisers Act and the Advisers Act Rules and Regulations.
Except as disclosed in the Registration Statement and Prospectus (or
any amendment or supplement to either of them), to the best of our
knowledge, no director of the Fund is an "interested person" (as
defined in the 1940 Act) of the Fund or an "affiliated person" (as
defined in the 1940 Act) of an Underwriter.
(xviii) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that
are not described as required.
(xix) All descriptions in the Registration Statement of
contracts and other documents to which the Fund is a party are accurate
in all material respects; to the best of our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments required to be described or referred to in
the Registration Statement or to be filed as exhibits thereto other
than those described or referred to therein or filed or incorporated by
reference as exhibits thereto, and the descriptions thereof or
references thereto are correct in all material respects.
(xx) To the best of our knowledge, the Fund is not in
violation of its charter or by-laws and no default by the Fund exists
in the due performance or observance of any material obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument
that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xxi) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency (other than under the 1933 Act, the
1940 Act and the Rules and Regulations, which have been obtained, or as
may be required under the securities or blue sky laws of the
various states, as to which we need express no opinion) is necessary or
required in
A-3
<PAGE> 32
connection with the due authorization, execution and delivery of the
Purchase Agreement or for the offering, issuance or sale of the
Securities.
(xxii) The execution, delivery and performance of the
Purchase Agreement and the consummation of the transactions
contemplated in the Purchase Agreement and in the Registration
Statement (including the issuance and sale of the Securities and the
use of the proceeds from the sale of the Securities as described in the
Prospectus under the caption "Use Of Proceeds") and compliance by the
Fund with its obligations under the Purchase Agreement do not and will
not, whether with or without the giving of notice or lapse of time or
both, conflict with or constitute a breach of, or default or Repayment
Event (as defined in Section 1(a)(xii) of the Purchase Agreement) under
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Fund pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or any other agreement or instrument, known to us, to which
the Fund is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Fund is subject (except for
such conflicts, breaches or defaults or liens, charges or encumbrances
that would not have a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of
the Fund, or any applicable law, statute, rule, regulation, judgment,
order, writ or decree, known to us, of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
the Fund or any of its properties, assets or operations.
(xxiii) The Purchase Agreement, the Management Agreement, the
Administration Agreement, the Custody Agreement and the Transfer Agency
Agreement have each been duly authorized by all requisite action on the
part of the Fund, executed and delivered by the Fund, as of the dates
noted therein. Assuming due authorization, execution and delivery by
the other parties thereto with respect to the Administration Agreement,
the Custody Agreement and the Transfer Agency Agreement, each of the
Management Agreement, the Administration Agreement, the Custody
Agreement and the Transfer Agency Agreement constitutes a valid and
binding agreement of the Fund, enforceable in accordance with its
terms, except as affected by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and
an implied covenant of good faith and fair dealing.
A-4
<PAGE> 33
With respect to the Manager:
(i) The Manager has been duly organized and is validly
existing as a limited partnership in good standing under the laws of
the Commonwealth of Pennsylvania.
(ii) The Manager has power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Purchase Agreement.
(iii) The Manager is duly qualified as a foreign limited
partnership to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify would not result in a Material
Adverse Effect.
(iv) To the best of our knowledge, the Manager does not have
any subsidiaries.
(v) The Manager is duly registered with the Commission as an
investment adviser under the Advisers Act and is not prohibited by the
Advisers Act, the Advisers Act Rules and Regulations, the 1940 Act or
the Rules and Regulations from acting under the Management Agreement
for the Fund as contemplated by the Prospectus.
(vi) The Purchase Agreement and the Management Agreement have
been duly authorized, executed and delivered by the Manager, and the
Management Agreement constitutes a valid and binding obligation of the
Manager, enforceable in accordance with its terms, except as affected
by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, general equitable principles (whether considered in a
proceeding in equity or at law) and an implied covenant of good faith
and fair dealing.
(vii) To the best of our knowledge, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to
which the Manager is a party, or to which the property of the Manager
is subject, before or brought by any court or governmental agency or
body, domestic or foreign, which might reasonably be expected to result
in any material adverse change in the condition, financial or
otherwise, in the earnings, business affairs or business prospects of
the Manager, materially and adversely affect the properties or assets
of the Manager or materially impair or adversely affect the ability of
the Manager to function as an investment adviser or perform its
obligations under the Management Agreement, or which is required to be
disclosed in the Registration Statement or the Prospectus.
(viii) To the best of our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to
A-5
<PAGE> 34
be described or referred to in the Registration Statement or to be
filed as exhibits thereto other than those described or referred to
therein or filed or incorporated by reference as exhibits thereto, and
the descriptions thereof or references thereto are correct in all
material respects.
(ix) To the best of our knowledge, the Manager is not in
violation of its certificate of limited partnership, limited
partnership agreement or other organizational documents and no default
by the Manager exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed or incorporated by
reference as an exhibit to the Registration Statement.
(x) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than under
the 1933 Act, the 1940 Act and the Rules and Regulations, which have
been obtained, or as may be required under the securities or blue sky
laws of the various states, as to which we need express no opinion) is
necessary or required in connection with the due authorization,
execution and delivery of the Purchase Agreement.
(xi) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the
Purchase Agreement and in the Registration Statement and compliance by
the Manager with its obligations under the Purchase Agreement do not
and will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined in Section 1(a)(xii) of the Purchase
Agreement) under or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Manager
pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or any other agreement or instrument,
known to us, to which the Manager is a party or by which it or any of
them may be bound, or to which any of the property or assets of the
Manager is subject (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not have a Material Adverse
Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of the Manager, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known to
us, of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Manager or any of its properties,
assets or operations.
In connection with the preparation of the Registration
Statement and Prospectus, we have reviewed the Registration Statement
and Prospectus and the documents filed as exhibits to the Registration
Statement and have discussed the contents of the Registration Statement
and Prospectus with one or more directors or officers of the Fund and
the Manager. We have not, however, verified the information in the
Registration Statement or the Prospectus except to the extent necessary
to enable us to give the opinions with respect to the Fund in
paragraphs (v), (xiv) and (xix). On the basis of these considerations,
nothing has come to our attention that would lead us to believe that
the
A-6
<PAGE> 35
Registration Statement or any amendment thereto, including the Rule
430A Information and Rule 434 Information (if applicable) (except for
financial statements and schedules and other financial data included
therein or omitted therefrom, as to which we need make no statement),
at the time such Registration Statement or any such amendment became
effective, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus or
any amendment or supplement thereto (except for financial statements
and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time the
Prospectus was issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes an
untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
In rendering the foregoing opinion, Drinker Biddle & Reath LLP
may rely (A) as to matters involving the application of the laws of
Maryland, upon the opinion of Venable, Baetjer and Howard, LLP, special
counsel to the Fund (which opinion shall be dated and furnished to the
Representatives at the Closing Time, shall be satisfactory in form and
substance to counsel for the Underwriters and shall expressly state
that the Underwriters may rely on such opinion as if it were addressed
to them), provided that Drinker Biddle & Reath LLP shall state in their
opinion that they believe that they and the Underwriters are justified
in relying upon such opinion, and (B), as to matters of fact (but not
as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Fund and public officials.
A-7
<PAGE> 1
EXHIBIT 2(h)(2)
MASTER AGREEMENT AMONG UNDERWRITERS
, 1998
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, N.Y. 10281-1305
Dear Sirs:
We understand that from time to time you may act as Representative or
as one of the Representatives of the several underwriters of offerings of
securities of various issuers. This Agreement shall apply to any offering of
securities in which we elect to act as an underwriter after receipt of an
invitation from you which shall identify the issuer, contain information
regarding certain terms of the securities to be offered and specify the amount
of our proposed participation and the names of the other Representatives, if
any, and that our participation as an underwriter in the offering shall be
subject to the provisions of this Agreement. Your invitation will include
instructions for our acceptance of such invitation. At or prior to the time of
an offering, you will advise us, to the extent applicable, as to the expected
offering date, the expected closing date, the initial offering price, the
interest or dividend rate (or the method by which such rate is to be
determined), the conversion price, the underwriting discount, the management
fee, the selling concession and the reallowance, except that if the offering
price of the securities is to be determined as contemplated by Rule 430A under
the Securities Act of 1933 (such procedure being hereinafter referred to as
"430A Pricing"), you shall so advise us and shall specify the maximum
underwriting discount, management fee and selling concession. Such information
may be conveyed by you in one or more communications (such communications
received by us with respect to the offering are hereinafter collectively
referred to as the "Invitation"). If the Purchase Agreement (as hereinafter
defined) provides for the granting of an option to purchase additional
securities to cover over-allotments or otherwise (an "over-allotment option"),
you will notify us, in the Invitation, of such option and of our maximum
obligation upon exercise of such option.
This Agreement, as amended or supplemented by the Invitation, shall
become effective with respect to our participation in an offering of securities
if you receive our oral or written acceptance and you do not receive a written
communication revoking
<PAGE> 2
2
our acceptance prior to the time and date specified in the Invitation (our
unrevoked acceptance after expiration of such time and date being hereinafter
referred to as our "Acceptance"). Our Acceptance will constitute our
confirmation that, except as otherwise stated in such Acceptance, each statement
included in the Master Underwriters' Questionnaire set forth as Exhibit A hereto
(or otherwise furnished to us) is correct. The issuer of the securities in any
offering of securities made pursuant to this Agreement is hereinafter referred
to as the "Issuer". If the Purchase Agreement does not provide for an
over-allotment option, the securities to be purchased are hereinafter referred
to as the "Securities"; if the Purchase Agreement provides for an over-allotment
option, the securities the Underwriters (as hereinafter defined) are initially
obligated to purchase pursuant to the Purchase Agreement are hereinafter called
the "Initial Securities" and any additional securities which may be purchased
upon exercise of the over-allotment option are hereinafter called the "Option
Securities", with the Initial Securities and all or any part of the Option
Securities being hereinafter collectively referred to as the "Securities". Any
underwriters of Securities under this Agreement, including the Representatives
(as hereinafter defined), are hereinafter collectively referred to as the
"Underwriters". All references herein to "you" or to the "Representatives" shall
mean Merrill Lynch, Pierce, Fenner & Smith Incorporated and the other firms, if
any, which are named as Representatives in the Invitation. The Securities to be
offered may, but need not, be registered for a delayed or continuous offering
pursuant to Rule 415 under the Securities Act of 1933 (the "1933 Act").
The following provisions of this Agreement shall apply separately to
each individual offering of Securities. This Agreement may be supplemented or
amended by you by written notice to us and, except for supplements or amendments
set forth in an Invitation relating to a particular offering of Securities, any
such supplement or amendment to this Agreement shall be effective with respect
to any offering of Securities to which this Agreement applies after this
Agreement is so amended or supplemented.
Section 1. Purchase Agreement; Authority of Representatives. We
authorize you to execute and deliver a purchase agreement and any amendment or
supplement thereto and any associated Terms Agreement or other similar agreement
(collectively, the "Purchase Agreement") on our behalf with the Issuer and/or
any selling securityholder with respect to the Securities in such form as you
determine. We will be bound by all terms of the Purchase Agreement as executed.
We understand that changes may be made in those who are to be Underwriters, and
in the amount of Securities to be purchased by them, but the amount of
Securities to be purchased by us in accordance with the terms of this Agreement,
including the maximum amount of Option Securities, if any, which we may become
obligated to purchase by reason of the exercise of any over-allotment option
provided in the Purchase Agreement, shall not
<PAGE> 3
3
be changed without our consent except as provided in the Purchase Agreement.
As Representatives of the Underwriters, you are authorized to take such
action as you deem necessary or advisable to carry out this Agreement, the
Purchase Agreement, and the purchase and sale of the Securities, and to agree to
any waiver or modification of any provision of the Purchase Agreement. To the
extent applicable, you are also authorized to determine (i) the amount of Option
Securities, if any, to be purchased by the Underwriters pursuant to any
over-allotment option and (ii) with respect to offerings using 430A Pricing, the
initial offering price and the price at which the Securities are to be purchased
in accordance with the Purchase Agreement. It is understood and agreed that
Merrill Lynch, Pierce, Fenner & Smith Incorporated may act on behalf of all
Representatives.
It is understood that, if so specified in the Invitation, arrangements
may be made for the sale of Securities by the Issuer pursuant to delayed
delivery contracts (hereinafter referred to as "Delayed Delivery Contracts").
References herein to delayed delivery and Delayed Delivery Contracts apply only
to offerings to which delayed delivery is applicable. The term "underwriting
obligation", as used in this Agreement with respect to any Underwriter, shall
refer to the amount of Securities, including any Option Securities (plus such
additional Securities as may be required by the Purchase Agreement in the event
of a default by one or more of the Underwriters) which such Underwriter is
obligated to purchase pursuant to the provisions of the Purchase Agreement,
without regard to any reduction in such obligation as a result of Delayed
Delivery Contracts which may be entered into by the Issuer.
If the Securities consist in whole or in part of debt obligations
maturing serially, the serial Securities being purchased by each Underwriter
pursuant to the Purchase Agreement will consist, subject to adjustment as
provided in the Purchase Agreement, of serial Securities of each maturity in a
principal amount which bears the same proportion to the aggregate principal
amount of the serial Securities of such maturity to be purchased by all the
Underwriters as the respective principal amount of serial Securities set forth
opposite such Underwriter's name in the Purchase Agreement bears to the
aggregate principal amount of the serial Securities to be purchased by all the
Underwriters.
Section 2. Registration Statement and Prospectus; Offering Circular. In
the case of an Invitation regarding an offer of Securities registered under the
1933 Act (a "Registered Offering"), you will furnish to us, to the extent made
available to you by the Issuer, copies of any registration statement or
registration statements relating to the Securities which may be filed with the
Securities and Exchange Commission (the "Commission") pursuant to the 1933 Act
and of each amendment thereto (excluding exhibits but including any documents
incorporated by reference therein). Such registration statement(s) as amended,
and the prospectus(es)
<PAGE> 4
4
relating to the sale of Securities by the Issuer constituting a part thereof,
including all documents incorporated therein by reference, as from time to time
amended or supplemented by the filing of documents pursuant to the Securities
Exchange Act of 1934 (the "1934 Act") the 1933 Act or otherwise, are referred to
herein as the "Registration Statement" and the "Prospectus", respectively;
provided however, that a supplement to the Prospectus filed with the Commission
pursuant to Rule 424 under the 1933 Act with respect to an offering of
Securities (a "Prospectus Supplement") shall be deemed to have supplemented the
Prospectus only with respect to the offering of Securities to which it relates.
With respect to Securities for which no Registration Statement is filed
with the Commission, you will furnish to us, to the extent made available to you
by the Issuer, copies of any private placement memorandum, offering circular or
other offering materials to be used in connection with the offering of the
Securities and of each amendment thereto (the "Offering Circular").
Section 3. Offering. The sale of the securities to the public shall
commence as soon as you deem advisable. We will not sell any Securities until
they are released by you for that purpose. When notified by you that the
Securities are released for sale, we will offer in conformity with the terms of
the offering set forth in the Prospectus or Offering Circular, such of the
Securities to be purchased by us as are not reserved for our account for sale to
Selected Dealers and others pursuant to Section 5. After the initial offering,
the offering price and the concession and discount therefrom may be changed by
you by notice to the Underwriters, and we agree to be bound by any such change.
If, in accordance with the terms of offering set forth in the
Prospectus or Offering Circular, the offering of the Securities is not at a
fixed price but at varying prices set by individual Underwriters based on market
prices or at negotiated prices, the provisions above relating to your right to
change the offering price and concession and discount to dealers shall not
apply, and other references in this Section and elsewhere in this Agreement to
the offering price or Selected Dealers' concession shall be deemed to mean the
prices and concessions determined by you from time to time in your discretion.
Unless otherwise permitted in the Invitation, we will not sell any
Securities to any account over which we have discretionary authority. We will
also comply with any other restrictions which may be set forth in the
Invitation.
The initial public advertisement, if any, with respect to the
Securities shall appear on such date, and shall include the names of such of the
Underwriters, as you may determine.
Section 4. Delayed Delivery Arrangements. We authorize you to act on
our behalf in making all arrangements for the solicitation of offers to purchase
Securities from the Issuer
<PAGE> 5
5
pursuant to Delayed Delivery Contracts, and we agree that all such arrangements
will be made only through you (directly or through Underwriters or Selected
Dealers). You may allow to Selected Dealers in respect to such Securities a
commission equal to the concession allowed to Selected Dealers pursuant to
Section 5.
The obligations of the Underwriters shall be reduced in the aggregate
by the principal amount of Securities covered by Delayed Delivery Contracts made
by the Issuer, the obligation of each Underwriter to be reduced by the principal
amount of such Securities, if any, allocated by you to such Underwriter. Your
determination of the allocation of Securities covered by Delayed Delivery
Contracts among the several Underwriters shall be final and conclusive, and we
agree to be bound by any notice delivered by you to the Issuer setting forth the
amount of the reduction in our obligation as a result of Delayed Delivery
Contracts.
Upon receiving payment from the Issuer of the fee for arranging Delayed
Delivery Contracts, you will credit our account with the portion of such fee
applicable to the Securities covered by Delayed Delivery Contracts allocated to
us. You will charge our account with any commission allocated to Selected
Dealers in respect of Securities covered by Delayed Delivery Contracts allocated
to us.
Section 5. Offering to Selected Dealers and Others; Management of
Offering. We authorize you, for our account, to reserve for sale and sell to
dealers ("Selected Dealers"), among whom any of the Underwriters may be
included, such amount of Securities to be purchased by us as you shall
determine. Reservations for sales to Selected Dealers for our account need not
be in proportion to our underwriting obligation, but sales of Securities
reserved for our account for sale to Selected Dealers shall be made as nearly as
practicable in the ratio which the amount of Securities reserved for our account
bears to the aggregate amount of Securities reserved for the account of all
Underwriters, as calculated from day to day. Sales to Selected Dealers may be
made under the Merrill Lynch, Pierce, Fenner & Smith Incorporated Standard
Dealer Agreement, or otherwise. The price to Selected Dealers initially shall be
the offering price less a concession not in excess of the Selected Dealers
concession set forth in the Invitation. Selected Dealers shall be actually
engaged in the investment banking or securities business and shall be either (i)
members in good standing of the National Association of Securities Dealers, Inc.
(the "NASD") or (ii) dealers with their principal place of business located
outside the United States, its territories and its possessions and not
registered under the 1934 Act who agree to make no sales within the United
States, its territories or its possessions or to persons who are nationals
thereof or residents therein Or (iii) banks that are not eligible for membership
in the NASD. Each Selected Dealer shall agree to comply with the provisions of
Section 24 of Article III of the Rules of Fair Practice of the NASD, and each
foreign Selected Dealer or bank who is not a member of the NASD also shall agree
to
<PAGE> 6
6
comply with the NASD's interpretation with respect to free-riding and
withholding, to comply, as though it were a member of the NASD, with the
provisions of Sections 8 and 36 of Article III of such Rules of Fair Practice,
and to comply with Section 25 of Article III thereof as that Section applies to
a non-member foreign dealer or bank.
With your consent, the Underwriters may allow, and Selected Dealers may
reallow, a discount on sales to any dealer who meets the above NASD requirements
in an amount not in excess of the amount set forth in the Invitation. Upon your
request, we will advise you of the identity of any dealer to whom we allow such
a discount and any Underwriter or Selected Dealer from whom we receive such a
discount.
We also authorize you, for our account, to reserve for sale and to sell
Securities to be purchased by us at the offering price to others, including
institutions and retail purchasers. Except for such sales which are designated
by a purchaser to be for the account of a particular Underwriter, such
reservations and sales shall be made as nearly as practicable in proportion to
our underwriting obligation, unless you agree to a smaller proportion at our
request.
At or before the time the Securities are released for sale, you shall
notify us of the amount of Securities which have not been reserved for our
account for sale to Selected Dealers and others and which is to be retained by
us for direct sale.
We will from time to time, upon your request, report to you the amount
of Securities retained by us for direct sale which remains unsold and, upon your
request, deliver to you for our account, or sell to you for the account of one
or more of the Underwriters, such amount of unsold Securities as you may
designate at the offering price less an amount determined by you not in excess
of the concession to Selected Dealers. You may also repurchase Securities from
other Underwriters and Selected Dealers, for the account of one or more of the
Underwriters, at prices determined by you not in excess of the offering price
less the concession to Selected Dealers.
You may from time to time deliver to any Underwriter, for carrying
purposes or for sale by such Underwriter, any of the Securities then reserved
for sale to, but not purchased and paid for by, Selected Dealers or others as
above provided, but to the extent that Securities are so delivered for sale by
such Underwriter, the amount of Securities then reserved for the account of such
Underwriter shall be correspondingly reduced. Securities delivered for carrying
purposes only shall be redelivered to you upon demand.
The Underwriters and Selected Dealers may, with your consent, purchase
Securities from and sell Securities to each other at the
<PAGE> 7
7
offering price less a concession not in excess of the concession to Selected
Dealers.
Section 6. Repurchase of Securities Not Effectively Placed. In
recognition of the importance of distributing the Securities to bona fide
investors, we agree to repurchase on demand any Securities sold by us, except
through you, which are purchased by you in the open market or otherwise during a
period terminating as provided in Section 16, at a price equal to the cost of
such purchase, including accrued interest, amortization of original issue
discount or dividends, commissions and transfer and other taxes, if any, on
redelivery. The certificates delivered to us need not be identical certificates
delivered to you in respect of the Securities purchased. In lieu of requiring
repurchase, you may, in your discretion, sell such Securities for our account at
such prices, upon such terms and to such persons, including any of the other
Underwriters, as you may determine, charging the amount of any loss and expense,
or crediting the amount of any net profit, resulting from such sale, to our
account, or you may charge our account with an amount determined by you not in
excess of the concession to Selected Dealers.
Section 7. Stabilization and Over-Allotment. In order to facilitate the
sale of the Securities, we authorize you, in your discretion, to purchase and
sell Securities or any other securities of the Issuer or any guarantor of the
Securities specified in the Invitation in the open market or otherwise, for long
or short account, at such prices as you may determine, and, in arranging for
sales to Selected Dealers or others, to over-allot. You may liquidate any long
position or cover any short position incurred pursuant to this Section at such
prices as you may determine. You shall make such purchases and sales (including
over-allotments) for the accounts of the Underwriters as nearly as practicable
in proportion to their respective underwriting obligations. It is understood
that, in connection with any particular offering of Securities to which this
Agreement applies, you may have made purchases of securities of the Issuer or
securities of any guarantor of the Securities for stabilizing purposes prior to
the time when we become an Underwriter, and we agree that any such securities so
purchased shall be treated as having been purchased for the respective accounts
of the Underwriters pursuant to the foregoing authorization. At the close of
business on any day our net commitment, either for long or short account,
resulting from such purchases or sales (including over-allotments) shall not
exceed 20% (or such other amount as may be specified in the Invitation) of our
underwriting obligation, except that such percentage may be increased with the
approval of a majority in interest of the Underwriters. We will take up at cost
on demand any Securities or other securities of the Issuer or any securities of
any guarantor of the Securities so sold or over-alloted for our account,
including accrued interest, amortization of original issue discount or
dividends, and we will pay to you on demand the amount of any losses or expenses
incurred for our account pursuant to this Section. In the event of default by
any Underwriter in respect of
<PAGE> 8
8
its obligations under this Section, each non-defaulting Underwriter shall assume
its share of the obligations of such defaulting Underwriter in the proportion
that its underwriting obligation bears to the underwriting obligations of all
non-defaulting Underwriters without relieving such defaulting Underwriter of its
liability hereunder.
If you effect any stabilizing purchase pursuant to this Section, you
shall promptly notify us of the date and time of the first stabilizing purchase
and the date and time when stabilizing was terminated. You shall prepare and
maintain such records as are required to be maintained by you as manager
pursuant to Rule 17a-2 under the 1934 Act.
Section 8. Open Market Transactions. We represent and agree in
connection with the offering of Securities we have complied and will comply with
the provisions of Rule 10b-6 under the 1934 Act with regard to trading in the
Securities. For purposes of the foregoing sentence, we agree that, in addition
to the Securities, other securities of the Issuer or securities of any guarantor
of the Securities or the right or option to purchase or otherwise acquire any
securities of the Issuer or any securities of any guarantor of the Securities
specified in the Invitation shall be considered securities of the same class and
series as the Securities.
Section 9. Payment and Delivery. At or before such time, on such dates
and at such places as you may specify in the Invitation, we will deliver to you
a certified or official bank check in such funds as are specified in the
Invitation, payable to the order of Merrill Lynch, Pierce, Fenner & Smith
Incorporated (unless otherwise specified in the Invitation) in an amount equal
to, as you direct, either (i) the offering price or prices plus accrued
interest, amortization of original issue discount or dividends, if any, set
forth in the Prospectus or Offering Circular less the concession to Selected
Dealers in respect of the amount of Securities to be purchased by us in
accordance with the terms of this Agreement, or (ii) the amount set forth in the
Invitation with respect to the Securities to be purchased by us. We authorize
you to make payment for our account of the purchase price for the Securities to
be purchased by us against delivery to you of such Securities (which may be in
temporary form), and the difference between such purchase price of the
Securities and the amount of our funds delivered to you therefor shall be
credited to our account.
Delivery to us of Securities retained by us for direct sale shall be
made by you as soon as practicable after your receipt of the Securities. Upon
termination of the provisions of this Agreement as provided in Section 16, you
shall deliver to us any Securities reserved for our account for sale to Selected
Dealers and others which remain unsold at that time.
You are authorized to make appropriate arrangements for payment for
and/or delivery through the facilities of The
<PAGE> 9
9
Depository Trust Company or any such other depository or similar facility, the
Securities to be purchased by us, or, if we are not a member, settlement may be
made through a correspondent that is a member pursuant to our timely
instructions to you.
Upon receiving payment for Securities sold for our account to Selected
Dealers and others, you shall remit to us an amount equal to the amount paid by
us to you in respect of such Securities and credit or charge our account with
the difference, if any, between such amount and the price at which such
Securities were sold.
In the event that the Purchase Agreement for an offering provides for
the payment of a commission or other compensation to the Underwriters, we
authorize you to receive such commission or other compensation for our account.
Section 10. Management Compensation. As compensation for your services
in the management of the offering, we will pay you an amount equal to the
management fee specified in the Invitation in respect of the Securities to be
purchased by us pursuant to the Purchase Agreement, and we authorize you to
charge our account with such amount. If there is more than one Representative,
such compensation shall be divided among the Representatives in such proportions
as they may determine.
Section 11. Authority to Borrow. We authorize you to advance your own
funds for our account, charging current interest rates, or to arrange loans for
our account or the account of the Underwriters, as you may deem necessary or
advisable for the purchase, carrying, sale and distribution of the Securities.
You may execute and deliver any notes or other instruments required in
connection therewith and may hold or pledge as security therefor all or any part
of the Securities which we or such Underwriters have agreed to purchase. The
obligations of the Underwriters under loans arranged on their behalf shall be
several in proportion to their respective participations in such loans, and not
joint. Any lender is authorized to accept your instructions as to the
disposition of the proceeds of any such loans. You shall credit each Underwriter
with the proceeds of any loans made for its account.
Section 12. Legal Qualifications. You shall inform us, upon request, of
the states and other jurisdictions of the United States in which it is believed
that the Securities are qualified for sale under, or are exempt from the
requirements of, their respective securities laws, but you assume no
responsibility with respect to our right to sell Securities in any jurisdiction.
You are authorized to file with the Department of State of the State of New York
a Further State Notice with respect to the Securities, if necessary.
If we propose to offer Securities outside the United States, its
territories or its possessions, we will take, at our own expense, such action,
if any, as may be necessary to comply with
<PAGE> 10
10
the laws of each foreign jurisdiction in which we propose to offer Securities.
Section 13. Membership in National Association of Securities Dealers,
Foreign Underwriters and Banks. We understand that you are a member in good
standing of the NASD. We confirm that we are actually engaged in the investment
banking or securities business and are either (i) a member in good standing of
the NASD or (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions and not registered under
the 1934 Act who hereby agrees to make no sales within the United States, its
territories or its possessions or to persons who are nationals thereof or
residents therein (except that we may participate in sales to Selected Dealers
and others under Section 5 of this Agreement) or (iii) a bank not eligible for
membership in the NASD. We hereby agree to comply with Section 24 of Article III
of the Rules of Fair Practice of the NASD, and if we are a foreign dealer or
bank and not a member of the NASD we also hereby agree to comply with the NASD's
interpretation with respect to free-riding and withholding, to comply, as though
we were a member of the NASD, with the provisions of Sections 8 and 36 of
Article III of such Rules of Fair Practice, and to comply with Section 25 of
Article III thereof as that Section applies to a non-member foreign dealer or
bank.
Section 14. Distribution of Prospectuses; Offering Circulars. We are
familiar with Securities Act of 1933 Release No. 4968 and Rule 15c2-8 under the
1934 Act, relating to the distribution of preliminary and final prospectuses,
and we confirm that we will comply therewith, to the extent applicable, in
connection with any sale of Securities. You shall cause to be made available to
us, to the extent made available to you by the Issuer, such number of copies of
the Prospectus as we may reasonably request for purposes contemplated by the
1933 Act, the 1934 Act and the rules and regulations thereunder.
Our Acceptance of an Invitation relating to an offering made pursuant
to an Offering Circular shall constitute our agreement that, if requested by
you, we will furnish a copy of any amendment to a preliminary or final Offering
Circular to each person to whom we shall have furnished a previous preliminary
or final Offering Circular. Our Acceptance shall constitute our confirmation
that we have delivered and our agreement that we will deliver all preliminary
and final Offering Circulars required for compliance with the applicable federal
and state laws and the applicable rules and regulations of any regulatory body
promulgated thereunder governing the use and distribution of offering circulars
by underwriters and any additional instructions contained in the Invitation and,
to the extent consistent with such laws, rules and regulations, our Acceptance
shall constitute our confirmation that we have delivered and our agreement that
we will deliver all preliminary and final Offering Circulars which would be
required if the provisions of Rule 15c2-8 (or any successor provision) under the
1934 Act applied to such offering.
<PAGE> 11
11
Section 15. Net Capital. The incurrence by us of our obligations
hereunder and under the Purchase Agreement in connection with the offering of
the Securities will not place us in violation of the net capital requirements of
Rule 15c3-1 under the 1934 Act, or, if we are a financial institution subject to
regulation by the Board of Governors of the Federal Reserve System, the
Comptroller of the Currency or the Federal Deposit Insurance Corporation, will
not place us in violation of the capital requirements of such regulator or any
other regulator to which we are subject.
Section 16. Termination. With respect to each offering of Securities
pursuant to this Agreement, all limitations in this Agreement on the price at
which the Securities may be sold, the period of time referred to in Section 6,
the authority granted by the first sentence of Section 7, and the restrictions
contained in Section 8 shall terminate at the close of business on the 45th day
after the commencement of the offering of such Securities. You may terminate any
or all of such provisions at any time prior thereto by notice to the
Underwriters. All other provisions of this Agreement shall remain operative and
in full force and effect with respect to such offering.
Section 17. Expenses and Settlement. You may charge our account with
any transfer taxes on sales of Securities made for our account and with our
proportionate share (based upon our underwriting obligation) of all other
expenses incurred by you under this Agreement or otherwise in connection with
the purchase, carrying, sale or distribution of the Securities. With respect to
each offering of Securities pursuant to this Agreement, the respective accounts
of the Underwriters shall be settled as promptly as practicable after the
termination of all the provisions of this Agreement as provided in Section 16,
but you may reserve such amounts as you may deem advisable for additional
expenses. Your determination of the amount to be paid to or by us shall be
conclusive. You may at any time make partial distributions of credit balances or
call for payment of debit balances. Any of our funds in your hands may be held
with your general funds without accountability for interest. Notwithstanding any
settlement, we will remain liable for any taxes on transfers for our account and
for our proportionate share (based upon our underwriting obligation) of all
expenses and liabilities which may be incurred by or for the accounts of the
Underwriters with respect to each offering of Securities pursuant to this
Agreement.
Section 18. Indemnification. With respect to each offering of
Securities pursuant to this Agreement, we will indemnify and hold harmless each
other Underwriter and each person, if any, who controls each other Underwriter
within the meaning of Section 15 of the 1933 Act, to the extent that and on the
terms upon which we agree to indemnify and hold harmless the Issuer and other
specified persons as set forth in the Purchase Agreement.
<PAGE> 12
12
Section 19. Claims Against Underwriters. With respect to each offering
of Securities pursuant to this Agreement, if at any time any person other than
an Underwriter assets a claim (including any commenced or threatened
investigation or proceeding by any governmental agency or body) against one or
more of the Underwriters or against you as Representatives of the Underwriters
arising out of an alleged untrue statement or omission in the Registration
Statement (or any amendment thereto) or in any preliminary prospectus or the
Prospectus or any amendment or supplement thereto, or in any preliminary or
final Offering Circular, or relating to any transaction contemplated by this
Agreement, we authorize you to make such investigation, to retain such counsel
for the Underwriters and to take such action in the defense of such claim as you
may deem necessary or advisable. You may settle such claim with the approval of
a majority in interest of the Underwriters. We will pay our proportionate share
(based upon our underwriting obligation) of all expenses incurred by you
(including the fees and expenses of counsel for the Underwriters) as incurred,
in investigating and defending against such claim and our proportionate share of
the aggregate liability incurred by all Underwriters in respect to such claim
(after deducting any contribution or indemnification obtained pursuant to the
Purchase Agreement, or otherwise, from persons other than Underwriters), whether
such liability is the result of a judgment against one or more of the
Underwriters or the result of any such settlement. Any Underwriter may retain
separate counsel at its own expense. A claim against or liability incurred by a
person who controls an Underwriter shall be deemed to have been made against or
incurred by such Underwriter. In the event of default by any Underwriter in
respect of its obligations under this Section, the non-defaulting Underwriters
shall be obligated to pay the full amount thereof in the proportions that their
respective underwriting obligations bear to the underwriting obligations of all
non-defaulting Underwriters without relieving such defaulting Underwriter of its
liability hereunder.
Section 20. Default by Underwriters. Default by any Underwriter in
respect of its obligations hereunder or under the Purchase Agreement shall not
release us from any of our obligations or in any way affect the liability of
such defaulting Underwriter to the other Underwriters for damages resulting from
such default. If one or more Underwriters default under the Purchase Agreement,
if provided in such Purchase Agreement you may (but shall not be obligated to)
arrange for the purchase by others, which may include yourselves or other
non-defaulting Underwriters, of all or a portion of the Securities not taken up
by the defaulting Underwriters.
In the event that such arrangements are made, the respective
underwriting obligations of the nondefaulting Underwriters and the amounts of
the Securities to be purchased by others, if any, shall be taken as the basis
for all rights and obligations hereunder; but this shall not in any way affect
the liability of any defaulting Underwriter to the other Underwriters for
damages resulting from
<PAGE> 13
13
its default, nor shall any such default relieve any other Underwriter of any of
its obligations hereunder or under the Purchase Agreement except as herein or
therein provided. In addition, in the event of default by one or more
Underwriters in respect of their obligations under the Purchase Agreement to
purchase the Securities agreed to be purchased by them thereunder and, to the
extent that arrangements shall not have been made by you for any person to
assume the obligations of such defaulting Underwriter or Underwriters, we agree,
if provided in the Purchase Agreement, to assume our proportionate share, based
upon our underwriting obligation, of the obligations of each such defaulting
Underwriter (subject to the limitations contained in the Purchase Agreement)
without relieving such defaulting Underwriter of its liability therefor.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any securities
purchased, or to deliver any securities sold or overalloted, by you for the
respective accounts of the Underwriters, or to bear their proportion of expenses
or liabilities pursuant to this Agreement, and to the extent that arrangements
shall not have been made by you for any persons to assume the obligations of
such defaulting Underwriter or Underwriters, we agree to assume our
proportionate share, based upon our respective underwriting obligation, of the
obligations of each defaulting Underwriter without relieving any such defaulting
Underwriter of its liability therefor.
Section 21. Legal Responsibility. As Representatives of the
Underwriters, you shall have no liability to us, except for your lack of good
faith and for obligations assumed by you in this Agreement and except that we do
not waive any rights that we may have under the 1933 Act or the 1934 Act or the
rules and regulations thereunder. No obligations not expressly assumed by you in
this Agreement shall be implied herefrom.
Nothing herein contained shall constitute the Underwriters an
association, or partners, with you, or with each other, or, except as otherwise
provided herein or in the Purchase Agreement, render any Underwriter liable for
the obligations of any other Underwriter; and the rights, obligations and
liabilities of the Underwriters are several in accordance with their respective
underwriting obligations, and not joint.
If the Underwriters are deemed to constitute a partnership for federal
income tax purposes, we elect to be excluded from the application of Subchapter
K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1954, as amended, and
agree not to take any position inconsistent with such election, and you, as
Representatives, are authorized, in your discretion, to execute on behalf of the
Underwriters such evidence of such election as may be required by the Internal
Revenue Service.
<PAGE> 14
14
Unless we have promptly notified you in writing otherwise, our name as
it should appear in the Prospectus or Offering Circular and our address are set
forth on the signature pages hereof.
Section 22. Notices. Any notice from you shall be deemed to have been
duly given if mailed or transmitted to us at our address appearing below.
Section 23. Governing Law. This Agreement shall be governed by the laws
of the State of New York applicable to agreements made and to be performed in
said State.
Please confirm this Agreement and deliver a copy to us.
Very truly yours,
Name of Firm:
By:
---------------------------------
Authorized Officer or Partner
Address:
------------------------------------
------------------------------------
------------------------------------
Confirmed as of the date first above written.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Fred F. Hessinger
------------------------------------
Name: Fred F. Hessinger
<PAGE> 15
EXHIBIT A
MASTER UNDERWRITERS' QUESTIONNAIRE
In connection with each offering of Securities pursuant to the Merrill
Lynch, Pierce, Fenner & Smith Incorporated Master Agreement Among Underwriters,
dated April 15, 1985 as revised (the "Agreement"), each Underwriter confirms the
following information, except as indicated in such Underwriter's Acceptance or
other written communication furnished to Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Defined terms used herein have the same meaning as defined terms
in the Master Agreement Among Underwriters.
(a) Neither such Underwriter nor any of its directors, officers or
partners have any material (as defined in Regulation C under the 1933 Act)
relationship with Issuer, its parent (if any), any other seller of the
Securities or any guarantor of the Securities.
(b) Except as described or to be described in the Agreement, the
Merrill Lynch, Pierce, Fenner & Smith Incorporated Standard Dealer Agreement,
the Purchase Agreement or the Invitation, such Underwriter does not know: (i) of
any discounts or commissions to be allowed or paid to dealers, including all
cash, securities, contracts, or other consideration to be received by any dealer
in connection with the sale of the Securities, or of any other discounts or
commissions to be allowed or paid to the Underwriters or of any other items that
would be deemed by the NASD to constitute underwriting compensation for purposes
of the NASD's Rules of Fair Practice, (ii) of any intention to over-allot, or
(iii) that the price of any security may be stabilized to facilitate the
offering of the Securities.
(c) No report or memorandum has been prepared for external use (i.e.,
outside such Underwriter's organization) by such Underwriter in connection with
the proposed offering of Securities and, in the case of a Registered Offering,
where the Registration Statement is on Form S-l, such Underwriter has not
prepared or had prepared for it any engineering, management or similar report or
memorandum relating to the broad aspects of the business, operations or products
of the Issuer, its parent (if any) or any guarantor of the Securities within the
past twelve months (except for reports solely comprised of recommendations to
buy, sell or hold the securities of the Issuer, its parent (if any) or any
guarantor of the Securities, unless such recommendations have changed within the
past six months). If any such report or memorandum has been prepared, furnish to
Merrill Lynch, Pierce, Fenner & Smith Incorporated three copies thereof,
together with a statement as to the actual or proposed use, identifying each
class of persons who have received or will receive the report or memorandum, the
number of copies distributed to each class and the period of distribution.
(d) If the Securities are debt securities to be issued under an
indenture to be qualified under the Trust Indenture Act of 1939, neither such
Underwriter nor any of its directors, officers or partners is an "affiliate", as
that term is defined under the Trust Indenture Act of 1939, of the Trustee for
the Securities as
<PAGE> 16
2
specified in the Invitation, or of its parent (if any); neither the Trustee nor
its parent (if any) nor any of their directors or executive officers is a
director, officer, partner, employee, appointee or representative of such
Underwriters as those terms are defined in the Trust Indenture Act of 1939 or in
the relevant instructions to Form T-1; neither such Underwriter nor any of its
directors, partners or executive officers, separately or as a group, owns
beneficially 1% or more of its shares of any class of voting securities of the
Trustee or of its parent (if any); and if such Underwriter is a corporation, it
does not have outstanding nor has it assumed or guaranteed any securities issued
otherwise than in its present corporate name, and neither the Trustee nor its
parent (if any) is a holder of any such securities.
(e) If the Issuer is a public utility, such Underwriter is not a
"holding company" or a "subsidiary company" or an "affiliate" of a "holding
company" or of a "public utility company", each as defined in the Public Utility
Holding Company Act of 1935.
(f) Neither such Underwriter nor any "group" (as that term is defined
in Section 13(d)(3) of the 1934 Act) of which it is a member and is the
beneficial owner (determined in accordance with Rule 13d-3 under the 1934 Act)
of more than 5% of any class of voting securities of the Issuer, its parent (if
any), any other seller of the Securities or any guarantor of the Securities nor
does it have any knowledge that more than 5% of any class of voting securities
of the Issuer is held or to be held subject to any voting trust or other similar
agreement.
<PAGE> 1
EXHIBIT 2(h)(3)
[LOGO]
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MERRILL LYNCH WORLD HEADQUARTERS
NORTH TOWER
WORLD FINANCIAL CENTER
NEW YORK, N.Y. 10281-1305
STANDARD DEALER AGREEMENT
Dear Sirs:
In connection with public offerings of securities underwritten by us,
or by a group of underwriters (the "Underwriters") represented by us, you may be
offered the opportunity to purchase a portion of such securities, as principal,
at a discount from the offering price representing a selling concession or
reallowance granted as consideration for services rendered by you in the sale of
such securities. We request that you agree to the following terms and
provisions, and make the following representations, which, together with any
additional terms and provisions set forth in any wire or letter sent to you in
connection with a particular offering, will govern all such purchases of
securities and the reoffering thereof by you.
Your subscription to, or purchase of, such securities will constitute
your reaffirmation of this Agreement.
1. When we are acting as representative (the "Representative") of the
Underwriters in offering securities to you, it should be understood that all
offers are made subject to prior sale of the subject securities, when, as and if
such securities are delivered to and accepted by the Underwriters and subject to
the approval of legal matters by their counsel. In such cases, any order from
you for securities will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part.
Upon release by us, you may reoffer such securities at the offering price fixed
by us. With our consent, you may allow a discount, not in excess of the
reallowance fixed by us, in selling such securities to other dealers, provided
that in doing so you comply with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD"). Upon our request, you will
advise us of the identity of any dealer to whom you allow such a discount and
any Underwriter or dealer from whom you receive such a discount. After the
securities are released for sale to the public, we may vary the offering price
and other selling terms.
2. You represent that you are a dealer actually engaged in the
investment banking or securities business and that you are either (i) a member
in good standing of the NASD or (ii) a dealer with its
<PAGE> 2
2
principal place of business located outside the United States, its territories
or possessions and not registered under the Securities Exchange Act of 1934 (a
"non-member foreign dealer") or (iii) a bank not eligible for membership in the
NASD. If you are a non-member foreign dealer, you agree to make no sales of
securities within the United States, its territories or its possessions or to
persons who are nationals thereof or residents therein. Non-member foreign
dealers and banks agree, in making any sales, to comply with the NASD's
interpretation with respect to free-riding and withholding. In accepting a
selling concession where we are acting as Representative of the Underwriters, in
accepting a reallowance from us whether or not we are acting as such
Representative, and in allowing a discount to any other person, you agree to
comply with the provisions of Section 24 of Article III of the Rules of Fair
Practice of the NASD, and, in addition, if you are a non-member foreign dealer
or bank, you agree to comply, as though you were a member of the NASD, with the
provisions of Sections 8 and 36 of Article III of such Rules of Fair Practice
and to comply with Section 25 of Article III thereof as that Section applies to
a non-member foreign dealer or bank. You represent that you are fully familiar
with the above provisions of the Rules of Fair Practice of the NASD.
3. If the securities have been registered under the Securities Act of
1933 (the "1933 Act"), in offering and selling such securities, you are not
authorized to give any information or make any representation not contained in
the prospectus relating thereto. You confirm that you are familiar with the
rules and policies of the Securities and Exchange Commission relating to the
distribution of preliminary and final prospectuses, and you agree that you will
comply therewith in any offering covered by this Agreement. If we are acting as
Representative of the Underwriters, we will make available to you, to the extent
made available to us by the issuer of the securities, such number of copies of
the prospectus or offering documents, for securities not registered under the
1933 Act, as you may reasonably request.
4. If we are acting as Representative of the Underwriters of securities
of an issuer that is not required to file reports under the Securities Exchange
Act of 1934 (the "1934 Act"), you agree that you will not sell any of the
securities to any account over which you have discretionary authority.
5. Payment for securities purchased by you is to be made at our office,
One Liberty Plaza, 165 Broadway, New York, N.Y. 10006 (or at such other place as
we may advise), at the offering price less the concession allowed to you, on
such date as we may advise, by certified or official bank check in New York
Clearing House funds (or such other funds as we may advise), payable to our
order, against delivery of the securities to be purchased by you. We shall have
authority to make appropriate arrangements for payment for and/or delivery
through the facility of The Depository Trust Company or any such other
depository or similar facility for the securities.
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6. In the event that, prior to the completion of the distribution of
securities covered by this Agreement, we purchase in the open market or
otherwise any securities delivered to you, if we are acting as Representative of
the Underwriters, you agree to repay to us for the accounts of the Underwriters
the amount of the concession allowed to you plus brokerage commissions and any
transfer taxes paid in connection with such purchase.
7. At any time prior to the completion of the distribution of
securities covered by this Agreement you will, upon our request as
Representative of the Underwriters, report to us the amount of securities
purchased by you which then remains unsold and will, upon our request, sell to
us for the account of one or more of the Underwriters such amount of such unsold
securities as we may designate, at the offering price less an amount to be
determined by us not in excess of the concession allowed to you.
8. If we are acting as Representative of the Underwriters, upon
application to us, we will inform you of the states and other jurisdictions of
the United States in which it is believed that the securities being offered are
qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with respect to your
right to sell securities in any jurisdiction. We shall have authority to file
with the Department of State of the State of New York a Further State Notice
with respect to the securities, if necessary.
9. You agree that in connection with any offering of securities covered
by this Agreement you will comply with the applicable provisions of the 1933 Act
and the 1934 Act and the applicable rules and regulations of the Securities and
Exchange Commission thereunder, the applicable rules and regulations of the
NASD, and the applicable rules of any securities exchange having jurisdiction
over the offering.
10. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to any offering covered by this
Agreement. We shall be under no liability to you except for our lack of good
faith and for obligations assumed by us in this Agreement, except that you do
not waive any rights that you may have under the 1933 Act or the rules and
regulations thereunder.
11. Any notice from us shall be deemed to have been duly given if
mailed or transmitted by any standard form of written telecommunications to you
at the above address or at such other address as you shall specify to us in
writing.
12. With respect to any offering of securities covered by this
Agreement, the price restrictions contained in Paragraph 1 hereof and the
provisions of Paragraphs 6 and 7 hereof shall terminate as to such offering at
the close of business on the 45th day after the securities are released for sale
or, as to any or all such provisions, at such earlier time as we may advise. All
other
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provisions of this Agreement shall remain operative and in full force and effect
with respect to such offering.
13. This Agreement shall be governed by the laws of the State of New
York.
Please confirm your agreement hereto by signing the enclosed duplicate
copy hereof in the place provided below and returning such signed duplicate copy
to us at World Headquarters, North Tower, World Financial Center, New York, N.Y.
10281-1305, Attention: Corporate Syndicate. Upon receipt thereof, this
instrument and such signed duplicate copy will evidence the agreement between
us.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Fred F. Hessinger
-----------------------------------
Name: Fred F. Hessinger
Confirmed and accepted as of the
day of , 19
- ----------------------------------
Name of Dealer
- ----------------------------------
Authorized Officer or Partner
(if not Officer of Partner, attach copy of
Instrument of Authorization)
