<PAGE> 1
As filed with the Securities and Exchange Commission on April 10, 1998
Securities Act of 1933 File No. [________]
Investment Company Act of 1940 File No. [________]
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ x /
Pre-Effective Amendment No. ____
Post-Effective Amendment No. ____
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/ x /
Amendment No. ___
CHARTWELL DIVIDEND AND INCOME FUND, INC.
----------------------------------------
(Exact Name of Registrant as Specified in Charter)
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:
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
-i-
<PAGE> 2
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>
<CAPTION>
Proposed
Maximum
Title of Proposed Maximum Aggregate Amount of
Securities Being Amount Being Offering Price Offering Registration
Registered Registered(1)(2) Per Unit(1) Price(1) Fee
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 4,600,000 $15.00 $69,000,000 $20,355
par value Shares
per share $.01
=============================================================================================
</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.
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.
-ii-
<PAGE> 3
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
- ------ ---------------------
<S> <C>
1. Outside Front Cover Front Cover Page
2. Inside Front and Outside Back Cover Page Front Cover Page
3. Fee Table and Synopsis Prospectus Summary; Fee Table
4. Financial Highlights **
5. Plan of Distribution 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 Shares
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.
-iii-
<PAGE> 4
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.
-iv-
<PAGE> 5
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED April 10, 1998
PROSPECTUS
________ SHARES
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."
(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>
(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."
-------------------------
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.
------------------------
MERRILL LYNCH & CO.
------------------------
-1-
<PAGE> 6
The date of this Prospectus is ____________, 1998.
(Continued from page 1)
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. The address of the Fund is 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 approximately three to 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. See "Special
Risk Considerations" and "Other Investment Practices--Leverage."
Prior to this offering, there has been no public market for the Fund's
shares of Common Stock. The Fund intends to apply for listing of the Common
Stock on the New York Stock Exchange under the symbol "__________."
THE UNDERWRITERS MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR
OTHERWISE AFFECT THE PRICE OF THE FUND'S COMMON STOCK. SUCH TRANSACTIONS MAY
INCLUDE STABILIZING, THE PURCHASE OF THE FUND'S COMMON STOCK TO COVER SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 7
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") _______________, _______________,
_______________ and ________________. 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. 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 as defined below. 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 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-
-3-
<PAGE> 8
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. 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
dividend yield greater than that 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 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
-4-
<PAGE> 9
(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. 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
Shares--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."
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. At March 31, 1998, the Manager
served as sub-advisor with respect to $300 million
in assets of four registered investment companies;
it also served as
-5-
<PAGE> 10
advisor or sub-advisor with respect to over $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.
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
.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."
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."
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
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 Shares--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
-6-
<PAGE> 11
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 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 Fund intends to
apply to list its shares of Common Stock on the New
York Stock Exchange ("NYSE") under the symbol
"_____".
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
-7-
<PAGE> 12
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."
CONVERSION TO OPEN-END
FUND..................... The Fund could be converted to an open-end
investment company with the approval of 75% of the
Fund's Directors, including a majority of the
disinterested Directors, and the affirmative vote of
75% of the outstanding shares of capital stock of
the Fund (including any preferred stock) and the
affirmative vote of 75% of the outstanding shares of
any preferred stock, voting as a separate class.
There can be no assurance, however, that the
shareholders would approve a conversion. If the Fund
converts to an open-end investment company, it will
be required to redeem any preferred stock or
short-term debt securities that are outstanding. See
"Description of Shares -- Conversion to Open-End
Fund."
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. 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 recognized 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
-8-
<PAGE> 13
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 securities on a
when-issued or delayed delivery basis, that entail
certain special
-9-
<PAGE> 14
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."
ANTITAKEOVER
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
Shares--Certain Provisions of the Articles of
Incorporation."
-10-
<PAGE> 15
FEE TABLE
<TABLE>
<S> <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)................................... ----
Interest Payments on Borrowed Funds (b).................. (b)
Other Expenses (estimated) (b)........................... ----
Total Annual Expenses (b)............................. ====
</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 ___% (assuming no leverage) and
___% (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:
Assuming No Leverage . . . . . $ __ $__ $__ $__
Assuming 20% Leverage. . . . . $ __ $__ $__ $__
</TABLE>
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(a) See "Investment Advisory and Management Arrangements."
(b) In the event 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), it is estimated that, as a percentage of net
assets attributable to Common Stock, the Management Fees would be __%,
Interest Payments on Borrowed Funds would be __%, Other Expenses would be
__% and Total Annual Expenses would be __%. 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. See
"Special Risk Considerations" and "Other Investment Practices--Leverage."
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<PAGE> 16
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 Shares." 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
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<PAGE> 17
the Fund's total assets in Income Generating Equity Securities, the Fund's
portfolio will also seek capital appreciation.
Total return from an equity investment is derived from two components,
income and capital appreciation. For the period 1926 through 1997, the income
component has represented ______________________ of total return. 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, while annual returns from the securities comprising the Standard &
Poor's 500 Composite Index ("S&P 500") since its inception in 1926 due to the
income component have varied from ____% to ____%, annual returns from capital
appreciation have varied from ______% to _____%. 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 December 31, 1997, high yield, high risk Debt
Securities were yielding approximately ___ basis points over duration-equivalent
U.S. Treasuries and approximately ___ 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. 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 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,
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<PAGE> 18
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 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 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.
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<PAGE> 19
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. 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.
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<PAGE> 20
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
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<PAGE> 21
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 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 Investments."
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
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<PAGE> 22
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 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 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 or
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 "Other Investment
Practices-Leverage."
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."
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<PAGE> 23
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 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
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<PAGE> 24
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 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."
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<PAGE> 25
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 25% 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, and if the then current dividend or interest rate related to such
Senior Securities were to exceed the net return on the Fund's portfolio, 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
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<PAGE> 26
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
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 could cause the Fund to incur related transaction costs and
might cause the Fund to realize gains on securities held for less than three
months. Because not more than 30% of the Fund's gross income may be derived from
the sale or disposition of stocks and securities held for less than three months
to maintain the Fund's tax status as a regulated investment company, such gains
would limit the ability of the Fund to sell other securities held for less than
three months that the Fund might wish to sell in the ordinary course of its
portfolio management and thus might adversely affect the Fund's yield. 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.
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<PAGE> 27
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 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 Shares--Preferred Stock."
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<PAGE> 28
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 Shares--Conversion to Open-End Fund."
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 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
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<PAGE> 29
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 "Other Investment Practices-Leverage."
The secondary market for high yield Debt Securities is not as liquid as
the secondary market for higher rated securities. The high yield 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 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 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 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
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<PAGE> 30
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. 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 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 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. 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. 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.
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<PAGE> 31
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 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. 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
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<PAGE> 32
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.
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
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<PAGE> 33
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.
6. 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
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<PAGE> 34
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.
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 Chartwell Investment Partners, L.P.,
1235 Westlakes Drive, Suite 330, Berwyn, PA 19312-2412.
WINTHROP S. JESSUP* (52)--Chairman and President (1)--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 President and Director.
BERNARD P. SCHAFFER (53)--Vice President--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--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 _______________ in Client Services for Delaware Investment Advisers, a
division of Delaware Management Company, Inc.
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<PAGE> 35
G. GREGORY HAGAR (29)--Vice President--Controller of the Manager since
1997; in 1990, Mr. Hagar was Senior Auditor of Northwest Administrators, Inc., a
_____________ 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.
(*) Interested person, as defined in the Investment Company Act, of the
Fund.
[Information concerning the remaining Directors of the Fund, including the
disinterested Directors, will be included in Pre-Effective Amendment No. 1.]
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.
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
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<PAGE> 36
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 $_____ per year plus $_____ 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 $____. 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>
</TABLE>
* 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, PA 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.
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 ______% 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.
The fee is higher than fees paid by other comparable investment companies.
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<PAGE> 37
The Income Generating Equity Securities portion of the Fund's portfolio
will be managed by Mr. Bernard P. Schaffer, _________________ and 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 sole 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 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.
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
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<PAGE> 38
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 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
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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 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.
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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 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
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the Fund to maintain its qualification for taxation as a regulated investment
company. See "Special Language 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.
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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 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.
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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 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
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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
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
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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. 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
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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
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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 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.
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<PAGE> 48
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.
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
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<PAGE> 49
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 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 SHARES
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. 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.
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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 "Other Investment Practices--Leverage."
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 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.
-46-
<PAGE> 51
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.
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 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
-47-
<PAGE> 52
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 Fund intends to apply for listing of the Common Stock on the NYSE
under the symbol "____________." 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.
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, _______________, _____________, and _____________
are acting as representatives (the "Representatives"), has
-48-
<PAGE> 53
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.......................
------
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 __% of
the initial public offering price per share. The Representatives have also
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. The Manager has also agreed to pay from its own assets an additional
commission to Merrill Lynch equal to a maximimum of __% of the total Price to
Public, payable quarterly at the annual rate of 0.__% of the Fund's Managed
Assets during the continuance of the Investment Management Agreement or other
advisory agreement between the Manager and the Fund. In determining when the
maximum additional commission amount has been paid, the value of the quarterly
payments shall be discounted to the closing date of this offering. Merrill
Lynch has also agreed to (i) provide certain after-market support services
designed to maintain the visibility of the Fund on an ongoing basis, (ii)
provide to the Manager relevant information, studies or reports regarding
general trends in the closed-end investment company and asset management
industries and (iii) 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. 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.
-49-
<PAGE> 54
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. If the Underwriters exercise this option, each of the Underwriters will
have a firm commitment, subject to certain conditions, to purchase approximately
the same percentage thereof which the number of shares of Common Stock to be
purchased by it shown in the foregoing table is of the ___________ shares of
Common Stock initially offered hereby.
The Underwriters may engage in certain transactions that stabilize the
price of the shares of Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
shares of Common Stock.
If the Underwriters create a short position in the shares of Common Stock
in connection with the offering, i.e., if the several Underwriters 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 shares of Common
Stock in the open market. The Underwriters also may elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Underwriters also may impose a penalty bid on certain 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 shares of Common Stock, they may reclaim the amount of the selling
concession from the selling group members who sold those shares of Common Stock
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 a security to the extent that it were
to discourage resales of the security.
Neither the Fund nor 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 the Underwriters make 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 intends to apply for listing of the Common Stock on the
NYSE under the symbol "_______." In order to meet the requirements for listing
the shares of Common Stock on the NYSE, 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 several Underwriters
against certain liabilities, including liabilities under the Securities Act.
-50-
<PAGE> 55
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 its portfolio transactions after they have ceased to be
Underwriters and, subject to certain restrictions, may act as brokers while
they are Underwriters. 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."
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 19885-9628.
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> 56
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> 57
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 ______________ 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.
-53-
<PAGE> 58
"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.
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> 59
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
A-1
<PAGE> 60
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
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.
A-2
<PAGE> 61
3. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
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, Preferred stocks rated "BB," "B," and "CCC" are regarded, on balance, as
B, predominately speculative with respect to the issuer's capacity to pay
CCC 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.
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.
The following are excerpts from Moody's description of its preferred stock
ratings:
"aaa" An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the
A-3
<PAGE> 62
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.
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> 63
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.................................................... 29
MANAGEMENT OF THE FUND..................................................... 30
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS............................ 32
PORTFOLIO TRANSACTIONS..................................................... 35
DIVIDENDS AND DISTRIBUTIONS................................................ 36
TAXES ..................................................................... 38
AUTOMATIC DIVIDEND REINVESTMENT PLAN....................................... 42
CALCULATION OF NET ASSET VALUE PER SHARE................................... 44
DESCRIPTION OF SHARES...................................................... 45
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>
_____________ SHARES
CHARTWELL DIVIDEND
AND INCOME FUND, INC.
COMMON STOCK
----------------------
PROSPECTUS
----------------------
MERRILL LYNCH & CO.
_______________, 1998
<PAGE> 64
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.
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) Articles of Incorporation of Registrant.
(b) By-Laws of Registrant.
(c) Inapplicable.
(d) Inapplicable.
(e) Automatic Dividend Reinvestment Plan.*
(f) Inapplicable.
(g) Form of Investment Advisory 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> 65
(i) Inapplicable.
(j) Form of Custody Agreement between Registrant and [ ].*
(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 to be filed by amendment as
Exhibits (h) (1), (2) and (3).
- -------------
* To be filed by amendment.
<PAGE> 66
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 Articles of Incorporation (Exhibit 2(a)
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> 67
Section 6.2 of the By-Laws (Exhibit (2)(b) 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> 68
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> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, Commonwealth of Pennsylvania on the
10th day of April 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
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 April 10, 1998
- ------------------------------ (Principal Executive
Winthrop S. Jessup Officer)
/s/ Timothy J. Riddle Treasurer (Principal April 10, 1998
- ------------------------------ Financial Officer)
Timothy J. Riddle
</TABLE>
<PAGE> 70
EXHIBIT INDEX
EXHIBIT NO. ITEM
2(a) Articles of Incorporation of Registrant
2(b) By-laws of Registrant
<PAGE> 1
ARTICLES OF INCORPORATION
OF
CHARTWELL DIVIDEND AND INCOME FUND, INC.
THE UNDERSIGNED, Henry S. Hilles, Jr., whose address is Philadelphia
National Bank Building, 1345 Chestnut Street, Philadelphia, Pennsylvania 19107,
being at least eighteen years of age, does hereby act as an incorporator, under
and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a corporation.
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.
<PAGE> 2
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 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, including any Articles Supplementary creating any class or series
of capital stock, 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, including any Articles Supplementary creating any class or series
of capital stock, 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
-2-
<PAGE> 3
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, including any Articles Supplementary creating any class or series
of capital stock, 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 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
-3-
<PAGE> 4
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) 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
-4-
<PAGE> 5
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 further amendment
to the Articles of Incorporation 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.
(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.
(8) The enumeration and definition of the particular powers of the
Board of Directors included in the Charter 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
determina-
-5-
<PAGE> 6
tion 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 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 this Charter 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 these Articles of
Incorporation or the By-Laws of the Corporation, 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 voting securities of any preferred stock, if
any, of the Corporation, voting as a separate class shall be required to
approve, adopt or authorize an amendment to these Articles of Incorporation 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 these Articles of
Incorporation or the By-Laws of the Corporation, the Maryland General
Corporation Law or any other provisions of Maryland law, a favorable vote of the
holders of at least seventy-five (75)
-6-
<PAGE> 7
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
any of the above actions has previously been 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 ByLaws 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.
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in its Charter, 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 these Articles of Incorporation or the
By-Laws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, these Articles of Incorporation or the
By-Laws of the Corporation), 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 IX, 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 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.
IN WITNESS WHEREOF, the undersigned incorporator of Chartwell
Dividend and Income Fund, Inc. hereby executes the foregoing Articles of
Incorporation and acknowledges the same to be his act.
Dated as of the 6th day of April, 1998.
/s/ Henry S. Hilles, Jr.
------------------------------------
Henry S. Hilles, Jr.
-7-
<PAGE> 1
BY-LAWS
OF
CHARTWELL DIVIDEND AND INCOME FUND, INC.
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, 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.
<PAGE> 2
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
-2-
<PAGE> 3
been taken at the meeting originally called; provided, that the 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 Company. To be timely, any such notice must
be delivered to or mailed and received at the principal executive office of the
Company not later than 60 days prior to the date of the meeting; provided,
however, that if less than 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
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meeting, (ii) the name and address, as they appear on the Company's books, of
the stockholder proposing such business, (iii) the class and number of shares of
the capital stock of the Company which are beneficially owned by the
stockholder, and (iv) any material interest of the Stockholder in such business.
Notwithstanding anything in these Bylaws 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 Articles of Incorporation 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 offices 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
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annual meeting was mailed or such public disclosure of the date of the annual
meeting was made, whichever first occurs.
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
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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 Corporation and do all such lawful acts and things as are
not by statute, the Charter 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 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.
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 or officer 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,
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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 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
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next annual meeting of stockholders 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 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,
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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 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 so
designated, 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 present. The President shall also have such powers and
duties as
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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 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
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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.
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
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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 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.
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(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, 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
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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 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.
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