<PAGE>
As filed with the Securities and Exchange Commission on August 27, 1998
Securities Act File No. 333- ____
Investment Company Act File No. 811-___
============================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ____
[ ] Post-Effective Amendment No. ____
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] Amendment No. ____
TRAVELERS CORPORATE LOAN FUND INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
____________________
388 Greenwich Street
New York, New York 10013
(Address of principal executive offices)
(212) 816-4599
(Registrant's telephone number, including area code)
____________________
Mr. Heath B. McLendon
Travelers Corporate Loan Fund Inc.
388 Greenwich Street
New York, New York 10013
(Name and address of agent for service)
____________________
Copies To:
Burton M. Leibert, Esq. Gary S. Schpero, Esq.
Willkie Farr & Gallagher Simpson Thacher & Bartlett
787 Seventh Avenue 425 Lexington Avenue
New York, New York 10019-6099 New York, New York 10017-3954
____________________
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate
box)
[ ] when declared effective pursuant to Section 8(c)
If appropriate, check the following box:
[ ] This amendment designates a new effective date for a previously
filed registration statement.
[ ] This Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is .
-----------
____________________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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<CAPTION>
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PROPOSED MAXIMUM AMOUNT OF
AMOUNT OFFERING PRICE PROPOSED MAXIMUM REGISTRATION
TITLE OF SECURITIES BEING PER UNIT AGGREGATE FEE(1)
BEING REGISTERED REGISTERED OFFERING PRICE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock,
par value $.001 per share 666,665 $15.00 $10,000,000 $2,950
shares
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</TABLE>
(1) As calculated pursuant to Rule 457 under the Securities Act of 1933, as
amended. $2,950 was wired to the Securities and Exchange Commission's
account at Mellon Bank in payment of the required registration fee due in
connection with this Registration Statement.
____________________________
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 that 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 this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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TRAVELERS CORPORATE LOAN FUND INC.
FORM N-2
CROSS-REFERENCE SHEET
Part A
Item No. Prospectus Heading
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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......................Not applicable
5. Plan of Distribution......................Front Cover Page; Prospectus
Summary; Underwriting
6. Selling Shareholders......................Not Applicable
7. Use of Proceeds...........................Use of Proceeds
8. General Description of the Registrant.....Front Cover Page; Prospectus
Summary; The Fund;
Investment Objective,
Policies and Portfolio
Risks; Additional
Investment Activities;
Investment Restrictions;
Description of Capital
Stock; Net Asset Value
9. Management................................Front Cover Page; Prospectus
Summary; Management of the
Fund; Directors and
Officers of the Fund;
Portfolio Transactions;
Custodian, Transfer
<PAGE>
Agent, Dividend-Paying Agent
and Registrar
10. Capital Stock, Long-Term Debt and
Other Securities..........................Prospectus Summary;
Additional Investment
Activities--Leverage;
Dividends and
Distributions; Dividend
Reinvestment Plan;
Taxation; Net Asset Value;
Description of Capital Stock
11. Defaults and Arrears on Senior Securities.Not Applicable
12. Legal Proceedings.........................Not Applicable
13. Table of Contents of the Statement
of Additional Information.................Not Applicable
Part B
Item No.
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(Information required in a Statement of Additional Information has been
included in the Prospectus. All cross-references in Part B are to the
Prospectus.)
14. Cover Page................................Not Applicable
15. Table of Contents.........................Not Applicable
16. General Information and History...........Front Cover Page; Prospectus
Summary; The Fund
17. Investment Objective and Policies.........Prospectus Summary; The Fund;
Use of Proceeds; Investment
Objective, Policies and
Portfolio Risks; Additional
Investment Activities;
Investment Restrictions
2
<PAGE>
18. Management................................Front Cover Page; Prospectus
Summary; Management of the
Fund; Directors and
Officers of the Fund;
Portfolio Transactions;
Custodian, Transfer Agent,
Dividend-Paying Agent and
Registrar
19. Control Persons and Principal Holders
of Securities.............................Description of Capital Stock;
Underwriting
20. Investment Advisory and Other Services....Management of the Fund;
Custodian, Transfer Agent,
Dividend Paying Agent and
Registrar; Underwriting;
Experts; Legal Matters
21. Brokerage Allocation and Other
Practices.................................Portfolio Transactions
22. Tax Status................................Taxation
23. Financial Statements......................Report of KPMG Peat Marwick
LLP, Independent
Accountants; Experts
PART C - Information required to be included in Part C is set forth
under the appropriate item, so numbered, in Part C to this
Registration Statement.
3
<PAGE>
Subject to Completion, dated August 27, 1998
PROSPECTUS
_________ SHARES
TRAVELERS CORPORATE LOAN FUND INC.
COMMON STOCK ($.001 PAR VALUE)
Travelers Corporate Loan Fund Inc. (the "Fund") is a newly organized,
closed-end, non-diversified management investment company. The Fund's investment
objective is to maximize current income consistent with prudent efforts to
preserve capital. The Fund seeks to achieve its objective by investing primarily
in interests in floating or variable rate collateralized senior loans to
corporations, partnerships and other entities ("Collateralized Senior Loans")
which operate in a variety of industries and geographical regions. The Fund
offers investors the opportunity to receive current income by investing in a
professionally managed portfolio that, to the extent the portfolio is comprised
of Collateralized Senior Loans, is a type of investment typically not available
to individual investors. Under normal market conditions, the Fund will invest at
least 80% of its total assets in Collateralized Senior Loans (either as an
original lender or as a purchaser of an assignment or participation). The
Collateralized Senior Loans that the Fund will purchase will generally be rated,
at the time of acquisition, below investment grade by Moody's Investors Service,
Inc. (below Baa) ("Moody's") or Standard & Poor's Rating Service (below BBB)
("S&P") or will be of comparable quality. Such instruments generally involve
greater volatility of price and risks to principal and income than securities in
the higher rating categories. The Fund may also invest up to 20% of its total
assets in uncollateralized senior loans, investment and non-investment grade
corporate debt securities and U.S. government debt securities both with
maturities no longer than five years from the date of acquisition, money market
instruments, derivatives designed to hedge risks inherent in the Fund's
portfolio and certain other securities received in connection with investments
in Collateralized Senior Loans.
The Fund's net asset value per share will vary. The Fund is designed
for investors willing to assume certain risks in return for seeking to maximize
current income consistent with prudent efforts to preserve capital. The Fund
expects, however, that its policy of acquiring interests in Collateralized
Senior Loans as well as uncollateralized senior loans, debt securities with
maturities no longer than five years and money market instruments will minimize
interest-rate related fluctuations. The Fund anticipates that its net asset
value per share will be affected primarily by changes in the credit quality of
borrowers with respect to Collateralized Senior Loans in which the Fund invests.
There can be no assurance that the Fund's investment objective will be realized.
Investments in Collateralized Senior Loans involve substantial risk since the
borrowers may be highly leveraged and may not have available to them other
traditional methods of financing. During an economic downturn or a sustained
period of rising interest rates, issuers of Collateralized Senior Loans may be
more likely to experience financial stress, especially if such borrowers are
highly leveraged, and may not be able to meet their payment obligations. A
borrower's ability to service its debt obligations also may be adversely
affected by specific borrower developments. See "Risk Factors and Special
Considerations -- Special Considerations Relating to Collateralized Senior
Loans." Shares of Common Stock of the Fund are not deposits of, nor guaranteed
or endorsed by, any bank or depositary institution; further, shares of Common
Stock of the Fund are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other governmental agency.
Mutual Management Corp. ("MMC" or the "Adviser") will serve as the
investment adviser and administrator of the Fund and Travelers Asset Management
International Corporation ("TAMIC" or the "Sub-Adviser") will serve as the sub-
investment adviser of the Fund.
The Fund may seek to enhance its return by leveraging the Fund's
capital structure through the borrowing of money or the issuance of preferred
stock or debt securities in an amount up to 33 1/3% of the Fund's total assets
including the amount obtained from leverage. The Fund intends to utilize
leverage in an initial amount equal to approximately 25% of its total assets
including the amount obtained from leverage. Leverage is a speculative technique
and there are special risks and costs associated with leveraging. Leverage may
magnify fluctuations in the Fund's net asset value per share. The Fund intends
to mitigate the risk that the costs of borrowing will exceed the total return on
an investment by borrowing on a floating or variable rate basis. There can be no
assurance that a leveraging strategy will be successful during any period in
which it is employed. See "Risk Factors and Special Considerations--Leverage"
and "Investment Objective, Policies and Portfolio Risks"--"Additional Investment
Activities--Leverage."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
[Continued on Next Page]
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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 initial
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
"Risk Factors and Special Considerations." The Common Stock has been approved
for listing on the New York Stock Exchange under the symbol "___" subject to
official notice of issuance.
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PROCEEDS TO
PRICE TO PUBLIC(1) SALES LOAD(1)(2) FUND(3)(4)
------------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Per Share...................... $15.00 none $15.00
Total(4)....................... $[ ] none $[ ]
</TABLE>
(1) The Adviser, Sub-Adviser, or an affiliate will pay the underwriters a
commission in the amount of 4.00% of the Price to Public per share in
connection with the sale of shares of Common Stock offered hereby. See
"Underwriting."
(2) The Fund, the Adviser and the Sub-Adviser have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(3) Before deducting organizational and offering expenses payable by the Fund
(including $______ to be paid to the underwriters as reimbursement of
certain of their expenses in connection with the offering), estimated at
$______.
(4) The Fund has granted the underwriters an option exercisable for [ ] 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."
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE FUND'S SHARES OF
COMMON STOCK.
The address of the Fund is 388 Greenwich Street, New York, New York 10013, and
the Fund's telephone number is ____ ___-____. Investors are advised to read this
Prospectus, which sets forth information about the Fund that investors should
know before investing, and to retain it for future reference. The Securities and
Exchange Commission (the "Commission") maintains a web site (http://www.sec.gov)
that contains material incorporated by reference and other information regarding
registrants that file electronically with the Commission.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK OF
THE FUND, INCLUDING THE ENTRY OF STABILIZING BIDS, COVERING TRANSACTIONS OR THE
IMPOSITION OF PENALTY BIDS. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE OR OTHERWISE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
The shares of Common Stock are being offered by the underwriters named herein,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that delivery of the shares of Common Stock will be
made in book-entry form through the facilities of The Depository Trust Company
on or about [ ], 1998.
SALOMON SMITH BARNEY
October __, 1998
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus.
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The Fund The Fund is a newly organized, closed-end, non-diversified
management investment company which seeks to hold principally
a portfolio of loans and also debt securities designed to
earn current income while preserving capital. See "The Fund."
Investment in the Common Stock of the Fund offers several
benefits to investors. The Fund makes available to individual
investors a professionally managed investment in
Collateralized Senior Loans that is typically only available
to financial institutions and larger corporate or
institutional investors. In managing such portfolio, the
Sub-Adviser provides the Fund and its shareholders with
professional credit analysis. The Fund relieves the investor
of the burdensome administrative details involved in managing
a portfolio of such investments.
Investment Objective and Policies The Fund's investment objective is to maximize current income
consistent with prudent efforts to preserve capital.
The Fund seeks to achieve its objective by investing
primarily in a professionally managed portfolio of interests
in Collateralized Senior Loans. The Collateralized Senior
Loans in which the Fund will invest will be generally rated,
at the time of acquisition, below investment grade by Moody's
(below Baa) or S&P (below BBB) or another Nationally Recognized
Statistical Rating Organization ("NRSRO") or, if unrated, be of
comparable quality as determined by the Sub-Adviser.
Collateralized Senior Loans generally are arranged through
private negotiations between a borrower and several financial
institutions ("Lenders") represented in each case by one or
more such Lenders acting as agent ("Agent") of the Lenders.
On behalf of the Lenders, the Agent will be primarily
responsible for negotiating the loan agreement ("Loan
Agreement") that establishes the relative terms and
conditions of the Collateralized Senior Loan and rights of
the borrower and the Lenders. Also, an Agent typically
administers the terms of the Loan Agreement and is
responsible for the monitoring of collateral and collection
of principal and interest and fee payments from the borrower
and the apportionment of these payments to the credit of all
investors which are parties to the Loan Agreement (the
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"Administrative Agent").
The Fund may act as one of the group of Lenders in a
Collateralized Senior Loan (an "Original Lender"), and
purchase assignments ("Assignments") and participations
("Participations") in Collateralized Senior Loans from
third parties. The Fund will act as Original Lender in a
Collateralized Senior Loan, or purchase an Assignment or
Participation in a Collateralized Senior Loan only where the
Administrative Agent with respect to the Collateralized Senior
Loan at the time of investment by the Fund has outstanding
debt or deposit obligations rated investment grade (BBB or
A-3 or higher by S&P or Baa or P-3 or higher by Moody's or a
comparable rating from another NRSRO), or determined by the
Sub-Adviser to be of comparable quality.
Under normal market conditions, the Fund will invest at least
80% of its total assets in Collateralized Senior Loans. The
Fund may also invest up to 20% of its total assets in
uncollateralized senior loans, investment and non-investment
grade corporate debt securities and U.S. government debt securities both
with maturities no longer than five years from the
date of acquisition, money market instruments, derivatives
designed to hedge risks inherent in the Fund's portfolio and
certain other securities received in connection with
investments in Collateralized Senior Loans.
The Fund is designed for investors willing to assume
additional risk in an effort to maximize current income. The
Fund is not intended to be a complete investment program and
there is no assurance that the Fund will achieve its
objectives. It is anticipated that the proceeds of the
Collateralized Senior Loans will be used by borrowers
primarily to finance leveraged buyouts, recapitalizations,
mergers, acquisitions, stock repurchases, finance internal
growth and for other general purposes of borrowers.
Collateralized Senior Loans generally will not be registered
with the Commission or listed on any national securities
exchange. See "Investment Objective, Policies and Portfolio
Risks."
Collateralized Senior Loans in which the Fund will invest
generally hold the most senior position in the capital
structure of the borrower and will be secured with specific
collateral. As a result, Collateralized Senior Loans are
generally repaid before general trade creditors, unsecured
loans, corporate bonds, subordinated debt and preferred or
common stockholders if the borrower becomes insolvent.
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The terms and conditions of Collateralized Senior Loans typically
will include various restrictive covenants which are designed
to limit certain activities of borrowers and allow Lenders to
accelerate repayment of principal if a borrower does not meet
certain financial tests included in such covenants.
The Fund is not subject to any restrictions with respect to
the maturity of Collateralized Senior Loans held in its
portfolio. It is currently anticipated, however, that the
Fund's assets invested in Collateralized Senior Loans, under
normal market conditions, will consist of Collateralized
Senior Loans with stated maturities of between five and 10
years, inclusive. Because of prepayment provisions, the
actual remaining maturity of Collateralized Senior Loans may
vary substantially from the stated maturity of such loans.
The Fund estimates that the eventual maturity of
Collateralized Senior Loans in the portfolio generally will
be approximately 18 to 36 months.
Collateralized Senior Loans in which the Fund will purchase
interests generally pay interest at rates which are
periodically redetermined by reference to a benchmark lending
rate plus a premium. The benchmark lending rates generally
offered to borrowers by Lenders are the London Inter-Bank
Offered Rate ("LIBOR"), the prime rate offered by one or more
major United States banks ("Prime Rate"), the Certificate of
Deposit ("CD") rate or other base lending rates used by
commercial lenders. LIBOR is the benchmark rate most often
selected by borrowers and is expected to be the benchmark in
the majority of Collateralized Senior Loans invested in by
the Fund.
It is currently anticipated that the Fund will invest in
Collateralized Senior Loans that will pay interest at rates
which are typically redetermined daily or approximately every
1, 2, 3 or 6 months. The Fund may invest in Collateralized
Senior Loans which permit the Borrower at its option to
select an interest rate redetermination period of up to one
year. Investment in Collateralized Senior Loans with longer
interest rate redetermination periods may increase
interest-rate related fluctuations in the Fund's net asset
value per share. Under current market conditions, it is
anticipated that the Collateralized Senior Loans in the
Fund's portfolio will ordinarily have a dollar-weighted
average time until the next interest rate redetermination of
120 days or less.
The Fund's net asset value per share will be affected
primarily by changes in the credit quality of borrowers with
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respect to Collateralized Senior Loan interests in which the
Fund invests. Because the Collateralized Senior Loans that
the Fund will purchase will generally be rated, at the time
of purchase, below investment grade or be of comparable
quality, the Fund will have substantial exposure to the risks
of investing in lower rated debt instruments. A default
on a Collateralized Senior Loan in which the Fund has
invested may cause a decline in the Fund's net asset value.
See "Risk Factors and Special Considerations--Special
Considerations Related to Other Securities and Investment
Strategies--High Yield/Lower Rated Securities" and
"Investment Objective, Policies and Portfolio Risks"--"Additional
Investment Activities--High Yield/Lower Rated Securities."
Although the Fund's net asset value will vary as a result of
changes in interest rates, the Fund's policy of acquiring
interests in floating or variable rate Collateralized Senior
Loans and its efforts to maintain a dollar-weighted average time
until the next interest rate redetermination of 120 days or
less is expected to significantly decrease these
interest rate related fluctuations.
The floating or variable rate feature of Collateralized
Senior Loans is an important difference from typical fixed
income investments that carry significant interest rate risk.
The Fund can normally be expected to have less significant
interest rate related fluctuations in its net asset value per
share than investment companies investing primarily in fixed
rate income-oriented securities (other than money market funds
and some short-term bond funds) because the floating or
variable rate Collateralized Senior Loans in which the Fund
invests float in response to changes in prevailing market
interest rates. However, because floating or variable
interest rates on Collateralized Senior Loans only reset
periodically, the Fund's net asset value may fluctuate from
time to time in the event of an imperfect correlation between
the interest rates on the Fund's Collateralized Senior Loans
and prevailing interest rates in the market. Similarly, a
sudden and extreme increase in prevailing interest rates may
cause a decline in the Fund's net asset value. In addition,
because Collateralized Senior Loans carry floating or
variable rates of interest, changes in prevailing market
interest rates can be expected to affect dividends paid by
the Fund. As a result, the yield on an investment in the
Fund's shares will likely fluctuate in response to changes in
prevailing interest rates.
At times, the Fund may utilize leverage through borrowing or
by issuing shares of preferred stock or debt securities in an
amount up to 33 1/3% of the Fund's total assets including
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the amount obtained from leverage. The Fund intends to utilize
leverage in an initial amount equal approximately to 25% of
its total assets including the amount obtained from leverage.
Through these leveraging techniques, the Fund will seek to
obtain a higher return for holders of Common Stock than if
the Fund did not use leverage. Leverage is a speculative
technique and there are special risks and costs associated
with leveraging. Leverage may magnify fluctuations in the
Fund's net asset value per share. The Fund will seek to
minimize interest rate related fluctuations by utilizing
leverage and investing in Collateralized Senior Loans which
both carry floating or variable rates of interest (or
dividends in the case of preferred stock issued by the Fund,
if any). There can be no assurance that a leveraging strategy
will be successful during any period in which it is employed.
See "Risk Factors and Special Considerations--Leverage" and
"Investment Objective Policies and Portfolio Risks"--"Additional
Investment Activities--Leverage."
The Fund may also invest up to 20% of its total assets in
uncollateralized senior loans, investment and non-investment
grade corporate debt securities and U.S. government debt securities
both with maturities no longer than five years from the
date of acquisition, money market instruments, derivatives
designed to hedge risks inherent in the Fund's portfolio
assets and certain other securities. The high yield/lower
rated securities that the Fund may purchase, if any, are
generally rated, at the time of acquisition, below investment
grade (Ba or lower by Moody's or BB or lower by S&P or the
equivalent by another NRSRO), or if unrated, are determined
by the Sub-Adviser to be of comparable quality. The Fund
will not purchase lower rated securities that are not, at the
time of acquisition, current in the payment of interest and
principal.
In limited circumstances, the Fund may also receive warrants,
other equity securities and junior debt securities as part of
its investments in Collateralized Senior Loans. Such equity
securities and junior debt securities will not be treated by
the Fund as Collateralized Senior Loans. Investments in
loans which are not secured by specific collateral and in
warrants, equity securities and junior debt securities entail
certain risks in addition to those associated with an
investment in Collateralized Senior Loans. See "Investment
Objective, Policies and Portfolio Risks -- Certain
Characteristics of Collateralized Senior Loan Interests."
The Offering [ ] shares of Common Stock, par value $.001 per share
(the "Common Stock"), of the Fund being offered for sale
through the several underwriters (collectively, the
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"Underwriters") for whom Smith Barney is acting as
representative. The initial public offering price of the
Common Stock is $15.00 per share. The minimum purchase is 100
shares ($1,500.00). In addition, the Fund has granted the
Underwriters an option to purchase up to [ ] additional
shares to cover over-allotments. See "Underwriting."
Listing Prior to this offering, there has been no public market for
the shares of Common Stock of the Fund. The Common Stock has
been approved for listing on the New York Stock Exchange (the
"NYSE") under the symbol "[ ]" subject to official notice of
issuance.
Stock Symbol " "
Investment Adviser MMC serves as the investment adviser for the Fund. MMC
(through predecessor entities) has been in the investment
counseling business since 1934. It renders investment
advisory services to investment companies that had aggregate
assets under management as of [ ], 1998 in excess of
$[ ] billion. MMC, in addition to its responsibility
for the investment of the Fund's assets, provides
administration services to the Fund.
Sub-Investment Adviser TAMIC has been selected by MMC to serve as sub-investment
adviser with responsibility for investment of the Fund's
assets in Collateralized Senior Loans and other securities in
which the Fund will invest. TAMIC officers, including those
who will be primarily responsible for management of the
Fund's assets, are also involved in the management of the
general accounts of TAMIC's insurance company affiliates. As
of [ ], 1998, those persons managed $[715] million of
assets invested in Collateralized Senior Loans by those
affiliates.
Management Fees The Fund will pay MMC for its investment advisory services a
monthly fee at an annual rate of .85% of the value of the
Fund's average weekly assets. See "Management of the
Fund--Investment Adviser." This fee is higher than fees paid
by most other investment companies, although it is comparable
to the fees paid by several publicly offered closed-end
investment companies with investment objectives and policies
similar to those of the Fund. MMC, not the Fund, will
compensate TAMIC for its services. The Fund pays MMC a
monthly fee at an annual rate of .20% of the value of the
Fund's average weekly assets for its services as
administrator. During periods in which the Fund is utilizing
leverage, the fees which are payable to MMC as a percentage
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of the Fund's net assets will be higher than if the Fund did
not utilize a leveraged capital structure because the fees
are calculated as a percentage of the Fund's total assets,
including those purchased with leverage. See "Risk Factors
and Special Considerations--Leverage" and "Investment
Objective, Policies and Portfolio Risks--Additional
Investment Activities--Leverage."
Dividends and Distributions Beginning with its initial distribution approximately 60 days
after completion of this offering, it is the Fund's present
policy, which may be changed by the Board of Directors, to
make regular monthly cash distributions to holders of Common
Stock which over time will result in the distribution of
substantially all net investment income of the Fund, and to
distribute any net capital gain at least annually. From and
after the leveraging (if any) of the Common Stock, monthly
distributions to holders of Common Stock will generally
consist of net investment income remaining after the payment
of interest or dividends on any outstanding leverage. For
tax purposes, the Fund is currently required to allocate net
capital gain and other taxable income between shares of
Common Stock and shares of preferred stock, if any.
Dividend Reinvestment Plan Under the Fund's Dividend Reinvestment Plan (the "Plan"),
shareholders will have all dividends and distributions
automatically reinvested in additional shares of Common Stock
of the Fund unless the shareholder elects to receive cash or
the Board of Directors of the Fund declares a dividend or
distribution payable only in 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 Plan. See "Dividends and Distributions; Dividend
Reinvestment Plan."
Taxation The Fund intends to elect and qualify to be treated as a
regulated investment company for U.S. federal income tax
purposes. As such, it will generally not be subject to U.S.
federal income tax on income and gains that are distributed
to shareholders. See "Taxation."
Custodian, Transfer Agent, Dividend PNC Bank, N.A. will act as custodian for the Fund's assets.
Paying Agent and Registrar First Data Investor Services Group, Inc. will act as transfer
agent, dividend paying agent and registrar for the Fund's
Common Stock.
</TABLE>
-9-
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
<TABLE>
<S> <C>
Special Considerations Relating to Collateralized Senior Loans in which the Fund will invest
Collateralized Senior Loans will generally be rated, at the time of acquisition, below
investment grade by Moody's (below Baa) or S&P (below BBB) or
the equivalent by another NRSRO, or if unrated, will be of
comparable quality. Investments in Collateralized Senior
Loans involve substantial risk since the borrowers may be
highly leveraged and may not have available to them more
traditional methods of financing. During an economic
downturn or a sustained period of rising interest rates,
issuers of Collateralized Senior Loans may be more likely to
experience financial stress, especially if such borrowers are
highly leveraged. During these periods, such borrowers may
not have sufficient cash flow to meet their interest payment
obligations. The borrower's ability to service its debt
obligations also may be adversely affected by specific
borrower developments, or the borrower's inability to meet
specific projected business forecasts or the unavailability
of additional financing.
As noted above, Collateralized Senior Loans will generally be
rated, at the time of purchase, below investment grade or be of
comparable quality. The borrowers of Collateralized Senior
Loans may also have outstanding debt securities that are
similarly rated below investment grade. The risks attendant
to investing in such instruments are described generally
under "Risk Factors and Special Considerations" and
"Investment Objective, Policies and Portfolio Risks" and
"Additional Investment Activities -- High Yield/Lower Rated
Securities."
The Fund typically will invest in Collateralized Senior Loans
made in connection with highly leveraged transactions.
Collateralized Senior Loans made in connection with highly
leveraged transactions are subject to greater credit risks
than other leveraged transactions in which the Fund may
invest. These credit risks include a greater possibility of
default or bankruptcy of the borrower and the assertion that
the pledging of collateral to secure the loan constituted a
fraudulent conveyance or preferential transfer which can be
nullified or subordinated to the rights of other creditors of
the borrower under applicable law.
In situations where the borrower under a Collateralized
Senior Loan does not have any publicly issued, registered
debt securities, the Fund will have access to financial and
other information made available to the Lenders in connection
with Collateralized Senior Loans. However, the
</TABLE>
-10-
<PAGE>
<TABLE>
<S> <C>
amount of information available with respect to such
Collateralized Senior Loans will typically be less extensive
than that available for publicly issued, registered debt
securities. As a result, the performance of the Fund and its
ability to meet its investment objective is more dependent on the
analytical abilities of the Adviser and particularly the
Sub-Adviser than would be the case for an investment company
that invests primarily in registered or exchange-listed
securities. See "Investment Objective, Policies and Portfolio
Risks" and "Risk Factors and Special Considerations."
Although it is growing, the secondary market for
Collateralized Senior Loans is currently limited. Certain
Collateralized Senior Loans may be purchased and sold through
dealers who make a market in such loans. However,
Collateralized Senior Loans are not listed on any national
securities exchange or automated quotation system and no
active trading market may exist for many of the
Collateralized Senior Loans in which the Fund will invest.
Accordingly, some or many of the Collateralized Senior Loans
in the Fund's portfolio will be relatively illiquid.
Liquidity relates to the ability of the Fund to sell an
investment in a timely manner and at a price which, in the
Sub-Adviser's judgment, is fair. The market for relatively
illiquid investments tends to be more volatile than the
market for liquid investments. The potential illiquidity of
certain of the Fund's Collateralized Senior Loans may
negatively affect the Fund's ability to dispose of these
investments to raise cash to repay debt, pay dividends, pay
expenses, tender for its Common Stock or take advantage of new
investment opportunities. The risks associated with
liquidity may be particularly acute if the Adviser and the
Sub-Adviser consider a defensive investment strategy more
appropriate due to adverse market conditions, and desire to
liquidate Collateralized Senior Loan investments to increase
the percentage of the Fund's portfolio invested in high
quality, short-term securities. Notwithstanding the risks
associated with liquidity, many of the Collateralized Senior
Loans in which the Fund expects to invest are of a relatively
large principal amount and are held by a relatively large
number of owners which should, in the Sub-Adviser's opinion,
enhance the relative liquidity of such interests. See
"Investment Objective, Policies and Portfolio Risks."
In addition, because the secondary market for Collateralized
Senior Loans may be limited, it may be more difficult to
value Collateralized Senior Loans. Specific market
quotations may not be available and valuation may require
</TABLE>
-11-
<PAGE>
<TABLE>
<S> <C>
more research than for liquid securities. As a result,
elements of judgment on the part of the Sub-Adviser may play
a greater role in the valuation, because there is less
reliable, objective data available. See "Determination of
Net Asset Value."
Credit Risks Associated with Collateralized Senior Loans.
---------------------------------------------------------
Collateralized Senior Loans, like other corporate debt
obligations, are subject to the risk of non-payment of
scheduled interest or principal. Such non-payment would
result in a reduction of income to the Fund, reduction in the
value of the Collateralized Senior Loan experiencing
non-payment and potential decrease in the net asset value per
share of the Fund. This risk is increased when investing in
Collateralized Senior Loans which are rated below investment
grade. Although Collateralized Senior Loans in which the
Fund invests will be secured by specific collateral, there
can be no assurance that liquidation of such collateral would
satisfy the borrower's obligation in the event of nonpayment
of scheduled interest or principal or that such collateral
could be readily liquidated. In the event of bankruptcy of a
borrower, the Fund could experience delays or limitations
with respect to its ability to realize the benefits of any
collateral securing a Collateralized Senior Loan. See
"Investment Objective, Policies and Portfolio Risks" and
"Risk Factors and Special Considerations."
Credit Risks Associated with the Agent. The success of the
--------------------------------------
Fund depends to some degree on the skill with which the
Agent administers the terms of the Collateralized Senior Loan
Agreements, monitors borrower compliance with covenants,
collects principal, interest and fee payments from borrowers,
monitors collateral and, where necessary, enforces the
Lender's remedies against borrowers. Typically, the Agent
will have some discretion in enforcing a Collateralized
Senior Loan Agreement. The financial status of the Administrative
Agent may affect the ability of the Fund to receive payments of
interest and principal in a timely manner.
Credit Risks Associated with Investments in Participations.
----------------------------------------------------------
The Fund will from time to time purchase Participations in
Collateralized Senior Loans. With respect to any given
Collateralized Senior Loan, the terms of Participations may
result in the Fund having rights which differ from, and are
more limited than, the rights of Lenders or of persons who
acquire interests in Collateralized Senior Loans by
Assignment or by acting as an Original Lender.
Participations typically will result in the Fund having a
contractual relationship with the seller of the
Participation, but not with the borrower. The Fund will
generally have no
</TABLE>
-12-
<PAGE>
<TABLE>
<S> <C>
right to enforce compliance by the borrower with the terms
of the Loan Agreement, nor any rights with
respect to any funds acquired by other Lenders through
set-off against the borrower, with the result that the Fund
may be subject to delays, expenses and risks that are greater
than those that exist where the Fund is an Original Lender or
an Assignee. In the event of the insolvency of the seller of
the Participation, the Fund may be treated as a general
creditor of such person, and may not have any exclusive or
senior claim with respect to such person's interest in, or
the collateral with respect to, the Collateralized Senior
Loan. As such, the Fund may incur the credit risk of the
seller of the Participation in addition to the credit risk of
the borrower with respect to the Collateralized Senior Loan
when purchasing Participations and may not benefit directly
from the security provided by any collateral supporting the
Collateralized Senior Loan with respect to which such
Participation was sold. In addition, in the event of
bankruptcy or insolvency of the borrower, the obligation of
the borrower to repay the Collateralized Senior Loan may be
subject to certain defenses that can be asserted by such
borrower against the Lender of record. The Fund has
implemented measures designed to reduce such risk but no
assurances can be given as to their effectiveness. For
example, the Fund will only acquire Participations if (i) the
seller of the Participation, and any other person
interpositioned between the Fund and the borrower, at the
time of investment has outstanding debt or deposit
obligations rated investment grade (BBB or A-3 or higher by
S&P or Baa or P-3 or higher by Moody's or the equivalent rating
from another NRSRO) or determined by the Sub-Adviser to be
of comparable quality and (ii) the seller of the Participation
has entered into an agreement which provides for the holding
of assets in safekeeping for, or the prompt disbursement of
assets to, the Fund. The Fund may pay a fee or forgo a
portion of interest payments when acquiring Participations.
See "Investment Objective, Policies and Portfolio Risks."
Percentage of Assets in Participations. The Fund may, but
--------------------------------------
currently does not intend to, invest a substantial portion of
its assets in Participations. The seller of a Participation
and any other persons interpositioned between the borrower
and the Fund with respect to Participations will likely
conduct their principal business activities in the banking
and financial services industries. To the extent that the
Fund invests a relatively high percentage of its assets in
such Participations, the Fund may be more susceptible than an
investment company that does not invest in such
Participations to any single economic, political or
regulatory occurrence affecting
</TABLE>
-13-
<PAGE>
<TABLE>
<S> <C>
such industries. The Fund has taken measures which it
believes reduce its exposure to such risk but no assurances
can be given as to their effectiveness. See "Investment Objective,
Policies and Portfolio Risks" and "Risk Factors and Special
Considerations" and "Investment Restrictions."
Leverage At times, the Fund may utilize leverage by borrowing or by
issuing shares of preferred stock or debt securities in an
amount up to 33 1/3% of the Fund's total assets including the
amount obtained from leverage. The Fund intends to utilize
leverage in an initial amount equal to approximately 25% of
its total assets including the amount obtained from leverage.
The use of leverage will pose certain risks for holders of
Common Stock including the possibility of higher volatility
of both the net asset value and market value of the Common
Stock. There can be no assurance that the Fund will be able
to realize a higher return on the portion of its investment
portfolio attributable to leverage than the then-current
interest or dividend rate on any leverage. In the event the
Fund realizes a return on the portion of its investment
portfolio attributable to leverage which is less than the
then-current interest or dividend rate on any leverage, the
Fund's leveraged capital structure would result in a lower
yield to the holders of Common Stock than if the Fund were
not leveraged. Moreover, any decline in the value of the
Fund's assets attributable to leverage will be borne entirely
by holders of Common Stock in the form of reductions in the
Fund's net asset value. Any requirement that the Fund sell
assets at a loss in order to redeem or repay any leverage or
for other reasons would make it more difficult for the net
asset value of the Fund to recover. Accordingly, the effect
of leverage in a declining market is likely to be a greater
decline in the net asset value per share of the Common Stock
than if the Fund were not leveraged, which may be reflected
in a greater decline in the market price of the Common Stock.
See "Investment Objective, Policies and Portfolio Risks--Certain
Characteristics of Collateralized Senior Loan Interests"
and "Additional Investment Activities-- Leverage."
The Fund's use of leverage will be subject to the provisions
of the Investment Company Act of 1940, as amended (the "1940
Act"), including asset coverage requirements and restrictions
on the declaration of dividends and distributions to holders
of Common Stock or purchasers of Common Stock in the event
such asset coverage requirements are not met. In addition,
the Fund may seek to have Moody's, S&P and/or another NRSRO
rate any preferred stock or debt it issues. As a condition to
obtaining such ratings, the terms of any preferred stock or
debt securities issued will include
</TABLE>
-14-
<PAGE>
<TABLE>
<S> <C>
asset coverage maintenance provisions which will require the
redemption of shares of preferred stock or the repayment of
debt in the event of non-compliance by the Fund and may also
prohibit dividends and other distributions on the Common Stock
in such circumstances. In order to meet repayment requirements
in the event of noncompliance, the Fund may have to liquidate
portfolio securities. Collateralized Senior Loans, the Fund's
principal portfolio investment, may be illiquid and not
susceptible to sale by the Fund at any particular time. Such
liquidations would cause the Fund to incur related
transaction costs and could result in capital losses to the
Fund. Prohibitions on dividends and other distributions on
the Common Stock could impair the Fund's ability to qualify
as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the "Code"). The 1940 Act also
requires that holders of preferred stock have certain voting
rights. See "Investment Objective, Policies and Portfolio
Risks--Additional Investment Activities--Leverage,"
"Taxation" and "Description of Capital Stock."
During periods in which the Fund is utilizing financial
leverage, the fees which are payable to MMC as a percentage
of the Fund's net assets will be higher than if the Fund did
not utilize a leveraged capital structure because the fees
are calculated as a percentage of the Fund's total assets,
including those purchased with leverage. See "Management of
the Fund."
Trading Discount As a newly organized entity, the Fund has no operating
history. Shares of closed-end investment companies frequently
trade at a discount from net asset value. This characteristic
is a risk separate and distinct from the risk that the Fund's
net asset value will decrease as a result of its investment
activities and may be greater for investors expecting to sell
their shares in a relatively short period of time following
completion of this offering. It should be noted, however,
that shares of some closed-end funds have traded at premiums
to net asset value. The Fund cannot predict whether its
shares will trade at, above or below net asset value. The
Fund is intended primarily for long-term investors and should
not be considered as a vehicle for trading purposes.
Special Considerations Related to Other High Yield/Lower Rated Securities. The high yield/lower
Securities and Investment Strategies ---------------------------------
rated securities that the Fund may purchase (commonly
known as "junk bonds") will generally be rated, at the time
of investment, below investment grade by Moody's (below Baa)
or by S&P (below BBB), or will be of comparable
</TABLE>
-15-
<PAGE>
<TABLE>
<S> <C>
quality. These lower rated and comparable unrated securities involve greater risk 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.
See "Appendix A - Ratings of Corporate Bonds." The ratings of Moody's, S&P and the other
rating agencies represent their opinions as to the quality of the obligations which they
undertake to rate. Ratings are relative and subjective and, although ratings may be useful
in evaluating the safety of interest and principal payments, they do not evaluate the
market value risk of such obligations. Although these ratings may be an initial criterion
for selection of portfolio investments, the Sub-Adviser also will evaluate these
securities and the ability of the issuers of such securities to pay interest and
principal. To the extent that the Fund invests in lower grade securities that have not
been rated by a rating agency, the Fund's ability to achieve its investment objectives
will be more dependent on the Sub-Adviser's credit analysis that would be the case when
the Fund invests in rated securities.
Lower rated securities may have poor prospects of ever attaining any real investment
standing, may have a current identifiable vulnerability to default, may 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 may be in default or not current in the
payment of interest or principal. 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. See "Appendix A - Ratings of Corporate Bonds." Accordingly, it is
possible that these types of factors could reduce the value and liquidity of lower rated
securities held by the Fund, with a commensurate effect on the value of the Fund's shares.
The secondary markets for high yield/lower rated securities are not as liquid as the
secondary markets for higher rated securities, thus having an adverse effect on the Fund's
ability to dispose of particular portfolio investments and possibly limiting the ability
of the Fund to obtain accurate market quotations for purposes of valuing securities and
calculating net asset value.
Lower rated securities may be particularly susceptible to economic downturns. It is likely
that an economic recession could disrupt severely the market for such securities and may
have an adverse impact on the value of such securities. In addition, it is likely that any
such economic downturn could
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C>
adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon and
increase the incidence of default for such securities.
While the market values of corporate debt securities rated
below investment grade and comparable unrated securities tend
to react less to fluctuations in interest rate levels than do
those of higher rated securities, the market values of the
former also tend to be more sensitive to company-specific
developments and changes in economic conditions than higher
rated securities. The risk of loss due to default by the
issuers of these securities is significantly greater because
such securities may be unsecured and may be subordinate to
other creditors of the issuer.
Some corporate debt securities contain call or buy-back
features which permit the issuer of the security to call or
repurchase it. Such securities may present risk based on
payment expectations. If an issuer exercises such a "call
option" and redeems the security, the Fund may have to
replace the called security with a lower yielding security
resulting in a decreased rate of return for the Fund.
Prices for high yield/lower rated securities may be
affected by legislative and regulatory developments which
could adversely affect the Fund's net asset value and
investment practices, the secondary market for high yield
securities, the financial condition of issuers of these
securities and the value of outstanding high yield securities.
Certain Investment Practices The Fund may use various investment practices that involve
special considerations including lending its portfolio
assets, entering into when-issued and delayed delivery
transactions and entering into repurchase and reverse
repurchase agreements. In addition, the Fund has the
authority to engage in interest rate and other hedging and
risk management transactions. For further discussion of
these practices and associated special considerations, see
"Investment Objective, Policies and Portfolio
Risks" -- "Additional Investment Activities."
Investment in Non-U.S. Issuers The Fund may invest in Collateralized Senior Loans and debt
securities of borrowers that are organized or located in
countries other than the United States, provided that such
Collateralized Senior Loans and debt securities are
denominated in U.S. dollars and provide for the payment of
interest and repayment of principal in U.S. dollars.
Investment in non-U.S. issuers involves special risks,
including that non-U.S. issuers may be subject to less
</TABLE>
-17-
<PAGE>
<TABLE>
<S> <C>
rigorous accounting and reporting requirements than U.S.
issuers, less rigorous regulatory requirements, differing
legal systems and laws relating to creditors' rights, the
potential inability to enforce legal judgments and the
potential for political, social and economic adversity.
Non-Diversification The Fund has elected to operate as a "non-diversified"
company in order to enhance its flexibility to invest more
than 5% of the value of its assets in the obligations of any
single issuer. While it does not currently intend to invest
more than 5% of the value of its assets in Collateralized
Senior Loans of a single borrower, there is no restriction
preventing the Fund from doing so. In addition, the Fund may
invest more than 5% of its assets in Participations purchased
from a single Lender. To the extent the Fund invests a
relatively high percentage of its assets in obligations of a
limited number of issuers, the Fund may be more susceptible
than a more widely-diversified company to any single
corporate, economic, political or regulatory occurrence. See
"Investment Objective, Policies and Portfolio Risks" and "The
Fund."
Year 2000 The investment management services provided to the Fund by
MMC and TAMIC and the administration services provided by MMC
depend in large part on the smooth functioning of their
computer systems. Many computer software systems in use today
cannot recognize the year 2000, but revert to 1900 or some
other date, due to the manner in which dates were encoded or
calculated. Any failure by these systems to recognize the
year 2000 could have a negative impact on MMC's and TAMIC's
provision of services, including investment analysis, the
handling of securities trades, and pricing and accounting
services. MMC and TAMIC have advised the Fund that they have
been reviewing all of their computer systems and actively
working on necessary changes to their systems to prepare for
the year 2000 and expect that, given the extensive testing
which they are undertaking, their systems will be year 2000
compliant before such date. In addition, MMC has been advised
by certain of the Fund's service providers that they are also
in the process of modifying their systems with the same goal.
There can, however, be no assurance that MMC, TAMIC, or any
other service provider will be successful in achieving year
2000 compliance, or that interaction with other non-complying
computer systems will not impair services to the Fund at that
time.
In addition, it is possible that the markets for
Collateralized Senior Loans and other securities in which the
Fund invests
</TABLE>
-18-
<PAGE>
<TABLE>
<S> <C>
may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000.
Improperly functioning trading systems may result in settlement
problems and liquidity issues. In addition, corporate and governmental
data processing errors may result in production problems for individual
companies and overall economic uncertainties. Earnings of individual
issuers may be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the Fund's
investments could be adversely affected.
Anti-Takeover Provisions The Fund's Articles of Incorporation (the "Articles of
Incorporation") and By-Laws (the "By-Laws") contain certain
anti-takeover provisions that may have the effect of
inhibiting the Fund's possible conversion to open-end status
and limiting the ability of other persons to acquire control
of the Fund. In certain circumstances, these provisions might
also inhibit the ability of shareholders to sell their shares
at a premium over prevailing market prices. The Fund's Board
of Directors has determined that these provisions are in the
best interests of shareholders generally. See "Description of
Capital Stock--Preferred Stock and--Special Voting
Provisions."
* * * *
Investors should carefully consider their ability to assume
the foregoing risks before making an investment in the Fund.
An investment in shares of the Fund may not be appropriate
for all investors.
</TABLE>
-19-
<PAGE>
FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load (as a percentage of offering price) ................................... None
Dividend Reinvestment Plan Fees .......................................................... None
<S> <C>
ANNUAL EXPENSES (as a percentage of net assets attributable to Common Stock):
Management Fees(a)(b)..................................................................... 1.05%
Interest Payments on Borrowed Funds(b).................................................... None
Other Expenses(b)......................................................................... .15
Total Annual Expenses(b)................................................................ 1.20
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment, assuming (1) total annual
expenses of 1.20% (assuming no leverage) and
3.63% (assuming leverage of 25% of the Fund's
total assets) and (2) a 5% annual return
throughout the periods:
Assuming No Leverage.......................... $[ ] $[ ] $[ ] $[ ]
Assuming 25% Leverage......................... $[ ] $[ ] $[ ] $[ ]
</TABLE>
__________
(a) See "Management of the Fund."
(b) In the event the Fund utilizes leverage by borrowing in an amount equal to
approximately 25% 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 (assuming an interest rate of approximately
[ ]%, which interest rate is subject to change based on prevailing market
conditions) would be [ ]%, Other Expenses would be [ ]% and Total
Annual Expenses would be [ ]%. The Fund may utilize leverage up to
33 1/3% of the Fund's total assets (including the amount obtained from
leverage), depending on economic conditions. See "Risk Factors and Special
Considerations--Leverage" and "Additional Investment Activities-- Leverage."
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 above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by 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.
-20-
<PAGE>
THE FUND
The Fund, incorporated in Maryland on August 25, 1998, is a closed-end,
non-diversified management investment company registered under the 1940 Act.
The Fund's principal office is located at 388 Greenwich Street, New York, New
York 10013, and its telephone number is [ ]. The Fund's investment
objective is to maximize current income consistent with prudent efforts to
preserve capital. The Fund's Adviser and Sub-Adviser believe that a portfolio
of Collateralized Senior Loans combined with financial leverage allows the Fund
to offer an attractive dividend yield and to generate superior risk adjusted
returns over time. The floating or variable rate feature of Collateralized
Senior Loans should allow the Fund to capture higher yields in a rising interest
rate environment, while exceeding the costs of leverage at the Fund level.
USE OF PROCEEDS
The net proceeds of this offering, estimated to be $[ ] (or
approximately $[ ] assuming the Underwriters exercise the over-allotment
option in full) after deducting offering and organizational expenses, will be
invested in accordance with the policies set forth under "Investment Objective,
Policies and Portfolio Risks" as soon as practicable, but in any event within
[three months] from the date of the completion of the offering given normal
market conditions and the availability of appropriate Collateralized Senior
Loans. Initially, the proceeds will be invested in high quality short-term
money market instruments and U.S. Government securities as described under
"Additional Investment Activities--Money Market Instruments." There will be no
sales load or underwriting discount imposed on sales of shares of Common Stock
in this offering. MMC, TAMIC or an affiliate of either (not the Fund) will pay
a commission to the Underwriters from its own assets in connection with sales of
shares of Common Stock in this offering. See "Underwriting."
INVESTMENT OBJECTIVE, POLICIES AND PORTFOLIO RISKS
The Fund's investment objective is to maximize current income consistent
with prudent efforts to preserve capital. The Fund seeks to achieve its
objective by investing primarily in a professionally managed portfolio of
interests in Collateralized Senior Loans. The Collateralized Senior Loans in
which the Fund will invest will be generally rated at the time of acquisition
below investment grade by Moody's (below Baa) or S&P (below BBB), or be of
comparable quality as determined by another NRSRO or the Sub-Adviser.
Collateralized Senior Loans may be also extended to borrowers which have
outstanding debt securities that are similarly rated below investment grade.
The risks attendant to investing in such securities are described below.
Under normal market conditions, the Fund will invest at least 80% of its
total assets in Collateralized Senior Loans (either as an Original Lender or as
a purchaser of an Assignment or participation). The Fund may also invest up to
20% of its total assets in uncollateralized senior loans, investment and non-
investment grade corporate debt securities or U.S. government debt securities
both with maturities no longer than five years from the date of acquisition,
money market instruments and derivatives designed to hedge risks inherent in the
Fund's portfolio. In limited circumstances, as noted above, the Fund may also
receive warrants, other equity securities and, junior debt securities as part of
its investments in Collateralized Senior Loans. The value of these securities,
if any, will be included in the up to 20% portion of the Fund's assets not
invested in Collateralized Senior Loans.
-21-
<PAGE>
CERTAIN CHARACTERISTICS OF COLLATERALIZED SENIOR LOAN INTERESTS
The market for Collateralized Senior Loans has broadened and deepened
dramatically in the last several years as new and more institutions have sought
to participate, and the sophistication of the Collateralized Senior Loan market
has increased to meet the needs of these market participants.
Collateralized Senior Loans generally are arranged through private
negotiations between a borrower and several financial institutions ("Lenders")
represented in each case by one or more such Lenders acting as agent ("Agent")
of the Lenders. On behalf of the Lenders, the Agent, which is frequently the
entity or entities that originate the Collateralized Senior Loan and the persons
that invite other parties to join the lending syndicate, will be primarily
responsible for negotiating the loan agreement or agreements ("Loan Agreement")
that establish the relative terms, conditions and rights of the borrower and the
several Lenders. In larger transactions it is common to have several Agents.
Agents responsible for rendering these services are typically paid a fee or fees
by the borrower for their services. The Fund will not invest in any
Collateralized Senior Loan for which MMC, TAMIC or any of their affiliates
perform these services unless the Fund is advised by counsel that investment
under the circumstances is permitted or it receives an exemption from the
Commission or advice from the Commission's staff to similar effect.
The Fund may act as one of the group of Lenders in a Collateralized Senior
Loan (an "Original Lender"), or purchase assignments ("Assignments") or
participations ("Participations") in Collateralized Senior Loans from third
parties. The Fund will act as an Original Lender in a Collateralized Senior
Loan, or purchase an Assignment or Participation in a Collateralized Senior Loan
only where the Administrative Agent with respect to such Collateralized Senior
Loan at the time of investment by the Fund has outstanding debt or deposit
obligations rated investment grade (BBB or A-3 or higher by S&P or Baa or P-3 or
higher by Moody's), a comparable rating from another NRSRO, or determined by the
Sub-Adviser to be of comparable quality. Further, in the case of Participations,
the Fund will not purchase interests in Collateralized Senior Loans unless the
seller of the Participation has entered into an agreement which provides for the
holding of assets in safekeeping for, or the prompt disbursement of assets to
the Fund.
It is anticipated that the proceeds of the Collateralized Senior Loans in
which the Fund will acquire interests primarily will be used by borrowers to
finance leveraged buyouts, recapitalizations, mergers, acquisitions, stock
repurchases, internal growth and for other corporate purposes of borrowers. The
Fund currently does not intend to acquire interests in Collateralized Senior
Loans the proceeds of which would be used primarily to finance construction or
real estate development projects, provided that the Fund may invest in
Collateralized Senior Loans secured by real estate or issued by companies that
invest in real estate or interests therein, including real estate investment
trusts.
Collateralized Senior Loans in which the Fund will invest generally hold
the most senior position in the capital structure of the borrower and will be
secured with specific collateral. As a result, Collateralized Senior Loans are
generally repaid before general trade creditors, unsecured loans, corporate
bonds, subordinated debt and preferred or common stockholders if the borrower
becomes insolvent. The terms and conditions of Collateralized Senior Loans
typically will include various restrictive covenants which are designed to limit
certain activities of borrowers and allow lenders to accelerate repayment of
principal if a borrower does not meet certain financial tests included in such
covenants. Restrictive covenants may include mandatory prepayment provisions
arising from excess cash flows and typically include restrictions on dividend
payments, specific mandatory minimum or maximum financial ratios, limits on
total debt and other financial tests. Breach of such covenants, if
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not waived by the Lenders, is generally an event of default under the applicable
Loan Agreement and may give the Lenders the right to accelerate principal and
interest payments. The Sub-Adviser will consider the terms of such restrictive
covenants in deciding whether to invest in Collateralized Senior Loans for the
Fund's portfolio.
In acquiring a Collateralized Senior Loan, the Sub-Adviser will consider
the following factors among others: capital structure; cash flow coverage of
debt service; working capital availability; leverage; quality and experience of
management; business plan; quality of collateral; pricing in relation to risk;
liquidity of the Collateralized Senior Loan in the secondary market; operating
history and competitive position. The Sub-Adviser will perform its own
independent credit analysis of each borrower. In so doing, the Sub-Adviser may
utilize information and credit analyses obtained from the Agent, other Lenders
investing in a Collateralized Senior Loan and other sources. These analyses
will continue on a periodic basis for any Collateralized Senior Loan owned by
the Fund.
Collateralized Senior Loans in which the Fund will invest generally pay
interest at rates which are periodically redetermined by reference to a
benchmark lending rate plus a premium. The benchmark lending rates generally
offered to borrowers by Lenders are the London Inter-Bank Offered Rate
("LIBOR"), the prime rate offered by one or more major United States banks (the
"Prime Rate"), the certificate of deposit ("CD") rate or other base lending
rates used by commercial lenders. LIBOR is the benchmark rate most often
selected by borrowers and is expected to be the benchmark in the majority of
Collateralized Senior Loans invested in by the Fund. LIBOR is an average of the
interest rates quoted by several designated banks as the rates at which such
banks would offer to pay interest to major financial institutional depositors in
the London interbank market on U.S. dollar-denominated deposits for a specified
period of time. The Prime Rate quoted by a major U.S. bank is generally the
interest rate at which such bank is willing to lend U.S. dollars to its most
creditworthy borrowers although it may not be the bank's lowest available rate.
The CD rate is the average rate paid on large certificates of deposit traded in
the secondary market.
The Fund is not subject to any restrictions with respect to the maturity of
Collateralized Senior Loans held in its portfolio. It is currently anticipated,
however, that the Fund's assets invested in Collateralized Senior Loans will
consist of Collateralized Senior Loans with stated maturities of between five
and 10 years, inclusive, and with rates of interest which are redetermined
either daily, or approximately every 1, 2, 3 or 6 months; provided, however,
that the Fund may invest in Collateralized Senior Loans which permit the
borrower, at its option, to select an interest rate redetermination period of up
to one year. Investment in Collateralized Senior Loans with longer interest rate
redetermination periods may increase interest rate related fluctuations in the
Fund's net asset value. It is the Sub-Adviser's expectation that the
Collateralized Senior Loans in the Fund's portfolio will ordinarily have a
dollar-weighted average time until the next interest rate redetermination of 120
days or less. As a result, as short term interest rates increase, interest
payable to the Fund from its investments in Collateralized Senior Loans should
increase, and as short term interest rates decrease, interest payable to the
Fund from its investments in Collateralized Senior Loans should decrease. The
amount of time required to pass before the Fund will realize the effects of
changing short term market interest rates on its portfolio will vary with the
dollar-weighted average time until the next interest rate redetermination on the
Collateralized Senior Loans in the Fund's portfolio. The Fund may utilize
certain investment practices to, among other things, shorten the effective
interest rate redetermination period of Collateralized Senior Loans in its
portfolio. In such event, the Fund will consider such shortened period to be the
interest rate redetermination period of the Collateralized Senior Loan. Because
most Collateralized Senior Loans in the Fund's portfolio will be subject to
mandatory and/or optional prepayment and there may at times be significant
economic incentives for a
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borrower to prepay its loans, prepayments of Collateralized Senior Loans in the
Fund's portfolio may occur. Accordingly, the actual maturity of the
Collateralized Senior Loans in the Fund's portfolio may vary substantially from
the stated maturity. As a result of expected prepayments of Collateralized
Senior Loans in the Fund's portfolio, the Fund estimates that the actual
maturity of the Collateralized Senior Loans held in its portfolio generally will
be approximately 18 to 36 months.
The floating or variable rate feature of Collateralized Senior Loans is a
significant difference from typical fixed income investments that carry
significant interest rate risk. The Fund can normally be expected to have less
significant interest rate-related fluctuations in its net asset value per share
than investment companies investing primarily in fixed income securities (other
than money market funds and some short-term bond funds). Generally, the net
asset value of the shares of an investment company that invests primarily in
fixed rate income oriented securities changes as interest rates fluctuate. When
interest rates decline, the value of a fixed income portfolio normally can be
expected to increase and conversely, when interest rates increase, the value of
a fixed income portfolio can be expected to decrease. The Sub-Adviser expects
that these interest rate related fluctuations in the Fund's net asset value will
be reduced during normal market conditions because the interest rate of the
floating or variable rate Collateralized Senior Loans in which the Fund invests
floats in response to changes in prevailing interest rates. However, because the
floating or variable interest rates on Collateralized Senior Loans only reset
periodically, the Fund's net asset value may fluctuate from time to time in the
event of an imperfect correlation between the interest rates on the Fund's
Collateralized Senior Loans and prevailing interest rates in the market.
Similarly, a sudden and extreme increase in prevailing interest rates may cause
a decline in the Fund's net asset value. In addition, because Collateralized
Senior Loans carry floating or variable rates of interest, changes in prevailing
market interest rates can be expected to affect dividends paid by the Fund. As a
result, the yield on an investment in the Fund's shares will likely fluctuate in
response to changes in prevailing interest rates. The Fund's net asset value per
share will be affected primarily by changes in the credit quality of borrowers
with respect to Collateralized Senior Loan interests in which the Fund invests.
Because the Collateralized Senior Loans that the Fund will purchase will
generally be rated, at the time of purchase, below investment grade or be of
comparable quality, the Fund will have substantial exposure to the risks of
investing in lower rated debt instruments. A default on a Collateralized Senior
Loan in which the Fund has invested may cause a decline in the Fund's net asset
value. See "Additional Investment Activities--High Yield/Lower Rated
Securities."
In a typical Collateralized Senior Loan, the Agent administers the terms of
the Loan Agreement and is responsible for the collection of principal and
interest and fee payments from the borrower and the apportionment of these
payments to the credit of all investors which are parties to the Loan Agreement.
The Fund generally will rely on the Agent to collect its portion of the payments
on the Collateralized Senior Loan. Further, the Fund will rely on the Agent to
monitor collateral and to enforce appropriate creditor remedies against the
borrower. Typically, under Loan Agreements, the Agent is given some discretion
in enforcing the Loan Agreement, and it is obliged to use only the same care it
would use in the management of its own property. For these services, the
borrower compensates the Agent. Such compensation may include special fees paid
on structuring and funding the Collateralized Senior Loan and other fees paid on
a continuing basis. The success of the Fund depends to some degree, on the
skill with which the Agent administers the terms of the Loan Agreements,
monitors borrower compliance with covenants, collects principal, interest and
fee payments from borrowers and, where necessary, enforces creditor remedies
against borrowers. The financial status of the Administrative Agent may affect
the ability of the Fund to receive payments of interest and principal.
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Loan Agreements typically provide for the termination of the Agent's agency
status in the event that it fails to act as required under the relevant loan
agreement, becomes insolvent, enters FDIC receivership, or if not FDIC insured,
enters into bankruptcy. Should such an Administrative Agent, Lender or assignor
with respect to an Assignment or seller of a Participation interpositioned
between the Fund and the borrower become insolvent or enter FDIC receivership or
bankruptcy, any interest in the Collateralized Senior Loan of such person and
any loan payment held by such person for the benefit of the Fund should not be
included in such person's estate. If, however, any such amount were included in
such person's estate, the Fund would incur certain costs and delays in realizing
payment or could suffer a loss of principal or interest. In such event, the Fund
could experience a decrease in net asset value.
When the Fund is an Original Lender in a Collateralized Senior Loan it may
share in a fee paid to the Original Lenders. The Fund will never act as the
Agent or principal negotiator or administrator of a Collateralized Senior Loan.
When the Fund is a Lender, it will have a direct contractual relationship with
the borrower, may enforce compliance by the borrower with the terms of the
Collateralized Senior Loan and may have rights with respect to any funds
acquired by other Lenders through set-off. Lenders also have full voting and
consent rights under the applicable Collateralized Senior Loan. Action subject
to Lender vote or consent generally requires the vote or consent of the holders
of some specified percentage of the outstanding principal amount of the
Collateralized Senior Loan. Certain decisions, such as reducing the amount,
increasing the time for payment or changing the rate of interest on or repayment
of principal of a Collateralized Senior Loan, or releasing collateral therefor,
frequently require the unanimous vote or consent of all Lenders affected.
The Fund may also purchase Assignments from Lenders. The purchaser of an
Assignment typically succeeds to all the rights and obligations under the
Collateralized Senior Loan of the assigning Lender and becomes a Lender under
the Collateralized Senior Loan with the same rights and obligations as the
assigning Lender.
Participations by the Fund in a portion of a Collateralized Senior Loan
typically will result in the Fund having a contractual relationship only with
the seller of such Participation, not with the borrower. As a result, the Fund
may have the right to receive payments of principal, interest and any fees to
which it is entitled only from the seller of the Participation and only upon
receipt by such seller of such payments from the borrower. When the Fund holds a
Participation in a Collateralized Senior Loan it may not have the right to vote
to waive enforcement of any restrictive covenant breached by a borrower. Lenders
voting in connection with a potential waiver of a restrictive covenant may have
interests different from those of the Fund and such Lenders may not consider the
interests of the Fund in connection with their votes. In connection with
purchasing Participations, the Fund generally will have no right to enforce
compliance by the borrower with the terms of the Loan Agreement, nor any rights
with respect to any funds acquired by other Lenders through set-off against the
borrower and the Fund may not directly benefit from the collateral supporting
the Collateralized Senior Loan in which it has purchased the Participation. As a
result, the Fund may assume the credit risk of both the borrower and the seller
of the Participation. In the event of the insolvency of the seller of a
Participation, the Fund may be treated as a general creditor of such seller. The
Fund has taken the following measures in an effort to minimize such risks. The
Fund will only acquire Participations if (i) the seller of the Participation,
and any other persons interpositioned between the Fund and the borrower, at the
time of investment has outstanding debt or deposit obligations rated investment
grade (BBB or A-3 or higher by S&P or Baa or P-3 or higher by Moody's or the
equivalent rating from another NRSRO) or determined by the Sub-Adviser to be of
comparable quality and (ii) the seller of the Participation has entered into an
agreement which provides for the holding of assets in safekeeping for, or the
prompt disbursement of assets to, the Fund. Long-term debt
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rated BBB by S&P is regarded by S&P as having adequate capacity to pay interest
and repay principal and debt rated Baa by Moody's is regarded by Moody's as a
medium grade obligation, i.e., it is neither highly protected nor poorly
secured. Commercial paper rated A-3 by S&P indicates that S&P believes such
obligations exhibit adequate protection parameters but that adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation and
issues of commercial paper rated P-3 by Moody's are considered by Moody's to
have an acceptable ability for repayment of short-term debt obligations but the
effect of industry characteristics and market compositions may be more
pronounced. See "Appendix A." The Fund ordinarily will purchase a Participation
only if, at the time of such purchase, the Fund believes that the party from
whom it is purchasing such Participation is retaining an interest in the
underlying Collateralized Senior Loan. In the event that the Fund does not so
believe, it will only purchase such a Participation if, in addition to the
requirements set forth above, the party from whom the Fund is purchasing such
Participation is a bank, a member of a national securities exchange or other
entity designated in the Act as qualified to serve as a custodian for a
registered investment company.
The seller of a Participation and other persons interpositioned between the
borrower and the Fund with respect to Participations will likely conduct their
principal business activities in the banking, finance and financial services
industries. Although, as discussed above, the Fund has taken measures which it
believes reduce its exposure to any risks incident to such policy, the Fund may
be more susceptible than an investment company without such a policy to any
single economic, political or regulatory occurrence affecting such industries.
Persons engaged in such industries may be more susceptible than are persons
engaged in some other industry to, among other things, fluctuations in interest
rates, changes in the Federal Open Market Committee's monetary policy,
governmental regulations concerning such industries and concerning capital
raising activities generally and fluctuations in the financial markets
generally.
In order to borrow money pursuant to Collateralized Senior Loans, a
borrower will frequently, for the term of the Collateralized Senior Loan, pledge
its assets as collateral, including but not limited to, trademarks, accounts
receivable, inventory, buildings, real estate, franchises and common and
preferred stock in its subsidiaries. In addition, in the case of some
Collateralized Senior Loans, there may be additional collateral pledged in the
form of guarantees or other credit support by and/or securities of affiliates of
the borrower. In certain instances, a Collateralized Senior Loan may be secured
by stock in the borrower or its subsidiaries. Collateral may consist of assets
that may not be readily liquidated, and there is no assurance that the
liquidation of such assets would satisfy fully a borrower's obligations under a
Collateralized Senior Loan.
The Fund may invest in the U.S. dollar-denominated Collateralized Senior
Loans of non-U.S. issuers. Investment in the Collateralized Senior Loans of non-
U.S. issuers involves special risks, including that non-U.S. issuers may be
subject to less rigorous accounting and reporting requirements than U.S.
issuers, less rigorous regulatory requirements, differing legal systems and laws
relating to creditors' rights, the potential inability to enforce legal
judgments and the potential for political, social and economic adversity.
Although the Fund does not currently intend to do so, it may purchase and
retain in its portfolio a Collateralized Senior Loan interest in a borrower
which has filed for protection under the federal bankruptcy laws or has had an
involuntary bankruptcy petition filed against it by its creditors. Investment in
these Collateralized Senior Loans is speculative and involves significant risk.
Such Collateralized Senior Loans frequently do not produce income while they are
outstanding and may require the Fund to bear certain extraordinary expenses in
order to protect and recover its investment.
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The Fund also will be subject to significant uncertainty as to when and in what
manner and for what value the obligations evidenced by these types of
Collateralized Senior Loans will eventually be satisfied; i.e. through a
liquidation of the borrower's assets, an exchange offer or plan of
reorganization involving the Collateralized Senior Loan or a payment of some
amount in satisfaction of the obligation. The values of such Collateralized
Senior Loan interests, if any, will reflect, among other things, the Sub-
Adviser's assessment of the likelihood that the Fund ultimately will receive
full repayment of the principal amount invested in such Collateralized Senior
Loan interests, the likely duration, if any, of a lapse in the scheduled
repayment of principal and prevailing interest rates. At times, in connection
with the restructuring of a Collateralized Senior Loan either outside of
bankruptcy court or in the context of bankruptcy court proceedings, the Fund may
determine or be required to accept equity securities or junior debt securities
in exchange for all or a portion of a Collateralized Senior Loan interest.
Depending upon, among other things, the Sub-Adviser's evaluation of the
potential value of such securities in relation to the price that could be
obtained by the Fund at any given time upon sale thereof, the Fund may determine
to hold such securities in its portfolio.
The Fund may invest up to 20% of its total assets in investments
which are not Collateralized Senior Loans, including loans which are not secured
by any collateral. Loans that are not secured by specific collateral constitute
a general obligation of the borrower, and therefore pose a greater risk of
nonpayment of interest or loss of principal than do Collateralized Senior Loans.
In limited circumstances, the Fund may also receive warrants, equity
securities and, junior debt securities issued by a borrower or its affiliates as
part of its investments in Collateralized Senior Loans. Warrants, equity
securities and junior debt securities will not be treated as Collateralized
Senior Loans and thus assets invested in such securities will not count toward
the percentage of the Fund's total assets that normally will be invested in
Collateralized Senior Loans. The Fund will acquire such interests in warrants,
equity securities and junior debt securities only as an incident to the
ownership of interests in Collateralized Senior Loans.
A Lender may have certain obligations pursuant to a revolving loan
agreement, which may include the obligation to make additional loans in certain
circumstances. The Fund currently intends to reserve against such contingent
obligations by segregating a sufficient amount of borrowing capacity under its
credit facility, cash, liquid securities or liquid Collateralized Senior Loans
as a reserve against such commitments. The Fund will not purchase interests in
Collateralized Senior Loans that would require the Fund to make any such
additional loans if such additional loan commitments in the aggregate would
exceed 20% of the Fund's total assets.
The Fund may be required to pay and may receive various fees and
commissions in connection with purchasing, selling and holding interests in
Collateralized Senior Loans. The fees normally paid by borrowers may include
three types: upfront fees, commitment fees and prepayment penalties. Upfront
fees are paid to Lenders upon origination of a Collateralized Senior Loan.
Commitment fees are paid to Lenders on an ongoing basis based upon the undrawn
portion committed by the Lenders of the underlying Collateralized Senior Loan.
Lenders may receive prepayment penalties when a borrower prepays all or part of
a Collateralized Senior Loan. The Fund will receive these fees directly from the
borrower if the Fund is an Original Lender, or, in the case of commitment fees
and prepayment penalties, if the Fund acquires an interest in a Collateralized
Senior Loan by way of Assignment. Whether or not the Fund receives an upfront
fee from the Lender in the case of an Assignment, or any
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fees in the case of a Participation, depends upon negotiations between the Fund
and the seller of such interests. When the Fund is an assignee, it may be
required to pay a fee, or forgo a portion of interest and any fees payable to
it, to the Lender selling the Assignment. The assignor may pay a fee to the
assignee based on the principal amount of the Collateralized Senior Loan which
is being assigned. A seller of a Participation to the Fund may deduct a portion
of the interest and any fees payable to the Fund as an administrative fee prior
to payment thereof to the Fund. The Fund may be required to pay over or pass
along to a purchaser of an interest in a Collateralized Senior Loan from the
Fund a portion of any fees that the Fund would otherwise be entitled to.
Pursuant to the relevant Loan Agreement, a borrower may be required in
certain circumstances, and may have the option at any time, to prepay the
principal amount of a Collateralized Senior Loan, often without incurring a
prepayment penalty. Because the interest rates on Collateralized Senior Loans
are periodically redetermined at relatively short intervals, the Fund and the
Sub-Adviser believe that the prepayment of, and subsequent reinvestment by the
Fund in, Collateralized Senior Loans will not have a materially adverse impact
on the yield on the Fund's portfolio and may have a beneficial impact on income
due to receipt of prepayment penalties, if any, and any upfront fees earned in
connection with reinvestment.
ADDITIONAL INVESTMENT ACTIVITIES
LEVERAGE
At times, the Fund intends to utilize leverage by borrowing (including
borrowing through reverse repurchase agreements to the extent the Fund does not
maintain a segregated account with respect to a reverse repurchase agreement as
described below) or by issuing shares of preferred stock or debt securities. The
Fund may leverage in an amount up to 33 1/3% of its total assets including the
amount obtained from leverage. The Fund intends to utilize leverage in an
initial amount equal to approximately 25% of its total assets including the
amount obtained from leverage. The Adviser and Sub-Adviser anticipate that the
interest payments on any borrowing or debt securities or the dividends on any
preferred stock will reflect short-term rates, and that the net return on the
Fund's portfolio attributable to leverage, will exceed the interest or dividend
rate applicable to the leverage, although no assurance can be given to that
effect. Whether to leverage and the terms and timing of such leverage will be
determined by the Fund's Board of Directors in consultation with the Adviser and
Sub-Adviser. Through these leveraging techniques, the Fund will seek to obtain a
higher return for holders of Common Stock than if the Fund were not leveraged.
There can be no assurance, however, that the Fund will engage in any leveraging
techniques. During periods in which the Fund is utilizing financial leverage,
the fees which are payable to MMC as a percentage of the Fund's net assets will
be higher than if the Fund did not utilize a leveraged capital structure because
the fees are calculated as a percentage of the Fund's total assets, including
those purchased with leverage. See "Management of the Fund."
Utilization of leverage is a speculative investment technique and involves
certain risks to the holders of Common Stock. These include the possibility of
higher volatility of the net asset value of the Common Stock and potentially
more volatility in the market value of the Common Stock of the Fund. So long as
the Fund is able to realize a higher net return on the portion of its investment
portfolio attributable to leverage than the then-current interest or dividend
rate of any leverage together with other related expenses, the effect of the
leverage will be to cause holders of Common Stock to realize a higher current
net investment income than if the Fund were not so leveraged. On the other hand,
to the extent that the then-current interest or dividend rate on any leverage,
together with other
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related expenses, approaches the net return on the portion of Fund's investment
portfolio attributable to leverage, the benefit of leverage to holders of Common
Stock will be reduced, and if the then-current interest or dividend rate on any
leverage were to exceed the net return on the portion of the Fund's portfolio
attributable to leverage, 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 so
leveraged. Similarly, since any decline in the net asset value of the Fund's
investments will be borne entirely by holders of Common Stock, the effect of
leverage in a declining market would be a greater decrease in net asset value
applicable to the Common Stock than if the Fund were not leveraged. Any such
decrease would likely be reflected in a decline in the market price of the
Common Stock. If the Fund's current investment income on its entire portfolio
were not sufficient to meet interest or dividend requirements on any leverage,
it could be necessary for the Fund to liquidate certain of its investments,
thereby reducing the net asset value attributable to the Common Stock. The
Fund's Adviser and Sub-Advisor will seek to mitigate the interest-rate related
risk associated with leverage by utilizing leverage and investing in
Collateralized Senior Loans which both carry floating or variable rates of
interest (or dividends in the case of preferred stock issued by the Fund, if
any).
The Fund's use of leverage will be subject to the provisions of the 1940
Act, including asset coverage requirements and restrictions on the declaration
of dividends and distributions to holders of Common Stock or purchases of
additional investments in the event such asset coverage requirements are not
met. The 1940 Act also requires that holders of preferred stock have certain
voting rights. See "Description of Capital Stock."
The Fund may apply for a rating from Moody's, S&P and/or any other NRSRO on
any preferred stock or debt which it issues; however, no minimum rating is
required for the issuance of preferred stock or debt by the Fund. The Fund
believes that obtaining one or more such ratings for its preferred stock or debt
may enhance the marketability of the preferred stock or debt and thereby reduce
the dividend rate on such preferred stock or interest requirements on such debt
from that which the Fund would be required to pay if the preferred stock or debt
were not so rated. The rating agencies for any preferred stock or debt may
require asset coverage maintenance ratios in addition to those imposed by the
1940 Act. The ability of the Fund to comply with such asset coverage maintenance
ratios may be subject to circumstances beyond the control of the Fund such as
market conditions for its portfolio investments. The Fund expects that the terms
of any preferred stock or debt will provide for mandatory redemption of the
preferred stock or the repayment of debt in the event the Fund fails to meet
such asset coverage maintenance ratios. In such circumstances, the Fund may have
to liquidate portfolio investments in order to meet redemption or repayment
requirements. Such liquidations and redemptions would cause the Fund to incur
transaction costs and could result in capital losses to the Fund. This would
have the effect of reducing the net asset value to holders of Common Stock and
could reduce the Fund's net income in the future.
The issuance of preferred stock or debt will entail certain initial costs
and expenses such as underwriting discounts or placement fees, fees associated
with registration 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 the Common Stock.
The rights of any lenders to the Fund to receive payments of interest on
and repayments of principal of borrowings (including debt securities) will be
senior to the rights of the Fund's shareholders, and the terms of the Fund's
borrowings (including debt securities) may contain
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provisions that limit certain activities of the Fund and could result in
precluding the purchase of instruments that the Fund would otherwise purchase.
If the Fund leverages through preferred stock, under the requirements of
the 1940 Act, the value of the Fund's total assets, less all liabilities and
indebtedness of the Fund not represented by senior securities, as defined in the
1940 Act, must be equal, immediately after any such issuance of preferred stock,
to at least 200% of the aggregate amount of senior securities representing
indebtedness plus the aggregate liquidation preference of any outstanding
preferred stock. Such percentage must also be met any time the Fund pays a
dividend or makes any other distribution on Common Stock (other than a
distribution in Common Stock) or any time the Fund 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 accrued and unpaid dividends thereon (whether or not
earned or declared). See "Description of Capital Stock."
If the Fund leverages through borrowing or issuing debt securities, under
the requirements of the 1940 Act, the value of the Fund's total assets, less all
liabilities and indebtedness of the Fund not represented by senior securities,
as defined in the 1940 Act, must at least be equal, immediately after the
issuance of senior securities consisting of debt, to 300% of the aggregate
principal amount of all outstanding senior securities of the Fund which are
debt. If the Fund leverages through the issuance of senior securities consisting
of debt, the 300% asset coverage maintenance ratio referred to above must also
be met any time the Fund declares a dividend or other distribution on Common
Stock (other than a distribution in Common Stock) or any time the Fund
repurchases Common Stock, in each case after giving effect to such dividend,
distribution or repurchase.
The Fund may enter into reverse repurchase agreements with any member bank
of the Federal Reserve System and any broker-dealer or any foreign bank that has
been determined by the Adviser or the Sub-Adviser to be creditworthy. Under a
reverse repurchase agreement, the Fund would sell Collateralized Senior Loans,
uncollateralized senior loans or securities and agree to repurchase them at a
mutually agreed date and price. At the time the Fund enters into a reverse
repurchase agreement, it will typically establish and maintain a segregated
account, with its custodian or a designated sub-custodian, containing liquid
assets in an amount not less than the repurchase price marked to market daily
(including accrued interest), and will subsequently review the account to ensure
that such equivalent value is maintained, in accordance with procedures
established by the Board of Directors. Reverse repurchase agreements involve the
risk that the market value of the Collateralized Senior Loans, uncollateralized
senior loans or securities purchased with the proceeds of the sale of
Collateralized Senior Loans, uncollateralized senior loans or securities
received by the Fund may decline below the price of the Collateralized Senior
Loans, uncollateralized senior loans or securities the Fund is obligated to
repurchase. In the event the buyer of Collateralized Senior Loans,
uncollateralized senior loans or securities under a reverse repurchase agreement
files for bankruptcy or becomes insolvent, the buyer or its trustee or receiver
may receive an extension of time to determine whether to enforce the Fund's
obligations to repurchase the Collateralized Senior Loans, uncollateralized
senior loans or securities, and the Fund's use of proceeds of the reverse
repurchase agreement effectively may be restricted pending the decision. Reverse
repurchase agreements will be treated as borrowings for purposes of calculating
the Fund's borrowing limitation to the extent the Fund does not establish and
maintain a segregated account (as described above).
Assuming the utilization of leverage in the amount of approximately 25% of
the Fund's total assets, and an annual interest rate of [ ]% payable on such
leverage based on market rates as of the date of this Prospectus, the annual
return that the Fund's portfolio must experience (net of expenses) in
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order to cover such interest payments would be [ ]. The Fund's actual cost of
leverage will be based on market rates at the time the Fund undertakes a
leveraging strategy, and such actual cost of leverage may be higher or lower
than that assumed in the previous example.
The following table is designed to illustrate the effect on the return to a
holder of the Fund's Common Stock of leverage in the amount of approximately 25%
of the Fund's total assets, assuming hypothetical annual returns of the Fund's
portfolio of minus 10% to plus 10%. As the table shows, leverage generally
increases the return to shareholders when portfolio return is positive and
greater than the cost of leverage and decreases the return when the portfolio
return is negative or less than the cost of leverage. The figures appearing in
the table are hypothetical and actual returns may be greater or less than those
appearing in the table.
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of
expenses)............................ (10)% (5)% 0% 5% 10%
Corresponding Common Stock Return Assuming
25% Leverage.............................. ( )% ( )% ( )% ( )% ( )%
</TABLE>
Until the Fund borrows (including issuing debt securities) or issues shares
of preferred stock, the Fund's Common Stock will not be leveraged, and the risks
and special considerations related to leverage described in this Prospectus will
not apply. Such leveraging of the Common Stock cannot be fully achieved until
the proceeds resulting from the use of leverage have been invested in debt
instruments in accordance with the Fund's investment objective and policies.
The Fund may, in addition to engaging in the transactions described above,
borrow money for temporary or emergency purposes (including, for example,
clearance of transactions, share repurchases or payments of dividends to
shareholders) in an amount not exceeding 5% of the value of the Fund's total
assets (including the amount borrowed).
HIGH YIELD/LOWER RATED SECURITIES
As stated above, under normal market conditions, the Fund may invest up to
20% of its total assets in high yield/lower rated securities with remaining
maturities not exceeding five years at the time of acquisition by the Fund.
These securities are rated below investment grade (lower than Baa by Moody's or
BBB by S&P or comparable ratings by other NRSROs) or, if unrated, have
characteristics similar to such securities as determined by the Fund's Sub-
Adviser. These lower grade securities are often referred to as "junk bonds."
Securities rated Ba by Moody's or BB by S&P and lower are considered to have
speculative elements, with higher vulnerability to default than corporate
securities with higher ratings. See "Appendix A--Ratings of Corporate Bonds" for
additional information concerning rating categories of Moody's and S&P.
Lower rated securities, though high yielding, are characterized by high
risk. They may be subject to certain risks with respect to the issuing entity
and to greater market fluctuations than certain lower yielding, higher rated
securities. In addition, high yield securities are often unsecured and
subordinated obligations of the issuer. Accordingly, following an event of
default or liquidation or bankruptcy of the issuer, the Fund might not receive
payments to which it is entitled as a result of its position as an unsecured or
subordinated creditor, or may receive distributions of non-income producing
securities, including common stock. Therefore, the Fund may experience a
decline in the value of its investment and possibly its net asset value. The
retail secondary market for lower rated securities may be less liquid than that
of higher rated securities; adverse conditions could make it
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difficult, at times, for the Fund to sell certain securities or could result in
lower prices than those used in calculating the Fund's net asset value.
Bond prices generally are inversely related to interest rate changes;
however, bond price volatility also is inversely related to coupon.
Accordingly, lower rated securities may be relatively less sensitive to interest
rate changes than higher quality securities of comparable maturity, because of
their higher coupon. This higher coupon is what the investor receives in return
for bearing greater credit risk. The higher credit risk associated with lower
rated securities potentially will have a greater effect on the value of such
securities than may be the case with higher quality issues of comparable
maturity.
In selecting high yield/lower rated securities for the Fund, the Sub-
Adviser evaluates the creditworthiness of an issuer and seeks to identify those
with stable or improving financial conditions. The Fund's Sub-Adviser also
considers general industry trends, the issuer's managerial strength, market
position, debt maturity schedules and liquidity.
DERIVATIVE INSTRUMENTS
Although the Fund does not currently intend to do so, it may from time to
time engage in certain strategies generally for hedging or other risk management
purposes or in furtherance of the Fund's investment objectives and policies. The
Fund may use these strategies to attempt to protect against possible changes in
the market value of the Fund's portfolio resulting from fluctuations in the
securities markets and changes in interest rates, to protect the Fund's
unrealized gains in the value of its portfolio investments (including
Collateralized Senior Loans), to facilitate the sale of such investments for
investment purposes, to establish a position in the market as a temporary
substitute for purchasing a particular investment, to seek to enhance income or
gain or to attempt to achieve the economic equivalent of floating rate interest
payments on fixed-rate debt securities it holds. The Fund will engage in such
activities from time to time in the Sub-Adviser's discretion, and may not
necessarily be engaging in such activities when movements occur in interest
rates or in the markets generally that could affect the value of the assets of
the Fund. The Fund's ability to pursue certain of these strategies may be
limited by applicable regulations of the Commodity Futures Trading Commission
("CFTC") and the federal income tax requirements applicable to regulated
investment companies.
Although the Fund does not currently intend to do so, as part of its
strategies, the Fund may purchase and sell futures contracts, purchase and sell
(or write) exchange-listed and over-the-counter put and call options on
financial instruments, financial indices and futures contracts, enter into the
interest rate transactions discussed below and enter into other similar
transactions which may be developed in the future to the extent the Fund's Sub-
Adviser determines that they are consistent with the Fund's investment
objectives and policies and applicable regulatory requirements (collectively,
"Derivative Transactions"). The Fund may use any or all of these techniques at
any time, and the use of any particular Derivative Transaction will depend on
market conditions.
Derivative Transactions present certain risks. In particular, the variable
degree of correlation between price movements of instruments the Fund has
purchased or sold and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the value of
the Fund's position. In addition, certain derivative instruments and markets may
not be liquid in all circumstances. As a result, in volatile markets, the Fund
may not be able to close out a transaction without incurring losses
substantially greater than the initial deposit. Although the contemplated use of
these instruments should tend to minimize the risk of loss due to a decline in
the
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<PAGE>
value of the hedged position, at the same time they may tend to limit any
potential gain which might result from an increase in the value of such
position.
Successful use of Derivative Transactions by the Fund is subject to the
ability of the Fund's Sub-Adviser to predict correctly movements in the
direction of interest rates and other factors affecting markets for financial
investments. These skills are different from those needed to select portfolio
investments. The Fund believes that the Sub-Adviser possesses the skills
necessary for the successful utilization of hedging and risk management
transactions. If the Sub-Adviser's expectations are not met, the Fund would be
in a worse position than if a Derivative Transaction had not been pursued. For
example, if the Fund hedged against the possibility of an increase in interest
rates which would adversely affect the price of investments in its portfolio and
the price of such investments increased instead, the Fund would lose part or all
of the benefit of the increased value of its investments because it would have
offsetting losses in its futures positions. Losses due to Derivative
Transactions will reduce net asset value.
A detailed discussion of Derivative Transactions, including applicable
requirements of the CFTC, the requirement to segregate assets with respect to
these transactions and special risks associated with such strategies appears as
Appendix B to this Prospectus.
Interest Rate Transactions. The Fund may enter into interest rate swaps and
may purchase interest rate caps, floors and collars and may sell interest rate
caps, floors and collars that it has purchased. The Fund would enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to manage the duration of its portfolio or to
protect against any increase in the price of debt instruments the Fund
anticipates purchasing at a later date.
The Fund may enter into interest rate swaps, caps, floors and collars on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or liabilities. The Fund will not enter into any interest
rate swap, cap, floor or collar transaction unless the Fund's Sub-Adviser deems
the counterparty to be creditworthy at the time of entering into such
transaction. If there is a default by the other party to such a transaction, the
Fund will have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been developed and,
accordingly, they are less liquid than swaps.
Futures Contracts and Options on Futures Contracts. Although the Fund does
not currently intend to do so, the Fund may also enter into (a) contracts for
the purchase or sale for future delivery ("futures contracts") of debt
instruments (including Collateralized Senior Loans), aggregates of financial
instruments, indices based upon the prices thereof and other financial indices
and (b) put or call options on such futures contracts. When the Fund enters into
a futures contract, it must allocate cash or investments as a deposit of initial
margin and thereafter will be required to pay or will be entitled to receive
variation margin in an amount equal to any change in the value of the contract
since the preceding day. If the value of a futures contract the Fund has entered
into moves in an adverse direction from the Fund's position, the Fund could be
obligated to make payments of variation margin at a disadvantageous time and
might be required to liquidate portfolio investments in order to make such
margin payments. Transactions in listed futures contracts and options on futures
contracts are usually settled by entering into an offsetting transaction, and
are subject to the risk that the position may not be able to be closed if no
offsetting transaction can be arranged. Except for transactions for
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<PAGE>
which the sum of the premiums on options contracts and the initial margin for
futures contracts does not exceed 5% of the net liquidation value of the Fund's
assets, the Fund will engage in such transactions only for bona fide hedging
purposes, in each case, in accordance with the rules and regulations of the
CFTC. To the extent that the Fund engages in transactions in futures contracts
or options thereon in order to attempt to achieve the economic equivalent of
floating rate interest payments with respect to fixed rate interest payments on
fixed rate debt securities it holds, such transactions will not be considered to
be undertaken for bona fide hedging purposes.
Put and Call Options on Financial Instruments and Indices of Financial
Instruments. Although the Fund does not currently intend to do so, in order to
reduce interest-rate related fluctuations in net asset value or to seek to
enhance the Fund's income or gain, the Fund may purchase or sell exchange-traded
or over-the-counter put or call options on financial instruments (including
Collateralized Senior Loans) and indices based upon the prices, yields or
spreads of financial instruments. A call option sold by the Fund exposes the
Fund during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying instrument or index and may
require the Fund to hold an instrument which it might otherwise have sold. In
selling put options, the Fund incurs the risk that it may be required to buy the
underlying financial instrument at a price higher than the current market price
of the instrument. In buying put or call options, the Fund is exposed to the
risk that such options may expire worthless.
Segregation and Cover Requirements. Futures contracts, interest rate swaps,
caps, floors and collars, and options on financial instruments, indices and
futures contracts sold by the Fund are generally subject to segregation and
coverage requirements of either the CFTC or the Commission. If the Fund does not
hold the financial instrument or futures contract underlying the instrument, the
Fund will be required to segregate on an ongoing basis with its custodian liquid
assets in an amount at least equal to the current amount of the Fund's
obligations with respect to such instruments in accordance with procedures
established by the Board of Directors. Such amounts fluctuate as the obligations
increase or decrease. The segregation requirement can result in the Fund
maintaining investment positions it would otherwise liquidate or segregating
assets at a time when it might be disadvantageous to do so.
WHEN-ISSUED AND DELAYED DELIVERY FINANCIAL INSTRUMENTS
The Fund may purchase financial instruments (including Collateralized
Senior Loans) on a when-issued or delayed delivery basis. Financial instruments
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 financial instrument on a when-issued or delayed delivery
basis prior to delivery. Such financial instruments are recorded as an asset and
are subject to changes in value based upon changes in the general level of
interest rates. Purchasing a financial instrument 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 financial instruments on a when-issued or delayed delivery basis
with the intention of actually acquiring the instruments but may sell them
before the settlement date if it is deemed advisable. The Fund will establish a
segregated account in which it will maintain liquid assets in an amount at least
equal in value to the Fund's commitments to purchase financial instruments on a
when-issued or delayed delivery basis. If the value of these assets declines,
the Fund will place additional liquid assets in the account on a daily basis so
that the value of the assets in the account is equal to the amount of such
commitments. As an alternative, the Fund may elect to treat when-issued or
delayed delivery instruments as senior
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<PAGE>
Securities representing indebtedness, which are subject to asset coverage
requirements under the 1940 Act.
LOANS OF PORTFOLIO ASSETS
Although the Fund does not currently intend to do so, the Fund may lend
portfolio assets (including Collateralized Senior Loans). By doing so, the Fund
will attempt to increase its income through the receipt of interest on the loan.
In the event of the bankruptcy of the other party to either a financial
instrument loan or a repurchase agreement, the Fund could experience delays in
recovering either the instrument it lent or its cash. To the extent that, in the
meantime, the value of the assets the Fund lent has increased or the value of
the assets it purchased has decreased, the Fund could experience a loss.
The Fund may lend financial instruments from its portfolio if liquid assets
in an amount at least equal to the current market value of the instruments
loaned (including accrued interest thereon) plus the interest payable to the
Fund with respect to the loan is maintained by the Fund in a segregated account.
Any assets that the Fund may receive as collateral will not become a part of its
portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral except
for such part thereof that is an instrument in which the Fund is permitted to
invest. During the time assets are on loan, the borrower will pay the Fund any
accrued income on those assets, and the Fund may invest the cash collateral and
earn additional income or receive an agreed-upon fee from a borrower that has
delivered cash equivalent collateral. Cash collateral received by the Fund will
be invested in financial instruments in which the Fund is permitted to invest.
The value of assets loaned will be marked to market daily. Portfolio investments
purchased with cash collateral are subject to possible depreciation. Loans of
assets by the Fund will be subject to termination at the Fund's or the
borrower's option. The Fund may pay reasonable negotiated fees in connection
with loaned assets, so long as such fees are set forth in a written contract and
approved by the Fund's Board of Directors. The Fund does not currently intend to
make loans of portfolio assets with a value in excess of 33 1/3% of the value of
its total assets.
ILLIQUID OR RESTRICTED FINANCIAL INSTRUMENTS
The Fund may invest without limitation in illiquid financial instruments
(including Collateralized Senior Loans) for which there is a limited trading
market and for which a low trading volume of a particular instrument may result
in abrupt and erratic price movements. The Fund may be unable to dispose of its
holdings in illiquid investments at then current market prices and may have to
dispose of such investments over extended periods of time.
Certain instruments 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 Restricted Securities. In the absence of registration, the Fund
would have to dispose of its Restricted Securities pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), including a transaction in compliance with Rule 144 under the Securities
Act, which permits only limited sales under specified conditions unless the Fund
has held the Restricted Securities for at least two years and is unaffiliated
with the issuer. Companies whose Restricted 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 Restricted Securities.
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<PAGE>
The Fund may purchase certain Restricted Securities ("Rule 144A
Securities") eligible for sale to qualified institutional buyers as contemplated
by Rule 144A under the Securities Act. Rule 144A provides an exemption from the
registration requirements of the Securities Act for the resale of certain
Restricted Securities to certain qualified institutional buyers. One effect of
Rule 144A is that certain Restricted Securities may be liquid, though no
assurance can be given that a liquid market for Rule 144A Securities will
develop or be maintained.
MONEY MARKET INSTRUMENTS
During normal market conditions, the Fund may invest up to 20% of its total
assets (including assets maintained by the Fund as a reserve against any
additional loan commitments) in the following types of money market instruments.
U.S. Government Securities. The Fund may invest in debt obligations of varying
maturities issued or guaranteed by the U.S. government, its agencies or
instrumentalities ("U.S. Government Securities"). Direct obligations of the
U.S. Treasury include a variety of securities that differ in their interest
rates, maturities and dates of issuance. U.S. Government Securities also
include securities issued or guaranteed by the Federal Housing Administration,
Farmers Home Loan Administration, Export-Import Bank of the U.S., Small Business
Administration, Government National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Farm Credit Banks,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage
Association, Maritime Administration, Tennessee Valley Authority, District of
Columbia Armory Board and Student Loan Marketing Association. The Fund may also
invest in instruments that are supported by the right of the issuer to borrow
from the U.S. Treasury and instruments that are supported by the credit of the
instrumentality. The U.S. government is not obligated by law to provide support
to an instrumentality it sponsors.
Repurchase Agreements. In a repurchase agreement, the Fund buys, and the seller
agrees to repurchase, a financial instrument at a mutually agreed upon time and
price (usually within seven days). The repurchase agreement thereby determines
the yield to the Fund (buyer) during the purchaser's holding period, while the
seller's obligation to repurchase is secured by the value of the underlying
financial instruments. The Adviser will monitor the value of the financial
instrument underlying the repurchase agreement at the time the transaction is
entered into and at all times during the term of the repurchase agreement to
ensure that the value of the financial instruments always exceeds the repurchase
price. Repurchase agreements could involve risks in the event of a default or
insolvency of the other party to the agreement, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying instruments.
The Fund may enter into repurchase agreements with certain banks or non-bank
dealers deemed creditworthy by the Adviser.
Bank Obligations. The Fund may purchase certificates of deposit, time deposits,
bankers' acceptances and other short-term obligations issued by domestic banks,
foreign subsidiaries or foreign branches of domestic banks, domestic and foreign
branches of foreign banks, domestic savings and loan associations and other
banking institutions. With respect to such securities issued by foreign
subsidiaries or foreign branches of domestic banks, and domestic and foreign
branches of foreign banks, the Fund may be subject to additional investment
risks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
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Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time (in no event longer than seven days)
at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
Commercial Paper. Commercial paper consists of short-term, unsecured promissory
notes issued to finance short-term credit needs of corporations. The commercial
paper purchased by the Fund will consist only of direct obligations which, at
the time of their purchase, are (a) rated not lower than Prime-1 by Moody's or
A-1 by S&P, (b) issued by companies having an outstanding unsecured debt issue
currently rated at least A3 by Moody's or A- by S&P, or (c) if unrated,
determined by the Adviser to be of comparable quality to those rated obligations
which may be purchased by the Fund.
Other Short-Term Corporate Obligations. These instruments include variable
amount master demand notes, which are obligations that permit the Fund to invest
fluctuating amounts at varying rates of interest pursuant to direct arrangements
between the Fund, as lender, and the borrower. These notes permit daily changes
in the amounts borrowed. Because these obligations are direct lending
arrangements between the lender and borrower, it is not contemplated that such
instruments generally will be traded, and there generally is no established
secondary market for these obligations, although they are redeemable at face
value, plus accrued interest, at any time. Accordingly, where these obligations
are not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies, and the Fund may invest in them only if at the time of
an investment the Adviser determines that such investment is of comparable
quality to those rated obligations which may be purchased by the Fund.
If the Adviser determines that market conditions temporarily warrant a
defensive investment policy, the Fund may invest, subject to its ability to
liquidate its relatively illiquid portfolio of Collateralized Senior Loans, up
to 100% of its assets in money market instruments. The yield on such securities
may be lower than the yield on Collateralized Senior Loans, uncollateralized
senior loans and high risk/lower rated, and other fixed-income securities.
INVESTMENT RESTRICTIONS
The following restrictions, along with the Fund's investment objective, are
the Fund's only fundamental policies--that is, policies that cannot be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities. As used here, "majority of the Fund's outstanding voting
securities" means the lesser of: (i) 67% or more of the voting securities
represented at a meeting at which more than 50% of the outstanding voting
securities are represented, or (ii) more than 50% of the outstanding voting
securities. See "Description of Capital Stock--Preferred Stock" and "Description
of Capital Stock--Special Voting Provisions" for additional information with
respect to the voting rights of holders of preferred stock, if any. The other
policies, practices and investment restrictions referred to in this Prospectus
are not fundamental policies of the Fund and may be changed by the Fund's Board
of Directors without shareholder approval. The percentage restrictions set forth
below, as well as those contained elsewhere in this Prospectus, apply at the
time a transaction is effected, and a subsequent change in a percentage
resulting from market fluctuations or any other cause other than
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<PAGE>
an action by the Fund will not require the Fund to dispose of portfolio
investments or take other action to satisfy the percentage restriction. Under
its fundamental restrictions, the Fund may not:
(1) purchase any investment which would cause more than 25% of the value of its
total assets at the time of such purchase to be invested in financial
instruments of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to investment in (i) Collateralized Senior Loans where the Fund looks to
the credit of a bank, dealer or other financial services company interpositioned
between the Fund and the borrower or acting as Agent, and (ii) investment
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or repurchase agreements collateralized by any of such
obligations;
(2) issue senior securities (including borrowing money or entering into reverse
repurchase agreements) in excess of 33 1/3 % of its total assets (including the
amount of senior securities issued but excluding any liabilities and
indebtedness not constituting senior securities) except that the Fund may borrow
up to an additional 5% of its total assets for temporary purposes, or pledge its
assets other than to secure such issuance or in connection with hedging
transactions, when-issued and delayed delivery transactions and similar
investment strategies;
(3) purchase or sell commodities or commodity contracts, except that the Fund
may engage in Derivative Transactions;
(4) make loans, except that: (1) the Fund may: (a) purchase and hold debt
instruments (including, without limitation, commercial paper notes, bonds,
debentures or other secured or unsecured obligations and certificates of
deposit, bankers' acceptances and fixed time deposits) in accordance with its
investment objective and policies; (b) invest in or purchase Collateralized
Senior Loans in accordance with its Investment Objective and Policies; (c) enter
into repurchase agreements with respect to portfolio investments; (d) make loans
of portfolio assets, provided that collateral arrangements with respect to
options, forward currency and futures transactions will not be deemed to involve
loans; and (2) delays in the settlement of transactions shall not be considered
loans;
(5) underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio investments, it may be deemed to be
an underwriter;
(6) purchase real estate (other than Collateralized Senior Loans or other
financial instruments secured by real estate or interests therein or financial
instruments issued by companies that invest in real estate or interests therein,
including real estate investment trusts); or
(7) invest for the purpose of exercising control over the management of any
company.
Additional investment restrictions adopted by the Fund, which are deemed non-
fundamental and which may be changed by the Board of Directors, provide that the
Fund may not:
(1) purchase shares of other investment companies in an amount exceeding the
limits set forth in the 1940 Act and the rules thereunder except to the extent
permitted by order of the Commission; or
(2) make short sales of financial instruments or purchase financial instruments
on margin (except for delayed delivery or when-issued transactions, such short-
term credits as are necessary for the clearance of transactions and margin
deposits in connection with transactions in futures contracts, options on
futures contracts and options on financial instruments and indices based on the
prices, yields or spreads of financial instruments).
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<PAGE>
MANAGEMENT OF THE FUND
INVESTMENT ADVISER AND SUB-INVESTMENT ADVISER
The Fund has retained MMC, an indirect, wholly-owned subsidiary of
Travelers Group Inc. ("Travelers") as its investment adviser and MMC, in turn,
has retained TAMIC, also a wholly-owned indirect subsidiary of Travelers as the
sub-investment adviser pursuant to separate written agreements. MMC is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended (the "Advisers Act"), and serves as the investment adviser to more
than [ ] registered investment companies and series thereof. MMC managed
assets with a value in excess of $[ ] as of [ ], 1998. MMC is
responsible for the overall management of the Fund's affairs, including
developing a program for the investment and reinvestment of the Fund's assets,
recommending to the Board of Directors of the Fund the appropriate leverage
ratio, consulting with TAMIC concerning hedging strategies that may be employed
and supplying certain officers for the Fund.
TAMIC is registered under the Advisers Act and serves as the
investment adviser to [ ]. TAMIC currently manages assets with a value in excess
of $[5.9] billion as of [ ], 1998. TAMIC officers, including those who will be
primarily responsible for management of the Fund, are also involved in
management of the general accounts of TAMIC's insurance company affiliates. As
of [ ], 1998, those persons managed $[715] million of assets invested in
Collateralized Senior Loans by those affiliates.
Glenn N. Marchak, a certified public accountant, is a Senior Vice
President of the Sub-Adviser and is primarily responsible for the day-to-day
management of the Fund's portfolio, as well as the management of assets of the
Sub-Adviser's insurance company affiliates invested in Collateralized Senior
Loans. Prior to joining TAMIC in 1998, Mr. Marchak was a Managing Director of
Smith Barney Inc. charged with developing and heading that firm's leveraged
lending and loan syndication efforts and previously was a Senior Vice President
and Head of Loan Syndications at National Westminster Bank plc. Prior to that
time, Mr. Marchak was a Vice President at Citibank, N.A. in the Loan
Syndications Department and prior to that the Leveraged Finance Department.
He began his business career in 1980 at Arthur Young & Co. where he was a
Manager in the Audit Department and a founder of that firm's Reorganization and
Insolvency practice.
For its services, pursuant to an investment advisory agreement with the
Fund (the "Advisory Agreement"), MMC receives from the Fund a monthly fee at an
annual rate of .85% of the value of the Fund's average weekly assets out of
which MMC pays TAMIC for its sub-advisory services to the Fund. The Fund's
average weekly assets include the Fund's net assets plus the proceeds of any
outstanding borrowings used for leverage and any proceeds from the issuance of
preferred stock, minus the sum of: (i) accrued liabilities of the Fund (other
than outstanding borrowings), (ii) any accrued and unpaid interest on
outstanding borrowings and (iii) accumulated dividends on shares of preferred
stock. The net assets for each weekly period are determined by averaging the net
assets at the last business day of a week with the net assets at the last
business day of the prior week. The advisory fee is higher than fees paid by
other investment companies although it is comparable to the fees paid by several
publicly offered, closed-end investment companies with investment objectives and
policies similar to those of the Fund. During periods in which the Fund is
utilizing financial leverage, the fee which is payable to MMC as a percentage of
the Fund's net assets will be higher than if the Fund did not utilize a
leveraged capital structure because the fee is calculated as a percentage of the
Fund's total assets, including those purchased with leverage.
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ADMINISTRATOR
MMC is the Fund's administrator. It serves as administrator for [ ]
registered investment companies and portfolios thereof with aggregate assets of
$___ billion, as of [ ], 1998.
As administrator, MMC provides the following services: determination and
publication of the Fund's net asset value, maintenance of the books and records
of the Fund as required under the 1940 Act, assistance in the payment and filing
of the Fund's tax returns, review of and arrangement for the payment of the
Fund's expenses, preparation of certain materials for the Fund's proxy
statements and shareholder reports, preparation of reports to the Commission,
monitoring the performance of all service providers to the Fund, responding to
shareholder inquiries, and assistance with such other services as generally may
be required to properly carry on the business and operations of the Fund.
For its services pursuant to an administration agreement with the Fund (the
"Administration Agreement"), MMC receives from the Fund a monthly fee at the
annual rate of .20% of the value of the Fund's average weekly assets (calculated
using the same methodology as under the Advisory Agreement).
IMPORTANT TERMS OF ADVISORY AND SUB-ADVISORY AGREEMENTS
Unless earlier terminated as described below, the Advisory and Sub-Advisory
Agreements will remain in effect for two years from the date of this Prospectus
and from year to year thereafter if they are approved annually: (i) by a
majority of the non-interested directors of the Fund and (ii) by the Board of
Directors of the Fund or by a majority of the Fund's outstanding voting
securities as defined in the 1940 Act. The Advisory and Sub-Advisory Agreements
may be terminated without penalty on 60 days' written notice by either party
thereto or by a vote of a majority of the Fund's outstanding voting securities
and will terminate in the event of its assignment (as defined in the 1940 Act).
In case of termination or failure to renew the Advisory or Sub-Advisory
Agreements, the Fund's Board of Directors will select a successor investment
adviser. If the Sub-Advisory Agreement should be terminated or not renewed, MMC
could manage the assets alone or it could recommend a new sub-investment adviser
to the Fund's Board of Directors and shareholders.
Except as indicated above, the Advisory, Sub-Advisory and Administration
Agreements provide that the Fund will pay all of its expenses, including,
without limitation, organizational and offering expenses [(which include out-of-
pocket expenses, but not overhead or employee costs of MMC and TAMIC)]; expenses
for legal, accounting and auditing services; taxes and governmental fees; dues
and expenses incurred in connection with membership in investment company
organizations; fees and expenses incurred in connection with listing the Fund's
shares on any stock exchange; costs of printing and distributing shareholder
reports, proxy materials, prospectuses, stock certificates and distribution of
dividends; charges of the Fund's custodians, registrars, transfer agents,
dividend disbursing agents and dividend reinvestment plan agents; payment for
portfolio pricing services to a pricing agent; fees of the Commission; expense
of registering or qualifying securities of the Fund for sale; freight and other
charges in connection with the shipment of the Fund's portfolio investments;
fees and expenses of non-interested directors; costs of shareholders meetings;
insurance; interest; brokerage costs; litigation and other extraordinary or non-
recurring expenses.
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DIRECTORS AND OFFICERS OF THE FUND
The Fund has a Board of Directors composed of six Directors which
supervises the Fund's investment activities and reviews contractual arrangements
with companies that provide the Fund with services. The following lists the
Directors and officers and their positions with the Fund and their present and
principal occupations during the past five years. Mr. McLendon is the sole
Director who is an "interested person" of the Fund (as defined in the Investment
Company Act). Each Director who is not an "interested person" serves on the
Audit Committee of the Board.
The address of each officer of the Fund is 388 Greenwich Street, New York,
New York 10013.
The Directors and officers of the Fund as a group owned beneficially less
than 1% of the total shares of the Fund outstanding as of [ ], 1998.
No officer or employee of the Fund receives any compensation from the Fund
for serving as an officer, employee or Director of the Fund. The Fund pays each
Director who is not a director, officer, or employee of MMC or TAMIC $[ ] per
annum and $[ ] per Board meeting attended and reimburses each Director for
travel and out-of-pocket expenses.
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation from
Aggregate Benefits Annual the Fund Complex
Name and Address of Compensation from Accrued as Part Benefits upon Paid to Board
Board Member Fund of Fund Expenses Retirement Member
- -------------------- ----------------- ---------------- ------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
[ TO COME ]
Commencing with the first annual meeting of shareholders, the Board of
Directors will be divided into three classes, having terms of one, two and three
years, respectively. At the annual meeting of shareholders in each year
thereafter, the term of one class will expire and Directors will be elected to
serve in that class for terms of three years. See "Description of Capital
Stock."
The Articles of Incorporation and By-Laws of the Fund provide that the Fund
will indemnify, to the fullest extent permitted by law, its Directors and
officers and may indemnify employees or agents of the Fund [including MMC and
TAMIC] against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices or relationship with the
Fund. In addition, the Fund's Articles of Incorporation provide that the Fund's
Directors and officers will not be liable to the Fund or its shareholders for
money damages, except in limited instances. However, nothing in the Articles of
Incorporation or By-Laws of the Fund protects or indemnifies a Director,
officer, employee or agent against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
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PORTFOLIO TRANSACTIONS
The Fund has no obligation to deal with any brokers or dealers in the
execution of transactions in portfolio investments. Subject to a policy
established by the Fund's Board of Directors, the Sub-Adviser is primarily
responsible for the Fund's portfolio decisions and the placing of the Fund's
portfolio transactions.
With respect to interests in Collateralized Senior Loans, the Fund
generally will engage in privately negotiated transactions for purchase or sale
in which the Sub-Adviser will act on behalf of the Fund. The Fund may receive
upfront fees as an Original Lender in a Collateralized Senior Loan transaction.
The Fund may receive fees from or pay fees to, or forgo a portion of interest
and any fees payable to the Fund to, the party selling Participations or
Assignments to the Fund. The Sub-Adviser will determine the Agents
from whom the Fund will purchase Collateralized Senior Loans as an Original
Lender and the Lender and other parties from whom the Fund will purchase
Assignments or Participations, by considering their professional ability, level
of service, relationship with the borrower, financial condition, credit
standards and quality of management. See "Investment Objective, Policies and
Portfolio Risks" and "Risk Factors and Special Considerations."
Debt securities (other than Collateralized Senior Loans) normally will be
purchased from or sold to issuers directly or to dealers serving as market
makers for the securities at a net price, which may include dealer spreads and
underwriting commissions. Equity securities, if any, held by the Fund will
normally be sold through brokers to which commissions will be payable. In
placing orders, it is the policy of the Fund to obtain the best results taking
into account the general execution and operational facilities of the broker or
dealer, the type of transaction involved and other factors such as the risk of
the dealer in positioning the securities involved. While the Sub-Adviser
generally seeks the best price in placing its orders, the Fund may not
necessarily be paying the lowest price available. Subject to obtaining the best
price and execution, securities firms which provide supplemental research to the
Sub-Adviser may receive orders for transactions by the Fund. Information so
received will be in addition to and not in lieu of the services required to be
performed by the Sub-Adviser under the Sub-Advisory Agreement, and the Sub-
Adviser's expenses will not necessarily be reduced as a result of the receipt of
such supplemental information.
The Fund anticipates that, in connection with the execution of portfolio
transactions on its behalf, certain Underwriters may from time to time act as a
broker or dealer. In addition, affiliated persons (as such term is defined in
the 1940 Act) of the Fund, or affiliated persons of such persons, may from time
to time be selected to perform brokerage services for the Fund, subject to the
considerations discussed above, but are prohibited by the 1940 Act from dealing
with the Fund as principal in the purchase or sale of securities or acting as
Agent in connection with the negotiation, arranging or on-going administration
of Collateralized Senior Loans. In order for such an affiliated person to be
permitted to effect any portfolio transactions for the Fund, the commissions,
fees or other remuneration received by such affiliated person must be reasonable
and fair compared to the commissions, fees or other remuneration received by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time. This standard would allow such an affiliated person to receive
no more than the remuneration which would be expected to be received by an
unaffiliated broker in a commensurate arm's-length transaction. The Fund is
prohibited by the 1940 Act from purchasing securities in primary offerings in
which an affiliate acts as an underwriter unless certain conditions established
under the 1940 Act are satisfied.
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<PAGE>
Investment decisions for the Fund are made independently from those for
other funds and accounts advised or managed by the Adviser or Sub-Adviser or
companies affiliated with the Adviser or Sub-Adviser, including proprietary
accounts of such companies. Such other funds and accounts may or may not also
invest in the same financial instruments (including Collateralized Senior Loans)
as the Fund. If those funds or accounts are prepared to invest in, or desire to
dispose of, the same financial instrument at the same time as the Fund, however,
transactions in such financial instruments will be made, insofar as feasible,
for the respective funds and accounts in a manner deemed by the Sub-Adviser to
be equitable to all. In some cases, this procedure may adversely affect the size
of the position obtained for or disposed of by the Fund or the price paid or
received by the Fund. In addition, because of different investment objectives, a
particular financial instrument may be purchased for one or more funds or
accounts when one or more funds or accounts are selling the same financial
instrument.
Although the Advisory and Sub-Advisory Agreements contain no restrictions
on portfolio turnover, it is not the Fund's policy to engage in transactions
with the objective of seeking profits from short-term trading. It is expected
that the annual portfolio turnover rate of the Fund will not exceed 100%. The
portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of portfolio investments by the average monthly value of the Fund's
portfolio investments. For purposes of this calculation, portfolio investments
exclude all financial instruments having a stated maturity when purchased of one
year or less.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
Beginning with its initial distribution approximately 60 days after
completion of this offering, it is the Fund's present policy, which may be
changed by the Board of Directors, to make regular monthly cash distributions to
holders of Common Stock of substantially all net investment income of the Fund
(i.e., net investment income remaining after the payment of any dividends on
preferred stock, if any such stock is outstanding) for that period and to
distribute any net gain at least annually. Distributions to holders of Common
Stock cannot be assured and the amount of each monthly distribution is likely to
vary.
Pursuant to the Plan, shareholders whose Common Stock is registered in
their own names will be deemed to have elected to have all distributions
reinvested automatically in additional Common Stock of the Fund by First Data
Investor Services Group, Inc. (the "Plan Agent") as agent under the Plan, unless
such shareholders elect to receive distributions in cash. Shareholders who elect
to receive distributions in cash will receive all distributions in cash paid by
check in U.S. dollars mailed directly to the shareholder by First Data Investor
Services Group, Inc., as dividend paying agent. In the case of shareholders such
as banks, brokers or nominees, which hold Common Stock for others who are the
beneficial owners, the Plan Agent will administer the Plan on the basis of the
number of shares of Common Stock 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 that have not
elected to receive distributions in cash. Investors that own shares of Common
Stock registered in the name of a bank, broker or other nominee should consult
with such nominee as to participation in the Plan through such nominee, and may
be required to have their shares registered in their own names in order to
participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the
Plan. Unless the Board of Directors of the Fund declares a dividend or capital
gains distribution payable only in cash, non-participants in the Plan will
receive cash and participants in the Plan will receive shares of
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Common Stock of the Fund, to be issued by the Fund or purchased by the Plan
Agent in the open market as outlined below. Whenever market price per share of
Common Stock is equal to or exceeds net asset value per share as of the
determination date (defined as the fourth New York Stock Exchange trading day
preceding the payment date for the dividend or distribution), participants will
be issued new shares of Common Stock at a price per share equal to the greater
of: (a) the net asset value per share on the valuation date or (b) 95% of the
market price per share on the valuation date. Except as noted below, the
valuation date generally will be the dividend or distribution payment date. The
Fund will not issue shares under the Plan at a price below net asset value. If
net asset value exceeds the market price of the Fund's shares of Common Stock as
of the determination date, the Plan Agent will, as agent for the participants,
buy shares in the open market, on the New York Stock Exchange or elsewhere, for
the participants' accounts as soon as practicable commencing on the trading day
following the determination date and generally terminating no later than 30 days
after the dividend or distribution payment date. If, before the Plan Agent has
completed its purchases, the market price exceeds the net asset value of a share
of Common Stock, 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 or capital gains distribution had been paid in
shares of Common Stock issued by the Fund. 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
permissible purchase period or if the market discount shifts to a market premium
during such purchase period, the Plan Agent will cease making open-market
purchases and will receive the uninvested portion of the dividend amount in
newly issued shares of Common Stock (in which case the valuation date will be
the date such shares are issued) at a price per share equal to the greater of
(a) the net asset value per share on the valuation date or (b) 95% of the market
price per share on the valuation date.
A shareholder may elect to withdraw from the Plan at any time upon written
notice to the Plan Agent or by calling the Plan Agent at 1-800-[ ]. When
a participant withdraws from the Plan, or upon termination of the Plan as
provided below, certificates for whole shares of Common Stock credited to his or
her account under the Plan will be issued and a cash payment will be made for
any fractional shares credited to such account. An election to withdraw from the
Plan will, until such election is changed, be deemed to be an election by a
shareholder to take all subsequent dividends and distributions in cash.
Elections will be effective immediately if notice is received by the Plan Agent
not less than ten days prior to any dividend or distribution record date;
otherwise such termination will be effective after the investment of the then
current dividend or distribution. If a withdrawing shareholder requests the Plan
Agent to sell the shareholder's shares upon withdrawal from participation in the
Plan, the withdrawing shareholder will be required to pay a $2.50 fee plus
brokerage commissions.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in noncertificated form in
the name of the participant, and each shareholder's proxy will include those
shares of Common Stock purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fee for the handling of reinvestment of
dividends and distributions will be paid by the Fund. There will be no brokerage
charges with respect to shares of Common Stock 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
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<PAGE>
the Plan Agent's open market purchases in connection with the reinvestment of
dividends or capital gains distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any U.S. federal income tax that may be payable on such
dividends or distributions.
Experience under the Plan may indicate that changes thereto may be
desirable. Accordingly, the Fund reserves the right to amend or terminate the
Plan as applied to any dividend or distribution paid: (i) subsequent to notice
of the change sent to all participants at least 30 days before the record date
for such dividend or distribution or (ii) otherwise in accordance with the terms
of the Plan. The Plan also may be amended or terminated by the Plan Agent, with
the Board of Directors' prior written consent, on at least 30 days' prior
written notice to all participants. All correspondence concerning the Plan
should be directed to the Plan Agent at P.O. Box [ ], Boston, Massachusetts
02266-8030.
TAXATION
The following federal income tax discussion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing Treasury
regulations, rulings published by the Internal Revenue Service (the "IRS"), and
other applicable authority, as of the date of this Prospectus. These
authorities are subject to change by legislative or administrative action. The
following discussion is only a summary of some of the important tax
considerations generally applicable to investments in the Fund. There may be
other tax considerations applicable to particular investors. In addition,
income earned through an investment in the Fund may be subject to state and
local taxes. Prospective shareholders are therefore urged to consult their tax
advisers with respect to the tax consequences of an investment in the Fund.
TAXATION OF THE FUND
The Fund intends to elect and to qualify each year to be treated as a
regulated investment company under Subchapter M of the Code. In order to so
qualify, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to certain securities
loans, and gains from the sale of stock, securities and foreign currencies, or
other income (including but not limited to 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 (i) at least 50% of the market value of the Fund's
assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies, and other securities,
limited in respect of any one issuer to a value not greater than 5% of the value
of the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities (other than those of the U.S. Government or other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades or
businesses. If the Fund so qualifies as a regulated investment company and
distributes each year to its shareholders at least 90% of its net investment
income (i.e., the Fund's investment company taxable income, as that term is
defined in the Code, without regard to the deduction for dividends paid), the
Fund will not be required to pay federal income taxes on any net investment
income and net capital gain (i.e., the excess of the Fund's net long-term
capital gain over net short-term capital loss) distributed to shareholders. The
Fund would be subject to corporate income tax (currently at a maximum rate of
35%) on any undistributed net investment income and net capital gain. If the
Fund failed to qualify as a regulated investment company or failed to satisfy
the 90% distribution requirement in any taxable year, the Fund
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<PAGE>
would be taxed as an ordinary corporation on its taxable income and all
distributions out of earnings and profits would be taxed to shareholders as
ordinary income.
In addition, the Fund will be subject to a nondeductible 4% excise tax on
the amount by which the aggregate income it distributes in any calendar year is
less than the sum of (a) 98% of the Fund's ordinary income for such calendar
year; (b) 98% of the Funds capital gain net income for the one-year period
generally ending on October 31; and (c) 100% of the undistributed ordinary
income and capital gain net income from prior years. For this purpose, any
income or gain retained by the Fund and subject to corporate income tax will be
considered to have been distributed by year-end.
Any dividend declared by the Fund in October, November or December of any
calendar year and payable to shareholders of record on a specified date in such
a month shall be deemed to have been received by each such shareholder on
December 31 of such calendar year and to have been paid by the Fund not later
than such December 31, provided that such dividend is actually paid by the Fund
to such shareholders during January of the following calendar year.
Although it does not currently intend to do so, the Fund may engage in
certain transactions, including derivative transactions, that will be subject to
special provisions of the Code that, among other things, may affect the
character of gain and loss realized by the Fund (that is, may affect whether
gain or loss is ordinary or capital), accelerate recognition of income to the
Fund, affect the holding period of the Fund's assets and defer recognition of
certain of the Fund's losses. These rules could therefore affect the character,
amount and timing of distributions to shareholders. In addition, these
provisions (1) may require the Fund to mark to market certain types of positions
in its portfolio (that is, treat them as if they were closed out at the end of
each taxable year) and (2) may cause the Fund to recognize income or gain
without receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding
corporate income and excise tax. The Fund intends to monitor its transactions,
will make the appropriate tax elections and will make the appropriate entries in
its books and records when it acquires any forward contract, option, futures
contract, or hedged investment in order to mitigate the effect of these rules
and prevent disqualification of the Fund as a regulated investment company.
TAXATION OF SHAREHOLDERS
Distributions of the Fund's net investment income are taxable to
shareholders as ordinary income, whether paid in cash or reinvested in
additional shares. Distributions of the Fund's net capital gain that are
designated by the fund as "capital gain dividends", if any, are taxable to
shareholders at the rates applicable to long-term capital gains regardless of
the length of time shares of the Fund have been held by such shareholders. The
Fund will inform shareholders of the source and tax status of all distributions
promptly after the close of each calendar year.
Shareholders receiving dividends or distributions in the form of additional
shares pursuant to the Plan (either from the Fund or as a result of purchases by
the Plan Agent) should be treated for United States federal income tax purposes
as receiving a dividend or distribution in an amount equal to the amount of
money that a shareholder receiving cash dividends or distributions will receive,
and should have a cost basis in the shares received equal to such amount.
Except as discussed below, selling shareholders will generally recognize
gain or loss in an amount equal to the difference between their adjusted tax
basis in the shares and the amount received. If such shares are held as a
capital asset, the gain or loss will be a capital gain or loss. Any loss
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realized on the sale or exchange will be disallowed to the extent the shares
disposed of are replaced 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. Any loss
realized by a shareholder on the sale of a share of shares held for six months
or less will be treated for federal income tax purposes as a long-term capital
loss to the extent of any actual or deemed capital gain dividends received by
the shareholder with respect to such share.
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividends and redemption proceeds paid to non-
corporate shareholders. This tax may be withheld from dividends if (i) the
shareholder fails to furnish the Fund with its correct taxpayer identification
number, (ii) the IRS notifies the Fund that the shareholder has failed to
properly report certain interest and dividend income to the IRS and to respond
to notices to that effect or (iii) when required to do so, the shareholder fails
to certify that he or she is not subject to backup withholding. Redemption
proceeds may be subject to withholding under the circumstances described in (i)
above.
The Fund must report annually to the IRS and to each shareholder the amount
of dividends paid to such shareholder and the amount, if any, of tax withheld
pursuant to the backup withholding rules with respect to such dividends.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund's Common Stock is determined no
less frequently than weekly, generally on the last business day of the week, and
at such other times as the Board of Directors may determine, by calculating the
total value of the Fund's assets, deducting its total liabilities and the
liquidation value of the Fund's outstanding preferred shares (without giving
effect to any potential redemption premium with respect to such preferred
shares), and dividing the result by the number of shares of Common Stock
outstanding.
Where possible, Collateralized Senior Loans will be valued at market value
by the Administrator, with assistance from an independent pricing service
retained at the Fund's expense. The Administrator may rely on actual
transactions, quotations from market makers and other facts and circumstances
relevant to the determination of market value. However, as an active secondary
market for Collateralized Senior Loans generally does not exist to a reliable
degree in the opinion of the Sub-Adviser, interests in Collateralized Senior
Loans frequently will be valued at fair value in accordance with guidelines
established by the Board of Directors. Fair value is intended to approximate
market value. In valuing a Collateralized Senior Loan at fair value, the
Administrator, with assistance from the Sub-Adviser may consider, among other
factors, some or all of the following: (i) the creditworthiness of the borrower
and any party interpositioned between the Fund and the borrower, (ii) the
current interest rate, the period until next interest rate reset and maturity of
the Collateralized Senior Loan, (iii) recent market prices for similar
Collateralized Senior Loans, if any, (iv) recent market prices for publicly
traded debt and/or equity issues, if any, of the borrower, (v) recent market
prices for instruments of similar quality, rate, period until next interest rate
reset and maturity, and (vi) the expected recovery
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value of a Collateralized Senior Loan if the borrower is in default of a
material covenant or not paying interest and/or principal on a timely basis. In
addition, in valuing Collateralized Senior Loans, the Administrator and Sub-
Adviser may consider to the extent they consider such information to be
reliable, prices or quotations provided by banks, dealers or pricing services
which may represent the prices at which secondary market transactions in the
Collateralized Senior Loans held by the Fund have or could have occurred.
However, because the secondary market for such Collateralized Senior Loans has
not yet fully developed, the Administrator and Sub-Adviser will not currently
rely solely on such prices or quotations when determining the fair value of a
Collateralized Senior Loan.
Uncollateralized senior loans will be valued in accordance with the
guidelines for Collateralized Senior Loans described above.
Fund assets, other than Collateralized (and uncollateralized) Senior Loans,
for which market quotations are readily available are valued (i) at the last
sale price prior to the time of determination if there was a sales price on the
date of determination, (ii) at the mean between the last current bid and asked
prices if there was no sales price on such date and bid and asked quotations are
available, and (iii) at the bid price if there was no sales price on such date
and only bid quotations are available.
Short-term investments having a maturity of 60 days or less are valued at
amortized cost, unless the Board of Directors determines that such valuation
does not constitute fair value.
Securities for which reliable quotations or pricing services are not
readily available and all other securities and assets are valued at fair value
as determined in good faith by, or under procedures established by, the Board of
Directors.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The authorized capital stock of the Fund is 150,000,000 shares of Common
Stock ($.001 par value per share). The Common Stock of the Fund, when issued,
will be fully paid and nonassessable. All shares of Common Stock are equal as to
dividends, distributions and voting privileges. There are no conversion,
preemptive or other subscription rights. In the event of liquidation, each share
of Common Stock is entitled to its proportion of the Fund's assets after debts
and expenses subject to the rights of any preferred stock. There are no
cumulative voting rights for the election of directors. Prior to the offering,
the Adviser or an affiliated company will own 100% of the outstanding shares of
Common Stock of the Fund and, consequently, will be a controlling person of the
Fund until the shares offered hereby are issued and sold. The Fund will hold
annual meetings of shareholders.
The Fund has no present intention of offering additional shares of its
Common Stock, except as provided in the Plan as discussed above. Other offerings
of its Common Stock, if made, will require approval of the Fund's Board of
Directors. Any additional offering will be subject to the requirements of the
1940 Act that shares of Common Stock may not be sold at a price below the then
current net asset value (exclusive of underwriting discounts and commissions)
except in connection with an offering to existing shareholders or with the
consent of a majority of the Fund's outstanding voting shares of Common Stock as
defined in the 1940 Act.
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PREFERRED STOCK
The Fund's Articles of Incorporation provide that the Board of Directors
may classify or reclassify any unissued shares of capital stock into one or more
additional or other classes or series, with rights as determined by the Board of
Directors, by action by the Board of Directors without the approval of the
holders of Common Stock. Holders of Common Stock have no preemptive right to
purchase any shares of preferred stock that might be issued.
The terms of any preferred stock, including its dividend rate, liquidation
preference and redemption provisions will be determined by the Board of
Directors (subject to applicable law and the Fund's Articles of Incorporation).
The Fund believes that it is likely that the liquidation preference, voting
rights and redemption provisions of any preferred stock will be similar to those
stated below.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of preferred
stock will be entitled to receive a preferential liquidating distribution
(expected to equal the original purchase price per share plus accrued and unpaid
dividends, whether or not declared) before any distribution of assets is made to
holders of Common Stock. After payment of the full amount of the liquidating
distribution to which they are entitled, the preferred shareholders will not be
entitled to any further participation in any distribution of assets by the Fund.
A consolidation or merger of the Fund with or into any corporation or
corporations or a sale of all or substantially all assets of the Fund will not
be deemed to be a liquidation, dissolution or winding upon of the Fund.
Voting Rights. The 1940 Act requires that the holders of any preferred
stock, voting separately as a single class, have the right to elect at least two
directors at all times and, subject to the prior rights, if any, of the holders
of any other class of senior securities outstanding, to elect a majority of the
directors at any time dividends on any preferred shares are unpaid for a period
of two years. The 1940 Act also requires that, in addition to any approval by
shareholders that might otherwise be required, the approval of the holders of a
majority, as defined in the 1940 Act, of any outstanding preferred shares,
voting separately as a class, would be required to: (a) adopt any plan of
reorganization that would adversely affect the preferred shares and (b) take any
action requiring a vote of security holders pursuant to Section 13(a) of the
1940 Act, including, among other things, changes in the Fund's subclassification
as a closed-end investment company to an open-end investment company or changes
in its fundamental investment restrictions. See "--Special Voting Provisions"
concerning voting requirements for conversion of the Fund to an open-end
investment company and other matters. As a result of these voting rights, the
Fund's ability to take any such actions may be impeded to the extent there is
any preferred stock outstanding at such time. In addition, in the discretion of
the Board of Directors, subject to the 1940 Act, the terms of any preferred
stock may also require a vote of up to 75% of the preferred stock, voting
separately as a class, regarding certain transactions involving a merger or sale
of assets or conversion of the Fund to open-end status and other matters. The
Board of Directors presently intends that, except for the matters discussed in
this Prospectus and as otherwise required by applicable law, holders of shares
of preferred stock will have equal voting rights with holders of Common Stock
(one vote per share, unless otherwise required by the 1940 Act), and will vote
together with holders of Common Stock as a single class.
It is presently intended that in connection with the election of the Fund's
directors, on and after issuance of any preferred stock, the holders of all
outstanding shares of preferred stock, voting as a separate class, would be
entitled to elect two directors of the Fund, and the remaining directors would
be elected by holders of Common Stock and preferred stock, voting together as a
single class. The
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Fund's By-Laws provide that the Board of Directors shall consist of no more than
12 directors, as may be determined from time to time by vote of a majority of
directors then in office. Under the 1940 Act, if at any time dividends on the
Fund's preferred stock are unpaid in an amount equal to two full years'
dividends, the holders of all outstanding preferred stock, voting as a class,
will be entitled to elect a majority of the Fund's directors until all dividends
in default have been paid or declared and set apart for payment.
The affirmative vote of the holders of a majority of the outstanding shares
of preferred stock, voting as a separate class, will be required to amend, alter
or repeal any of the preferences, rights or powers of holders of shares of
preferred stock so as to affect materially and adversely such preferences,
rights, or powers. The class vote of holders of preferred stock described above
will in each case be in addition to any other vote required to authorize the
action in question.
Redemption, Purchase and Sale of Preferred Stock by the Fund. Any
redemption or purchase of shares of preferred stock by the Fund will reduce the
leverage applicable to shares of Common Stock, while any resale of such shares
of preferred stock by the Fund will increase such leverage. See "Additional
Investment Activities--Leverage."
The discussion above describes the present intention of the Board of
Directors with respect to an offering of preferred stock if the Board or
Directors elects to utilize preferred stock in order to leverage the Fund's
Common Stock. If the Board of Directors determines to proceed with such an
offering, the terms of the preferred stock may be the same as, or different
from, the terms described above, subject to applicable law and the Fund's
Articles of Incorporation. The Board of Directors, without the approval of the
holders of Common Stock, may authorize an offering of preferred stock or may
determine not to authorize such an offering, and may fix the terms of the
preferred stock to be offered.
SPECIAL VOTING PROVISIONS
The Fund has provisions in its Articles of Incorporation and By-Laws that
could have the effect of limiting the ability of other entities or persons to
acquire control of the Fund, to cause it to engage in certain transactions or to
modify its structure. Commencing with the first annual meeting of shareholders,
the Board of Directors will be divided into three classes, having initial terms
of one, two and three years, respectively. At the annual meeting of shareholders
in each year thereafter, the term of one class will expire and directors will be
elected to serve in that class for terms of three years. This provision could
delay for up to two years the replacement of a majority of the Board of
Directors. A director may be removed from office by the stockholders, but only
for cause and only by a vote of the holders of at least 75% of the votes
entitled to be cast in an election to fill that directorship.
The class voting requirements for preferred stock could make it more
difficult for the Fund to take certain actions that may be proposed in the
future, such as a merger, exchange of securities, liquidation or
alteration of the rights of a class of the Fund's securities, changing the
Fund to an open-end company or ceasing to be an investment company. The Board of
Directors would be able to include redemption features in any series of
preferred stock that might be issued in the future that would enable the Fund to
redeem the preferred stock if it appeared to stand in the way of actions that
the Board of Directors concluded, at the time of issuing the preferred stock,
might therefore be of significance to the holders of Common Stock.
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The affirmative vote of at least 75% of the entire Board of Directors is
required to authorize the conversion of the Fund from a closed end to an open-
end investment company. Such conversion also requires the affirmative vote of
the holders of at least 75% of the votes entitled to be cast thereon by the
shareholders of the Fund unless it is approved by a vote of at least 75% of the
Continuing Directors (as defined below), in which event such conversion requires
the approval of the holders of a majority of the votes entitled to be cast
thereon by the shareholders of the Fund. A "Continuing Director" is any member
of the Board of Directors of the Fund who:(i) is not a person or affiliate of a
person (excluding investment companies advised by the Fund's initial investment
adviser or any of its affiliates) who enters or proposes to enter into a
Business Combination (as defined below) with the Fund (an "Interested Party")
and (ii) who has been a member of the Board of Directors of the Fund for a
period of at least 12 months, or has been a member of the Board of Directors
since [ ], 1998, or is a successor of a Continuing Director who is
unaffiliated with an Interested Party and is recommended to succeed a Continuing
Director by a majority of the Continuing Directors then on the Board of
Directors of the Fund. The affirmative vote of at least 75% of the votes
entitled to be cast thereon by shareholders of the Fund and the affirmative vote
of at least 75% of the Continuing Directors, as defined above, will be required
to amend the Articles of Incorporation to change any of the provisions in this
paragraph and certain other provisions described in this section.
The affirmative vote of at least 75% of the entire Board of Directors and
the holders of at least: (i) 80% of the votes entitled to be cast thereon by the
shareholders of the Fund in the case of (iv) and (v) below and (ii) in the case
of a Business Combination (as defined below), 66 2/3% of the votes entitled to
be cast thereon by the shareholders of the Fund, including at least 66 2/3% of
the votes entitled to be cast thereon other than votes held by an Interested
Party who is (or whose affiliate is) a party to a Business Combination (as
defined below) or an affiliate or associate of the Interested Party, are
required to authorize any of the following transactions:
(i) merger, consolidation or statutory share exchange of the Fund with or into
any other person;
(ii) issuance or transfer by the Fund (in one or a series of transactions in any
12-month period) of any securities of the Fund to any person or entity for cash,
securities or other property (or combination thereof) having an aggregate fair
market value of $1,000,000 or more, excluding sales of debt securities of the
Fund in a public or private offering, sales of other securities of the Fund in
connection with a public offering, issuances of securities of the Fund pursuant
to a dividend reinvestment plan adopted by the Fund, issuances of securities of
the Fund upon the exercise of any stock subscription rights distributed by the
Fund and portfolio transactions effected by the Fund in the ordinary course of
business;
(iii) sale, lease, exchange, mortgage, pledge, transfer or other disposition
by the Fund (in one or a series of transactions in any 12 month period) to or
with any person or entity of any assets of the Fund having an aggregate fair
market value of $1,000,000 or more except for portfolio transactions (including
pledges of portfolio assets in connection with borrowings and debt securities)
effected by the Fund in the ordinary course of its business (transactions within
clauses (i), (ii) and (iii) above being known individually as a "Business
Combination");
(iv) any voluntary liquidation or dissolution of the Fund or an amendment to the
Fund's Articles of Incorporation to terminate the Fund's existence; or
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(v) unless the 1940 Act or federal law requires a lesser vote, any shareholder
proposal as to specific investment decisions made or to be made with respect to
the Fund's assets as to which shareholder approval is required under federal or
Maryland law, including a change in investment objective.
However, the voting requirements described above will not be required with
respect to a Business Combination if it is approved by a vote of at least 75% of
the Continuing Directors, or certain pricing and other conditions specified in
the Articles of Incorporation are met. In such cases, depending upon whether a
shareholder vote would be required under Maryland law without regard to the
provisions of the Articles of Incorporation, either (i) a majority of the votes
entitled to be cast by the shareholders will be sufficient to authorize the
transaction, or (ii) no shareholder vote will be required. Further, with
respect to a transaction described in (iv) above, if it is approved by a vote of
least 75% of the Continuing Directors, a majority of the votes entitled to be
cast by the shareholders will be sufficient to authorize the transaction.
The Fund's By-Laws contain provisions the effect of which is to prevent
matters initiated by shareholders, including nominations of directors, from
being considered at a shareholders' meeting where the Fund has not received
notice of the matters generally at least 60 but no more than 90 days prior to
the date of the meeting. Further, in order for the shareholders of the Fund to
call a special meeting, the By-Laws require that shareholders holding at least
40% of the votes required to be cast at the meeting make a request in writing to
the Secretary of the Fund. Shareholders would also be responsible for certain
costs (i.e. mailing of notice) associated with any such meeting.
----
The Board of Directors has determined that the foregoing voting
requirements, which are generally greater than the minimum requirements under
Maryland law and the 1940 Act, are in the best interest of the Fund's
shareholders generally.
Reference is made to the Articles of Incorporation and By-Laws of the Fund,
on file with the Commission, for the full text of these provisions. See "--
Further Information." These provisions 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 in a tender offer or similar transaction. In the opinion of MMC,
however, these provisions offer several possible advantages. They may require
persons seeking control of the Fund to negotiate with its management regarding
the price to be paid for the shares required to obtain such control, they
promote continuity and stability and they enhance the Fund's ability to pursue
long-term strategies that are consistent with its investment objectives.
CUSTODIAN, TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
PNC Bank, N.A. located at 17th and Chestnut, Philadelphia, Pennsylvania
19103, will act as custodian for the Fund's assets. First Data Investor Services
Group, Inc., P.O. Box 5127, Westborough, Massachusetts 01581-5127, will act as
the transfer agent, dividend paying agent and registrar for the Fund's Common
Stock.
UNDERWRITING
The Underwriters named herein, for whom Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013 is acting as Representative (the
"Representative"), have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement among the Fund, and the
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Adviser and the several Underwriters (the "Underwriting Agreement"), to purchase
from the Fund the number of shares of Common Stock set forth below opposite
their respective names.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
<S> <C>
Smith Barney Inc.
[others to come]
Total
</TABLE>
The Representative has informed the Fund that the Underwriters do not intend to
confirm shares of Common Stock to any accounts over which they exercise
discretionary authority.
The Underwriters, through their Representative, have advised the Fund that
they propose to offer the shares of Common Stock initially at the public
offering price set forth on the cover page of this Prospectus. There is no sale
charge or underwriting discount charged to investors on purchases of shares of
Common Stock in the offering. MMC, TAMIC or an affiliate of either has agreed to
pay the Underwriters from its/their own assets a commission in connection with
the sale of shares of Common Stock in the offering in the amount of $[0.xx] per
share. Such payment is equal to 4.00% of the initial public offering price per
share. The Underwriters reserve the right to reject orders in whole or in part.
After the initial offering of the Common Stock to the public, the offering price
and other selling terms may be changed by the Representative. The Fund is
obligated to sell, and the Underwriters are obligated to purchase, all of the
shares of Common Stock offered hereby (other than shares covered by the over-
allotment option described below) if any are sold. Investors must pay for any
shares of Common Stock purchased on or before [ ], 1998.
The Fund has granted to the Underwriters an option, exercisable within [ ]
days of this Prospectus, to purchase up to [ ] additional shares of Common
Stock at the same price to public as set forth on the cover page of this
Prospectus. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, incurred in the sale of the shares of Common
Stock offered hereby. To the extent the Underwriters exercise such option, each
of the Underwriters will be obligated, subject to certain conditions, to
purchase the same proportion of such additional shares as the number of shares
set forth opposite such Underwriter's name in the preceding table bears to the
total number of shares set forth in such table.
The Fund, the Adviser and the Sub-Adviser have each agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
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The Fund has agreed to pay the Underwriters $[ ] as partial
reimbursement of expenses incurred in connection with the offering.
In connection with the requirements for listing the Fund's shares of Common
Stock on the New York Stock Exchange ("NYSE"), the Underwriters have undertaken
to sell lots of 100 or more shares of Common Stock to a minimum of 2,000
beneficial owners in the United States. The minimum investment requirement is
100 shares of Common Stock ($1,500.00).
Prior to the offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price has been determined by
negotiation between the Fund, the Adviser and the Representative. The Common
Stock has been approved for listing on the NYSE subject to official notice of
issuance. Smith Barney Inc. intends to make a market in the Common Stock after
trading in the Common Stock has commenced on the NYSE. Smith Barney Inc.,
however, is not obligated to conduct market-making activities and any such
activities may be discontinued at any time without notice, at the sole
discretion of Smith Barney Inc. No assurance can be given as to the liquidity
of, or the trading market for, the Common Stock as a result of any market-making
activities undertaken by Smith Barney Inc. This Prospectus, as amended from
time-to-time in accordance with rules adopted by the Commission, is to be used
by Smith Barney Inc. in connection with this offering and with offers and sales
of the Common Stock in market-making transactions in the over-the- counter
market at negotiated prices related to prevailing market prices at the time of
the sale.
The Underwriters have advised the Fund that, pursuant to Regulation M under
the Securities Exchange Act of 1934, certain persons participating in the
offering may engage in transactions, including stabilizing bids, covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of an Underwriter for the
purpose of fixing or maintaining the price of the Common Stock. A "covering
transaction" is a bid for or purchase of the Common Stock on behalf of an
Underwriter to reduce a short position incurred by the Underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting an
Underwriter to reclaim the selling concession otherwise accruing to the
Underwriters in connection with the offering if any of the Common Stock
originally sold by the Underwriters is purchased in a covering transaction and
has therefore not been effectively placed by the Underwriters. The Underwriters
have advised the Fund that such transactions may be effected on the NYSE or
otherwise and, if commenced, may be discontinued at any time.
The Underwriting Agreement provides that it may be terminated in the
absolute discretion of the Representative without liability on the part of any
Underwriter to the Fund, MMC or TAMIC if, prior to delivery of and payment for
the shares of Common Stock: (i) trading in the Fund's Common Stock shall have
been suspended by the Commission or the NYSE or trading in securities generally
on the NYSE shall have been suspended or limited or minimum prices shall have
been established on the NYSE, (ii) a banking moratorium shall have been declared
either by Federal or New York State authorities, or (iii) there shall have
occurred any outbreak or escalation of hostilities, declaration by the United
States of a national emergency or war or other calamity or crisis the effect of
which on financial markets is such as to make it, in the judgment of the
Representative, impracticable or inadvisable to proceed with the offering or
delivery of the securities as contemplated by this Prospectus (exclusive of any
supplement thereto).
The Underwriters may take certain actions to discourage short-term trading
of Common Stock during a period of time following the initial offering date.
Included in these actions is the withholding
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of the concession and payments to Underwriters and dealers in connection with
Common Stock which were sold by such Underwriters and dealers and which are
repurchased for the account of the Underwriters during such period.
The Fund anticipates that, from time to time, the Representative of the
Underwriters and certain other Underwriters may act as brokers or dealers in
connection with the execution of the Fund's portfolio transactions after they
have ceased to be Underwriters and, subject to certain restrictions, may act as
brokers while they are Underwriters.
Except as provided in the Plan as discussed above, 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 this Prospectus, without the prior written consent of Smith
Barney Inc.
MMC, TAMIC and Smith Barney Inc. are each wholly-owned, indirect
subsidiaries of Travelers Group Inc.
EXPERTS
The financial statement of the Fund included in this Prospectus has been so
included in reliance on the report of KPMG Peat Marwick LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed on
for the Fund by Willkie Farr & Gallagher, New York, New York and certain legal
matters in connection with the offering of the shares of Common Stock 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.
FURTHER INFORMATION
Prior to the registration statement becoming effective, the Underwriters or
other appropriate parties may have distributed advertising or other solicitation
material which discusses: (i) economic and market conditions and trends
generally; (ii) historical and current conditions and trends in the
Collateralized Senior Loan market and risk and reward potential in such market;
(iii) comparative information, including statistical analysis and performance-
related information, related to Collateralized Senior Loans generally and
investing in Collateralized Senior Loans; (iv) the special considerations and
potential benefits of investing in closed-end management investment companies
and (v) information about MMC, TAMIC and the Fund's portfolio manager, including
honors or awards received and information and commentary on investment strategy
or other matters of general interest to investors.
Further information concerning these securities and their issuer may be found in
the Registration Statement, of which this Prospectus constitutes a part, on file
with the Commission.
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APPENDIX A - RATINGS OF CORPORATE BONDS
A DESCRIPTION OF THE RATING POLICIES OF MOODY'S AND S&P WITH RESPECT TO BONDS
APPEARS BELOW.
MOODY'S CORPORATE BOND RATINGS
Aaa--Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A--Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated "Baa" are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated "Ca" represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" in each generic rating
classification from Aa to Caa. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category;
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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.
S&P'S CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to repay principal and pay interest.
AA--Bonds rated "AA" also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and differs from "AAA" issues only in
small degree.
A--Bonds rated "A" have a strong capacity to repay principal and pay interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB--Bonds rated "BBB" are regarded as having an adequate capacity to repay
principal and pay interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to repay principal and pay interest for
bonds in this category than for higher-rated categories.
BB-B-CCC-CC-C--Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CI--Bonds rated "CI" are income bonds on which no interest is being paid.
D--Bonds rated "D" are in default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired unless S&P believes that such payments
will be made during such grace period. The "D" rating is also used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE'S COMMERCIAL PAPER RATINGS
Prime-1--Issuers (or related supporting institutions) rated Prime-1 have a
superior ability for repayment of short-term debt obligations. Prime-1 repayment
ability will often be evidenced by leading market positions in well- established
industries, high rates or return on funds employed, conservative capitalization
structures with moderate reliance on debt and ample asset protection, broad
margins in earnings coverage of fixed financial charges and high internal cash
generation, and well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2--Issuers (or related supporting institutions) rated Prime-2 have a
strong ability for repayment of short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earning trends and coverage ratio, while sound, will be more subject to
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variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Prime-3--Issuers (or related supporting institutions) rated Prime-3 have an
acceptable ability for repayment of short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime--Issuers rated Not Prime do not fall within any of the Prime rating
categories.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. The categories are as follows:
"A-1"--A short-term obligation rated "A-1" is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
"A-2"--A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3"--A short-term obligation rated "A-3" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"B"--A short-term obligation rated "B" is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C"--A short-term obligation rated "C" is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D"--A short-term obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
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APPENDIX B
GENERAL CHARACTERISTICS AND RISKS OF HEDGING
AND OTHER STRATEGIC TRANSACTIONS
The Fund may engage in certain hedging and other strategic transactions. The
Fund will engage in such activities from time to time in the Sub-Adviser's
discretion and may not necessarily be engaging in such activities when movements
occur in interest rates that could affect the value of the assets of the Fund.
The Fund's ability to pursue certain of these strategies may be limited by the
Commodity Exchange Act, as amended, applicable regulations of the CFTC and the
federal income tax requirements applicable to regulated investment companies
which are not operated as commodity pools.
INTEREST RATE TRANSACTIONS
The Fund may enter into interest rate swaps and may purchase interest rate
caps, floors and collars and may sell interest rate caps, floors and collars
that it has purchased. The Fund would enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to manage the duration of its portfolio, to protect against any
increase in the price of securities (including Collateralized Senior Loans) the
Fund anticipates purchasing at a later date or to further the Fund's investment
objectives and policies. Interest rate swaps involve the exchange by the Fund
with another party of their respective commitments to pay or receive interest,
e.g., an exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. The purchase of an interest rate cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor. A collar is a
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund may enter into interest rate swaps, caps, floors and collars on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or liabilities, and will usually enter into interest rate
swaps on a net basis, i.e., the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments on the payment date. To the extent these Derivative Transactions are
entered into for good faith hedging purposes, the Sub-Adviser believes such
obligations do not constitute senior securities and, accordingly, will not treat
them as being subject to its borrowing restrictions. The Fund will accrue the
net amount of the excess, if any, of the Fund's obligations over its
entitlements with respect to each interest rate swap on a daily basis and will
segregate with a custodian an amount of cash or liquid securities having an
aggregate net asset value at least equal to the accrued excess. The Fund will
not enter into any interest rate swap,
<PAGE>
cap, floor or collar transaction unless the other party thereto has been
determined by the Sub-Adviser to be creditworthy at the time of entering into
such transaction. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. Caps, floors
and collars are less liquid than swaps.
PUT AND CALL OPTIONS ON SECURITIES AND INDICES
The Fund may purchase and sell put and call options on securities and indices
based upon the prices of securities. A put option on a security gives the
purchaser of the option the right to sell and the writer the obligation to buy
the underlying security at the exercise price during the option period. The Fund
may also purchase and sell options on indices based upon the prices of
securities ("index options"). Index options are similar to options on securities
except that, rather than taking or making delivery of securities underlying the
option at a specified price upon exercise, an index option gives the holder the
right to receive cash upon exercise of the option if the level of the index upon
which the option is based is greater, in the case of a call, or less in the case
of a put, than the exercise price of the option. The purchase of a put option on
a security would be designed to protect against a decline in the market value of
a security held by the Fund. A call option on a security gives the purchaser of
the option the right to buy and the writer the obligation to sell the underlying
security at the exercise price during the option period. The purchase of a call
option on a security would be intended to protect the Fund against an increase
in the price of a security that it intended to purchase in the future. In the
case of either put or call options that it has purchased, if the option expires
without being sold or exercised, the Fund will experience a loss in the amount
of the option premium plus any related commissions. When the Fund sells put and
call options, it receives a premium as the seller of the option. The premium
that the Fund receives for writing the option will serve as a partial hedge, in
the amount of the option premium, against changes in the value of the securities
in its portfolio. During the term of the option, however, a covered call seller
has, in return for the premium on the option, given up the opportunity for
capital appreciation above the exercise price of the option if the value of the
underlying security increases, but has retained the risk of loss should the
price of the underlying security decline. Conversely, a secured put seller
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option, less the premium received on the
sale of the option. The Fund is authorized to purchase and sell exchange listed
options and over-the-counter options ("OTC Options") which are privately
negotiated with the counterparty to such contract. Listed options are issued by
the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options.
All such call options sold (written) by the Fund will be "covered" as long as
the call is outstanding (i.e., the Fund will own the instrument subject to the
call or other securities or assets acceptable under applicable segregation and
coverage rules). All such put options sold (written) by the Fund will be secured
by segregated assets consisting of cash or liquid assets having a value not less
than the exercise price.
-2-
<PAGE>
The Fund's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent upon the existence of a liquid
secondary market. Among the possible reasons for the absence of a liquid
secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations on an exchange; (v) inadequacy of the
facilities of an exchange or OCC to handle current trading volume; or (vi) a
decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options on that exchange that had been listed by the OCC as
a result of trades on that exchange would generally continue to be exercisable
in accordance with their terms. OTC Options are purchased from or sold to
dealers, financial institutions or other counterparties which have entered into
direct agreements with the Fund. With OTC Options, such variables as expiration
date, exercise price and premium will be agreed upon between the Fund and the
counterparty, without the intermediation of a third party such as the OCC. If
the counterparty fails to make or take delivery of the securities underlying an
option it has written, or otherwise fails to settle the transaction in
accordance with the terms of that option as written, the Fund would lose the
premium paid for the option as well as any anticipated benefit of the
transaction. As the Fund must rely on the credit quality of the counterparty
rather than the guarantee of the OCC, it will only enter into OTC options with
counterparties with the highest long-term credit ratings, and with primary
United States government securities dealers recognized by the Federal Reserve
Bank of New York.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Characteristics. The Fund may purchase and sell futures contracts on interest
rates and securities indices and purchase and sell (write) put and call options
on such futures contracts traded on recognized domestic exchanges as a hedge
against anticipated interest rate changes or other market movements. The sale of
a futures contract creates an obligation by the Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a specified
future time for a specified price. Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put).
-3-
<PAGE>
Margin Requirements. At the time a futures contract is purchased or sold, the
Fund must allocate cash or assets as a deposit payment ("initial margin").
It is expected that the initial margin that the Fund will pay may range from
approximately 1% to approximately 5% of the value of the instruments underlying
the contract. In certain circumstances, however, such as during periods of high
volatility, the Fund may be required by an exchange to increase the level of its
initial margin payment. Additionally, initial margin requirements may be
increased in the future pursuant to regulatory action. An outstanding futures
contract is valued daily and the payment in cash of "variation margin" may be
required, a process known as "marking to the market." Transactions in listed
options and futures are usually settled by entering into an offsetting
transaction, and are subject to the risk that the position may not be able to be
closed if no offsetting transaction can be arranged.
Limitations on Use of Futures Contracts and Options on Futures Contracts. The
Fund's use of futures contracts and options on futures contracts will in all
cases be consistent with applicable regulatory requirements and in particular,
the rules and regulations of the CFTC. In addition, the Fund may not sell
futures contracts if the value of such futures contracts exceeds the total
market value of the Fund's portfolio securities.
The Fund may engage in transactions in futures contracts or options thereon
for speculative purposes or as a hedge against changes resulting from market
conditions in the values of securities (including Collateralized Senior Loans)
in its portfolio. The Fund may enter into futures contracts or options thereon
for purposes other than bona fide hedging if, immediately thereafter, the sum of
the amount of its initial margin and premiums on open contracts and options
would not exceed 5% of the liquidation value of the Fund's portfolio; provided
further that in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. Also, when required, a segregated account of cash or cash
equivalents will be maintained and marked to market in an amount equal to the
market value of the contract. The Sub-Adviser reserves the right to comply with
such different standards as may be established from time to time by CFTC rules
and regulations with respect to the purchase and sale of futures contracts and
options thereon.
Segregation and Cover Requirements. Futures contracts, interest rate swaps,
caps, floors and collars, and options on securities, indices and futures
contracts sold by the Fund are generally subject to segregation and coverage
requirements established by either the CFTC or the Commission, with the result
that, if the Fund does not hold the instrument underlying the futures contract
or option, the Fund will be required to segregate on an ongoing basis with its
custodian, cash, U.S. government securities, or other liquid assets in an amount
at least equal to the Fund's obligations with respect to such instruments. Such
amounts will fluctuate as the market value of the obligations increases or
decreases. The segregation requirement can result in the Fund maintaining
positions it would otherwise liquidate and consequently segregating assets with
respect thereto at a time when it might be disadvantageous to do so. In
addition, with respect to futures contracts purchased by the Fund, the Fund will
also be subject to the segregation requirements with respect to the value of the
instruments underlying the futures contract.
-4-
<PAGE>
Derivative Transactions present certain risks. In particular, the variable
degree of correlation between price movements of hedging instruments and price
movements in the position being hedged creates the possibility that losses on
the hedge may be greater than gains in the value of the Fund's positions. In
addition, certain hedging instruments and markets may not be liquid in all
circumstances. As a result, in volatile markets, the Fund may not be able to
close out a transaction in certain of these instruments without incurring losses
substantially greater than the initial deposit. Although the contemplated use of
these instruments should tend to minimize the risk of loss due to a decline in
the value of the hedged position, at the same time they tend to limit any
potential gain which might result from an increase in the value of such
position. The ability of the Fund to hedge successfully will depend on the Sub-
Adviser's ability to predict pertinent market movements, which cannot be
assured. Finally, the daily variation margin deposit requirements in futures
contracts that the Fund has sold create an ongoing greater potential financial
risk than do transactions in which the Fund has purchased options where the
exposure is limited to the cost of the initial premium and transaction costs
paid by the Fund. While the Fund may enter into Derivative Transactions to hedge
all or a portion of its portfolio, changes in the directions of markets that are
the subject of a hedge and fluctuations in interest rates may result in a poorer
overall performance for the Fund than if it had not engaged in any such
transactions. Losses due to Derivative Transactions will reduce the Fund's net
asset value.
The Fund's investments in Derivative Transactions may be limited by certain
provisions of the Code, as amended. See "Taxation" in this Prospectus.
-5-
<PAGE>
<TABLE>
<S> <C>
PROSPECTUS SUMMARY...........................................................................3
The Fund..................................................................................3
Investment Objective and Policies.........................................................3
The Offering..............................................................................7
Listing...................................................................................8
Stock Symbol..............................................................................8
Investment Adviser........................................................................8
Sub-Investment Adviser....................................................................8
Management Fees...........................................................................8
Dividends and Distributions...............................................................9
Dividend Reinvestment Plan................................................................9
Taxation..................................................................................9
Custodian, Transfer Agent, Dividend Paying Agent and Registrar............................9
RISK FACTORS AND SPECIAL CONSIDERATIONS.....................................................10
Special Considerations Relating to Collateralized Senior Loans...........................10
Leverage.................................................................................14
Trading Discount.........................................................................15
Special Considerations Related to Other Securities and Investment Strategies.............15
Certain Investment Practices.............................................................17
Investment in Non-U.S. Issuers...........................................................17
Non-Diversification......................................................................18
Year 2000................................................................................18
Anti-Takeover Provisions.................................................................19
FEE TABLE...................................................................................20
THE FUND....................................................................................21
USE OF PROCEEDS.............................................................................21
INVESTMENT OBJECTIVE, POLICIES AND PORTFOLIO RISKS..........................................21
CERTAIN CHARACTERISTICS OF COLLATERALIZED SENIOR LOAN INTERESTS..........................22
ADDITIONAL INVESTMENT ACTIVITIES............................................................28
LEVERAGE.................................................................................28
HIGH YIELD/LOWER RATED SECURITIES........................................................31
DERIVATIVE INSTRUMENTS...................................................................32
WHEN-ISSUED AND DELAYED DELIVERY FINANCIAL INSTRUMENTS...................................34
LOANS OF PORTFOLIO ASSETS................................................................35
ILLIQUID OR RESTRICTED FINANCIAL INSTRUMENTS.............................................35
MONEY MARKET INSTRUMENTS.................................................................36
INVESTMENT RESTRICTIONS.....................................................................37
MANAGEMENT OF THE FUND......................................................................39
INVESTMENT ADVISER AND SUB-INVESTMENT ADVISER............................................39
ADMINISTRATOR............................................................................40
IMPORTANT TERMS OF ADVISORY AND SUB-ADVISORY AGREEMENTS..................................40
DIRECTORS AND OFFICERS OF THE FUND.......................................................41
PORTFOLIO TRANSACTIONS...................................................................42
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN..................................43
TAXATION....................................................................................45
TAXATION OF THE FUND.....................................................................45
TAXATION OF SHAREHOLDERS.................................................................46
BACKUP WITHHOLDINGS......................................................................47
DETERMINATION OF NET ASSET VALUE............................................................47
DESCRIPTION OF CAPITAL STOCK................................................................48
COMMON STOCK.............................................................................48
PREFERRED STOCK..........................................................................49
SPECIAL VOTING PROVISIONS................................................................50
CUSTODIAN, TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR...........................52
UNDERWRITING.............................................................................52
EXPERTS..................................................................................55
LEGAL MATTERS............................................................................55
FURTHER INFORMATION......................................................................55
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Included in Part A:
(a) Report of KPMG Peat Marwick LLP, Independent Accountants.*
(b) Statement of Net Assets and Liabilities.*
(2) Exhibits
(a) Articles of Incorporation
(b) By-Laws
(c) Not applicable
(d)* Specimen certificate for Common Stock, par value $.001
per share
(e)* Dividend Reinvestment Plan
(f) Not applicable
(g)(1)* Investment Advisory Agreement
(2)* Sub-Investment Advisory Agreement
(h)* Underwriting Agreement
(i) Not applicable
(j)* Custody Agreement
(k)(1)* Transfer Agency and Service Agreement
(2)* Administration Agreement
(l)(1)* Opinion and Consent of Willkie Farr & Gallagher
(2)* Opinion and Consent of Venable Baetjer and Howard, LLP
________________
* To be filed by amendment.
C-1
<PAGE>
(m) Not applicable
(n)* Consent of KPMG Peat Marwick LLP
(o) Not applicable
(p)* Purchase Agreement
(q) Not applicable
(r) Not applicable
_____________
* To be filed by amendment
C-2
<PAGE>
ITEM 25. MARKETING ARRANGEMENTS
See the Underwriting Agreement to be filed by amendment.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following table sets forth the estimated expenses to be incurred
in connection with the Offer described in this Registration Statement:
<TABLE>
<CAPTION>
<S> <C>
Registration fees.................................................... $
New York Stock Exchange listing fee.................................. $
Printing (other than stock certificates)............................. $
Engraving and printing stock certificates............................ $
Fees and expenses of qualification under state securities laws $
(including fees of counsel).........................................
Accounting fees and expenses......................................... $
Legal fees and expenses.............................................. $
NASD fees............................................................ $
Postage.............................................................. $
Miscellaneous........................................................ $
Total $
</TABLE>
- -----------------
* To be supplied by amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
It is anticipated that Registrant's Investment Adviser or an
affiliated person thereof will hold all of Registrant's Shares of common stock,
par value $.001 per share, on the date Registrant's Registration Statement
becomes effective.
C-3
<PAGE>
ITEM 29. INDEMNIFICATION
Registrant, officers and directors of its Adviser, Sub-Adviser and of
Registrant are covered by insurance policies indemnifying them for liability
incurred in connection with the operation of Registrant. These policies provide
insurance for any "Wrongful Act" of an officer, director or trustee. Wrongful
Act is defined as breach of duty, neglect, error, misstatement, misleading
statement, omission or other act done or wrongfully attempted by an officer,
director or trustee in connection with the operation of Registrant. Insurance
coverage does not extend to (a) conflicts of interest or gain in fact any profit
or advantage to which one is not legally entitled, (b) intentional non-
compliance with any statute or regulation or (c) commission of dishonest,
fraudulent acts or omissions. Insofar as it related to Registrant, the coverage
is limited in amount and, in certain circumstances, is subject to a deductible.
Under Article IX of the Articles of Incorporation (the "Articles"),
the Directors and officers of Registrant shall not have any liability to
Registrant or its stockholders for money damages, to the fullest extent
permitted by Maryland law. This limitation on liability applies to events
occurring at the time a person serves as a Director or officer of Registrant
whether or not such person is a Director or officer at the time of any
proceeding in which liability is asserted. No provision of Article IX shall
protect or purport to protect any Director or officer of Registrant against any
liability to Registrant or its stockholders 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.
Registrant shall indemnify and advance expenses to its currently acting and its
former Directors to the fullest extent that indemnification of Directors and
advancement of expenses to Directors is permitted by the Maryland General
Corporation Law.
Registrant shall indemnify and advance expenses to its officers to the
same extent as its Directors and to such further extent as is consistent with
such law. The Board of Directors may, through a by-law, resolution or
agreement, make further provisions for indemnification of directors, officers,
employees and agents to the fullest extent permitted by the Maryland General
Corporation Law.
Article V of the By-Laws further limits the liability of the Directors
by providing that 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 Registrant, or is
or was serving while a director or officer of Registrant at the request of
Registrant 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 Registrant against judgments,
penalties, fines, excise taxes, settlements and reasonable expenses (including
attorneys' fees) actually incurred by such person in connection with such
action, suit or proceeding to the full extent permissible under the Maryland
General Corporation Law, the 1993 Act and the 1940 Act, as such statutes are now
or hereafter in force, except that such indemnity shall not protect any such
person against any liability to Registrant 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 this office.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
MMC Management Corp. ("MMC") serves as investment adviser to the
Registrant. MMC (through predecessor entities) has been in the investment
counseling business since 1934. Travelers Asset Management International Corp.
("TAMIC") serves as sub-investment adviser to the Registrant. TAMIC officers,
including those who will be primarily responsible for management of the Fund's
assets are also involved in the management of the general accounts of TAMIC's
insurance company affiliates. The list required by this Item 30 of officers and
directors of MMC and TAMIC, together with information as to their other
businesses, professions, vocations or employment of a substantial nature during
the past two years, is incorporated by reference to Schedules A and D of Form
ADV filed by MMC (SEC File No. 801-8314), and to Schedules A and D of Form ADV
filed by TAMIC (SEC File No. 801-17003).
C-4
<PAGE>
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
(1) Travelers Corporate Loan Fund Inc.
388 Greenwich Street
New York, New York 10013
(Fund's Articles, By-Laws and Minute Books)
(2) MMC Management Corp.
388 Greenwich Street
New York, New York 10013
(records relating to its function as investment adviser and
administrator)
(3) Travelers Asset Management International Corp.
388 Greenwich Street
New York, New York 10013
(records relating to its function as sub-investment adviser)
(4) PNC Bank, N.A.
17th and Chestnut
Philadelphia, Pennsylvania 19103
(records relating to its function as custodian)
(5) First Data Investor Services Group, Inc.
P.O. Box 5127
Westborough, Massachusetts 01581-5127
(records relating to its function as transfer agent, dividend
disbursing agent and registrar)
(6) Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
(records relating to its function as distributor)
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(1) Registrant undertakes to suspend offering its shares until it
amends its prospectus contained herein if (a) subsequent to the effective date
of its Registration Statement, the net asset value per share declines more than
ten percent from its net asset value as of the effective date of this
Registration Statement, or (b) the net asset value increases to an amount
greater than its net proceeds as stated in the prospectus contained herein.
(2) Not Applicable
(3) Not Applicable
(4) (a) Registrant hereby undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment
to this registration statement:
(1) to include any prospectus required by Section 10(a)(3) of the
1933 Act;
C-5
<PAGE>
(2) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(3) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(b) that, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(c) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(5) If applicable:
(a) For purpose of determining any liability under the 1933 Act,
the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon rule 430A and
contained in the form of prospectus filed by the Registrant
pursuant to 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.
(b) 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
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(6) Not applicable
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York, on the 26th day of August, 1998.
TRAVELERS CORPORATE LOAN FUND INC.
By: /s/ Heath B. McLendon
------------------------------------
Director and Chief Executive Officer
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/ Heath B. McLendon Director and Chief August 26, 1998
- ---------------------------------------- Executive Officer
Heath B. McLendon
/s/ Lewis E. Daidone Director and Chief August 26, 1998
- ---------------------------------------- Financial Officer
Lewis E. Daidone
/s/ Marc A. Schuman Director August 26, 1998
- ----------------------------------------
Marc A. Schuman
</TABLE>
<PAGE>
EXHIBIT INDEX TO FORM N-2
EXHIBITS SUBMITTED TO THE SECURITIES
AND EXCHANGE COMMISSION
Exhibit No. Description
- ----------- -----------
(a) Articles of Incorporation
(b) By-Laws
<PAGE>
Exhibit 99.A
ARTICLES OF INCORPORATION
OF
TRAVELERS CORPORATE LOAN FUND INC.
THE UNDERSIGNED, Yvette M. Garcia, whose post-office address is c/o Willkie
Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099, being at
least eighteen (18) years of age, does hereby act as 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 TRAVELERS CORPORATE LOAN FUND INC. (the
"Corporation").
ARTICLE II.
PURPOSES AND POWERS
-------------------
The purpose or purposes for which the Corporation is formed is to act as a
closed-end management investment company under the federal Investment Company
Act of 1940, as amended, and in effect from time to time (the "Investment
Company Act"), and 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.
ARTICLE III.
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post-office address of the principal office of the Corporation in the
State of Maryland is c/o The Corporation Trust Incorporated, 300 East Lombard
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a corporation
of this State, and the post-office address of the resident agent is The
Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland
21202.
ARTICLE IV.
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which the Corporation shall
have authority to issue is 150,000,000 shares, all initially classified as one
class called Common Stock, of the par value of $.001 per share, and of the
aggregate par value of $150,000.
<PAGE>
(2) The Board of Directors may classify and reclassify any unissued
shares of capital stock, including classifying and reclassifying 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; provided, however, that the
total amount of shares of all classes or series shall not exceed the total
number of shares of capital stock authorized in the Charter.
(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
within and 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, 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 a greater proportion than a majority of the votes of all classes
or series of capital stock of the Corporation (or of any class or series
entitled to vote thereon as a separate class or series) to take or authorize any
action, the Corporation is hereby authorized (subject to the requirements of the
Investment Company Act, and any rules, regulations and orders issued thereunder)
to take such action upon the concurrence of a majority of the votes entitled to
be cast by holders of capital stock of the Corporation (or a majority of the
votes entitled to be cast by holders of a class or series as a separate class or
series) unless a greater proportion is specified in the Charter.
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(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 fractional shares. Any fractional shares
shall carry proportionately all of the rights of a whole share, excepting any
right to receive a certificate evidencing such fractional share, but including,
without limitation, the right to vote and the right to receive dividends.
(8) The presence in person or by proxy of the holders of shares entitled
to cast a majority of the votes entitled to be cast shall constitute a quorum at
any meeting of stockholders, except with respect to any matter which requires
approval by a separate vote of one or more classes or series of stock, in which
case the presence in person or by proxy of the holders of shares entitled to
cast a majority of the votes entitled to be cast by each class or series
entitled to vote as a separate class shall constitute a quorum.
(9) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of the Charter and the By-Laws of the
Corporation. As used in the Charter of the Corporation, the terms "Charter" and
"Articles of Incorporation" shall mean and include the Articles of Incorporation
of the Corporation as amended, supplemented and restated from time to time by
Articles of Amendment, Articles Supplementary, Articles of Restatement or
otherwise.
ARTICLE V.
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
--------------------------------------------
(1) The initial number of directors of the Corporation shall be three,
which number may be increased or decreased pursuant to the By-Laws of the
Corporation or by the Board of Directors pursuant to the By-Laws of the
Corporation (or, to the extent required by the Investment Company Act in
accordance with Articles Supplementary with respect to any class or series of
capital stock established pursuant to Article IV(2)), but shall never be less
than the minimum number permitted by the Maryland General Corporation Law. The
names of the directors who shall act until the first annual meeting of
stockholders or until their successors are duly elected and qualify are:
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Lewis E. Daidone
Heath B. McLendon
Marc A. Schuman
(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 on the next annual meeting,
Class II on the second next annual meeting and Class III on the third next
annual meeting, 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 to
authorize the issuance from time to time of shares of capital stock of any class
or series, and securities convertible into shares of stock of the Corporation of
any class or series, whether now or hereafter authorized, for such consideration
as the Board of Directors may deem advisable, without any action by the
stockholders, subject to such limitations as may be set forth in the Articles of
Incorporation or in the By-Laws of the Corporation or in the General Laws of the
State of Maryland.
(4) The Board of Directors of the Corporation is hereby empowered to
authorize and issue obligations of the Corporation, secured and unsecured, as
the Board of Directors may determine, and to authorize and cause to be executed
mortgages and liens upon the real or personal property of the Corporation,
without any action by the stockholders, subject to such limitations as may be
set forth in these Articles of Incorporation or in the By-Laws of the
Corporation or in the General Laws of the State of Maryland.
(5) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal from time
to time any of the By-Laws of the Corporation except any particular By-Law which
is specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act.
(6) A director may be removed by the stockholders, but only with cause,
and only by action taken by the holders of at least
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seventy-five percent (75%) of the votes then entitled to be cast in an election
to fill that directorship.
(7) From time to time, the Board of Directors shall determine whether
and to what extent and at what times and places and under what conditions and
regulations the books and accounts of the Corporation, or any of them other than
the stock ledger, shall be open to the inspection of the stockholders. No
stockholder shall have any right to inspect any account or book or document of
the Corporation, except as conferred by law or authorized by resolution of the
Board 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 hereinafter in force.
ARTICLE VI.
DENIAL OF PREEMPTIVE RIGHTS
---------------------------
No stockholder of the Corporation shall by reason of his holding shares of
capital stock have any preemptive or preferential right to purchase or subscribe
to any shares of capital stock of the Corporation, now or hereafter to be
authorized, or any notes, debentures, bonds or other securities convertible into
shares of capital stock, now or hereafter to be authorized, whether or not the
issuance of any such shares, or notes, debentures, bonds or other securities
would adversely affect the dividend or voting rights of such stockholder; and,
without limiting the foregoing, the Board of Directors, in its discretion, may
issue shares of any class of the Corporation, or any notes, debentures, bonds,
or other securities convertible into shares of any class, either in whole or in
part, to some or all of the existing stockholders or holders of any class,
series or type of stock or other securities at the time outstanding to the
exclusion of any or all of the holders of any or all of the classes, series or
types of stock or other securities at the time outstanding.
ARTICLE VII.
DETERMINATION BINDING
---------------------
Any determination made in good faith and consistent with applicable law,
and so far as accounting matters are involved, in accordance with generally
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
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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 value of any security owned by the Corporation or as to
the determination of the net asset value of shares of any class of the
Corporation's capital stock or as to any other matters relating to the issuance,
sale, redemption or other acquisition or disposition of securities or shares of
capital stock of the Corporation, and any reasonable determination made in good
faith by the Board of Directors as to whether any transaction constitutes a
purchase of securities on "margin," a sale of securities "short," or an
underwriting or the sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of its capital stock, past, present and future, and shares of the capital stock
of the Corporation are 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 VIII.
CERTAIN TRANSACTIONS
--------------------
(a) Except as otherwise provided in this Article VIII, at least seventy-
five percent (75%) of the votes entitled to be cast by stockholders, in addition
to the affirmative vote of at least seventy-five percent (75%) of the entire
Board of Directors, shall be necessary to effect an amendment to these Articles
to make the Corporation's Common Stock a "redeemable security" or to convert the
Corporation from a "closed-end company" to an "open-end company" (as such terms
are defined in the Investment Company Act) or any amendment to Article II,
unless the Continuing Directors (as hereinafter defined) of the Corporation, by
a vote of at least seventy-five percent (75%) of such Continuing Directors,
approve such amendments in which case the affirmative
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vote of a majority of the votes entitled to be cast by stockholders shall be
required to approve such transaction.
(b) The affirmative votes of at least 75% of the entire Board of
Directors and of at least 80% of the votes entitled to be cast thereon by the
stockholders of the Fund are required to authorize any of the following
transactions:
(i) unless the Investment Company Act or any other federal or state law
or regulation requires a lesser vote, any stockholder proposal as to specific
investment decisions made or to be made with respect to the Corporation's assets
as to which stockholder approval is required under federal or Maryland law; or
(ii) any proposal as to the voluntary liquidation or dissolution of the
Corporation or any amendment to these Articles of Incorporation to terminate the
existence of the Corporation, unless the Continuing Directors of the
Corporation, by a vote of at least seventy-five percent (75%) of such Continuing
Directors, approve such proposals in which case the affirmative vote of a
majority of the votes entitled to be cast by stockholders shall be required to
approve such transaction.
(c) The affirmative votes of at least 75% of the entire Board of
Directors and the holders of at least 66 2/3% of the votes entitled to be cast
thereon by the shareholders of the Fund, including at least 66 2/3% of the votes
entitled to be cast thereon other than votes held by an Interested Party who is
(or whose Affiliate is) a party to a Business Combination (all as hereinafter
defined) or an Affiliate or Associate (as hereinafter defined) of the Interested
Party, are required to authorize any Business Combination unless either the
condition in clause (A) below is satisfied, or all of the conditions in clauses
(B), (C), (D), (E) and (F) below are satisfied, in either which case paragraph
(e) below shall apply.
(A) The Business Combination shall have been approved by a vote of at
least 75% of the Continuing Directors.
(B) The aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the Business
Combination, of consideration other than cash to be received per share by
holders of any class of outstanding Voting Stock (as hereinafter defined) in
such Business Combination shall be at least equal to the higher of the
following:
(x) the highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by an Interested Party (as
hereinafter defined) for any shares of such Voting Stock acquired by it (aa)
within the two-year period immediately prior to the first public announcement of
the proposal of the Business Combination (the "Announcement Date"), or (bb)(i)
in the Threshold Transaction (as hereinafter defined), or (ii) in
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any period between the Threshold Transaction and the consummation of the
Business Combination, whichever is higher; and
(y) the net asset value per share of such Voting Stock on the
Announcement Date or on the date of the Threshold Transaction, whichever is
higher.
(C) The consideration to be received by holders of the particular class
of outstanding Voting Stock shall be in cash or in the same form as the
Interested Party has previously paid for shares of any class of Voting Stock. If
the Interested Party has paid for shares of any class of Voting Stock with
varying forms of consideration, the form of consideration for such class of
Voting Stock shall be either cash or the form used to acquire the largest number
of shares of such class of Voting Stock previously acquired by it.
(D) After the occurrence of the Threshold Transaction, and prior to the
consummation of such Business Combination, such Interested Party shall not have
become the beneficial owner of any additional shares of Voting Stock except by
virtue of the Threshold Transaction.
(E) After the occurrence of the Threshold Transaction, such Interested
Party shall not have received the benefit, directly or indirectly (except
proportionately as a shareholder of the Corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or other
tax advantages provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(F) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange Act
of 1934 and the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder (or any subsequent provisions replacing such Acts, rules
or regulations) shall be prepared and mailed by the Interested Party, at such
Interested Party's expense, to the shareholders of the Corporation at least 30
days prior to the consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant to such Acts or
subsequent provisions).
(d) For the purposes of this Article:
(i) "Business Combination" shall mean any of the transactions described
or referred to in any one or more of the following subparagraphs:
(A) any merger, consolidation or share exchange of the Corporation
with or into any other person;
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of
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<PAGE>
transactions in any 12 month period) to or with any other person of any assets
of the Corporation having an aggregate Fair Market Value of $1,000,000 or more
except for portfolio transactions of the Corporation (including, without
limitation, pledges of portfolio securities in connection with borrowings and
debt securities and default provisions with respect thereto, reverse repurchase
agreements and security loan transactions) effected in the ordinary course of
the Corporation's business;
(C) the issuance or transfer by the Corporation (in one transaction or a
series of transactions in any 12 month period) of any securities of the
Corporation to any other person in exchange for cash, securities or other
property (or a combination thereof) having an aggregate Fair Market Value of
$1,000,000 or more excluding (w) sales of debt securities of the Corporation in
a public or private offering, (x) sales of any securities of the Corporation in
connection with a public offering thereof, (y) issuances of any securities of
the Corporation pursuant to a dividend reinvestment plan adopted by the
Corporation or pursuant to a stock dividend and (z) issuances of any securities
of the Corporation upon the exercise of any stock subscription rights
distributed by the Corporation;
(ii) "Continuing Director" means any member of the Board of Directors of
the Corporation who is not an Interested Party or an Affiliate (as hereinafter
defined) of an Interested Party and has been a member of the Board of Directors
for a period of at least 12 months (or since the Corporation's commencement of
operations, if that period is less than 12 months), or is a successor of a
Continuing Director who is unaffiliated with an Interested Party and is
recommended to succeed a Continuing Director by a majority of the Continuing
Directors then on the Board of Directors.
(iii) "Interested Party" shall mean any person, other than an investment
company advised by the Corporation's initial investment manager or any of its
Affiliates, which enters, or proposes to enter, into a Business Combination with
the Corporation.
(iv) "Person" shall mean an individual, a corporation, a trust or a
partnership.
(v) "Voting Stock" shall mean capital stock of the Corporation entitled
to vote generally in the election of directors.
(vi) A person shall be a "beneficial owner" of any Voting Stock:
(A) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
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(B) which such person or any of its Affiliates or Associates has the
right to acquire (whether such right is exercisable immediately or only after
the passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or options, or
(C) which is beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares of Voting Stock.
(vii) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934.
(viii) "Fair Market Value" means:
(A) in the case of stock, the highest closing sale price during the 30-
day period immediately preceding the relevant date of a share of such stock on
the New York Stock Exchange, or if such stock is not listed on such Exchange, on
the principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing sale price (if such stock is a
National Market System security) or the highest closing bid quotation (if such
stock is not a National Market System security) with respect to a share of such
stock during the 30-day period preceding the relevant date on the National
Association of Securities Dealers, Inc. Automated Quotation Systems (NASDAQ) or
any system then in use, or if no such quotations are available, the fair market
value on the relevant date of the share of such stock as determined by at least
75% of the Continuing Directors in good faith, and
(B) in the case of property other than cash or stock, the fair market
value of such property on the relevant date as determined by at least 75% of the
Continuing Directors in good faith.
(ix) "Threshold Transaction" means the transaction by or as a result of
which an Interested Party first becomes the beneficial owner of Voting Stock.
(x) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used in
subparagraph (c)(B) shall include the shares of Common Stock and/or the shares
of any other class of outstanding Voting Stock retained by the holders of such
shares.
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(xi) Continuing Directors of the Corporation, acting by a vote of at
least 75%, shall have the power and duty to determine, on the basis of
information known to them after reasonable inquiry, all facts necessary to
determine (a) the number of shares of Voting Stock beneficially owned by any
person, (b) whether a person is an Affiliate or Associate of another, (c)
whether the requirements of subparagraph (c) above have been met with respect to
any Business Combination, and (d) whether the assets which are the subject of
any Business Combination have, or the consideration to be received for the
issuance or transfer of securities by the Corporation in any Business
Combination has, an aggregate Fair Market Value of $1,000,000 or more.
(e) If any Business Combination described in paragraph (d)(i)(A) or (B)
(if the merger, consolidation, share exchange or transfer or other disposition
constitutes a merger, consolidation, share exchange or transfer of all or
substantially all of the assets of the Corporation with respect to which
stockholder approval is required under Maryland law) is approved by a vote of
75% of the Continuing Directors or all of the conditions in paragraph (c)(B),
(C), (D), (E) and (F) are satisfied, a majority of the votes entitled to be cast
by stockholders shall be required to approve such transaction. If any other
Business Combination is approved by a vote of 75% of the Continuing Directors or
all of the conditions in paragraph (c)(B), (C), (D), (E) and (F) are satisfied,
no stockholder vote shall be required to approve such transaction unless
otherwise provided in these Articles of Incorporation or required by law.
ARTICLE IX.
LIMITATIONS ON LIABILITY; INDEMNIFICATION
-----------------------------------------
(1) 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.
(2) Any person who was or is a party or is threatened to be made a party
in any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is a current or former director or officer of the Corporation, or is
or was serving while a director or officer of the Corporation at the request of
the Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, shall be indemnified by the Corporation against
judgments,
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<PAGE>
penalties, fines, excise taxes, settlements and reasonable expenses (including
attorneys' fees) actually incurred by such person in connection with such
action, suit or proceeding to the fullest extent permissible under the Maryland
General Corporation Law, the Securities Act of 1933 and the Investment Company
Act of 1940, as such statutes are now or hereafter in force. In addition, the
Corporation shall also advance expenses to its currently acting and its former
directors and officers to the fullest extent that such advances of expenses are
permitted by the Maryland General Corporation Law, the Securities Act of 1933
and the Investment Company Act of 1940. The Board of Directors may by By-Law,
resolution, agreement or otherwise make further provision for indemnification of
directors, officers, employees and agents of the Corporation to the fullest
extent permitted by the Maryland General Corporation Law.
(3) No provision of this Article shall be effective to protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
(4) References to the Maryland General Corporation Law in this Article
are to that law as from time to time amended. No amendment to the charter of the
Corporation shall affect any right of any person under this Article based on any
event, omission or proceeding prior to the amendment.
ARTICLE X.
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 the Articles of Incorporation or the By-Laws of the Corporation
(and notwithstanding the fact that a lesser percentage may otherwise be
specified by law, these Articles of Incorporation or the By-Laws of the
Corporation), the amendment or repeal of Section (2), Section (5) or Section
(6), of Article V, Article VIII, Article IX, or Article X of the Articles of
Incorporation shall require the affirmative vote of at least seventy-five
percent (75%) of the votes of the outstanding shares of capital stock of the
Corporation entitled to be cast on the matter, in addition to the affirmative
vote of at least seventy-five percent (75%) of the Continuing Directors (as such
term is defined in Article VIII herein).
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IN WITNESS WHEREOF, the undersigned incorporator of TRAVELERS CORPORATE LOAN
FUND INC. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to be her act.
Dated this 24th day
of August, 1998
/s/ Yvette M. Garcia
--------------------
Yvette M. Garcia
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Exhibit 99.B
BYLAWS
OF
TRAVELERS CORPORATE LOAN FUND INC.
ARTICLE I.
Name of Company, Location of Offices And Seal.
---------------------------------------------
Section 1. Name. The name of the Company is Travelers Corporate Loan Fund
----
Inc.
Section 2. Principal Offices. The principal office of the Company in the
-----------------
State of Maryland shall be located in Baltimore, Maryland. The Company may, in
addition, establish and maintain such other offices and places of business
within or outside the State of Maryland as the Board of Directors may from time
to time determine.
Section 3. Seal. The corporate seal of the Company shall be circular in
----
form and shall bear the name of the Company, the year of its incorporation and
the words "Corporate Seal, Maryland." The form of the seal shall be subject to
alteration by the Board of Directors and the seal may be used by causing it or a
facsimile to be impressed or affixed or printed or otherwise reproduced. Any
Officer or Director of the Company shall have authority to affix the corporate
seal of the Company to any document requiring the same.
<PAGE>
ARTICLE II.
Stockholders.
------------
Section 1. Place of Meetings. All meetings of the Stockholders shall be
-----------------
held at such place within the United States, whether within or outside the State
of Maryland, as the Board of Directors shall determine, which shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. Commencing in 1999, the annual meeting of the
--------------
Stockholders of the Company shall be held at such place as the Board of
Directors shall select on such date, during the 31-day period ending four months
after the end of the Company's fiscal year, as may be fixed by the Board of
Directors each year, at which time the Stockholders shall elect Directors by a
plurality of votes cast, and transact such other business as may properly come
before the meeting. Any business of the Company may be transacted at the annual
meeting without being specially designated in the notice except as otherwise
provided by statute, by the Articles of Incorporation or by these Bylaws.
Section 3. Special Meetings. Special meetings of the Stockholders for any
----------------
purpose or purposes, unless otherwise prescribed by statute or by the Articles
of Incorporation, may be called by resolution of the Board of Directors or by
the President, and shall be called by the Secretary at the request of a majority
of the Board of Directors or at the request, in writing, of Stockholders holding
at least 40% of the votes
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entitled to be cast at the meeting upon payment by such Stockholders to the
Company of the reasonably estimated cost of preparing and mailing a notice of
the meeting (which estimated cost shall be provided to such Stockholders by the
Secretary of the Company). Notwithstanding the foregoing, unless requested by
Stockholders entitled to cast a majority of the votes entitled to be cast at the
meeting, a special meeting of the Stockholders need not be called at the request
of Stockholders to consider any matter that is substantially the same as a
matter voted on at any special meeting of the Stockholders held during the
preceding 12 months. A written request shall state the purpose or purposes of
the proposed meeting and the matters proposed to be acted upon at it.
Section 4. Notice. Written notice of every meeting of Stockholders, stating
------
the purpose or purposes for which the meeting is called, the time when and the
place where it is to be held, shall be served, either personally or by mail, not
less than ten nor more than ninety days before the meeting, upon each
Stockholder as of the record date fixed for the meeting who is entitled to
notice of or to vote at such meeting. If mailed (i) such notice shall be
directed to a Stockholder at his address as it shall appear on the books of the
Company (unless he shall have filed with the Transfer Agent of the Company a
written request that notices intended for him be mailed to some other address,
in which case it shall be mailed to the address designated in such request) and
(ii) such notice shall be deemed to have been given
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as of the date when it is deposited in the United States mail with first-class
postage thereon prepaid.
Section 5. 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 offices of the Company not
later than 60 days, but no more than 90 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.
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<PAGE>
Any such notice by a Stockholder shall set forth as to each matter the
Stockholder proposes to bring before the annual or special meeting (i) a brief
description of the business desired to be brought before the annual or special
meeting and the reasons for conducting such business at the annual or special
meeting, (ii) the name and address, as they appear on the 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 Article II. 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 Article II, 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 6. Quorum. The holders of a majority of the votes of the issued and
------
outstanding stock entitled to be cast, present in person or represented by
proxy, shall be requisite and shall constitute a quorum at all meetings of the
Stockholders for the transaction of business except as otherwise provided by
statute, by the Articles of Incorporation or by these Bylaws. If a quorum shall
not be present or represented, the Stockholders entitled to
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vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, to a date not more than 120 days after the original record date,
until a quorum shall be present or represented. At such adjourned meeting, at
which a quorum shall be present or represented, any business which might have
been transacted at the original meeting may be transacted.
Section 7. Vote of the Meeting. When a quorum is present or represented at
-------------------
any meeting, the vote of the holders of a majority of the votes cast shall
decide any question brought before such meeting (except with respect to election
of directors which shall be by a plurality of votes cast), unless the question
is one upon which, by express provisions of applicable statutes, of the Articles
of Incorporation or of these Bylaws, a different vote is required, in which case
such express provisions shall govern and control the decision of such question.
Section 8. Voting Rights of Stockholders. Each Stockholder of record having
-----------------------------
the right to vote shall be entitled at every meeting of the Stockholders of the
Company to one vote for each share of stock having voting power standing in the
name of such Stockholder on the books of the Company on the record date fixed in
accordance with Article VI of these Bylaws, with pro rata voting rights for any
fractional shares, and such votes may be cast either in person or by written
proxy.
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Section 9. Organization. At every meeting of the Stockholders, the Chairman
------------
of the Board, or in his absence or inability to act (or if there is none), the
President, or in his absence or inability to act, a Vice President of the
Company, shall act as chairman of the meeting. The Secretary, or in his absence
or inability to act, a person appointed by the chairman of the meeting, shall
act as secretary of the meeting and keep the minutes of the meeting.
Section 10. Proxies. Each stockholder entitled to vote at any meeting of
-------
stockholders may authorize another person to act as proxy for the stockholder
by, (a) signing a writing authorizing another person to act as proxy, or (b) any
other means permitted by law. Signing may be accomplished by the stockholder or
the stockholder's authorized agent signing the writing or causing the
stockholder's signature to be affixed to the writing by any reasonable means,
including facsimile signature. No proxy shall be valid after the expiration of
eleven months from the date of its execution unless it shall have specified
therein its duration. Every proxy shall be revocable at the pleasure of the
person executing it or of his personal representatives or assigns. Proxies
shall be delivered prior to the meeting to the Secretary of the Company or to
the person acting as Secretary of the meeting before being voted. A proxy with
respect to stock held in the name of two or more persons shall be valid if
executed by one of them unless, at or prior to exercise of such proxy, the
Company receives a specific written notice to the contrary from any one of them.
A proxy purporting
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to be executed by or on behalf of a Stockholder shall be deemed valid unless
challenged at or prior to its exercise.
Section 11. Stock Ledger and List of Stockholders. It shall be the duty of
-------------------------------------
the Secretary or Assistant Secretary of the Company to cause an original or
duplicate stock ledger to be maintained at the office of the Company's Transfer
Agent.
Section 12. Action without Meeting. Any action to be taken by Stockholders
----------------------
may be taken without a meeting if (1) all Stockholders entitled to vote on the
matter consent to the action in writing, (2) all Stockholders entitled to notice
of the meeting but not entitled to vote at it sign a written waiver of any right
to dissent and (3) said consents and waivers are filed with the records of the
meetings of Stockholders. Such consent shall be treated for all purposes as a
vote at a meeting.
ARTICLE III.
Board of Directors.
------------------
Section 1. General Powers. Except as otherwise provided in the Articles of
--------------
Incorporation, the business and affairs of the Company shall be managed under
the direction of the Board of Directors. All powers of the Company may be
exercised by or under authority of the Board of Directors except as conferred on
or reserved to the Stockholders by law, by the Articles of Incorporation or by
these Bylaws.
Section 2. Board of Three to Twelve Directors. The Board of Directors shall
----------------------------------
consist of not less than three (3) nor more
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<PAGE>
than twelve (12) Directors (subject to the terms of any Articles Supplementary
with respect to any class or series of capital stock established pursuant to
Article IV (3) of the Articles of Incorporation); provided that if there are
less than three stockholders, the number of Directors may be less than three but
not less than the number of stockholders or, if there are no stockholders, one.
Directors need not be Stockholders. The majority of the entire Board of
Directors shall have power from time to time, and at any time when the
Stockholders as such are not assembled in a meeting, regular or special, to
increase or decrease the number of Directors. If the number of Directors is
increased, the additional Directors may be elected by a majority of the
Directors in office at the time of the increase. A director so elected by the
Board shall serve until the next annual meeting of stockholders and until his
successor is elected and qualifies.
Beginning with the first annual meeting of Stockholders held after the initial
public offering of the shares of the Company (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 on the next annual meeting, Class II on the
second next annual meeting and Class III on the third next annual meeting, or
thereafter in each case when their respective successors are elected and
qualified. At each subsequent annual election, the Directors chosen to succeed
those
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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 3. Director Nominations.
--------------------
(a) Only persons who are nominated in accordance with the procedures set
forth in this Article III shall be eligible for election or re-election as
Directors. Nominations of persons for election or re-election to the Board of
Directors of the Company may be made at a meeting of Stockholders by or at the
direction of the Board of Directors or by any Stockholder of the Company who is
entitled to vote for the election of such nominee at the meeting and who
complies with the notice procedures set forth in this Article III.
(b) Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice delivered in writing
to the Secretary of the Company. To be timely, any such notice by a Stockholder
must be delivered to or mailed and received at the principal executive offices
of the Company not later than 60 days, but no more than 90 days prior to 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
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<PAGE>
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 meeting was given or such
public disclosure was made.
(c) Any such notice by a Stockholder shall set forth (i) as to each
person whom the Stockholder proposes to nominate for election or re-election as
a Director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the capital stock of the Company which are beneficially
owned by such person and (D) any other information relating to such person that
is required to be disclosed in solicitations of proxies for the election of
Directors pursuant to Regulation 14A under the Securities Exchange Act of 1934
or any successor regulation thereto (including without limitation such person's
written consent to being named in the proxy statement as a nominee and to
serving as a Director if elected and whether any person intends to seek
reimbursement from the Company of the expenses of any solicitation of proxies
should such person be elected a Director of the Company); and (ii) as to the
Stockholder giving the notice (A) the name and address, as they appear on the
Company's books, of such Stockholder and (B) the class and number of shares of
the capital stock of the Company which are beneficially owned by such
Stockholder. At the request of the Board of Directors any person nominated by
the Board of Directors for election as a Director shall furnish to the Secretary
of the Company that information required to be set forth in a Stockholder's
notice of nomination which pertains to the nominee.
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<PAGE>
(d) If a notice by a Stockholder is required to be given pursuant to this
Article III, no person shall be entitled to receive reimbursement from the
Company of the expenses of a solicitation of proxies for the election as a
Director of a person named in such notice unless such notice states that such
reimbursement will be sought from the Company. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
Bylaws, and, if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded for all purposes.
Section 4. Vacancies. Subject to the provisions of the Investment Company
---------
Act of 1940, as amended, if the office of any Director or Directors becomes
vacant for any reason (other than an increase in the number of Directors), the
Directors in office, although less than a quorum, shall continue to act and may
choose a successor or successors, who shall hold office until the next election
of Directors, or any vacancy may be filled by the Stockholders at any meeting
thereof.
Section 5. Removal. At any meeting of Stockholders duly called and at which
-------
a quorum is present, the Stockholders may, by the affirmative vote of the
holders of at least seventy-five percent (75%) of the votes entitled to be cast
thereon to fill that directorship, remove any Director or Directors from office,
but only with cause, and may elect a successor or successors to
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<PAGE>
fill any resulting vacancies for the unexpired term of the removed Director.
Section 6. Resignation. A Director may resign at any time by giving written
-----------
notice of his resignation to the Board of Directors or the Chairman of the Board
or the Secretary of the Company. Any resignation shall take effect at the time
specified in it or, should the time when it is to become effective not be
specified in it, immediately upon its receipt. Acceptance of a resignation
shall not be necessary to make it effective unless the resignation states
otherwise.
Section 7. Place of Meetings. The Directors may hold their meetings at the
-----------------
principal office of the Company or at such other places, either within or
outside the State of Maryland, as they may from time to time determine.
Section 8. Regular Meetings. Regular meetings of the Board may be held at
----------------
such date and time as shall from time to time be determined by resolution of the
Board.
Section 9. Special Meetings. Special meetings of the Board may be called by
----------------
order of the Chairman of the Board on notice, which may be less than one day's
notice given to each Director either in person or by mail, telephone, facsimile
transmission or other standard form of telecommunication to each Director at his
residence or regular place of business. Special meetings will be called by the
Chairman or Vice Chairman, if any, of the Board or
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<PAGE>
Secretary in a like manner on the written request of a majority of the
Directors.
Section 10. Quorum. At all meetings of the Board, the presence of one-third
------
of the number of Directors then in office (but not less than two Directors)
shall be necessary to constitute a quorum and sufficient for the transaction of
business, and any act of a majority present at a meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by these
Bylaws. If a quorum shall not be present at any meeting of Directors, the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 11. Organization. The Board of Directors shall designate one of its
------------
members to serve as Chairman of the Board. The Chairman of the Board shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to act another Director chosen by a majority of the
Directors present, shall act as chairman of the meeting and preside at the
meeting. The Secretary (or, in his absence or inability to act, any person
appointed by the chairman) shall act as secretary of the meeting and keep the
minutes of the meeting.
Section 12. Informal Action by Directors and Committees; Telephone
-------------------------------------------- ---------
Participation. Any action required or permitted to be taken at any meeting of
- -------------
the Board of Directors or of any
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<PAGE>
committee thereof may, except as otherwise required by statute, be taken without
a meeting if a written consent to such action is signed by all members of the
Board, or of such committee, as the case may be, and filed with the minutes of
the proceedings of the Board or committee. Subject to the Investment Company Act
of 1940, as amended, members of the Board of Directors or a committee thereof
may participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time.
Section 13. Executive Committee. There may be an Executive Committee of one
-------------------
or more Directors appointed by the Board who may meet at stated times or on
notice to all by any of their own number. The Executive Committee shall consult
with and advise the Officers of the Company in the management of its business
and exercise such powers of the Board of Directors as may be lawfully delegated
by the Board of Directors. Vacancies shall be filled by the Board of Directors
at any regular or special meeting. The Executive Committee shall keep regular
minutes of its proceedings and report the same to the Board when required.
Section 14. Audit Committee. There shall be an Audit Committee of two or
---------------
more Directors who are not "interested persons" of the Company (as defined in
the Investment Company Act of 1940, as amended) appointed by the Board who may
meet at stated times or on notice to all by any of their own number. The
Committee's duties shall include reviewing both the audit and
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<PAGE>
other work of the Company's independent accountants, recommending to the Board
of Directors the independent accountants to be retained, and reviewing generally
the maintenance and safekeeping of the Company's records and documents.
Section 15. Other Committees. The Board of Directors may appoint other
----------------
committees which shall in each case consist of such number of members (which may
be one) and shall have and may exercise, to the extent permitted by law, such
powers as the Board may determine in the resolution appointing them. A majority
of all members of any such committee may determine its action, and fix the time
and place of its meetings, unless the Board of Directors shall otherwise
provide. The Board of Directors shall have power at any time to change the
members and, to the extent permitted by law, to change the powers of any such
committee, to fill vacancies and to discharge any such committee.
Section 16. Compensation of Directors. The Board may, by resolution,
-------------------------
determine what compensation and reimbursement of expenses of attendance at
meetings, if any, shall be paid to Directors in connection with their service on
the Board. Nothing herein contained shall be construed to preclude any Director
from serving the Company in any other capacity or from receiving compensation
therefor.
ARTICLE IV.
Officers.
--------
Section 1. Number and Qualifications. The Directors shall appoint the
-------------------------
Officers, who need not be members of the Board. The
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<PAGE>
Officers of the Company shall include a President, Secretary and Treasurer. Any
two offices may be held by the same person except the offices of President and
Vice President. A person who holds more than one office in the Company may not
act in more than one capacity to execute, acknowledge or verify an instrument
required by law to be executed, acknowledged or verified by more than one
officer.
Section 2. Additional Officers. The Board may appoint such other Officers
-------------------
as it shall deem necessary who shall exercise such powers and perform such
duties as shall be determined from time to time by the Board. The Board of
Directors from time to time may delegate to one or more officers the power to
appoint any subordinate officers and to prescribe their respective rights, terms
of office, authorities and duties.
Section 3. Salaries of Officers. The salaries of all Officers of the
--------------------
Company shall be fixed by the Board of Directors.
Section 4. Term, Removal, Vacancies. The Officers of the Company shall
------------------------
serve at the pleasure of the Board of Directors and hold office for one year and
until their successors are chosen and qualify in their stead. Any Officer
elected or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Directors. If the office of any Officer
becomes vacant for any reason, the vacancy shall be filled by the Board of
Directors.
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Section 5. President. The President shall be the chief executive officer of
---------
the Company, shall, subject to the supervision of the Board of Directors, have
general responsibility for the management of the business of the Company and
shall see that all orders and resolutions of the Board are carried into effect.
Section 6. Vice President. Any Vice President shall, in the absence or
--------------
disability of the President, perform the duties and exercise the powers of the
President and shall perform such other duties as the Board of Directors shall
prescribe.
Section 7. Treasurer. The Treasurer shall have the custody of the corporate
---------
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company and shall deposit all moneys and
other valuable effects in the name and to the credit of the Company in such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Company as may be ordered by the Board, taking proper vouchers
for such disbursements, and shall render to the Chairman of the Board and
Directors at the regular meetings of the Board, or whenever they may require it,
an account of the financial condition of the Company.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, may perform all the duties of the Treasurer.
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<PAGE>
Section 8. Secretary. The Secretary shall attend meetings of the Board and
---------
meetings of the Stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose, and shall perform like duties
for the Executive Committee of the Board when required. He shall give or cause
to be given notice of all meetings of Stockholders and special meetings of the
Board of Directors and shall perform such other duties as may be prescribed by
the Board of Directors. He shall keep in safe custody the seal of the Company
and affix it to any instrument when authorized by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary or the Board of Directors may assign, and, in the absence of the
Secretary, may perform all the duties of the Secretary.
Section 9. Surety Bonds. The Board of Directors may require any officer or
------------
agent of the Company to execute a bond (including, without limitation, any bond
required by the Investment Company Act of 1940, as amended, and the rules and
regulations of the Securities and Exchange Commission) to the Company in such
sum and with such surety or sureties as the Board of Directors may determine,
conditioned upon the faithful performance of his duties to the Company,
including responsibility for negligence and for the accounting of any of the
Company's property, funds or securities that may come into his hands.
ARTICLE V.
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<PAGE>
General Provisions.
------------------
Section 1. Waiver of Notice. Whenever the Stockholders or the Board of
----------------
Directors are authorized by statute, the provisions of the Articles of
Incorporation or these Bylaws to take any action at any meeting after notice,
such notice may be waived, in writing, before or after the holding of the
meeting, by the person or persons entitled to such notice, or, in the case of a
Stockholder, by his duly authorized attorney-in-fact. Such notice is also
waived if the person entitled to the notice is present at the meeting in person,
or, in the case of a stockholder, by proxy.
Section 2. Indemnity.
---------
(a) The Company shall indemnify its directors to the fullest extent that
indemnification of directors is permitted by the Maryland General Corporation
Law. The Company shall indemnify its officers to the same extent as its
directors and to such further extent as is consistent with law. The Company
shall indemnify its directors and officers who, while serving as directors or
officers, also serve at the request of the Company as a director, officer,
partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan to
the fullest extent consistent with law. The indemnification and other rights
provided by this Article shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. This Article shall not protect any such person
against any
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<PAGE>
liability to the Company 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) Any current or former director or officer of the Company seeking
indemnification within the scope of this Article shall be entitled to advances
from the Company for payment of the reasonable expenses incurred by him in
connection with the matter as to which he is seeking indemnification in the
manner and to the fullest extent permissible under the Maryland General
Corporation Law. The person seeking indemnification shall provide to the
Company a written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the Company has been met and a written
undertaking to repay any such advance if it should ultimately be determined that
the standard of conduct has not been met. In addition, at least one of the
following additional conditions shall be met: (i) the person seeking
indemnification shall provide security in form and amount acceptable to the
Company for his undertaking; (ii) the Company is insured against losses arising
by reason of the advance; or (iii) a majority of a quorum of the full Board of
Directors of the Company, the members of which majority are neither "interested
persons" as defined in Section 2(a)(19) of the Investment Company Act of 1940,
as amended, nor parties to the proceeding ("disinterested non-party directors"),
or independent legal counsel, in a written opinion, shall have
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determined, based on a review of facts readily available to the Company at the
time the advance is proposed to be made, that there is reason to believe that
the person seeking indemnification will ultimately be found to be entitled to
indemnification.
(c) At the request of any person claiming indemnification under this
Article, the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law, whether the
standards required by this Article have been met. Indemnification shall be made
only following: (i) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be indemnified was not
liable by reason of disabling conduct or (ii) in the absence of such a decision,
a reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by reason of disabling conduct by (i) the vote of
a majority of a quorum of disinterested non-party directors, which quorum shall
consist of a majority of the disinterested non-party directors or (ii) an
independent legal counsel in a written opinion.
(d) Employees and agents who are not officers or directors of the Company
may be indemnified, and reasonable expenses may be advanced to such employees or
agents, as may be provided by action of the Board of Directors or by contract,
subject to any limitations imposed by the Investment Company Act of 1940.
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<PAGE>
(e) 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 Article 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.
(f) References in this Article are to the Maryland General Corporation Law
and to the Investment Company Act of 1940, as from time to time amended. No
amendment of these Bylaws shall affect any right of any person under this
Article based on any event, omission or proceeding prior to the amendment.
Section 3. Insurance. The Company may purchase and maintain insurance on
---------
behalf of any person who is or was a director, officer, employee or agent of the
Company or who, while a director, officer, employee or agent of the Company, is
or was serving at the request of the Company as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan,
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position; provided that no insurance
may be purchased by the Company on behalf of any person against any liability to
the Company or to its Stockholders to
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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.
Section 4. Checks. All checks or demands for money and notes of the Company
------
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the Company shall be determined
-----------
by resolution of the Board of Directors.
ARTICLE VI.
Certificates of Stock.
---------------------
Section 1. Certificates of Stock. The interest of each Stockholder of the
---------------------
Company shall be evidenced by certificates for shares of stock in such form as
the Board of Directors may from time to time prescribe. The certificates shall
be numbered and entered in the books of the Company as they are issued. They
shall exhibit the holder's name and the number of whole shares and no
certificate shall be valid unless it has been signed by the President, Vice
President or Chairman and the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary and bears the corporate seal. Such seal may
be a facsimile, engraved or printed. Where any such certificate is signed by a
Transfer Agent or by a Registrar, the signatures of any such officer may be
facsimile, engraved or printed. In case any of the officers of the Company whose
manual or facsimile signature appears on any stock certificate delivered to a
Transfer Agent of
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<PAGE>
the Company shall cease to be such Officer prior to the issuance of such
certificate, the Transfer Agent may nevertheless countersign and deliver such
certificate as though the person signing the same or whose facsimile signature
appears thereon had not ceased to be such officer, unless written instructions
of the Company to the contrary are delivered to the Transfer Agent.
Section 2. Lost, Stolen or Destroyed Certificates. The Board of Directors,
--------------------------------------
or the President together with the Treasurer or Secretary, may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Company, alleged to have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed, or by his legal representative. When authorizing
such issue of a new certificate, the Board of Directors, or the President and
Treasurer or Secretary, may, in its or their discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as it or they shall require and/or give the Company a bond in such
sum and with such surety or sureties as it or they may direct as indemnity
against any claim that may be made against the Company with respect to the
certificate alleged to have been lost, stolen or destroyed for such newly issued
certificate.
Section 3. Transfer of Stock. Shares of the Company shall be transferable
-----------------
on the books of the Company by the holder
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<PAGE>
thereof in person or by his duly authorized attorney or legal representative
upon surrender and cancellation of a certificate or certificates for the same
number of shares of the same class, duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, with such proof of
the authenticity of the signature as the Company or its agents may reasonably
require. The shares of stock of the Company may be freely transferred, and the
Board of Directors may, from time to time, adopt rules and regulations with
reference to the method of transfer of the shares of stock of the Company.
Section 4. Registered Holder. The Company shall be entitled to treat the
-----------------
holder of record of any share or shares of stock as the holder in fact thereof
and, accordingly, shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person whether
or not it shall have express or other notice thereof, except as expressly
provided by statute.
Section 5. Record Date. The Board of Directors may fix a time not less than
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10 nor more than 90 days prior to the date of any meeting of Stockholders as the
time as of which Stockholders entitled to notice of, and to vote at, such a
meeting shall be determined; and all such persons who were holders of record of
voting stock at such time, and no other, shall be entitled to notice of, and to
vote at, such meeting. If no record date has been fixed, the record date for
the determination of Stockholders entitled to notice of, or to vote at, a
meeting of Stockholders
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shall be the later of the close of business on the day on which notice of the
meeting is mailed or the thirtieth day before the meeting. The Board of
Directors may also fix a time not exceeding 90 days preceding the date fixed for
the payment of any dividend or the making of any distribution, or for the
delivery of evidences of rights, or evidences of interests arising out of any
change, conversion or exchange of capital stock, as a record time for the
determination of the Stockholder entitled to receive any such dividend,
distribution, rights or interests.
Section 6. Stock Ledgers. The stock ledgers of the Company, containing the
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names and addresses of the Stockholders and the number of shares held by them
respectively, shall be kept at the principal offices of the Company or at the
offices of the Transfer Agent of the Company or at such other location as may be
authorized by the Board of Directors from time to time.
Section 7. Transfer Agents and Registrars. The Board of Directors may from
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time to time appoint or remove Transfer Agents and/or Registrars of transfers
(if any) of shares of stock of the Company, and it may appoint the same person
as both Transfer Agent and Registrar. Upon any such appointment being made, all
certificates representing shares of capital stock thereafter issued shall be
countersigned by one of such Transfer Agents or by one of such Registrars of
transfers (if any) or by both and shall not be valid unless so countersigned. If
the same person shall be both Transfer Agent and Registrar, only one
countersignature by such person shall be required.
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ARTICLE VII.
Amendments.
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Section 1. General. Except as provided in the next succeeding sentence and
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in the Articles of Incorporation, all Bylaws of the Company, shall be subject to
amendment, alteration or repeal, and new Bylaws may be made, by the affirmative
vote of a majority of the Board of Directors, at any regular or special meeting,
the notice or waiver of notice of which shall have specified or summarized the
proposed amendment, alteration, repeal or new Bylaw. The provisions of Sections
3 and 5 of Article II, Sections 2,3 and 5 of Article III, Sections 2 and 3 of
Article V, Section 1 of Article VII and Section 1 of Article VIII of these
ByLaws shall be subject to amendment, alteration or repeal by the Board of
Directors including the affirmative vote of 75% of the Continuing Directors (as
such term is defined in Article VIII of the Company's Articles of
Incorporation), at any regular or special meeting, the notice or waiver of
notice of which shall have specified or summarized the proposed amendment,
alteration or repeal.
ARTICLE VIII.
Special Provisions.
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Section 1. Actions Relating to Discount in Price of the Company's Shares.
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In the event that at any time after the second anniversary of the initial public
offering of shares of the Company's Common Stock, such shares publicly trade for
a substantial period of time at a substantial discount from the Company's then
current net asset value per share, the Board of Directors shall consider, at its
next regularly scheduled meeting, taking various actions designed to eliminate
the discount. The actions considered by the Board of Directors may include
periodic repurchases by the Company of its shares of Common Stock or an
amendment to the Company's Articles of Incorporation to make the Company's
Common Stock a "redeemable security" (as such term is defined in the Investment
Company Act of 1940), subject in all events to compliance with all applicable
provisions of the Company's Articles of Incorporation, these
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Bylaws, the Maryland General Corporation Law and the Investment Company Act of
1940.
As Adopted August 24, 1998
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