<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1998
SECURITIES ACT FILE NO. 333-62357
INVESTMENT COMPANY ACT FILE NO. 811-08985
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-2
L REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 1
[_] POST-EFFECTIVE AMENDMENT NO.
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] AMENDMENT NO. 1
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
<TABLE>
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<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Shares of Common Stock, par value 38,333,318
$.001 per share................ shares $15.00 $574,999,770 $169,624.93
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</TABLE>
(1) Includes 4,999,998 shares of Common Stock which the underwriters may
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Of this amount, $166,674.93 is being paid herewith and $2,950 was paid
upon filing of the initial Registration Statement on August 27, 1998.
---------------------
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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<PAGE>
TRAVELERS CORPORATE LOAN FUND INC.
FORM N-2
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
ITEM NO. PROSPECTUS HEADING
-------- ------------------
<C> <S> <C>
1. Outside Front Cover....................... Front Cover Page
2. Inside Front and Outside Back Cover Front Cover Page
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
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 Not Applicable
Securities...............................
12. Legal Proceedings......................... Not Applicable
13. Table of Contents of the Statement of
Additional Information.................... Not Applicable
<CAPTION>
PART B
ITEM NO.
--------
<C> <S> <C>
(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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
17. Investment Objective and Policies......... Prospectus Summary; The Fund; Use of
Proceeds; Investment Objective,
Policies and Portfolio Risks;
Additional Investment Activities;
Investment Restrictions
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 Auditors
</TABLE>
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.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED OCTOBER 2, 1998
33,333,320 SHARES
TRAVELERS CORPORATE LOAN FUND INC.
COMMON STOCK
($.001 PAR VALUE)
----------
Travelers Corporate Loan Fund Inc. (the "Fund") is a new, closed-end, non-
diversified 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 business entities operating in various industries (other than the
business of investing, reinvesting or trading in securities or other financial
instruments) and geographical regions ("Collateralized Senior Loans"). The Fund
offers investors the opportunity to receive current income by investing in a
professionally managed portfolio of Collateralized Senior Loans--a type of
investment typically unavailable to individual investors. Under normal market
conditions, the Fund will invest at least 80% of its total assets in
Collateralized Senior Loans (as an original lender or as a purchaser of an
assignment or participation). These Collateralized Senior Loans will generally
be rated, when purchased, below investment grade by Moody's Investors Service,
Inc. (below Baa) or Standard & Poor's Ratings Group (below BBB) or will be of
comparable quality if unrated. Collateralized Senior Loans generally involve
greater volatility of price and risks to principal and income than higher rated
securities. 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 they are acquired by the Fund, 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. The Fund expects that investing in Collateralized Senior Loans,
uncollateralized senior loans, debt securities with maturities no longer than
five years and money market instruments will minimize interest rate related
fluctuations in net asset value. The credit quality of borrowers under
Collateralized Senior Loans should be the most important factor affecting the
Fund's net asset value per share. There is no assurance that the Fund will
realize its investment objective. Investments in Collateralized Senior Loans
involve substantial risk since the borrowers may be highly leveraged and may
not have access to other traditional methods of financing. During economic
downturns or sustained periods of rising interest rates, borrowers under
Collateralized Senior Loans are more likely to experience financial stress
(especially if they are highly leveraged)
(Continued on next page)
----------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
COMMON
STOCK: PRICE TO PUBLIC(1)(3) SALES LOAD(1)(2) PROCEEDS TO FUND(3)(4)
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $15.00 none $15.00
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Total(4) $[ ] none $[ ]
</TABLE>
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(Footnotes on the following page)
----------
The Common Stock is offered by the underwriters named in this Prospectus,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. Delivery of the Common Stock will be made in book-entry form
through The Depository Trust Company on or about [ ], 1998.
----------
SALOMON SMITH BARNEY BT ALEX. BROWN BANC BOSTON ROBERTSON STEPHENS
CIBC OPPENHEIMER THE NIKKO SECURITIES CO.
INTERNATIONAL, INC.
ADVEST, INC EVEREN SECURITIES, INC. THE.ROBINSON-HUMPHREY COMPANY
SUTRO & CO. INCORPORATED TUCKER ANTHONY WEDBUSH MORGAN SECURITIES
INCORPORATED
October , 1998
<PAGE>
(Continued from previous page)
and may be unable to meet payment obligations. Also, specific borrower
developments may adversely affect a borrower's ability to service its debt
obligations. See "Risk Factors and Special Considerations--Special
Considerations Relating to Collateralized Senior Loans." The Fund's shares are
not deposits of, nor guaranteed or endorsed by, any bank or depositary
institution. The Fund's shares are not insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other governmental
agency.
Mutual Management Corp. ("MMC" or the "Adviser") is the Fund's investment
adviser and administrator, and Travelers Asset Management International
Corporation ("TAMIC" or the "Sub-Adviser") is the Fund's sub-investment
adviser.
The Fund may seek to enhance its return by leveraging its capital structure
by borrowing money or issuing preferred stock or debt securities in an amount
up to 33 1/3% of its total assets including the amount obtained from leverage.
The Fund intends to use 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 involves special risks and costs. Leverage may
magnify fluctuations in the Fund's net asset value per share. The Fund intends
to borrow on a floating or variable rate basis to mitigate the risk that the
costs of borrowing will exceed the total return on an investment. There is no
assurance that the Fund's leverage strategy will succeed. See "Risk Factors
and Special Considerations--Leverage" and "Investment Objective, Policies and
Portfolio Risks"--"Additional Investment Activities--Leverage."
Closed-end fund shares 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 the public offering. The Fund is
intended primarily for long-term investors and is not 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
"TLI" subject to official notice of issuance.
Before this offering, there had been no public market for the Fund's shares
of Common Stock.
The Fund's address is 388 Greenwich Street, New York, New York 10013, and
the Fund's telephone number is 1-(800)-331-1710. Please read this Prospectus
before investing and keep it for future reference. It contains important
information, including how the Fund invests and the services available to
investors. The Securities and Exchange Commission (the "Commission") maintains
a web site (http://www.sec.gov) that contains material incorporated by
reference and other information of registrants that file electronically with
the Commission.
------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR AFFECT THE MARKET PRICE OF THE FUND'S COMMON
STOCK. THESE TRANSACTIONS INCLUDE STABILIZING BIDS, COVERING TRANSACTIONS OR
PENALTY BIDS AND MAY TAKE PLACE ON THE NEW YORK STOCK EXCHANGE OR OTHER
TRADING MARKETS. SEE "UNDERWRITING" FOR A DESCRIPTION OF THESE ACTIVITIES.
------------
(Footnotes from cover page)
(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 will 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 approximately $250,000 to be paid to the underwriters
as reimbursement of certain of their expenses in connection with the
offering), estimated at $1,234,500.
(4) The Fund has granted the underwriters an option exercisable for [ ]
days after the date hereof to purchase up to an additional 4,999,998
shares to cover over-allotments. If all such shares are purchased, the
total Price to Public and Proceeds to Fund will be $574,999,770. See
"Underwriting."
2
<PAGE>
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all the information that may
be important to you. You should read the entire Prospectus before you decide to
invest.
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 allows
individual investors to invest in a professionally
managed portfolio of 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 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
Investors Services, Inc. (below Baa) ("Moody's") or
Standard & Poor's Rating Service (below BBB) ("S&P")
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 "Administrative Agent").
3
<PAGE>
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, if
unrated, 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 corporate 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. 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.
4
<PAGE>
The Fund is not subject to any restrictions with
respect to the maturity of Collateralized Senior
Loans held in its portfolio. However, it is
currently anticipated that, under normal market
conditions, the Fund will invest in Collateralized
Senior Loans with stated maturities of between five
and 10 years. 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
actual 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 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, if unrated, 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 Relating to
Collateralized
5
<PAGE>
Senior Loans" and "--Special Considerations Related
to Other Securities and Investment Strategies--High
Yield/Lower Rated Securities", "Investment
Objective, Policies and Portfolio Risks" and
"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 the
anticipated dollar-weighted average time until the
next interest rate redetermination of 120 days or
less are 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 experience interest rate related
fluctuations 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 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
6
<PAGE>
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 the Fund's
leveraging strategy will be successful if 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.
The Offering............
33,333,320 shares of Common Stock, par value $.001
per share (the "Common Stock"), of the Fund are
being offered for sale through the several
underwriters (collectively, the "Underwriters") for
whom Salomon 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 4,999,998 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 "TLI" subject to official notice of issuance.
7
<PAGE>
Stock Symbol............
"TLI"
Investment Adviser and
Administrator.....
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 August 31, 1998 of approximately $106 billion.
MMC also 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 August 31, 1998, those persons
managed $760 million of assets invested in
Collateralized Senior Loans by those affiliates.
Management Fees.........
The Fund will pay MMC for its investment advisory and
administration services a monthly fee at an annual
rate of 1.05% of the value of the Fund's average
weekly assets. See "Management of the Fund--
Investment Adviser and Administrator." 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. During
periods in which the Fund is utilizing 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 leverage 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..........
It is the Fund's present policy to distribute the net
investment income of the Fund to holders of Common
Stock on a monthly basis, beginning with its initial
distribution approximately 60 days after the
completion of this offering and to distribute any
net capital gain at least annually. The Fund's
policy with respect to dividends and distributions
may be changed by the Board of Directors. If the
Common Stock is leveraged,
8
<PAGE>
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 Under the Fund's Dividend Reinvestment Plan (the
Plan................... "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 Paying
Agent and Registrar....
PNC Bank, N.A. will act as custodian for the Fund's
assets. First Data Investor Services Group, Inc.
will act as transfer agent, dividend paying agent
and registrar for the Fund's Common Stock.
9
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Special Considerations
Relating to
Collateralized Senior
Loans.................. Collateralized Senior Loans in which the Fund will
invest 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 as determined by the Sub-Adviser.
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 affected adversely by
developments specific to the borrower or the
borrower's industry, including 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 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 amount of information available with
respect to such Collateralized
10
<PAGE>
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."
Collateralized Senior Loans--Illiquidity. 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 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 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."
11
<PAGE>
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, a reduction in the value of the
Collateralized Senior Loan portfolio of the Fund and
a 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 Administrative
Agent. The success of the Fund depends to some
degree on the skill with which the Administrative
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 Administrative
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 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
12
<PAGE>
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 (or of any
other person interpositioned between the Fund and
the borrower), 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 (or of any other person
interpositioned between the Fund and the borrower),
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 (or
of any other person interpositioned between the Fund
and the borrower), 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 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
13
<PAGE>
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 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. Also, the class voting
14
<PAGE>
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. 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 leverage
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 investment company, the Fund has
no operating history. Shares of closed-end
investment companies frequently trade at a discount
from net asset value. This 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
Securities and
Investment
Strategies.............
High Yield/Lower Rated Securities. The high
yield/lower 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 another NRSRO or, if unrated, will be
of comparable quality. These lower rated and
comparable unrated securities involve greater risk
than higher rated
15
<PAGE>
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 than 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. 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, any such
economic downturn could 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.
16
<PAGE>
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 The Fund may use various investment practices that
Practices.............. 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. The Fund may invest in Collateralized Senior Loans
Issuers................ 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 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
17
<PAGE>
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 person. 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 be no assurance, however, 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 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.
18
<PAGE>
Anti-Takeover The Fund's Articles of Incorporation (the "Articles
Provisions............. 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."
* * * *
You should carefully consider your ability to assume
the above risks before investing in the Fund.
Investing in the Fund may not be appropriate for all
investors.
19
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load (as a percentage of offering price)................ None
Dividend Reinvestment Plan Fees....................................... None
ANNUAL EXPENSES (as a percentage of net assets attributable to Common
Stock):
Management Fees(a)(b)................................................. 1.40%
Interest Payments on Borrowed Funds(b)................................ 2.03%
Other Expenses(b)..................................................... .15%
----
Total Annual Expenses(b)............................................ 3.58%
====
</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 3.58% (assuming leverage of 25%
of the Fund's total assets) and (2) a 5%
annual return throughout the periods:
Assuming No Leverage........................ $12 $ 38 $ 66 $ 45
Assuming 25% Leverage....................... $36 $110 $185 $384
</TABLE>
- ------------
(a) See "Management of the Fund."
(b) Based on the assumption that 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, assuming an interest rate of
approximately 6.10%, which interest rate is subject to change based on
prevailing market conditions). If the Fund does not utilize leverage, the
Management Fees would be 1.05%, Interest Payment on Borrowed Funds would
be 0.00%, Other Expenses would be .15% and Total Annual Expenses would be
1.20%. 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.
In addition, the proceeds to the Fund will reflect a deduction of
organizational and offering expenses payable by the Fund (including
approximately $250,000 to be paid to the underwriters as reimbursement of
certain of their expenses in connection with the offering), estimated at
$1,234,500.
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 (800) 331-1710. 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.
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 and Government
Securities." 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."
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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
an aggregate of 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 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.
CERTAIN CHARACTERISTICS OF COLLATERALIZED SENIOR LOAN INTERESTS
The market for Collateralized Senior Loans has developed 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 frequently
originates the Collateralized Senior Loan and invites 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. 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 "Administrative Agent"). 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, Baa or
P-3 or higher by Moody's or a
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comparable rating from another NRSRO) or, if unrated, 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 (and any other person interpositioned between the
Fund and the borrower) 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. The Fund currently does not intend to invest in
loans to entities primarily engaged in the business of investing, reinvesting
or trading in securities or other financial instruments.
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 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.
Before investing in 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
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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 at times there may be
significant economic incentives for a 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 experience interest
rate related fluctuations 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
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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 Administrative 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 Administrative Agent to collect
its portion of the payments on the Collateralized Senior Loan. Further, the
Fund will rely on the Administrative Agent to monitor collateral and to enforce
appropriate creditor remedies against the borrower. Typically, under Loan
Agreements, the Administrative 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 Administrative 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 Administrative 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.
Loan Agreements typically provide for the termination of the Administrative
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.
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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 (and any other person
interpositioned between the Fund and the borrower). 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, if unrated, determined by the Sub-Adviser to be of comparable quality and
(ii) the seller of the Participation (and any other person interpositioned
between the Fund and the borrower) 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 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--Ratings of
Corporate Bonds." 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 1940 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 purchasing
Participations, the Fund may be more susceptible than an investment
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company that does not purchase Participations 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. 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 otherwise comparable
Collateralized Senior Loans.
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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 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.
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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 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-Adviser 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
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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 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
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<PAGE>
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 6.10% 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 order to
cover such interest payments would be 2.03. 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.................. (15.36)% (8.70)% (2.03)% 4.69% 11.30%
</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.
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<PAGE>
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. The
Fund will not purchase lower rated securities that are not, at the time of
purchase, current in the payment of interest and principal.
Lower rated securities, though high yielding, are characterized by high risk.
They may be subject to certain risks with respect to the issuer 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 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 hedging or similar strategies in order to manage risk 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 to facilitate the sale of such
investments for investment purposes,
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<PAGE>
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 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.
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<PAGE>
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. 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.
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.
34
<PAGE>
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 securities representing
indebtedness, which are subject to asset coverage requirements under the 1940
Act.
LOANS OF PORTFOLIO ASSETS
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 payments 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 with cash collateral
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 or take possession
of such collateral. During the time assets are on loan, the borrower will make
payments in respect of 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 and
collateral received 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 (including the value of assets purchased with
collateral received in respect of the loans).
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
35
<PAGE>
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.
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 AND GOVERNMENT SECURITIES
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
36
<PAGE>
monitor the value of the financial instrument underlying the repurchase
agreement at the time the transaction is entered into and 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.
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.
37
<PAGE>
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 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 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:
38
<PAGE>
(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).
MANAGEMENT OF THE FUND
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund has retained MMC, an indirect, wholly-owned subsidiary of Travelers
Group Inc. ("Travelers") as its investment adviser and administrator. MMC is
located at 388 Greenwich Street, New York, New York, 10013. MMC, in turn, has
retained TAMIC, also a wholly-owned indirect subsidiary of Travelers as the
sub-investment adviser. MMC is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and provides
investment advisory, investment management and/or administrative services to
investment companies that had aggregate assets under management of
approximately $106 billion as of August 31, 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.
For its services, pursuant to an investment management and administrative
agreement with the Fund (the "Advisory Agreement"), MMC receives from the Fund
a monthly fee at an annual rate of 1.05% 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 leverage), (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. This 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.
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.
On April 6, 1998, Travelers announced that it had entered into a Merger
Agreement with Citicorp. The transaction was approved by the stockholders of
both Travelers and Citicorp on June 22, 1998 and by the Federal
39
<PAGE>
Reserve Board on September 23, 1998. The companies expect the merger to close
on or about October 8, 1998, creating a new entity to be called Citigroup. By
approving the merger, the Federal Reserve Board approved Travelers, as the
surviving entity, becoming a bank holding company subject to regulation under
Bank Holding Company Act of 1956 (the "BHCA"), the requirements of the Glass-
Seagall Act and certain other laws and regulations.
The Adviser and Sub-Adviser do not believe that compliance with applicable
law following the merger of Travelers and Citicorp will have a material
adverse effect on their ability to provide the Fund with investment advisory
and administration services.
SUB-INVESTMENT ADVISER
TAMIC, located at 388 Greenwich Street, New York, New York, 10013, is
registered under the Advisers Act and currently manages assets with a value of
$5.9 billion as of August 31, 1998. For its services, TAMIC receives from MMC
a monthly fee at an annual rate of 0.50% of the value of the Fund's average
weekly assets. 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 August 31,
1998, those persons managed $760 million of assets invested in Collateralized
Senior Loans by those affiliates; as a result of investing for these accounts
in Collateralized Senior Loans, TAMIC has developed the systems, accounting,
credit analysis and performance analysis experience deemed appropriate for the
management of the Fund's portfolio. TAMIC provides advisory services with
respect to assets typically available only to a limited number of
institutional investors.
Glenn N. Marchak, a certified public accountant, joined the Sub-Adviser in
1998 as a Senior Vice President 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. From 1997 to 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. from 1993 to 1997.
Mr. Marchak was a Vice President at Citibank, N.A. in the Loan Syndications
Department and prior to that the Leveraged Finance Department from 1986 to
1993. 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.
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
40
<PAGE>
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.
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. Mr. McLendon is the sole
Director who is an "interested person" of the Fund (as defined in the 1940
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.
The following lists the Directors and officers and their positions with the
Fund and their present and principal occupations during the past five years.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING
POSITIONS HELD WITH PAST FIVE YEARS, OTHER
NAME AND ADDRESS REGISTRANT DIRECTORSHIPS AND AGE
---------------- ----------------------- ------------------------
<C> <C> <S>
Allan J. Bloostein............ Director President of Allan J.
Allan J. Bloostein Associates Bloostein Associates, a
717 Fifth Avenue, 21st Floor consulting firm; retired
New York, NY 10022-8101 Vice Chairman and
Director of May
Department Stores;
Director of CVS
Corporation and Taubman
Centers Inc.; 68.
Martin Brody.................. Director Consultant, HMK
HMK Associates Associates; retired Vice
30 Columbia Turnpike Chairman of the Board of
Florham Park, NJ 07932 Directors of Restaurant
Associates Corp.;
Director of Jaclyn,
Inc.; 77.
Dwight Crane.................. Director Professor, Harvard
Harvard Business School Business School; 60.
Soldiers Field
Morgan Hall #371
Boston, MA 02163
Robert A. Frankel............. Director Managing Partner of
Management Consultants Robert A. Frankel
102 Grand Street Management Consultants;
Croton-on-Hudson, NY 10520 formerly Corporate Vice
President of the
Reader's Digest
Association Inc.; 71.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING
POSITIONS HELD WITH PAST FIVE YEARS, OTHER
NAME AND ADDRESS REGISTRANT DIRECTORSHIPS AND AGE
---------------- ------------------------- ----------------------------
<C> <C> <S>
William R. Hutchinson.. Director Vice President-Financial
Amoco Corp. Operations AMOCO
200 East Randolph Corporation; Director of
Drive Associated Bank and Director
Mail Code 3205 of Associated Banc-Corp.;
Chicago, IL 60601 55.
Heath B. McLendon...... Director, Chief Executive Managing Director of Salomon
Officer, Chairman of the Smith Barney; Director of
Board and President fifty-eight investment
companies associated with
Salomon Smith Barney;
President of MMC; Chairman
of Smith Barney Strategy
Advisers Inc. and President
of Travelers Investment
Advisers, Inc. ("TIA").
Prior to July 1993, Senior
Executive Vice President of
Shearson Lehman Brothers
Inc.; Vice Chairman of
Shearson Asset Management;
65.
Lewis E. Daidone....... Senior Vice President, Managing Director of Salomon
Treasurer and Chief Smith Barney; Senior Vice
Financial Officer President and Treasurer or
Executive Vice President and
Treasurer of fifty-eight
investment companies
associated with Salomon
Smith Barney; Director and
Senior Vice President of MMC
and TIA; 41.
Glenn N. Marchak....... Vice President and Senior Vice President of
Investment Officer Traveler's Asset Management
International Corporation;
Managing Director of Smith
Barney, Inc. from 1997 to
1998; Senior Vice President
and Head of Loan
Syndications at National
Westminister Bank plc. from
1993 to 1997; and Vice
President at Citibank N.A.
from 1986 to 1993; 42.
Christina T. Sydor..... Secretary Managing Director of Salomon
Smith Barney; Secretary or
Executive Vice President and
General Counsel of forty-
three investment companies
associated with Salomon
Smith Barney; Secretary and
General Counsel of MMC and
TIA; 47.
Irving P. David........ Controller Director of Salomon Smith
Barney Inc. and MMC;
Controller of several
investment companies
associated with Salomon
Smith Barney Inc.; Prior to
March 1994, Assistant
Treasurer of First
Investment Management
Company; 37.
</TABLE>
42
<PAGE>
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
$5,000 per annum and $500 per Board meeting attended in person, $100 for each
telephonic Board meeting and reimburses each Director for travel and out-of-
pocket expenses.
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION
NAME AND AGGREGATE BENEFITS ACCRUED ANNUAL FROM THE FUND
ADDRESS OF COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
BOARD MEMBER FROM FUND(1) EXPENSES RETIREMENT BOARD MEMBER(2)
------------ ------------ ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
Allan J. Bloostein...... $7,000 None None $ 85,850
Martin Brody............ $7,000 None None $119,814
Dwight Crane............ $7,000 None None $133,850
Robert A. Frankel....... $7,000 None None $ 65,900
William R. Hutchinson... $7,000 None None $ 35,750
Heath B. McLendon....... None None None None
</TABLE>
(1) Amounts shown are estimates of payments to be made for the remaining
period of the fiscal year ending on September 30, 1999 pursuant to
existing arrangements.
(2) These payments are for the 1997 calendar year. A Fund Complex means two or
more investment companies that hold themselves out to investors as related
companies for purposes of investment and investor services, or have a
common investment adviser or have an investment adviser that is an
affiliated person of the investment adviser of any other investment
company.
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.
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
43
<PAGE>
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.
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
44
<PAGE>
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 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 the market price per share of Common
Stock is equal to or exceeds the 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. 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
45
<PAGE>
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 1-800-331-1710. 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 $5.00 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 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 8030, Boston,
Massachusetts 02266-8030.
46
<PAGE>
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 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.
47
<PAGE>
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. It is not expected that a
significant portion of the Fund's dividends and distributions will be eligible
for the dividends received deduction for corporations. The Fund will inform
shareholders of the source and tax status of all distributions promptly after
the close of each calendar year.
Any dividend or distribution 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
shareholder on December 31 of such calendar year, provided that such dividend
is actually paid by the Fund during January of the following 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, and will be a long-term
capital gain or loss if the shares have been held for more than one year. Any
loss realized on the sale or exchange will be disallowed to the extent the
shares disposed of are replaced by substantially identical shares (including
shares acquired through the Plan) within a period of 61 days beginning 30 days
before and ending 30 days after the disposition of the shares. In such case,
the basis of the shares acquired will be increased to reflect the disallowed
loss. Any loss realized by a shareholder on the sale of a share or 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.
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<PAGE>
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 nature and pricing history (if
any) of the portfolio instrument, (ii) whether any dealer quotations for the
portfolio instrument are available, (iii) possible valuation methodologies that
could be used to determine the fair value of the portfolio instrument, (iv) the
recommendation of the Portfolio Manager of the Fund with respect to the
valuation of the portfolio instrument, (v) whether the same or similar
portfolio instruments are held by other portfolios managed by TAMIC and the
method used to price the portfolio instruments in those portfolios, (vi) the
extent to which the fair value to be determined for the portfolio instrument
will result from the use of data or formulae produced by third parties
independent of MMC and TAMIC, (vii) the liquidity or illiquidity of the market
for the particular portfolio instrument, (viii) the creditworthiness of the
borrower and any party interpositioned between the Fund and the borrower, (ix)
the current interest rate, the period until next interest rate reset and
maturity of the Collateralized Senior Loan, (x) recent market prices for
publicly traded debt and/or equity issues, if any, of the borrower, (xi) recent
market prices for instruments of similar quality, rate, period until next
interest rate reset and maturity, and (xii) the expected recovery value of a
Collateralized
49
<PAGE>
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 Senior Loans 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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<PAGE>
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 and Anti-Takeover 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 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
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<PAGE>
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 AND ANTI-TAKEOVER PROVISIONS
The Fund has provisions in its Articles of Incorporation and By-Laws that
could limit the ability of other entities or persons to acquire control of the
Fund, cause the Fund to engage in certain transactions or induce the Fund to
modify its structure or status under the 1940 Act as a closed-end investment
company. 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.
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
52
<PAGE>
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 September, 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
(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
53
<PAGE>
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.
54
<PAGE>
UNDERWRITING
The Underwriters named herein, for whom Salomon 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, the Adviser, the Sub-
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>
Salomon Smith Barney Inc.......................................
BT Alex. Brown Incorporated....................................
BancBoston Robertson Stephens Inc. ............................
CIBC Oppenheimer Corp. ........................................
The Nikko Securities Co. International, Inc. ..................
Advest, Inc. ..................................................
EVEREN Securities, Inc. .......................................
The Robinson-Humphrey Company, LLC.............................
Sutro & Co. Incorporated.......................................
Tucker Anthony Incorporated....................................
Wedbush Morgan Securities......................................
---------
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
sales 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 $0.60 per share. Such payment is equal to 4.00% of the initial
public offering price per share. From this amount, the Underwriters may allow
to selected dealers a payment in the amount of $[ ] per share sold by such
dealer and such dealer may reallow a payment of [ ] per share to certain
other dealers. 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 4,999,998 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
55
<PAGE>
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.
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. Salomon Smith Barney Inc. intends to make a market in the Common
Stock after trading in the Common Stock has commenced on the NYSE. Salomon
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 Salomon 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 Salomon Smith Barney Inc.
This Prospectus, as amended from time-to-time in accordance with rules adopted
by the Commission, is to be used by Salomon 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
56
<PAGE>
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 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 Salomon
Smith Barney Inc.
MMC, TAMIC and Salomon Smith Barney Inc. are each wholly-owned, indirect
subsidiaries of Travelers Group Inc.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been
selected as the Fund's independent auditor to examine and report on the Fund's
financial statements and highlights for the fiscal year ending September 30,
1999.
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.
57
<PAGE>
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<PAGE>
APPENDIX A--DESCRIPTION OF RATINGS
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; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
A-1
<PAGE>
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 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 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
A-2
<PAGE>
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.
S&P'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.
A-3
<PAGE>
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<PAGE>
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, 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
B-1
<PAGE>
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.
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
B-2
<PAGE>
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).
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
as a hedge against changes resulting from market conditions in the values of
securities (including Collateralized Senior Loans) in its portfolio. 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
B-3
<PAGE>
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.
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.
B-4
<PAGE>
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<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS OFFERING, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND, ITS INVESTMENT ADVISER OR THE UNDERWRIT-
ERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF OR THAT THE INFORMA-
TION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCE IN WHICH SUCH AN OFFER OR SOLICITA-
TION IS UNLAWFUL.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors and Special Considerations.................................. 10
Fee Table................................................................ 20
The Fund................................................................. 21
Use of Proceeds.......................................................... 21
Investment Objective, Policies and Portfolio Risks....................... 21
Additional Investment Activities......................................... 28
Investment Restrictions.................................................. 37
Management of the Fund................................................... 39
Dividends and Distributions; Dividend Reinvestment Plan.................. 44
Taxation................................................................. 46
Determination of Net Asset Value......................................... 48
Description of Capital Stock............................................. 49
Custodian, Transfer Agent, Dividend Paying Agent and Registrar........... 53
Underwriting............................................................. 54
Independent Auditors..................................................... 56
Legal Matters............................................................ 56
Further Information...................................................... 56
Appendix A: Description of Ratings....................................... A-1
Appendix B: General Characteristics and Risks of Hedging and Other
Strategic Transactions.................................................. B-1
</TABLE>
-----------
UNTIL [ ], 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
33,333,320 SHARES
TRAVELERS CORPORATE
LOAN FUND INC.
COMMON STOCK
($.001 PAR VALUE)
-------
PROSPECTUS
, 1998
-------
SALOMON SMITH BARNEY
BT ALEX. BROWN
BANCBOSTON ROBERTSON STEPHENS
CIBC OPPENHEIMER
THE NIKKO SECURITIES CO.
INTERNATIONAL, INC.
ADVEST, INC.
EVEREN SECURITIES, INC.
THE ROBINSON-HUMPHREY COMPANY
SUTRO & CO. INCORPORATED
TUCKER ANTHONY
INCORPORATED
WEDBUSH MORGAN SECURITIES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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.(1)
(b) Statement of Net Assets and Liabilities.(1)
(2) Exhibits
<TABLE>
<C> <S>
(a) Articles of Incorporation(2)
(b) By-Laws(2)
(c) Not applicable
(d) Specimen Certificate for Common Stock, par value $.001 per
share
(e) Form of Dividend Reinvestment Plan
(f) Not applicable
(g)(1) Form of Investment Management Agreement
(2) Form of Sub-Investment Advisory Agreement
(h) Form of Underwriting Agreement
(i) Not applicable
(j) Form of Custody Agreement
(k) Form of Transfer Agency and Service Agreement(1)
(l)(1) Opinion of Willkie Farr & Gallagher(1)
(2) Consent of Willkie Farr & Gallagher
(3) Opinion and Consent of Venable Baetjer and Howard, LLP(1 )
(m) Not applicable
(n) Consent of KPMG Peat Marwick LLP(1)
(o) Not applicable
(p) Form of Subscription Agreement
(q) Not applicable
(r) Not applicable
</TABLE>
- ------------
(1)To be filed by amendment.
(2) Incorporated by reference to Registrant's Registration Statement on Form N-
2 filed August 27, 1998 (Securities Act File No. 333-62357).
Item 25. Marketing Arrangements
See Exhibit (h)--Form of Underwriting Agreement.
C-1
<PAGE>
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>
<S> <C>
Registration fees............................................... $148,000*
New York Stock Exchange listing fee............................. $150,000*
Printing (other than stock certificates)........................ $200,000*
Engraving and printing stock certificates....................... $ 10,000*
Fees and expenses of qualification under state securities laws
(including fees of counsel).................................... $ 1,500*
Accounting fees and expenses.................................... $ 25,000*
Legal fees and expenses......................................... $350,000*
NASD fees....................................................... $ 25,000*
Postage......................................................... $ 50,000*
Miscellaneous................................................... $ 25,000*
---------
Total......................................................... $984,500*
=========
</TABLE>
--------
* Estimates
Item 27. Persons Controlled by or Under Common Control with Registrant
None.
Item 28. Number of Holders of Securities
Salomon Smith Barney Inc. will hold all of Registrant's Shares of common
stock, par value $.001 per share, on the date Registrant's Registration
Statement becomes effective.
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
C-2
<PAGE>
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 Corporation
("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).
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 Corporation
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)
C-3
<PAGE>
(6) Salomon 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;
(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-4
<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 AMENDMENT TO THE 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 2ND DAY OF OCTOBER, 1998.
Travelers Corporate Loan Fund Inc.
By: /s/ Heath B. McLendon
----------------------------
HEATH B. MCLENDON
DIRECTOR, CHIEF EXECUTIVE OFFICER,
CHAIRMAN OF THE BOARD AND
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
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, Chief October 2, 1998
- ------------------------------------- Executive Officer,
HEATH B. MCLENDON Chairman of the
Board and President
/s/ Lewis E. Daidone Senior Vice October 2, 1998
- ------------------------------------- President,
LEWIS E. DAIDONE Treasurer and Chief
Financial Officer
/s/ Allan J. Bloostein Director October 2, 1998
- -------------------------------------
ALLAN J. BLOOSTEIN
/s/ Martin Brody Director October 2, 1998
- -------------------------------------
MARTIN BRODY
/s/ Dwight Crane Director October 2, 1998
- -------------------------------------
DWIGHT CRANE
/s/ Robert A. Frankel Director October 2, 1998
- -------------------------------------
ROBERT A. FRANKEL
/s/ William R. Hutchinson Director October 2, 1998
- -------------------------------------
WILLIAM R. HUTCHINSON
</TABLE>
C-5
<PAGE>
EXHIBIT INDEX TO FORM N-2
EXHIBITS SUBMITTED TO THE SECURITIES
AND EXCHANGE COMMISSION
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------------------
<C> <S>
(d) Specimen Certificate for Common Stock, par value $.001 per share
(e) Form of Dividend Reinvestment Plan
(g)(1) Form of Investment Management Agreement
(g)(2) Form of Sub-Investment Advisory Agreement
(h) Form of Underwriting Agreement
(j) Form of Custody Agreement
(l)(2) Consent of Willkie Farr & Gallagher
(p) Form of Subscription Agreement
</TABLE>
<PAGE>
NUMBER
SEAL
TM ETHER 32 H-58564-B
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THIS CERTIFICATE IS TRANSFERABLE
THE LAWS OF THE IN BOSTON, MASSACHUSETTS
STATE OF MARYLAND OR IN NEW YORK, NEW YORK
EXHIBIT D
LOGO SHARES
CUSIP 000000 00 0
SEE REVERSE
FOR CERTAIN DEFINITIONS
TRAVELERS CORPORATE LOAN FUND INC.
This Certifies that
is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
Travelers Corporate Loan Fund Inc. transferable on the books of the Corporation
by the holder hereof in person or by duly authorized Attorney upon surrender of
this Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be subject to all of the provisions of the Articles
of Incorporation of the Corporation, and the Bylaws of the Corporation, and all
amendments thereof, copies of which are on file at the principal office of the
Corporation and with the Transfer Agent. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated: Travelers Corporate Loan Fund Inc.
COUNTERSIGNED AND REGISTERED:
FIRST DATA INVESTOR SERVICES GROUP, INC.
A Subsidiary of First Data Corporation TRANSFER AGENT
(BOSTON, MASSACHUSETTS) AND REGISTRAR
BY
AUTHORIZED SIGNATURE SECRETARY PRESIDENT
<PAGE>
TRAVELERS CORPORATE LOAN FUND INC.
A full statement of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
class of stock which the Corporation is authorized to issue, and the differences
in the relative rights and preferences between the shares of each series to the
extent that they have been set and the authority of the of the Board of
Directors to set the relative rights and preferences of susequent series will be
furnished by the Corporation to any stockholder, without charge, upon request to
the Secretary of the Corporation at its principal office.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-______Custodian_______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act__________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value recieved, __________ hereby sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[__________________________________]____________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated,__________________
_____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed:
_____________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCK-
BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
________________________________________________________________________________
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: BELINDA BECK:
215-830-2198
680 BLAIR MILL ROAD PROOF OF SEPTEMBER 17, 1998
HORSHAM, PA 19044 TRAVELERS CORPORATE LOAN FUND
(215) 657-3480 H 58564 BACK
________________________________________________________________________________
SALES: D.WETZLER: 212-593-5700 OPERATOR: LR/eg
________________________________________________________________________________
/NET/BANKNOTE/HOME 52/TRAVELERS H58564 REV.1
________________________________________________________________________________
<PAGE>
EXHIBIT 99.E
TRAVELERS CORPORATE LOAN FUND INC.
TERMS AND CONDITIONS OF DIVIDEND REINVESTMENT PLAN
1. You, First Data Investor Services Group, Inc., will act as agent
("Agent") for the stockholders (the "Participants") of Travelers Corporate Loan
Fund Inc. (the "Fund"), and will open an account for each of the Participants
under the Dividend Reinvestment Plan (the "Plan") in the name of the record
owner in which shares of common stock, par value $.001 per share of the Fund
("Common Stock") are registered, and put into effect for the Participants the
distribution reinvestment provisions of the Plan as of the first record date for
a dividend or capital gain distribution after you have implemented the Plan.
2. If the Fund declares a distribution payable either in Common Stock
or in cash, non-participants in the Plan will receive cash, and Participants
will receive the equivalent amount in Common Stock valued on the valuation date
in the following manner: whenever the market price of the Common Stock on the
determination date is equal to or exceeds the net asset value per share of the
Common Stock on that date, you will acquire shares directly from the Fund at a
price equal to the greater of (1) net asset value per share on the valuation
date or (2) 95% of the then current market price per share of the Common Stock
on the valuation date. If the net asset value of the Common Stock as of the
determination date exceeds the market price of the Common Stock, you will buy
Common Stock 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
<PAGE>
the determination date and generally terminating no later than 30 days after the
dividend or distribution payment date, except when necessary to comply with
applicable provisions of the federal securities laws. If the market price equals
or exceeds the net asset value of the Common Stock before you have completed the
purchases or if you are unable to invest the full dividend amount in open market
purchases during the 30 day period, you shall cease purchasing shares in the
open market and the Fund shall issue the remaining 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 then current market price per share on the
valuation date.
3. For all purposes of the Plan: (a) the valuation date will be the
dividend or distribution payment date or, if that date is not a trading date on
the New York Stock Exchange, the immediately preceding trading day; (b) the
determination date will be the fourth New York Stock Exchange trading day
preceding the payment date for the dividend or distribution; (c) the market
price of the Fund's common stock on a particular date shall be the mean between
the highest and lowest sales prices on the New York Stock Exchange on that date,
or, if there is no sale on such Exchange on that date, then the mean between the
closing bid and asked quotations for such stock on such Exchange on such date;
(d) the net asset value per share of the Fund's common stock on a particular
date shall be as determined by or on behalf of the Fund; and (e) all
distributions and other payments shall be made net of any applicable withholding
tax.
-2-
<PAGE>
4. The open market purchases provided for above may be made on any
securities exchange where the Fund's common stock is traded, in the over-the-
counter market or in negotiated transactions and may be on such terms as to
price, delivery and otherwise as you shall determine. Participant funds held by
you uninvested will not bear interest, and it is understood that, in any event,
you shall have no liability in connection with any inability to purchase shares
within 30 days after the initial date of such purchase is herein provided, or
with the timing of any purchases effected. You shall have no responsibility as
to the value of the common stock of the Fund acquired for a Participant's
account. In connection with open market purchases, you may commingle a
Participant's funds with those of other Participants for whom you similarly act
as Agent and the average price (including brokerage commissions) of all shares
purchased by you as Agent shall be the price per share allocable to each
Participant in connection therewith.
5. You may hold shares acquired pursuant to the Plan, together with the
shares of other Participants acquired pursuant to the Plan, in noncertificated
form in your name or that of your nominee. You will forward to Participants any
proxy solicitation material and will vote any shares so held for Participants
only in accordance with the proxy returned by Participants to the Fund. Upon a
Participant's written request, you will deliver to him, without charge, a
certificate or certificates for the full shares.
-3-
<PAGE>
6. You will confirm to each Participant each acquisition made for his
account as soon as practicable but not later than 60 days after the date
thereof. Although Participants may from time to time have an undivided
fractional interest (computed to three decimal places) in a share of the Fund,
no certificates for a fractional share will need to be issued. However,
distributions on fractional shares will be credited to Participant accounts. In
the event of termination of a Participant's account under the Plan, you will
adjust for any such undivided fractional interest in cash at the market value of
the Fund's shares at the time of termination less the pro rata expense of any
sale required to make such an adjustment.
7. Any stock dividends or split shares distributed by the Fund on
shares held by you for a Participant will be credited to his account. In the
event that the Fund makes available to its stockholders rights to purchase
additional shares or other securities, the shares held for a Participant under
the Plan will be added to other shares held by such Participant in calculating
the number of rights to be issued to him.
8. Your service fee for handling the reinvestment of capital gains
distributions or income dividends will be paid by the Fund. Participants will be
charged a pro rata share of brokerage commissions on all open market purchases.
9. A Participant may terminate his account under the Plan by notifying
you in writing or by calling you at 1-800-331-1710. Such termination will be
effective immediately if notice is received by you not less than ten business
days
-4-
<PAGE>
prior to any dividend or distribution record date; otherwise such termination
will be effective on the first trading day after the investment of the then
current dividend or distribution. The Plan may be terminated by the Fund upon
notice in writing mailed to all Participants at least 30 days prior to any
record date for the payment of any dividend or distribution by the Fund. Upon
any termination you will cause a certificate or certificates for the full shares
held for each Participant under the Plan and cash adjustment for any fractional
shares to be delivered to each Participant without charge. If a Participant
elects by notice to you in writing in advance of such termination to have you
sell part or all of his shares and remit the proceeds to him, you are authorized
to deduct a $5.00 fee plus brokerage commissions actually incurred for this
transaction from the proceeds.
10. These terms and conditions may be amended or supplemented by you or
the Fund at any time or times but, except when necessary or appropriate to
comply with applicable law or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by mailing to
Participants appropriate written notice at least 30 days prior to the record
date for the first distribution or dividend to which such amendment or
supplement applied if by the Fund or, if to be amended or supplemented by you,
30 days prior to the effective date of such amendment or supplement and only
upon your receipt of the written consent of the Fund's Board of Directors. The
amendment or supplement shall be deemed to be accepted by Participants unless,
prior to the effective date thereof, you
-5-
<PAGE>
receive written notice of the termination of a Participant's account under the
Plan. Any such amendment may include an appointment by you in your place and
stead of a successor agent under these terms and conditions, with full power and
authority to perform all or any of the acts to be performed by the Agent under
these terms and conditions. Upon any such appointment of an Agent for the
purpose of receiving distributions, the Fund will be authorized to pay such
successor Agent, for a Participant's account, all distributions payable on
common stock of the Fund held in his name under the Plan for retention or
application by such successor Agent as provided in these terms and conditions.
11. You shall at all times act in good faith and agree to use your best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement and to comply with applicable law, but assume no
responsibility and shall not be liable for loss or damage due to errors unless
such error is caused by your negligence, bad faith or willful misconduct or that
of your employees.
12. These terms and conditions shall be governed by the laws of the
State of New York.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Plan on
the __ day of __________, 1998.
TRAVELERS CORPORATE LOAN FUND INC.
-------------------------------------
Heath B. McLendon
Chief Executive Officer, Chairman
of the Board and President
FIRST DATA INVESTOR SERVICES GROUP, INC.
-------------------------------------
-7-
<PAGE>
EXHIBIT 99.G1
INVESTMENT MANAGEMENT AGREEMENT
TRAVELERS CORPORATE LOAN FUND INC.
__________, 1998
Mutual Management Corp.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Travelers Corporate Loan Fund Inc. (the "Fund"), a corporation
organized under the laws of the State of Maryland, confirms its agreement with
Mutual Management Corp. (the "Adviser"), as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT
The Fund desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the investment objective,
policies and limitations specified in its Articles of Incorporation, as amended
from time to time (the "Charter"), in the prospectus ("Prospectus") and (if
applicable) the statement of additional information (the "Statement") filed with
the Securities and Exchange Commission (the "SEC") as part of the Fund's
Registration Statement on Form N-2, as amended from time to time (the
"Registration Statement"), and in the manner and to the extent as may from time
to time be approved by the Board of Directors of the Fund (the "Board"). Copies
of the Prospectus, the Statement and the Charter have been or will be submitted
to the Adviser. The Fund agrees to provide copies of all amendments to the
Registration Statement and the Charter to the Adviser on an on-going basis. The
Fund desires to employ and hereby appoints the Adviser to act as the investment
manager and administrator to the Fund. The Adviser accepts the appointment and
agrees to furnish the services for the compensation set forth below.
2. SERVICES AS INVESTMENT ADVISER
Subject to the supervision, direction and approval of the Board, the
Adviser will (a) manage the Fund's holdings in accordance with the Fund's
investment objective and policies as stated in the Charter and the Registration
Statement; (b) make investment decisions for the Fund; (c) place purchase and
sale orders for portfolio transactions for the Fund; and (d) employ professional
portfolio managers and securities analysts who provide research services to the
Fund. In providing those services, the Adviser will conduct a continual program
of investment, evaluation and, if appropriate, sale and reinvestment of the
Fund's assets. The Adviser is hereby authorized to retain third parties and to
delegate some or all of its duties and obligations under this paragraph 2 to
such persons provided that such persons shall remain under the general
1
<PAGE>
supervision of the Adviser.
3. SERVICES AS ADMINISTRATOR
Subject to the supervision and direction of the Board, the Adviser
will: (a) supervise all aspects of the Fund's operations under the direction of
the Board and the Fund's officers; (b) supply the Fund with office facilities
(which may be in the Adviser's own offices), statistical and research data, data
processing services, clerical, accounting and bookkeeping services (including,
but not limited to, the calculation of the net asset value of shares of the
Fund), internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; and (c) prepare
reports to shareholders of the Fund, tax returns and reports to and filings with
the SEC and state blue sky authorities. These services are specified in greater
detail on Appendix A. The Adviser is hereby authorized to retain third parties
and to delegate some or all of its duties and obligations under this paragraph 3
to such persons provided that such persons shall remain under the general
supervision of the Adviser.
4. BROKERAGE
In selecting brokers or dealers to execute transactions on behalf of
the Fund, the Adviser will seek the best overall terms available. In assessing
the best overall terms available for any transaction, the Adviser will consider
factors it deems relevant, including, but not limited to, the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
selecting brokers or dealers to execute a particular transaction, and in
evaluating the best overall terms available, the Adviser is authorized to
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934), provided to the Fund
and/or other accounts over which the Adviser or its affiliates exercise
investment discretion.
5. INFORMATION PROVIDED TO THE FUND
The Adviser will keep the Fund informed of developments materially
affecting the Fund's holdings, and will, on its own initiative, furnish the Fund
from time to time with whatever information the Adviser believes is appropriate
for this purpose.
2
<PAGE>
6. STANDARD OF CARE
The Adviser shall exercise its best judgment in rendering the services
listed in paragraphs 2, 3, 4 and 5 above. The Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Adviser against any liability to the Fund or to its shareholders to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or by reason of
the Adviser's reckless disregard of its obligations and duties under this
Agreement.
7. COMPENSATION
In consideration of all of the investment advisory and administration
services rendered or provided pursuant to this Agreement, the Fund will pay the
Adviser on the first business day of each month a fee for the previous month at
the annual rate of 1.05% of the Fund's average daily net assets. The fee for
the period from the Effective Date (defined below) of this Agreement to the end
of the month during which the Effective Date occurs shall be prorated according
to the proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of a month, the fee for such part
of that month shall be prorated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
the Adviser, the value of the Fund's net assets shall be computed at the times
and in the manner specified in the Registration Statement.
8. EXPENSES
The Adviser will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear all other expenses to
be incurred in its operation, including, but not limited to, the fees payable
under this Agreement; taxes, interest, brokerage fees and commissions, if any;
fees of the Board members of the Fund who are not officers, directors or
employees of Salomon Smith Barney Inc., or any of its affiliates; SEC fees and
state blue sky qualification fees; charges of custodians and transfer and
dividend disbursing agents; the Fund's and its Board members' proportionate
share of insurance premiums, professional association dues and/or assessments;
outside auditing and legal expenses; costs of maintaining the Fund's existence;
costs attributable to investor services, including, without limitation,
telephone and personnel expenses; costs of preparing and printing Prospectuses
and Statements for regulatory purposes and, for distribution to existing
shareholders; costs of shareholders reports and meetings of the officers or
Board and any extraordinary expenses.
9. SERVICES TO OTHER COMPANIES OR ACCOUNTS
The Fund understands that the Adviser now acts, will continue to act
and may in the future act as investment adviser to fiduciary and other managed
accounts, and as investment adviser and/or
3
<PAGE>
administrator to other investment companies, and the Fund has no objections to
the Adviser's so acting, provided that whenever the Fund and one or more other
clients advised by the Adviser have available funds for investment, investments
suitable and appropriate for each will be allocated in accordance with a formula
believed to be equitable to each client. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position obtainable for the
Fund. In addition, the Fund understands that the persons employed by the Adviser
to assist in the performance of the Adviser's duties under this Agreement will
not devote their full time to such service and nothing contained in this
Agreement shall be deemed to limit or restrict the right of the Adviser or any
affiliate of the Adviser to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
10. TERM OF AGREEMENT
This Agreement shall become effective as of _______, 1998, (the
"Effective Date") and shall continue for an initial two-year term and shall
continue thereafter so long as such continuance is specifically approved at
least annually by (i) the Board or (ii) a vote of a majority of the Fund's
outstanding "voting securities" (as that term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act")), provided that in either event
the continuance is also approved by a majority of the Board Members who are not
"interest persons" (as defined in the 1940 Act) of any party to this Agreement,
by vote cast in person at a meeting called for the purpose of voting on such
approval. This Agreement is terminable, without penalty, on 60 days' written
notice, by the Board or by vote of holders of a majority of the Fund's shares,
or upon 90 days' written notice, by the Adviser. This Agreement will also
terminate automatically in the event of its "assignment" (as defined in the 1940
Act and the rules thereunder).
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance of this Agreement by signing and returning the enclosed
copy of this Agreement.
Very truly yours,
TRAVELERS CORPORATE LOAN FUND INC.
By:_________________________________
Name:
Title:
Accepted:
MUTUAL MANAGEMENT CORP.
By:_________________________
Name:
Title:
4
<PAGE>
APPENDIX A
ADMINISTRATIVE SERVICES
Fund Accounting. Fund accounting services involve comprehensive accrual-based
- ---------------
recordkeeping and management information. They include maintaining a fund's
books and records in accordance with the 1940 Act, net asset value calculation,
daily dividend calculation, tax accounting and portfolio accounting.
The designated fund accountants interact with the Fund's custodian,
transfer agent and investment adviser daily. As required, the responsibilities
of each fund accountant may include:
. Cash Reconciliation - Reconcile prior day's ending cash balance per
-------------------
custodian's records and the accounting system to the prior day's
ending cash balance per fund accounting's cash availability report;
. Cash Availability - Combine all activity affecting the Fund's cash
-----------------
account and produce a net cash amount available for investment;
. Formal Reconciliations - Reconcile system-generated reports to prior
----------------------
day's calculations of interest, dividends, amortization, accretion,
distributions, capital stock and net assets;
. Trade Processing - Upon receipt of instructions from the investment
----------------
adviser review, record and transmit buys and sells to the custodian;
. Journal Entries - Input entries to the accounting system reflecting
---------------
shareholder activity and Fund expense accruals;
. Reconcile and Calculate N.O.A. (net other assets) - Compile all
-------------------------------------------------
activity affecting asset and liability accounts other than investment
account;
. Calculate Net Income, Mil Rate and Yield for Daily Distribution Funds
---------------------------------------------------------------------
- Calculate income on purchase and sales, calculate change in income
due to variable rate change, combine all daily income less expenses to
arrive at net income, calculate mil rate and yields (1 day, 7 day and
30 day);
. Mini-Cycle (except for Money Market Funds) - Review intra day trial
------------------------------------------
balance and reports, review trial balance N.O.A.;
. Holdings Reconciliation - Reconcile the portfolio holdings per the
-----------------------
system to custodian records;
. Pricing - Determine N.A.V. for Fund using market value of all
-------
securities and currencies (plus N.O.A.), divided by the shares
outstanding, and investigate securities with significant price changes
(over 5%);
. System Check-Back - Verify the change in market value of
-----------------
5
<PAGE>
securities which saw trading activity per the system;
. Net Asset Value Reconciliation - Identify the impact of current day's
------------------------------
Fund activity on a per share basis;
. Reporting of Price to NASDAQ - 5:30 P.M. is the final deadline for
-----------------------------
Fund prices being reported to the newspaper;
. Reporting of Price to Transfer Agent- N.A.V.s are reported to transfer
------------------------------------
agent upon total completion of above activities.
In addition, fund accounting personnel: communicate corporate actions of
portfolio holdings to portfolio managers; initiate notification to custodian
procedures on outstanding income receivables; provide information to the Fund's
treasurer for reports to shareholders, SEC, Board members, tax authorities,
statistical and performance reporting companies and the Fund's auditors;
interface with the Fund's auditors; prepare monthly reconciliation packages,
including expense pro forma; prepare amortization schedules for premium and
discount bonds based on the effective yield method; prepare vault reconciliation
reports to indicate securities currently "out-for-transfer;" and calculate daily
expenses based on expense ratios supplied by Fund's treasurer.
Financial Administration. The financial administration services made available
- ------------------------
to the Fund fall within three main categories: Financial Reporting; Statistical
Reporting; and Publications. The following is a summary of the services made
available to the Fund by the Financial Administration Division:
Financial Reporting
. Coordinate the preparation and review of the annual, semi-annual
and quarterly portfolio of investments and financial statements
included in the Fund's shareholder reports.
Statistical Reporting
. Total return reporting;
. SEC 30-day yield reporting
. Prepare dividend summary;
. Prepare quarter-end reports;
. Communicate statistical data to the financial media (Donoghue,
Lipper, Morningstar, et al.)
-----
Publications
. Coordinate the printing and mailing process with outside printers
for annual and semi-annual reports, prospectuses, statements of
additional information, proxy statements and special letters or
supplements;
6
<PAGE>
. Provide graphics and design assistance relating to the creation
of marketing materials and shareholder reports.
Treasury. The following is a summary of the treasury services available
- --------
to the Fund:
. Provide a Treasurer and Assistant Treasurer for the Fund;
. Determine expenses properly chargeable to the Fund;
. Authorize payment of bills for expenses of the Fund;
. Establish and monitor the rate of expense accruals;
. Prepare financial materials for review by the Fund's Board (e.g.,
Rule 10f-3, 17a-7 and 17e-1 reports, repurchase agreement dealer
lists, securities transactions);
. Recommend dividends to be declared by the Fund's Board;
. Recommend valuation to be used for securities which are not
readily saleable;
. Function as a liaison with the Fund's outside auditors and
arrange for audits;
. Provide accounting, financial and tax support relating to
portfolio management and any contemplated changes in the Fund's
structure or operations;
. Prepare and file forms with the Internal Revenue Service:
. Form 8613
. Form 1120-RIC
. Board Members' and Shareholders' 1099s
. Mailings in connection with Section 852 and related
regulations.
Legal and Regulatory Services. The legal and regulatory services made available
- -----------------------------
to the Fund fall within four main areas: SEC and Public Disclosure Assistance;
Corporate and Secretarial Services; Compliance Services; and Blue Sky
Registration. The following is a summary of the legal and regulatory services
available to the Fund:
SEC and Public Disclosure Assistance
. File annual amendments to the Fund's registration statements, if
necessary, including updating the Prospectus and Statement, if
applicable;
. File annual and semi-annual shareholder reports with the
appropriate regulatory agencies;
7
<PAGE>
. Prepare and file proxy statements;
. Review marketing material for SEC and NASD clearance;
. Provide legal assistance for shareholder communications.
Corporate and Secretarial Services
. Provide a Secretary and an Assistant Secretary for the Fund;
. Maintain general corporate calendar;
. Prepare agenda and background materials for Fund Board meetings,
make presentations where appropriate, prepare minutes and attend
to follow-up matters raised at Board meetings;
. Organize, attend and keep minutes of shareholder meetings;
. Maintain Charter and By-Laws of the Fund.
Legal Consultation and Business Planning
. Provide general legal advice on matters relating to portfolio
management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure;
. Maintain continuing awareness of significant emerging regulatory
and legislative developments which may affect the Fund, update
the Fund's Board and the investment adviser on those developments
and provide related planning assistance where requested or
appropriate;
. Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
. Manage Fund litigation matters and assume full responsibility for
the handling of routine Fund examinations and investigations by
regulatory agencies.
Compliance Services
The Compliance Department is responsible for preparing compliance
manuals, conducting seminars for fund accounting and advisory personnel and
performing on-going testing of the Fund's portfolio to assist the Fund's
investment adviser in complying with Prospectus guidelines and limitations, 1940
Act requirements
8
<PAGE>
State Securities Filings
The State Securities Filings Department operates in a fully automated
environment using blue sky registration software developed by Price Waterhouse.
In addition to being responsible for the initial and on-going filings in each
state, the Department acts as liaison between the Fund and state regulators, and
monitors and reports on shares sold and related matters.
9
<PAGE>
EXHIBIT 99.G2
SUB-INVESTMENT ADVISORY AGREEMENT
TRAVELERS CORPORATE LOAN FUND INC.
_________, 1998
Dear Sirs:
Travelers Corporate Loan Fund Inc., a Maryland corporation (the "Fund"), and
Mutual Management Corp., a Delaware corporation (the "Adviser"), each confirms
its agreement with Travelers Asset Management International Corporation, a New
York corporation (the "Sub-Adviser"), as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT
The Fund desires to employ its capital by investing and reinvesting in
investments of the kind and in accordance with the limitations specified in: (i)
its Articles of Incorporation as amended from time to time; (ii) the Fund's
Prospectus (the "Prospectus"); and (iii) the Fund's Statement of Additional
Information, if any (the "Statement") filed with the Securities and Exchange
Commission (the "SEC") as part of the Fund's Registration Statement on Form N-2,
as amended from time to time, and in such manner and to such extent as may from
time to time be approved by the Board of Directors of the Fund (the "Board").
Copies of the Fund's Prospectus and the Statement and the Articles of
Incorporation have been or will be submitted to the Sub-Adviser. The Fund
employs the Adviser as the investment adviser for the Fund and the Fund and the
Adviser desire to employ and hereby appoint the Sub-Adviser to act as the sub-
investment adviser to the Fund.. The Sub-Adviser accepts the appointment and
agrees to furnish the services for the compensation set forth below.
2. SERVICES AS SUB-INVESTMENT ADVISER
Subject to the supervision and direction of the Board and the Adviser, the
Sub-Adviser will: (a) manage the Fund's portfolio in accordance with the Fund's
investment objective(s) and policies as stated in the Articles of Incorporation,
the Prospectus and the Statement; (b) assist in supervising all aspects of the
Fund's operations; (c) make investment decisions for the Fund; (d) place
purchase and sale orders for portfolio transactions for the Fund; and (e) employ
professional portfolio managers and securities analysts who provide research
services to the Fund. In providing those services, the Sub-Adviser will conduct
a continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Fund's assets.
1
<PAGE>
3. COMPENSATION
In consideration of the services rendered pursuant to this Agreement, the
Adviser will pay the Sub-Adviser, on the first business day of each month, a fee
for the previous month at an annual rate of 0.50% of the Fund's average daily
net assets. The Sub-Adviser shall have no right to obtain compensation directly
from the Fund for services provided hereunder and agrees to look solely to the
Adviser for payment of fees due. The fee for the period from the date the Fund
commences its investment operations to the end of the month during which the
Fund commences its investment operations shall be pro-rated according to the
proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for such part
of that month shall be pro-rated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees payable to
the Sub-Adviser, the value of the Fund's net assets shall be computed at the
times and in the manner specified in the Fund's Prospectus and/or the Statement,
as from time to time in effect.
4. EXPENSES
The Sub-Adviser will bear all expenses in connection with the performance of
its services under this Agreement. The Fund will bear all other expenses to be
incurred in its operation, including, but not limited to, investment advisory
and administration fees payable under the Fund's Investment Advisory Agreement
with the Adviser; taxes, interest, brokerage fees and commissions, if any; fees
of the Board members of the Fund who are not officers, directors or employees of
Salomon Smith Barney Inc., or any of its affiliates; SEC fees and state blue sky
qualification fees; charges of custodians and transfer and dividend disbursing
agents; the Fund's and its Board members' proportionate share of insurance
premiums, professional association dues and/or assessments; outside auditing and
legal expenses; costs of maintaining the Fund's existence; costs attributable to
investor services, including, without limitation, telephone and personnel
expenses; costs of preparing and printing Prospectuses and Statements for
regulatory purposes and, for distribution to existing shareholders; costs of
shareholders reports and meetings of the officers or Board and any extraordinary
expenses.
5. BROKERAGE
In selecting brokers or dealers to execute transactions on behalf of the Fund,
the Sub-Adviser will seek the best overall terms available. In assessing the
best overall terms available for any transaction, the Sub-Adviser will consider
factors it deems relevant, including, but not limited to, the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
selecting brokers or dealers to execute a particular transaction, and in
evaluating the best overall terms available, the Sub-Adviser is authorized to
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
the Fund and/or other accounts over which the Sub-Adviser or its affiliates
exercise investment discretion.
2
<PAGE>
6. INFORMATION PROVIDED TO THE FUND
The Sub-Adviser will keep the Adviser and the Fund informed of developments
materially affecting the Fund and will, on its own initiative, furnish the
Adviser from time to time with whatever information the Sub-Adviser believes is
appropriate for this purpose. The Sub-Adviser has adopted, and will maintain, a
Code of Ethics in accordance with Rule 17j-1 under the Investment Company Act of
1940, as amended (the "1940 Act"), and will provide a copy of such Code of
Ethics to the Fund, including any amended versions thereof.
7. STANDARD OF CARE
The Sub-Adviser shall exercise its best judgment in rendering the services
listed in paragraphs 2, 5 and 6 above. The Sub-Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Sub-Adviser against any liability to the Fund or to the Fund's shareholders to
which the Sub-Adviser would otherwise be subject by reason of willful
malfeasance, bad faith or gross negligence on its part in the performance of its
duties or by reason of the Sub-Adviser's reckless disregard of its obligations
and duties under this Agreement.
8. SERVICES TO OTHER COMPANIES OR ACCOUNTS
The Fund understands that the Sub-Adviser now acts, will continue to act and
may act in the future as: investment adviser to fiduciary and other managed
accounts, as well as to other investment companies; and the Fund has no
objection to the Sub-Adviser so acting, provided that whenever the Fund and one
or more other investment companies advised by the Sub-Adviser have available
funds for investment, investments suitable and appropriate for each will be
allocated in accordance with a formula believed to be equitable to each company.
The Fund recognizes that in some cases this procedure may adversely affect the
size of the position obtainable for the Fund. In addition, the Fund understands
that the persons employed by the Sub-Adviser to assist in the performance of the
Sub-Adviser's duties under this Agreement will not devote their full time to
such service and nothing contained in this Agreement shall be deemed to limit or
restrict the right of the Sub-Adviser or any affiliate of the Sub-Adviser to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
9. TERM OF AGREEMENT
This Agreement shall become effective as of ____________, 1998 and continue
for an initial two-year term and shall continue thereafter so long as such
continuance is specifically approved at least annually by (i) the Board or (ii)
a vote of a "majority" (as defined in the 1940 Act) of the Fund's outstanding
voting securities, provided that in either event the continuance is also
approved by a majority of the Board members who are not "interested persons" (as
defined in the 1940 Act) of any party to this Agreement, by vote cast in person
or by proxy at a meeting called for the purpose of voting on such approval.
This Agreement is terminable, without penalty, on 60 days' written notice, by
the Board or by vote of holders of a majority of the Fund's shares, or upon 90
days' written notice, by the Sub-Adviser. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
3
<PAGE>
If the foregoing is in accordance with your understanding, kindly indicate your
acceptance hereof by signing and returning the enclosed copy of this Agreement
to us.
Very truly yours,
Travelers Corporate Loan Fund Inc.
By: __________________________________
Title:
Mutual Management Corp.
By: __________________________________
Title:
Accepted:
Travelers Asset Management International Corporation
By:___________________________________
Title:
4
<PAGE>
EXHIBIT 99.H
Travelers Corporate Loan Fund Inc.
__________ Shares/*/
Common Stock
UNDERWRITING AGREEMENT
----------------------
New York, New York
September __, 1998
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
As Representative of the several Underwriters
listed in Schedule I hereto
Ladies and Gentlemen:
Travelers Corporate Loan Fund Inc., a Maryland corporation (the
"Fund"), Mutual Management Corp. (the "Investment Adviser") and Travelers Asset
Management International Corp. (the "Sub-Investment Adviser") each confirms its
agreement with you with respect to the sale by the Fund to the underwriters
named in Schedule I hereto (the "Underwriters"), for whom you (the
"Representative") are acting as representative, of __________ shares of Common
Stock, par value $.001 per share, of the Fund ("Common Stock") (said shares to
be issued and sold by the Fund being hereinafter called the "Underwritten
Securities"). The Fund also proposes to grant to the Underwriters, upon the
terms and subject to the conditions set forth in Section 2(b) hereof, an option
to purchase up to __________ additional shares of Common Stock (the "Option
Securities" and together with the Underwritten Securities, the "Securities").
1. Representations and Warranties. (a) Each of the Fund, the
------------------------------
Investment Adviser and the Sub-Investment Adviser, jointly and severally,
represents and warrants to, and agrees with, each Underwriter as set forth below
in this Section 1. Certain terms used in this Section 1 are defined in Section
(iii) hereof.
(i) The Fund meets the requirements for use of Form N-2 under
the Securities Act of 1933 (the "Act") and the Investment Company Act of
1940 (the "Investment Company Act") and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under each of the Act and the Investment Company Act; the
Fund has filed with the Commission a registration statement (file number
333-_____) on such Form, including
- --------------------------
/*/ Plus an option to purchase from Travelers Corporate Loan Fund Inc. up to
__________ additional shares to cover over-allotments
<PAGE>
2
a related preliminary prospectus and a notification of registration on
Form N-8A under the Investment Company Act (file number 811-_____). The
Fund may have filed one or more amendments thereto, including the
related preliminary prospectus, each of which has previously been
furnished to you. The Fund will next file with the Commission one of the
following: (A) prior to effectiveness of such registration statement, a
further amendment to such registration statement, including the form of
final prospectus or (B) after effectiveness of such registration
statement, a final prospectus in accordance with Rule 497(b) or Rules
430A and 497(h), as the case may be. In the case of clause (B), the Fund
has included in such registration statement, as amended at the Effective
Date, all information (other than Rule 430A Information) required by the
Act and the Investment Company Act and the Rules and Regulations to be
included in the Prospectus with respect to the Securities and the
offering thereof. As filed, such amendment and form of final prospectus,
or such final prospectus, shall contain all Rule 430A Information,
together with all other such required information, with respect to the
Securities and the offering thereof and, except to the extent the
Representative shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the Execution
Time or, to the extent not completed at the Execution Time, shall
contain only such specific additional information and other changes
(beyond that contained in the latest Preliminary Prospectus) as the Fund
has advised you, prior to-the Execution Time, will be included or made
therein.
(ii) On the Effective Date, the Registration Statement and the
notification of registration on Form N-8A did or will, and when the
Prospectus is first filed in accordance with Rule 497(b) or (h), as the
case may be, and if subsequently filed pursuant to Rule 497(d), and on
the Closing Date, the Prospectus (and any supplements thereto) will,
comply in all material respects with the applicable requirements of the
Act and the Investment Company Act and the Rules and Regulations; on the
Effective Date, the Registration Statement and the notification of
registration on Form N-8A did not or will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein not misleading; and, on the Effective Date, the Prospectus, if
not filed pursuant to Rule 497(b) or (h), as the case may be, did not or
will not, and on the date of any filing pursuant to Rule 497(b) or (h),
as the case may be, and on the date of any filing pursuant to Rule
497(d), and on the Closing Date, the Prospectus (together with any
supplement thereto) will not, include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Fund makes no
-------- -------
representations or warranties as to the information contained in or
omitted from the Registration State ment, the Prospectus (or any
supplement thereto) or the notification of registration on Form N-8A, in
reliance upon and in conformity with (A) information furnished in
writing to the Fund by or on behalf of any Underwriter through the
Representative specifically for inclusion in the Registration Statement,
the Prospectus (or any supplement thereto) or the notification on
Form N-8A or (B) information relating to the Investment Adviser or the
Sub-Investment Adviser and furnished to the Fund by
<PAGE>
3
the Investment Adviser or the Sub-Investment Adviser specifically for
inclusion in the Registration Statement, the Prospectus (or any
supplement thereto) or the notification of registration on Form N-8A.
(iii) The terms which follow, when used in this Agreement, shall
have the meanings indicated. The term "Effective Date" shall mean each
date that the Registration Statement and any post-effective amendment or
amendments thereto became or become effective. "Execution Time" shall
mean the date and time that this Agreement is executed and delivered by
the parties hereto. "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in Section 1(i) above and any preliminary
prospectus included in the Registration Statement at the Effective Date
that omits Rule 430A Information. "Prospectus" shall mean the prospectus
relating to the Securities that is first filed pursuant to Rule 497(b)
or (h), as the case may be, after the Execution Time, or as subsequently
filed pursuant to Rule 497(d) under the Act or, if no filing pursuant to
Rule 497 is required, shall mean the form of final prospectus relating
to the Securities included in the Registration Statement at the
Effective Date. "Registration Statement" shall mean the registration
statement referred to in Section 1(i) above, including incorporated
documents, exhibits and financial statements, as amended at the
Execution Time (or, if not effective at the Execution Time, in the form
in which it shall become effective) and, in the event any post-effective
amendment thereto becomes effective prior to the Closing Date (as
hereinafter defined), shall also mean such registration statement as so
amended and such term shall include any Rule 430A Information deemed to
be included therein at the Effective Date as provided by Rule 430A.
"Rule 430A" and "Rule 497" refer to such rules under the Act. "Rule 430A
Information" means information with respect to the Securities and the
offering thereof permitted to be omitted from the Registration Statement
when it becomes effective pursuant to Rule 430A.
(iv) The Fund has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Maryland, with full corporate power and authority to own its property
and conduct its business as described in the Prospectus, and is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or conducts
material business; the Fund has no subsidiaries; and the Fund holds all
licenses, certificates and permits from all governmental authorities
necessary for the conduct of its business as described in the Prospectus
(other than the order of the Commission declaring the Registration
Statement effective under the Act and similar orders under the
securities or blue sky laws of the various states of the United States).
(v) The Fund has an authorized equity capitalization as set
forth in the Prospectus; the capital stock of the Fund conforms to the
description thereof contained in the Prospectus; there are no shares of
Common Stock owned of record [except _______ shares of Common Stock
owned of record by the Investment Adviser or an affiliate]; the
outstanding shares of Common Stock of the Fund have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Securities have
<PAGE>
4
been duly and validly authorized and, when issued and delivered to and
paid for by the Underwriters pursuant to this Agreement, will be validly
issued, fully paid and nonassessable; the Securities have been duly
authorized for listing, subject to official notice of issuance, on the
New York Stock Exchange; the certificates representing the Securities
are in valid and sufficient form; and no holder of outstanding shares of
capital stock of the Fund is entitled to preemptive or other rights to
subscribe for the Securities.
(vi) There in not pending or, to the best knowledge of the Fund,
threatened, any action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving the
Fund of a character required to be disclosed in the Registration
Statement by the Act, the Investment Company Act or the Rules and
Regulations which is not disclosed in the Prospectus, and there is no
franchise, contract, agreement or document of a character required to be
described in the Registration Statement or Prospectus by the Act, the
Investment Company Act or the Rules and Regulations, or to be filed as
an exhibit, which is not described or filed as required.
(vii) Except as stated or contemplated in the Prospectus,
subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, (A) the Fund has not
incurred any liabilities or obligations, direct or contingent, or
entered into any transactions, not in the ordinary course of business,
that are material to the Fund and (B) the Fund has not incurred any
indebtedness for borrowed money.
(viii) No consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation by the
Fund of the transactions contemplated herein, except such as may be
required under the Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Investment Company Act, the Rules and
Regulations, the rules and regulations of the Commission under the
Exchange Act or state securities or blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities by the
Underwriters.
(ix) The Investment Advisory Agreement (the "Advisory
Agreement") and the Administration Agreement (the "Administration
Agreement") to be dated as of the Effective Date, between the Fund and
the Investment Adviser, the Custodian Agreement (the "Custodian
Agreement") to be dated as of the Effective Date, between the Fund and
PNC Bank, N.A. (the "Custodian") and the Transfer Agency and Services
Agreement (the "Transfer Agency Agreement") to be dated as of the
Effective Date, between the Fund and First Data Investor Services Group,
Inc., (this Agreement, the Advisory Agreement, the Custodian Agreement,
and the Transfer Agency Agreement, collectively, the "Company
Agreements") have been duly authorized, executed and delivered by the
Fund; the Advisory Agreement, the Custodian Agreement and the Transfer
Agency Agreement comply as to form with all applicable provisions of the
Act and each constitutes a legal, valid and binding instrument
enforceable against the Fund in accordance with its terms (subject, as
to enforcement
<PAGE>
5
of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors' rights generally from time
to time in effect).
(x) The Fund is registered with the Commission under the
Investment Company Act as a closed-end diversified management investment
company and all required action has been taken under the Act and the
Investment Company Act to make the public offering and consummate the
sale of the Securities under this Agreement, and the provisions of the
Fund's articles of incorporation and by-laws do not violate the
Investment Company Act or the Rules and Regulations of the Commission
thereunder.
(xi) The Fund is not in violation of its articles of
incorporation or by-laws or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Fund or of any decree
of the Commission, the National Association of Securities Dealers, Inc.
(the "NASD"), any state securities commission, any national securities
exchange, any arbitrator, any court or any other governmental,
regulatory, self-regulatory or administrative agency or any official
having jurisdiction over the Fund or in default in any material respect
in the performance of any obligation, agreement or condition contained
in any bond, debenture, note or any other evidence of indebtedness or in
any material agreement, indenture, lease or other instrument to which
the Fund is a party or by which it or any of its properties may be
bound.
(xii) Neither (A) the issuance and sale of the Securities, (B)
the performance by the Fund of the Fund Agreements, nor (C) the
consummation of the transactions contemplated herein or in the
Prospectus will conflict with, or result in a breach of or violation of
any of the terms and provisions of, or constitute a default under, any
statute, any agreement or instrument to which the Fund is a party or by
which it is bound or to which any of the property of the Fund is
subject, the Fund's articles of incorporation or by-laws, or any order,
rule or regulation of any court or governmental agency, authority or
body having jurisdiction over the Fund or any of its properties.
(xiii) Since the date as of which information is given in the
Registration Statement and the Prospectus (and any amendment or
supplement to either of them), except as otherwise stated therein, (A)
there has been no material, adverse change in the condition (financial
or other), business, properties, net assets or results of operations of
the Fund or business prospects of the Fund, whether or not arising in
the ordinary course of business and (B) there has been no dividend or
distribution of any kind declared, paid or made by the Fund on any class
of its capital stock.
(xiv) The accountants, KPMG Peat Marwick LLP who have certified
or shall certify the financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement to either
of them), are an independent public accounting firm as required by the
Act, the Investment Company Act and the Rules and Regulations.
<PAGE>
6
(xv) The Statement of Assets and Liabilities, together with
related notes, included in the Registration Statement or the Prospectus
(or any amendment or supplement to either of them) presents fairly the
financial position of the Fund on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which
they apply; such financial statements and related schedules and notes
have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except
as disclosed therein.
(xvi) The Fund has not distributed and, prior to the later to
occur of (A) the Closing Date and (B) completion of the distribution of
the Securities, will not distribute to the public any offering material
in connection with the offering and sale of the Securities other than
the Registration Statement, the prospectus included in [Pre-Effective
Amendment No. 1] to the Registration Statement, the Prospectus and the
sales literature filed with the NASD on __________, 1998 (the "NASD
Sales Literature").
(xvii) The Fund believes that it maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with the investment policies and
restrictions of the Fund and the applicable requirements of the
Investment Company Act, the Investment Company Act Rules and Regulations
and the Internal Revenue Code of 1986, as amended; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles, to calculate
net asset value and to maintain material compliance with the books and
records requirements under the Investment Company Act and the Investment
Company Act Rules and Regulations; and (C) the internal books and
records of the Fund accurately reflect the Fund's actual assets in all
material respects.
(xviii) Except as stated in this Agreement and in the Prospectus
(and any amendment or supplement thereto), the Fund has not taken and
will not take, directly or indirectly, any action designed to or which
might reasonably be expected to cause or result in or which will
constitute stabilization or manipulation of the price of shares of
Common Stock and the Fund is not aware of any such action taken or to be
taken by any affiliates of the Fund.
(xix) The NASD Sales Literature complied and comply in all
material respects with the applicable requirements of the Act, the Act
Rules and Regulations and the rules and interpretations of the NASD, and
neither the NASD Sales Literature nor any other advertising, sales
literature or other promotional material (including "prospectus
wrappers," "broker kits, "road show slides" and "road show scripts")
authorized by or prepared by or on behalf of the Fund or the Investment
Adviser or the Sub-Investment Adviser for use in connection with the
offering and sale of the Securities contained or contains an untrue
statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstance under which they were made, not
misleading.
<PAGE>
7
(xx) No holder of any security of the Fund has any right to require
registration of shares of Common Stock or any other security of the Fund
because of the filing of the Registration Statement or consummation of
the transactions contemplated by this Agreement.
(b) The Investment Adviser represents and warrants to, and agrees
with, each Underwriter that:
(i) The Investment Adviser is duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of [Delaware], with full corporate power and authority to own its
property and conduct its business as described in the Prospectus, and is
duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or conducts
material business.
(ii) The Investment Adviser is duly registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the
"Advisers Act") and is not prohibited by the Advisers Act or the
Investment Company Act, or the rules and regulations under such Acts,
from acting as investment adviser for the Fund under the Advisory
Agreement and as contemplated by the Prospectus.
(iii) This Agreement, the Advisory Agreement and the Sub-
Investment Advisory Agreement (the "Sub-Advisory Agreement") to be dated
as of the Effective Date, between the Investment Adviser and the Sub-
Investment Adviser (collectively, the "Investment Adviser Agreements"),
have been duly authorized, executed and delivered by the Investment
Adviser; each of the Advisory Agreement and Sub-Advisory Agreement
complies as to form with all applicable provisions of the Act and the
Investment Company Act and constitutes a legal, valid and binding
instrument enforceable against the Investment Adviser in accordance with
its terms (subject, as to enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium or other laws
affecting creditors' rights generally from time to time in effect).
(iv) Neither (A) the operations and activities of the Investment
Adviser as contemplated in the Prospectus, (B) the performance by the
Investment Adviser of the Investment Adviser Agreements, nor (C) the
consummation of the transactions contem plated herein or in the
Prospectus will conflict with, or result in a breach of or violation of
any of the terms and provisions of, or constitute a default under, any
statute, any agreement or instrument to which the Investment Adviser is
a party or by which it is bound or to which any of the property of the
Investment Adviser is subject, the Investment Adviser's certificate of
incorporation or by-laws, or any order, rule or regulation of any court
or governmental agency, authority or body having jurisdiction over the
Investment Adviser or any of its properties; and no consent, approval,
authorization or order of, or filing with, any court or governmental
agency, authority or body is required for the consummation of the
transactions contemplated by the
<PAGE>
8
Investment Adviser Agreements in connection with the issuance or sale of
the Securities by the Fund, except such as may be required under the
Act, the Exchange Act, the Investment Company Act or state securities
laws or blue sky laws.
(v) On the Effective Date, the Registration Statement did not or
will not contain any untrue statement of a material fact relating to the
description of the Investment Adviser or the Investment Adviser
Agreements or omit to state a material fact relating to the description
of the Investment Adviser or the Investment Adviser Agreements required
to be stated therein or necessary to make the statements therein not
misleading; and on the Effective Date, the Prospectus, if not filed
pursuant to Rule 497(b) or (h), as the case may be, did not or will not,
and on the date of any filing pursuant to Rule 497(b) or (h), as the
case may be, and on the date of any filing pursuant to Rule 497(d), and
on the Closing Date, the Prospectus (together with any supplements
thereto) will not, include any untrue statement of a material fact
relating to the description of the Investment Adviser or the Investment
Adviser Agreements or omit to state a material fact relating to the
description of the Investment Adviser or the Investment Adviser
Agreements necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(vi) There has not been any material change in the management of
the Investment Adviser or any material adverse change in the condition
(financial or other) of the Investment Adviser since the date of the
Prospectus (or, if the Prospectus is not in existence, the Preliminary
Prospectus).
(vii) There is not pending, or to the best knowledge of the
Investment Adviser, threatened, any action, suit, proceeding, inquiry or
investigation before or brought by any court or governmental agency,
authority or body or any arbitration involving the Investment Adviser
(A) relating to any of the transactions contemplated by the Investment
Adviser Agreements or (B) which might, in the reasonable judgment of the
Investment Adviser, individually or in the aggregate, result in any
material adverse change in the condition (financial or other), business,
prospectus or net worth of the Investment Adviser, or might materially
and adversely affect the properties or assets thereof.
(viii) Except as stated in this Agreement and in the Prospectus
(and in any amendment or supplement thereto), the Investment Adviser has
not taken and will not take, directly or indirectly, any action designed
to or which might reasonably be expected to cause or result in or which
will constitute, stabilization or manipulation of the price of shares of
Common Stock and the Investment Adviser is not aware of any such action
taken or to be taken by any affiliates of the Investment Adviser.
(c) The Sub-Investment Adviser represents and warrants to, and agrees
with, each Underwriter that:
(i) The Sub-Investment Adviser is duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of [Delaware],
<PAGE>
9
with full corporate power and authority to own its property and conduct
its business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the laws
of each jurisdiction which requires such qualification wherein it owns
or leases material properties or conducts material business.
(ii) The Sub-Investment Adviser is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as amended
(the "Advisers Act") and is not prohibited by the Advisers Act or the
Investment Company Act, or the rules and regulations under such Acts,
from acting as investment sub-adviser for the Fund under the Sub-
Advisory Agreement and as contemplated by the Prospectus.
(iii) This Agreement and the Sub-Advisory Agreement
(collectively, the "Sub-Investment Adviser Agreements"), have been duly
authorized, executed and delivered by the Sub-Investment Adviser; the
Sub-Advisory Agreement complies as to form with all applicable
provisions of the Act and the Investment Company Act and constitutes a
legal, valid and binding instrument enforceable against the Sub-
Investment Adviser in accordance with its terms (subject, as to
enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting creditors' rights
generally from time to time in effect).
(iv) Neither (A) the operations and activities of the Sub-
Investment Adviser as contemplated in the Prospectus, (B) the
performance by the Sub-Investment Adviser of the Sub-Investment Adviser
Agreements, nor (C) the consummation of the transactions contemplated
herein or in the Prospectus will conflict with, or result in a breach of
or violation of any of the terms and provisions of, or constitute a
default under, any statute, any agreement or instrument to which the
Sub-Investment Adviser is a party or by which it is bound or to which
any of the property of the Sub-Investment Adviser is subject, the Sub-
Investment Adviser's certificate of incorporation or by-laws, or any
order, rule or regulation of any court or governmental agency, authority
or body having jurisdiction over the Sub-Investment Adviser or any of
its properties; and no consent, approval, authorization or order of, or
filing with, any court or governmental agency, authority or body is
required for the consummation of the transactions contemplated by the
Sub-Investment Adviser Agreements in connection with the issuance or
sale of the Securities by the Fund, except such as may be required under
the Act, the Exchange Act, the Investment Company Act or state
securities laws or blue sky laws.
(v) On the Effective Date, the Registration Statement did not or
will not contain any untrue statement of a material fact relating to the
description of the Sub-Investment Adviser or the Sub-Investment Adviser
Agreements or omit to state a material fact relating to the description
of the Sub-Investment Adviser or the Sub-Investment Adviser Agreements
required to be stated therein or necessary to make the statements
therein not misleading; and on the Effective Date, the Prospectus, if
not filed pursuant to Rule 497(b) or (h), as the case may be, did not or
will not, and on the date of any filing pursuant to Rule 497(b) or (h),
as the case may be, and on the
<PAGE>
10
date of any filing pursuant to Rule 497(d), and on the Closing Date, the
Prospectus (together with any supplements thereto) will not, include any
untrue statement of a material fact relating to the description of the
Sub-Investment Adviser or the Sub-Investment Adviser Agreements or omit
to state a material fact relating to the description of the Sub-
Investment Adviser or the Sub-Investment Adviser Agreements necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(vi) There has not been any material change in the management of
the Sub-Investment Adviser or any material adverse change in the
condition (financial or other) of the Sub-Investment Adviser since the
date of the Prospectus (or, if the Prospectus is not in existence, the
Preliminary Prospectus).
(vii) There is not pending, or to the best knowledge of the Sub-
Investment Adviser, threatened, any action, suit, proceeding, inquiry or
investigation before or brought by any court or governmental agency,
authority or body or any arbitration involving the Sub-Investment
Adviser (A) relating to any of the transactions contemplated by the Sub-
Investment Adviser Agreements or (B) which might, in the reasonable
judgment of the Sub-Investment Adviser, individually or in the
aggregate, result in any material adverse change in the condition
(financial or other), business, prospectus or net worth of the Sub-
Investment Adviser, or might materially and adversely affect the
properties or assets thereof.
(viii) Except as stated in this Agreement and in the Prospectus
(and in any amendment or supplement thereto), the Sub-Investment Adviser
has not taken and will not take, directly or indirectly, any action
designed to or which might reasonably be expected to cause or result in
or which will constitute, stabilization or manipulation of the price of
shares of Common Stock and the Sub-Investment Adviser is not aware of
any such action taken or to be taken by any affiliates of the Sub-
Investment Adviser.
2. Purchase and Sale. (a) Subject to the terms and condition and in
-----------------
reliance upon the representations and warranties herein set forth, the Fund
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Fund, at a purchase price of $_____ per share,
the amount of the Underwritten Securities set forth opposite such Underwriter's
name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Fund hereby grants an
option to the sev eral Underwriters to purchase, severally and not jointly, up
to __________ shares of Option Securities at the same purchase price per share
as the Underwriters shall pay for the Underwritten Securities. Said option may
be exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or from
time to time in part at any time on or before the 45th day after the date of the
Prospectus upon written or telegraphic notice by the Representative to the Fund
setting forth the number of shares of the Option Securities as to which the
several Underwriters are exercising the option and the settlement date.
Delivery of certificates for the shares of Option
<PAGE>
11
Securities, and payment therefor, shall be made as provided in Section 3 hereof.
The number of shares of the Option Securities to be purchased by each
Underwriter shall be the same percentage of the total number of shares of the
Option Securities to be purchased by the several Underwriters as such
Underwriter is purchasing of the Underwritten Securities, subject to such
adjustments as you in your absolute discretion shall make to eliminate any
fractional shares.
3. Delivery and Payment. Delivery of and payment for the
--------------------
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third business
day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
__________, 1998, or such later date (not later than __________, 1998) as the
Representative shall designate, which date and time may be postponed by
agreement between the Representative and the Fund or as provided in Section 9
hereof (such date and time of delivery and payment for the Securities being
herein called the "Closing Date"). Delivery of the Securities shall be made to
the Representative for the respective accounts of the several Underwriters
against payment by the several Underwriters through the Representative of the
purchase price therefor in immediately available funds. Delivery of the
Underwritten Securities and the Option Securities shall be made at such location
as the Representative shall reasonably designate at least one business day in
advance of the Closing Date and payment for such Securities shall be made at the
office of Simpson Thacher & Bartlett in New York, New York. Certificates for
the Securities shall be registered in such names and in such denominations as
the Representative may request not less than three full business days in advance
of the Closing Date.
The Fund agrees to have the Securities available for inspection,
checking and packaging by the Representative in New York, New York, not later
than 1:00 PM on the business day prior to the Closing Date.
If the option provided for in Section 2(b) hereof is exercised after
the third business day prior to the Closing Date, the Fund will deliver (at the
expense of the Fund) to the Representative, at 388 Greenwich Street, New York,
New York, on the date specified by the Representative (which shall in no event
be earlier than three business days nor later than ten business days after
exercise of said option), certificates for the Option Securities in such names
and denominations as the Representative shall have requested against payment of
the purchase price therefor in immediately available funds. If settlement for
the Option Securities occurs after the Closing Date, the Fund will deliver to
the Representative on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
------------------------
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements. The Fund agrees with the several Underwriters that:
----------
<PAGE>
12
(a) The Fund will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment thereof, to
become effective. Prior to the termination of the offering of the Securities,
the Fund will not file any amendment of the Registration Statement or supplement
(whether pursuant to the Act, the Investment Company Act, or otherwise) to the
Prospectus unless the Fund has furnished you a copy for your review prior to
filing and will not file any such proposed amendment or supplement to which you
reasonably object. Subject to the foregoing sentence, if the Registration
Statement has become or becomes effective pursuant to Rule 430A, or filing of
the Prospectus is otherwise required under Rule 497, the Fund will cause the
Prospectus, properly completed, and any supplement thereto to be filed with the
Commission pursuant to the applicable paragraph of Rule 497 within the time
period prescribed and will provide evidence satisfactory to the Representative
of such timely filing. The Fund will promptly advise the Representative (i)
when the Registration Statement, if not effective at the Execution Time, and any
amendment thereto, shall have become effective, (ii) when the Prospectus, and
any supplement thereto, shall have been filed (if required) with the Commission
pursuant to Rule 497, (iii) when, prior to termination of the offering of the
Securities, any amendment to the Registration Statement shall have been filed or
become effective, (iv) of any request by the Commission for any amendment of the
Registration Statement or supplement to the Prospectus or for any additional
information, (v) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement under the Act or the issuance of
any notice or order under Section 8(e) of the Investment Company Act or the
institution or threatening of any proceeding for either such purpose and (vi) of
the receipt by the Fund of any notification with respect to the suspension of
the qualification of the Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose. The Fund will use
its best efforts to prevent the issuance of any such stop order and, if issued,
to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading, or if it shall be necessary to amend the Registration Statement
or supplement the Prospectus to comply with the Act, the Investment Company Act
or the Rules and Regulations, the Fund promptly will prepare and file with the
Commission, subject to the second sentence of paragraph (a) of this Section 5,
an amendment or supplement which will correct such statement or omission or
effect such compliance.
(c) As soon as practicable, the Fund will make generally available to
its security holders and to the Representative an earnings statement or
statements of the Fund and its subsidiaries which will satisfy the provisions of
Section 11(a) of the Act and Rule 158 under the Act.
(d) The Fund will furnish to the Representative and counsel for the
Underwriter, without charge, signed copies of the Registration Statement
(including exhibits thereto) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or dealer may be required
<PAGE>
13
by the Act, as many copies of each Preliminary Prospectus and the Prospectus and
any supplement thereto as the Representative may reasonably request.
(e) The Fund will arrange for the qualification of the Securities for
sale under the laws of such jurisdictions as the Representative may designate,
will maintain such qualifications in effect so long as required for the
distribution of the Securities and will pay the fee of the National Association
of Securities Dealers, Inc., in connection with its review of the offering.
(f) The Fund will not, for a period of 180 days following the date of
the Prospectus, without the prior written consent of the Representative, offer,
sell or contract to sell, register with the Commission or otherwise dispose of,
directly or indirectly, or announce the offering of, any shares of Common Stock
other than the Securities or any securities convertible into, or exchangeable
for, shares of Common Stock; provided, however, that the Fund may issue and sell
-------- -------
Common Stock pursuant to any dividend reinvestment plan of the Fund in effect at
the Execution Time.
(g) The Fund will apply the net proceeds from the sale of the
Underwritten Securities, and of the Option Securities, if any, for the purposes
set forth in the Prospectus.
(h) The Fund will use its best efforts to list, subject to notice of
issuance, the Securities to be sold by it on the New York Stock Exchange
simultaneously with the effectiveness of the Registration Statement.
6. Conditions to the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Fund, the Investment Adviser
and the Sub-Investment Adviser contained herein as of the Execution Time, the
Closing Date and any settlement date pursuant to Section 3 hereof, to the
accuracy of the statements of the Fund, the Investment Adviser and the Sub-
Investment Adviser made in any certificates pursuant to the provisions hereof,
to the performance by the Fund, the Investment Adviser and the Sub-Investment
Adviser of their respective obligations hereunder and to the following
additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representative agrees in writing to a later time,
the Registration Statement will become effective not later than (i) 6:00 PM New
York City time, on the date of determination of the public offering price, if
such determination occurred at or prior to 3:00 PM New York City time on such
date or (ii) 12:00 Noon on the business day following the day on which the
public offering price was determined, if such determination occurred after 3:00
PM New York City time on such date; if filing of the Prospectus, or any
supplement thereto, is required pursuant to Rule 497(b), (d) or (h), the
Prospectus, and any such supplement, will be filed in the manner and within the
time period required by Rule 497(b), (d) or (h), as the case may be; and no stop
order suspending the effectiveness of the Registration Statement under the Act
and no notice or order under Section 8(e) of the
<PAGE>
14
Investment Company Act shall have been issued and no proceedings for either
purpose shall have been instituted or threatened.
(b) The Fund shall have furnished to the Representative the opinion
of Willkie Farr & Gallagher, counsel for the Fund, dated the Closing Date, to
the effect that:
(i) the Fund has been duly incorporated and is validly existing
and in good standing as a corporation under the laws of the State of
Maryland and has full corporate power and authority to conduct its business
as described in the Prospectus, and is duly registered and qualified to
conduct its business and is in good standing in the State of New York;
(ii) all outstanding shares of the Fund's Common Stock have been
duly authorized, and are validly issued, fully paid and nonassessable; the
Securities have been duly authorized and, upon payment and delivery in
accordance with this Agree ment, will be validly issued, fully paid and
nonassessable;
(iii) the statements made in the Prospectus under the caption
"Description of Capital Stock - Common Stock," insofar as they purport to
constitute summaries of the terms of the Fund's Common Stock (including the
Securities), constitute accurate summaries of the terms of such Common
Stock in all material respects; the Securities have been authorized for
listing, subject to official notice of issuance and evidence of
satisfactory distribution, on the New York Stock Exchange; the form of
certificates for the Securities conforms to the requirements of the General
Corporation Law of Maryland; there are no preemptive rights under federal
or Maryland law to subscribe for or purchase shares of the Fund's capital
stock and there are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any shares of
the Fund's capital stock pursuant to the Fund's articles of incorporation
or by-laws or any agreement or other instrument filed or incorporated by
reference as an exhibit to the Registration Statement;
(iv) to the knowledge of such counsel, there is no pending or
threatened legal or governmental proceeding required to be described in the
Prospectus which is not described as required, or any contracts or
documents of a character required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the Registration
Statement or incorporated by reference therein, which are not described and
filed or incorporated by reference as required;
(v) the statements in the Prospectus under the captions
"Management of the Fund - Investment Adviser and Sub-Investment Adviser,"
"Management of the Fund - Directors and Officers" and "Description of
Capital Stock - Common Stock," insofar as they purport to constitute
summaries of the terms of Maryland or federal statutes, rules and
regulations thereunder or contracts and other documents, constitute
accurate summaries of the terms of such statutes, rules and regulations or
contracts and other documents in all material respects;
<PAGE>
15
(vi) the statements in the Prospectus under the captions
"Dividends and Distributions; Dividend Reinvestment Plan" and "Taxation,"
insofar as they purport to constitute summaries of matters of United States
federal tax law and regulations or legal conclusions with respect thereto,
constitute accurate summaries of the matters described therein in all
material respects;
(vii) the Registration Statement has become effective under the
Act (such counsel may, to the extent necessary, rely on oral confirmation
from the Commission to this effect in rendering such opinion); any required
filing of the Prospectus, and any supplements thereto, pursuant to Rule
497(b), (d) or (h) has been made in the manner and within the time period
required by Rule 497(b), (d) or (h) under the Act; and, to the knowledge of
such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued; and, to the knowledge of such
counsel, no proceeding for that purpose has been instituted or threatened
by the Commission;
(viii) this Agreement has been duly authorized, executed and
delivered by the Fund;
(ix) no consent, approval, authorization, order, registration or
qualification of or with any federal Maryland or New York governmental
agency or body is required for the issue and sale of the Securities by the
Fund and the compliance by the Fund with all of the provisions of this
Agreement, except for the registration under the Act, the Exchange Act and
the Investment Company Act of the Securities, and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Securities by the Underwriters;
(x) the issue and sale of the Securities by the Fund and the
compliance by the Fund with all of the provisions of this Agreement will
not breach or result in a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument filed or
incorporated by reference as an exhibit to the Registration Statement, nor
will such action violate the articles of incorporation or by laws of the
Fund or any federal, Maryland or New York statute or any rule or regulation
that has been issued pursuant to any federal, Maryland or New York statute
or any order known to such counsel issued pursuant to any federal, Maryland
or New York statute by any court or governmental agency or body or court
having jurisdiction over the Fund or any of its properties;
(xi) the Advisory Agreement, the Sub-Advisory Agreement, the
Administration Agreement, the Custodian Agreement and the Transfer Agency
Agreement have been duly authorized, executed and delivered by the Fund,
comply as to form with all applicable provisions of the Investment Company
Act and are legal, valid, binding and enforceable obligations of the Fund,
subject, to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable
<PAGE>
16
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing; and
(xii) the Fund is registered with the Commission under the
Investment Company Act as a closed-end diversified management investment
company, and the provisions of the articles of incorporation and by-laws of
the Fund do not violate the Investment Company Act or the Rules and
Regulations of the Commission thereunder;
In rendering such opinion, such counsel may limit such opinion to matters
involving the application of the laws of the State of New York, the State of
Maryland and the United States and may rely (A) as to matters involving the
application of laws of the State of Maryland, to the extent they deem proper and
specified in such opinion, upon the opinion of [Piper & Marbury L.L.P.] or other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters and (B) as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of the
Fund, the Investment Adviser, the Sub-Investment Adviser and public officials.
References to the Prospectus in this Section 6(b) include any supplements
thereto at the Closing Date.
Such counsel has not independently verified the accuracy, completeness
or fairness of the statements made or included in the Registration Statement or
the Prospectus and takes no responsibility therefor, except as and to the extent
set forth in Sections 6(b)(iii), 6(b)(v) and 6(b)(vi) above. In the course of
the preparation by the Fund of the Registration Statement and the Prospectus,
such counsel has participated in conferences with certain officers and employees
of the Fund, the Investment Adviser and the Sub-Investment Adviser, with
representatives of KPMG Peat Marwick and with counsel to the Investment Adviser
and Sub-Investment Adviser. Based upon such counsel's examination of the
Registration Statement and the Prospectus, such counsel's investigations made in
connection with the preparation of the Registration Statement and the Prospectus
and such counsel's participation in the conferences referred to above, (i) such
counsel is of the opinion that the Registration Statement, as of its effective
date, and the Prospectus, as of _______, 1998, complied as to form in all
material respects with the requirements of the Act and the Investment Company
Act and the applicable rules and regulations of the Commission thereunder,
except that in each case such counsel expresses no opinion with respect to the
financial statements or other financial or statistical data contained in the
Registration Statement or the Prospectus, and (ii) such counsel has no reason to
believe that the Registration Statement, as of its effective date, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading or that the Prospectus contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that in each case such counsel expresses no belief
with respect to the financial statements or other financial or statistical data
contained in the Registration Statement or the Prospectus.
(c) The Investment Adviser shall have furnished to the Representative
the opinion of internal counsel for the Investment Adviser reasonably acceptable
to the Representative, dated the Closing Date, to the effect that:
<PAGE>
17
(i) the Investment Adviser is duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
[Delaware], with full corporate power and authority to own its property and
conduct its business as described in the Prospectus, and is duly qualified
to do business as a foreign corporation and is in good standing under the
laws of each jurisdiction which requires such qualification wherein it owns
or leases material properties or conducts material business;
(ii) the Investment Adviser is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the Advisers Act or
the Investment Company Act, or the rules and regulations under either, from
acting as Investment Adviser for the Fund under the Advisory Agreement and
as contemplated in the Prospectus;
(iii) this Agreement, the Advisory Agreement and the Sub-
Advisory Agreement have each been duly authorized, executed and delivered
by the Investment Adviser, and each of the Advisory Agreement and the Sub-
Advisory Agreement constitutes a legal, valid and binding instrument
enforceable against the Investment Adviser in accordance with its terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting creditors'
rights generally from time to time in effect);
(iv) neither (A) the operation and activities of the Investment
Adviser as contemplated in the Prospectus, (B) the performance by the
Investment Adviser of its obligations under the Investment Adviser
Agreements, nor (C) the consummation of the transactions contemplated
herein or in the Prospectus will conflict with, or result in a breach of,
or constitute a default under the certificate of incorporation or by-laws
of the Investment Adviser or the terms of any indenture or other agreement
or instrument known to such counsel to which the Investment Adviser or any
of its affiliates is a party or by which it is bound, or any law, order or
regulation known to such counsel to be applicable to the Investment Adviser
of any court, regulatory body, administrative agency, governmental body,
stock exchange or securities association or any other authority or
arbitrator having jurisdiction over the Investment Adviser or any of its
affiliates.
Although such counsel has not undertaken, except as otherwise
indicated in their opinion, to determine independently and does not assume any
responsibility for, the accuracy or completeness of the statements in the
Registration Statement, such counsel has participated in the preparation of the
Registration Statement and the Prospectus, including review and discussion of
the contents thereof and nothing has come to the attention of such counsel that
has caused it to believe that the Registration Statement, at the time the
Registration Statement became effective or the Prospectus, as of its date and as
of the Closing Date, as the case may be, or the date of any closing of the sale
of any Option Securities, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that any amendment or supplement
to the Prospectus, as of the Closing Date or the date of any closing
<PAGE>
18
of the sale of any Option Securities, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that such counsel need express no opinion
with respect to the financial statements and the notes thereto and the schedules
and other financial and statistical data included in the Registration Statement
or the Prospectus).
(d) The Sub-Investment Adviser shall have furnished to the
Representative the opinion of internal counsel for the Sub-Investment Adviser
reasonably acceptable to the Representative, dated the Closing Date, to the
effect that:
(i) the Sub-Investment Adviser is duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of [Delaware], with full corporate power and authority to own its
property and conduct its business as described in the Prospectus, and is
duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or conducts
material business;
(ii) the Sub-Investment Adviser is duly registered as an
investment adviser under the Advisers Act and is not prohibited by the
Advisers Act or the Investment Company Act, or the rules and regulations
under either, from acting as Sub-Investment Adviser for the Fund under the
Sub-Advisory Agreement and as contemplated in the Prospectus;
(iii) this Agreement and the Sub-Advisory Agreement have each
been duly authorized, executed and delivered by the Sub-Investment Adviser,
and the Sub-Advisory Agreement constitutes a legal, valid and binding
instrument enforceable against the Sub-Investment Adviser in accordance
with its terms (subject, as to enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium and other laws affecting
creditors' rights generally from time to time in effect);
(iv) neither (A) the operation and activities of the Sub-
Investment Adviser as contemplated in the Prospectus, (B) the performance
by the Sub-Investment Adviser of its obligations under the Sub-Investment
Adviser Agreements, nor (C) the consummation of the transactions
contemplated herein or in the Prospectus will conflict with, or result in a
breach of, or constitute a default under the certificate of incorporation
or by-laws of the Sub-Investment Adviser or the terms of any indenture or
other agreement or instrument known to such counsel to which the Sub-
Investment Adviser or any of its affiliates is a party or by which it is
bound, or any law, order or regulation known to such counsel to be
applicable to the Sub-Investment Adviser of any court, regulatory body,
administrative agency, governmental body, stock exchange or securities
association or any other authority or arbitrator having jurisdiction over
the Sub-Investment Adviser or any of its affiliates.
<PAGE>
19
Although such counsel has not undertaken, except as otherwise
indicated in their opinion, to determine independently and does not assume any
responsibility for, the accuracy or completeness of the statements in the
Registration Statement, such counsel has participated in the preparation of the
Registration Statement and the Prospectus, including review and discussion of
the contents thereof and nothing has come to the attention of such counsel that
has caused it to believe that the Registration Statement, at the time the
Registration Statement became effective or the Prospectus, as of its date and as
of the Closing Date, as the case may be, or the date of any closing of the sale
of any Option Securities, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that any amendment or supplement
to the Prospectus, as of the Closing Date or the date of any closing of the sale
of any Option Securities, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and the notes thereto and the schedules and
other financial and statistical data included in the Registration Statement or
the Prospectus).
(e) The Representative shall have received from Simpson Thacher &
Bartlett, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date, with respect to the issuance and sale of the Securities, the
Registration Statement, the Prospectus (together with any supplement thereto)
and other related matters as the Representative may reasonably require, and the
Fund shall have furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(f) The Fund shall have furnished to the Representative a certificate
of the Fund, signed by the Chairman of the Board or the President and the
principal financial or accounting officer of the Fund, dated the Closing Date,
to the effect that the signers of such certificate have carefully examined the
Registration Statement, the Prospectus, any supplement to the Prospectus and
this Agreement and that:
(i) the representations and warranties of the Fund in this
Agreement are true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date and the
Fund has complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement under the Act and no notice or order under Section
8(e) of the Investment Company Act has been issued and no proceedings for
either purpose have been instituted or, to the Fund's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there has
been no material adverse change in the condition (financial or other),
earnings, business or properties of the Fund, whether or not arising from
transactions in the ordinary course of business,
<PAGE>
20
except as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(g) The Investment Adviser shall have furnished to the Representative
a certificate of the Investment Adviser, signed by the Chairman of the Board,
the President or any Vice President and the principal financial or accounting
officer of the Investment Adviser, dated the Closing Date, to the effect that
the signers of such certificate have carefully examined the Registration
Statement, the Prospectus, any supplement to the Prospec tus and this Agreement
and that the representations and warranties of the Investment Adviser in this
Agreement are true and correct in all material respects on and as of the Closing
Date with the same effect as if made on the Closing Date and the Investment
Adviser has complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to the Closing Date;
(h) The Sub-Investment Adviser shall have furnished to the
Representative a certificate of the Sub-Investment Adviser, signed by the
Chairman of the Board, the President or any Vice President and the principal
financial or accounting officer of the Sub-Investment Adviser, dated the Closing
Date, to the effect that the signers of such certificate have carefully examined
the Registration Statement, the Prospectus, any supplement to the Prospec tus
and this Agreement and that the representations and warranties of the Sub-
Investment Adviser in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as if made on the
Closing Date and the Sub-Investment Adviser has complied with all the agreements
and satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date;
(i) At the Execution Time and at the Closing Date, KPMG Peat Marwick
LLP shall have furnished to the Representative a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date, in form and
substance satisfactory to the Representative, confirming that they are
independent accountants within the meaning of the Act and the respective
applicable published rules and regulations thereunder and stating in effect
that:
(i) in their opinion the statement of assets and liabilities and
related notes included in the Registration Statement and the Prospectus and
reported on by them comply in form in all material respects with the
applicable accounting requirements of the Act and the Investment Company
Act and the Rules and Regulations; and
(ii) on the basis of carrying out certain specified procedures
(but not an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance with
respect to the comments set forth in such letter, a reading of the minutes
of the meetings of the stockholders, directors and committees thereof of
the Fund, and inquiries of certain officials of the Fund who have
responsibility for financial and accounting matters of the Fund, nothing
came to their attention which caused them to believe that at a specified
date no more than five business days prior to the date of the letter there
was any change in the shares of Common Stock or net assets or shareholders'
equity of the Fund as compared with the
<PAGE>
21
amounts shown on the statement of assets and liabilities included in the
Prospectus, except in all instances for changes or decreases set forth in
such letter, in which case the letter shall be accompanied by an
explanation by the Fund as to the significance thereof unless said
explanation is not deemed necessary by the Representative.
References to the Prospectus in this paragraph (g) include any supplement
thereto at the date of the letter.
(j) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter or
letters referred to in paragraph (i) of this Section 6 or (ii) any change, or
any development involving a prospective change, in or affecting the business or
properties of the Fund the effect of which, in any case referred to in clause
(i) or (ii) above, is, in the judgment of the Representative, so material and
adverse as to make it impractical or inadvisable to proceed with the offering or
the delivery of the Securities as contemplated by the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of any
supplement thereto).
(k) Prior to the Closing Date, the Fund shall have furnished to the
Representative such further information, certificates and documents as the
Representative may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representative and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representative. Notice of such
cancellation shall be given to the Fund in writing or by telephone or telegraph
confirmed in writing.
7. Reimbursement of Underwriters' Expenses.
---------------------------------------
The Fund will pay all costs, expenses, fees and taxes incident to the
performance of its obligations under this Agreement, including, but not limited
to, expenses relating to (i) the preparation, printing and filing of the
Registration Statement as originally filed and of each amendment thereto, of the
Preliminary Prospectuses, and of the Prospectus and any amendments or
supplements thereto, (ii) the preparation of the Fund Agreements, (iii) the
preparation, issuance and delivery of the certificates for the Securities to the
Underwriters, including stock transfer taxes, if any, payable upon the sale,
issuance and delivery of the Securities, (iv) the fees and disbursements of the
Fund's counsel and accountants, (a) the qualification of the Securities under
securities laws in accordance with the provisions of Section 5(e) of this
Agreement, including filing fees and any fees or disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of a Blue Sky Survey, (vi) the reproduction and delivery to the Underwriters of
copies of the
<PAGE>
22
Registration Statement as originally filed and of each amendment thereto, of the
Preliminary Prospectuses, and of the Prospectus and any amendments or
supplements thereto, (vii) the reproduction and delivery to the Underwriters of
copies of the Blue Sky Survey, (viii) the fees and expenses incurred with
respect to filings with the National Association of Securities Dealers, Inc.,
(ix) the preparation and delivery to the Underwriters of any marketing brochure
(excluding any brochures distributed to brokers) and any tombstone advertisement
placed by the Fund or placed by the Underwriters at the request of the Fund, (x)
the fees and expenses incurred with respect to the listing of the Securities on
the New York Stock Exchange and the registration thereof under the Exchange Act,
and (xi) an amount of $___________ payable on the Closing Date to the
Underwriters in partial reimbursement of their expenses in connection with the
offering.
If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 6 hereof is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability or failure on the part of
the Fund to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Fund will
remain liable to pay all of the costs, expenses, fees and taxes specified in the
preceding paragraph and will reimburse the Underwriters severally upon demand
for all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the proposed
purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Fund, the Investment
--------------------------------
Adviser and the Sub-Investment Adviser jointly and severally agree to indemnify
and hold harmless each Underwriter, the directors, officers, employees and
agents of each Underwriter, and each person who controls any Underwriter within
the meaning of either the Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement for the registration of the
Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the Fund,
-------- -------
the Investment Adviser and the Sub-Investment Adviser will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Fund by or on behalf of any
Underwriter through the Representative specifically for inclusion therein. This
indemnity agreement will be in addition to any liability which the Fund or the
Investment Adviser or Sub-Investment Adviser may otherwise have.
<PAGE>
23
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Fund and the Investment Adviser and the Sub-Investment Adviser, each of its
respective directors, each of its respective officers who signs the Registration
Statement, and each person who controls the Fund and the Investment Adviser and
the Sub-Investment Adviser within the meaning of either the Act or the Exchange
Act, to the same extent as the foregoing indemnity to each Underwriter, but only
with reference to written information relating to such Underwriter furnished to
the Fund by or on behalf of such Underwriter through the Representative
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Fund, the Investment Adviser and the
Sub-Investment Adviser acknowledge that the statements set forth in the last
paragraph of the cover page and under the heading "Underwriting" in any
Preliminary Prospectus and the Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for inclusion
in any Preliminary Prospectus or the Prospectus, and you, as the Representative,
confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
-------- -------
satisfactory to the indemnified party. Notwithstanding the indemnifying party's
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expense of such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or
<PAGE>
24
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Fund, the Investment Adviser and the Sub-
Investment Adviser, jointly and severally, and the Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Fund, the Investment
Adviser, the Sub-Investment Adviser and one or more of the Underwriters may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Fund, the Investment Adviser and the Sub-Investment Adviser on
the one hand and by the Underwriters on the other from the offering of the
Securities; provided, however, that in no case shall any Underwriter (except as
-------- -------
may be provided in any agreement among underwriters relating to the offering of
the Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by such
Underwriter hereunder. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the Fund, the Investment Adviser and the
Sub-Investment Adviser, jointly and severally, and the Underwriters shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Fund, the Investment
Adviser and the Sub-Investment Adviser on the one hand and of the Underwriters
on the other in connection with the statements or omissions which resulted in
such Losses as well as any other relevant equitable considerations. Benefits
received by the Fund, the Investment Adviser and the Sub-Investment Adviser
shall be deemed to be equal to the total net proceeds from the offering (before
deducting expenses), and benefits received by the Underwriters shall be deemed
to be equal to the total underwriting discounts and commissions, in each case as
set forth on the cover page of the Prospectus. Relative fault shall be
determined by reference to whether any alleged untrue statement or omission
relates to information provided by the Fund, the Investment Adviser, the Sub-
Investment Adviser or by the Underwriters. The Fund, the Investment Adviser,
the Sub-Investment Adviser and the Underwriters agree that it would not be just
and equitable if contribution were determined by pro rata allocation or any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 8(d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls an Underwriter within the meaning of
either the Act or the Exchange Act and each director, officer, employee and
agent of an Underwriter shall have the same rights to contribution as such
Underwriter, and each person who controls the Fund or the Investment Adviser or
the Sub-Investment Adviser within the meaning of either the Act or the Exchange
Act, each officer of the Fund who shall have signed the Registration Statement
and each director of the Fund shall have the same rights to contribution as the
Fund, subject in each case to the applicable terms and conditions of this
Section 8(d).
<PAGE>
25
9. Default by an Underwriter. If any one or more Underwriters shall
-------------------------
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
-------- -------
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such non-defaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any non-defaulting Underwriter,
the Investment Adviser, the Sub-Investment Adviser or the Fund. In the event of
a default by any Underwriter as set forth in this Section 9, the Closing Date
shall be postponed for such period, not exceeding seven days, as the
Representative shall determine in order that the required changes in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall relieve
any defaulting Underwriter of its liability, if any, to the Fund, the Investment
Adviser, the Sub-Investment Adviser and any non-defaulting Underwriter for
damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in
-----------
the absolute discretion of the Representative, by notice given to the Fund prior
to delivery of and payment for the Securities, if prior to such time (i) trading
in the Fund's Common Stock shall have been suspended by the Commission or the
New York Stock Exchange or trading in securities generally on the New York Stock
Exchange shall have been suspended or limited or minimum prices shall have been
established on such Exchange, (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 the Prospectus (exclusive of any
supplement thereto).
11. Representations and Indemnities to Survive. The respective
------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Fund or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter, the Investment Adviser,
the Sub-Investment Adviser or the Fund or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Securities. The provisions of Sections 7 and 8 hereof
shall survive the termi nation or cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing and
-------
effective only on receipt, and, if sent to the Representative, will be mailed,
delivered or telegraphed
<PAGE>
26
and confirmed to them, care of Salomon Smith Barney Inc. at 388 Greenwich
Street, New York, New York, 10013, attention: General Counsel, Investment
Banking Division; or, if sent to the Fund, will be mailed, delivered or
telegraphed and confirmed to care of Mutual Management Corp., __________, New
York, New York _____, attention: Counsel.
13. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and construed
--------------
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York.
15. Counterparts. This agreement may be signed in any number of
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
27
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement between the
Fund and the several Underwriters.
Very truly yours,
TRAVELERS CORPORATE LOAN FUND INC.
By:____________________________
Name:
Title:
MUTUAL MANAGEMENT CORP.
By:_______________________________
Name:
Title:
TRAVELERS ASSET MANAGEMENT INTERNATIONAL CORPORATION
By:_______________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
SALOMON SMITH BARNEY INC.
By:________________________
Managing Director
For itself and the several
Underwriters named in Schedule I
to the foregoing Agreement.
<PAGE>
28
SCHEDULE I
Underwriters Number of Shares
------------ ----------------
Salomon Smith Barney Inc.
Total ............................ __________
<PAGE>
EXHIBIT 99.J
FORM OF CUSTODIAN SERVICES AGREEMENT
-------------------------------------
This Agreement is made as of [ ] by and
between_____________________, a Maryland corporation (the "Fund") and PNC BANK,
NATIONAL ASSOCIATION, a national banking association ("PNC Bank").
The Fund is registered as an open-end investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund wishes to retain PNC
Bank to provide custodian services and PNC Bank wishes to furnish such services,
either directly or through an affiliate or affiliates, as more fully described
herein. In consideration of the premises and mutual covenants herein contained,
the parties agree as follows:
1. Definitions.
-----------
(a) "Authorized Person". The term "Authorized Person" shall mean any
-------------------
officer of the Fund and any other person, who is duly authorized by the Fund's
Governing Board, to give Oral and Written Instructions on behalf of the Fund.
Such persons are listed in the Certificate attached hereto as the Authorized
Persons Appendix, as such Appendix may be amended in writing by the Fund's
Governing Board from time to time.
(b) "Book-Entry System". The term "Book-Entry System" means Federal Reserve
-------------------
Treasury book-entry system for United States and federal agency securities, its
successor or successors, and its nominee or nominees and any book-entry system
maintained by an exchange registered with the SEC under the 1934 Act.
(c) "CFTC". The term "CFTC" shall mean the Commodities Futures Trading
------
Commission.
(d) "Governing Board". The term "Governing Board" shall mean the Fund's
-----------------
Board of Directors if the Fund is a corporation or the Fund's Board of Trustees
if the Fund is a trust, or, where duly authorized, a competent committee
thereof.
(e) "Oral Instructions". The term "Oral Instructions" shall mean oral
-------------------
instructions received by PNC Bank from an Authorized Person or from a person
reasonably believed by PNC Bank to be an Authorized Person.
(f) "SEC". The term "SEC" shall mean the Securities and Exchange Commission.
-----
<PAGE>
(g) "Securities and Commodities Laws". The term "Securities and Commodities
---------------------------------
Laws" shall mean the "1933 Act" which shall mean the Securities Act of 1933, the
"1934 Act" which shall mean the Securities Exchange Act of 1934, the 1940 Act,
and the "CEA" which shall mean the Commodities Exchange Act, as amended.
(h) "Shares". The term "Shares" shall mean the shares of stock of any series
--------
or class of the Fund, or, where appropriate, units of beneficial interest in a
trust where the Fund is organized as a Trust.
(i) "Property". The term "Property" shall mean:
----------
(i) any and all securities and other investment items which the
Fund may from time to time deposit, or cause to be
deposited, with PNC Bank or which PNC Bank may from time to
time hold for the Fund;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by PNC Bank from time to time, from or on
behalf of the Fund.
(j) "Written Instructions". The term "Written Instructions" shall mean
----------------------
written instructions signed by one Authorized Person and received by PNC Bank.
The instructions may be delivered by hand, mail, tested telegram, cable, telex
or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to provide custodian
-----------
services to the Fund, and PNC Bank accepts such appointment and agrees to
furnish such services.
3. Delivery of Documents. The Fund has provided or, where applicable, will
---------------------
provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the Fund's
Governing Board, approving the appointment of PNC Bank or its affiliates to
provide services;
(b) a copy of the Fund's most recent effective registration statement;
(c) a copy of the Fund's advisory agreement or agreements;
(d) a copy of the Fund's distribution agreement or agreements;
2
<PAGE>
(e) a copy of the Fund's administration agreements if PNC Bank is not
providing the Fund with such services;
(f) copies of any shareholder servicing agreements made in respect of the
Fund; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. Compliance with Government Rules and Regulations. PNC Bank undertakes
------------------------------------------------
to comply with all applicable requirements of the Securities and Commodities
Laws and any laws, rules and regulations of governmental authorities having
jurisdiction with respect to all duties to be performed by PNC Bank hereunder.
Except as specifically set forth herein, PNC Bank assumes no responsibility for
such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement, PNC Bank shall
------------
act only upon Oral and Written Instructions. PNC Bank shall be entitled to rely
upon any Oral and Written Instructions it receives from an Authorized Person (or
from a person reasonably believed by PNC Bank to be an Authorized Person)
pursuant to this Agreement. PNC Bank may assume that any Oral or Written
Instructions received hereunder are not in any way inconsistent with the
provisions of organizational documents or this Agreement or of any vote,
resolution or proceeding of the Fund's Governing Board or of the Fund's
shareholders.
The Fund agrees to forward to PNC Bank Written Instructions confirming Oral
Instructions so that PNC Bank receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact
that such confirming Written Instructions are not received by PNC Bank shall in
no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur no liability to the Fund in
acting upon Oral or Written Instructions provided such instructions reasonably
appear to have been received from an Authorized Person.
6. Right to Receive Advice.
-----------------------
(a) Advice of the Fund. If PNC Bank is in doubt as to any action it should
------------------
or should not take, PNC Bank may request directions or advice, including Oral or
Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to any questions of
-----------------
law pertaining to any action it should or should not take, PNC Bank may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Fund, the Fund's advisor or PNC Bank, at the option of PNC Bank).
3
<PAGE>
(c) Conflicting Advice. In the event of a conflict between directions,
------------------
advice or Oral or Written Instructions PNC Bank receives from the Fund, and the
advice it receives from counsel, PNC Bank shall be entitled to rely upon and
follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall be protected in any action it
----------------------
takes or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and which PNC Bank
believes, in good faith, to be consistent with those directions, advice or Oral
or Written Instructions.
Nothing in this paragraph shall be construed so as to impose an obligation
upon PNC Bank (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PNC Bank's properly taking or not taking
such action.
7. Records. The books and records pertaining to the Fund which are in the
-------
possession of PNC Bank, shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Fund, or the Fund's
Authorized Persons, shall have access to such books and records at all time
during PNC Bank's normal business hours. Upon the reasonable request of the
Fund, copies of any such books and records shall be provided by PNC Bank to the
Fund or to an Authorized Person of the Fund, at the Fund's expense.
8. Confidentiality. PNC Bank agrees to keep confidential all records of the
---------------
Fund and information relative to the Fund and its shareholders (past, present
and potential), unless the release of such records or information is otherwise
consented to, in writing, by the Fund. The Fund agrees that such consent shall
not be unreasonably withheld and may not be withheld where PNC Bank may be
exposed to civil or criminal contempt proceedings or when required to divulge.
The Fund further agrees that, should PNC Bank be required to provide such
information or records to duly constituted authorities (who may institute civil
or criminal contempt proceedings for failure to comply), PNC Bank shall not be
required to seek the Fund's consent prior to disclosing such information.
9. Cooperation with Accountants. PNC Bank shall cooperate with the Fund's
----------------------------
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to ensure that the
4
<PAGE>
necessary information is made available to such accountants for the expression
of their opinion, as required by the Fund.
10. Disaster Recovery. PNC Bank shall enter into and shall maintain in
-----------------
effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PNC Bank shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions but shall have no liability with respect thereto.
11. Compensation. As compensation for custody services rendered by PNC Bank
------------
during the term of this Agreement, the Fund will pay to PNC Bank a fee or fees
as may be agreed to in writing from time to time by the Fund and PNC Bank.
12. Indemnification. The Fund agrees to indemnify and hold harmless PNC Bank
---------------
and its nominees from all taxes, charges, expenses, assessment, claims and
liabilities (including, without limitation, liabilities arising under the
Securities and Commodities Laws and any state and foreign securities and blue
sky laws, and amendments thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action which PNC Bank takes or does not take (i) at the request or on the
direction of or in reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its nominees, shall be
indemnified against any liability to the Fund or to its shareholders (or any
expenses incident to such liability) arising out of PNC Bank's own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be under no duty to take any
--------------------------
action on behalf of the Fund except as specifically set forth herein or as may
be specifically agreed to by PNC Bank, in writing. PNC Bank shall be obligated
to exercise care and diligence in the performance of its duties hereunder, to
act in good faith and to use its best effort, within reasonable limits, in
performing services provided for under this Agreement. PNC Bank shall be
responsible for its own negligent failure to perform its duties under this
Agreement. Notwithstanding the foregoing, PNC Bank shall not be responsible for
losses beyond its control, provided that PNC Bank has acted in accordance with
the standard of care set forth above; and provided further that PNC Bank shall
only be responsible for that portion of losses or damages suffered by the Fund
that are attributable to the negligence of PNC Bank.
5
<PAGE>
Without limiting the generality of the foregoing or of any other provision of
this Agreement, PNC Bank, in connection with its duties under this Agreement,
shall not be under any duty or obligation to inquire into and shall not be
liable for (a) the validity or invalidity or authority or lack thereof of any
Oral or Written Instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which PNC Bank reasonably
believes to be genuine; or (b) delays or errors or loss of data occurring by
reason of circumstances beyond PNC Bank's control, including acts of civil or
military authority, national emergencies, labor difficulties, fire, flood or
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
Notwithstanding anything in this Agreement to the contrary, PNC Bank shall
have no liability to the Fund for any consequential, special or indirect losses
or damages which the Fund may incur or suffer by or as a consequence of PNC
Bank's performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PNC Bank.
14. Description of Services.
-----------------------
(a) Delivery of the Property. The Fund will deliver or arrange for delivery
------------------------
to PNC Bank, all the property owned by the Fund, including cash received as a
result of the distribution of its Shares, during the period that is set forth in
this Agreement. PNC Bank will not be responsible for such property until actual
receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon Written
---------------------------------
Instructions, shall open and maintain separate account(s) in the Fund's name
using all cash received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written Instructions, PNC Bank shall
open separate custodial accounts for each separate series, class or portfolio of
the Fund and shall hold in such account(s) all cash received from or for the
accounts of the Fund specifically designated to each separate series, class or
portfolio. PNC Bank shall make cash payments from or for the account of the
Fund only for:
(i) purchases of securities in the name of the Fund or PNC Bank
or PNC Bank's nominee as provided in sub-paragraph j and for
which PNC Bank has received a copy of the broker's or
dealer's confirmation or payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund delivered to
PNC Bank;
6
<PAGE>
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution, advisory,
management fees or similar expenses which are to be borne by
the Fund;
(iv) payment to, subject to receipt of Written Instructions, the
Fund's transfer agent, as agent for the shareholders, an
amount equal to the amount of dividends and distributions
stated in the Written Instructions to be distributed in cash
by the transfer agent to shareholders, or, in lieu of paying
the Fund's transfer agent, PNC Bank may arrange for the
direct payment of cash dividends and distributions to
shareholders in accordance with procedures mutually agreed
upon from time to time by and among the Fund, PNC Bank and
the Fund's transfer agent;
(v) payments, upon receipt of Written Instructions, in
connection with the conversion, exchange or surrender of
securities owned or subscribed to by the Fund and held by or
delivered to PNC Bank;
(vi) payments of the amounts of dividends received with respect
to securities sold short; payments made to a sub-custodian
pursuant to provisions in sub-paragraph c of this Paragraph;
and
(viii) payments, upon Written Instructions made for other proper
Fund purposes. PNC Bank is hereby authorized to endorse and
collect all checks, drafts or other orders for the payment
of money received as custodian for the account of the Fund.
(c) Receipt of Securities.
---------------------
(i) PNC Bank shall hold all securities received by it for the
account of the Fund in a separate account that physically
segregates such securities from those of any other
persons, firms or corporations, except for securities held
in a Book-Entry System. All such securities shall be held
or disposed of only upon Written Instructions of the Fund
pursuant to the terms of this Agreement. PNC Bank shall
have no power or authority to assign, hypothecate, pledge or
otherwise dispose of any such securities or investment,
except upon the express terms of this Agreement and
7
<PAGE>
upon Written Instructions, accompanied by a certified
resolution of the Fund's Governing Board, authorizing the
transaction. In no case may any member of the Fund's
Governing Board, or any officer, employee or agent of the
Fund withdraw any securities. At PNC Bank's own expense and
for its own convenience, PNC Bank may enter into sub-
custodian agreements with other banks or trust companies to
perform duties described in this sub-paragraph c. Such bank
or trust company shall have an aggregate capital, surplus
and undivided profits, according to its last published
report, of at least one million dollars ($1,000,000), if it
is a subsidiary or affiliate of PNC Bank, or at least twenty
million dollars ($20,000,000) if such bank or trust company
is not a subsidiary or affiliate of PNC Bank. In addition,
such bank or trust company must agree to comply with the
relevant provisions of the 1940 Act and other applicable
rules and regulations. PNC Bank shall remain responsible for
the performance of all of its duties as described in this
Agreement and shall hold the Fund harmless from PNC Bank's
own (or any sub-custodian chosen by PNC Bank under the terms
of this sub-paragraph c) acts or omissions, under the
standards of care provided for herein.
(d) Transactions Requiring Instructions. Upon receipt of Oral or Written
-----------------------------------
Instructions and not otherwise, PNC Bank, directly or through the use of the
Book-Entry System, shall:
(i) deliver any securities held for the Fund against the receipt
of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated in
such Oral or Written Instructions, proxies, consents,
authorizations, and any other instruments whereby the
authority of the Fund as owner of any securities may be
exercised;
8
<PAGE>
(iii) deliver any securities to the issuer thereof, or its agent,
when such securities are called, redeemed, retired or
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to PNC
Bank;
(iv) deliver any securities held for the Fund against receipt of
other securities or cash issued or paid in connection with
the liquidation, reorganization, refinancing, tender offer,
merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(v) deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to
evidence such delivery;
(vi) make such transfer or exchanges of the assets of the Fund
and take such other steps as shall be stated in said Oral or
Written Instructions to be for the purpose of effectuating a
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(vii) release securities belonging to the Fund to any bank or
trust company for the purpose of a pledge or hypothecation
to secure any loan incurred by the Fund; provided, however,
that securities shall be released only upon payment to PNC
Bank of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing
already made subject to proper prior authorization, further
securities may be released for that purpose; and repay such
loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
(viii) release and deliver securities owned by the Fund in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on receipt of payment therefor;
and
9
<PAGE>
pay out moneys of the Fund in connection with such
repurchase agreements, but only upon the delivery of the
securities;
(ix) release and deliver or exchange securities owned by the Fund
in connection with any conversion of such securities,
pursuant to their terms, into other securities;
(x) release and deliver securities owned by the Fund for the
purpose of redeeming in kind shares of the Fund upon
delivery thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by the Fund
for other corporate purposes. PNC Bank must also receive a
certified resolution describing the nature of the corporate
purpose and the name and address of the person(s) to whom
delivery shall be made when such action is pursuant to sub-
paragraph d above.
(e) Use of Book-Entry System. The Fund shall deliver to PNC Bank certified
------------------------
resolutions of the Fund's Governing Board approving, authorizing and instructing
PNC Bank on a continuous and on-going basis, to deposit in the Book-Entry System
all securities belonging to the Fund eligible for deposit therein and to utilize
the Book-Entry System to the extent possible in connection with settlements of
purchases and sales of securities by the Fund, and deliveries and returns of
securities loaned, subject to repurchase agreements or used as collateral in
connection with borrowings. PNC Bank shall continue to perform such duties
until it receives Written or Oral Instructions authorizing contrary actions(s).
To administer the Book-Entry System properly, the following provisions shall
apply:
(i) With respect to securities of the Fund which are maintained
in the Book-Entry system, established pursuant to this sub-
paragraph e hereof, the records of PNC Bank shall identify
by Book-Entry or otherwise those securities belonging to the
Fund. PNC Bank shall furnish the Fund a detailed statement
of the Property held for the Fund under this Agreement at
least monthly and from time to time and upon written
request.
(ii) Securities and any cash of the Fund deposited in the Book-
Entry System will at all times be segregated from any assets
and cash controlled by PNC Bank in other than a fiduciary or
10
<PAGE>
custodian capacity but may be commingled with other assets
held in such capacities. PNC Bank and its sub-custodian, if
any, will pay out money only upon receipt of securities and
will deliver securities only upon the receipt of money.
(iii) All books and records maintained by PNC Bank which relate to
the Fund's participation in the Book-Entry System will at
all times during PNC Bank's regular business hours be open
to the inspection of the Fund's duly authorized employees or
agents, and the Fund will be furnished with all information
in respect of the services rendered to it as it may require.
(iv) PNC Bank will provide the Fund with copies of any report
obtained by PNC Bank on the system of internal accounting
control of the Book-Entry System promptly after receipt of
such a report by PNC Bank. PNC Bank will also provide the
Fund with such reports on its own system of internal control
as the Fund may reasonably request from time to time.
(f) Registration of Securities. All Securities held for the Fund which are
--------------------------
issued or issuable only in bearer form, except such securities held in the Book-
Entry System, shall be held by PNC Bank in bearer form; all other securities
held for the Fund may be registered in the name of the Fund; PNC Bank; the Book-
Entry System; a sub-custodian; or any duly appointed nominee(s) of the Fund, PNC
Bank, Book-Entry system or sub-custodian. The Fund reserves the right to
instruct PNC Bank as to the method of registration and safekeeping of the
securities of the Fund. The Fund agrees to furnish to PNC Bank appropriate
instruments to enable PNC Bank to hold or deliver in proper form for transfer,
or to register its registered nominee or in the name of the Book-Entry System,
any securities which it may hold for the account of the Fund and which may from
time to time be registered in the name of the Fund. PNC Bank shall hold all
such securities which are not held in the Book-Entry System in a separate
account for the Fund in the name of the Fund physically segregated at all times
from those of any other person or persons.
(g) Voting and Other Action. Neither PNC Bank nor its nominee shall vote any
-----------------------
of the securities held pursuant to this Agreement by or for the account of the
Fund, except in accordance with Written Instructions. PNC Bank, directly or
through the use of the Book-Entry System, shall execute in blank and promptly
deliver all notice, proxies, and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not the Fund then
Written or Oral Instructions must designate the person(s) who owns such
securities.
11
<PAGE>
(h) Transactions Not Requiring Instructions. In the absence of contrary
---------------------------------------
Written Instructions, PNC Bank is authorized to take the following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of the Fund, all
income, dividends, distributions, coupons, option
premiums, other payments and similar items, included or
to be included in the Property, and, in addition,
promptly advise the Fund of such receipt and credit
such income, as collected, to the Fund's custodian
account;
(B) endorse and deposit for collection, in the name of the
Fund, checks, drafts, or other orders for the payment
of money;
(C) receive and hold for the account of the Fund all
securities received as a distribution on the Fund's
portfolio securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to any
portfolio securities belonging to the Fund held by PNC
Bank hereunder;
(D) present for payment and collect the amount payable upon
all securities which may mature or be called, redeemed,
or retired, or otherwise become payable on the date
such securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such
income and other payments and the endorsement for
collection of checks, drafts, and other negotiable
instruments.
(ii) Miscellaneous Transactions.
--------------------------
12
<PAGE>
(A) PNC Bank is authorized to deliver or cause to be
delivered Property against payment or other
consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer selling for
the account of the Fund in accordance with street
delivery custom;
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the
Fund or PNC Bank or nominee of either, or for
exchange of securities for a different number of
bonds,certificates, or other evidence,
representing the same aggregate face amount or
number of units bearing the same interest rate,
maturity date and call provisions, if any;
provided that, in any such case, the new
securities are to be delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral or Written
Instructions to the contrary, PNC Bank shall:
(1) pay all income items held by it which call for
payment upon presentation and hold the cash
received by it upon such payment for the account
of the Fund;
(2) collect interest and cash dividends received, with
notice to the Fund, to the Fund's account;
(3) hold for the account of the Fund all stock
dividends, rights and similar securities issued
with respect to any securities held by PNC Bank;
and
(4) execute as agent on behalf of the Fund all
necessary ownership certificates required by the
Internal Revenue Code or
13
<PAGE>
the Income Tax Regulations of the United States
Treasury Department or under the laws of any State
now or hereafter in effect, inserting the Fund's
name, on such certificate as the owner of the
securities covered thereby, to the extent it may
lawfully do so.
(i) Segregated Accounts.
-------------------
(i) PNC Bank shall upon receipt of Written or Oral Instructions
establish and maintain segregated account(s) on its records
for and on behalf of the Fund. Such account(s) may be used
to transfer cash and securities, including securities in the
Book-Entry System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option exchange,
providing such procedures comply with the 1940 Act and
any releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies;
and
(B) Upon receipt of Written Instructions, for other proper
corporate purposes.
(ii) PNC Bank may enter into separate custodial agreements with
various futures commission merchants ("FCMs") that the Fund
uses ("FCM Agreement"). Pursuant to an FCM Agreement, the
Fund's margin deposits in any transactions involving futures
contracts and options on futures contracts will be held by
PNC Bank in accounts ("FCM Account") subject to the
disposition by the FCM involved in such contracts and in
accordance with the customer contract between FCM and the
Fund ("FCM Contract"), SEC rules and the rules of the
applicable commodities exchange. Such FCM Agreements shall
only be entered into upon receipt of Written Instructions
from the Fund which state that:
(A) a customer agreement between the FCM and the Fund has
been entered into; and
14
<PAGE>
(B) the Fund is in compliance with all the rules and
regulations of the CFTC. Transfers of initial margin
shall be made into a FCM Account only upon Written
Instructions; transfers of premium and variation margin
may be made into a FCM Account pursuant to Oral
Instructions.
Transfers of funds from a FCM Account to the FCM for
which PNC Bank holds such an account may only occur
upon certification by the FCM to PNC Bank that pursuant
to the FCM Agreement and the FCM Contract, all
conditions precedent to its right to give PNC Bank such
instructions have been satisfied.
(iii) PNC Bank shall arrange for the establishment of IRA
custodian accounts for such share- holders holding Shares
through IRA accounts, in accordance with the Fund's
prospectuses, the Internal Revenue Code (including
regulations), and with such other procedures as are
mutually agreed upon from time to time by and among the
Fund, PNC Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall settle purchased securities upon
-----------------------
receipt of Oral or Written Instructions from the Fund or its investment
advisor(s) that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker through whom
the purchase was made. PNC Bank shall upon receipt of
securities purchased by or for the Fund pay out of the
moneys held for the account of the Fund the total amount
payable to the person from whom
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or the broker through whom the purchase was made, provided
that the same conforms to the total amount payable as set
forth in such Oral or Written Instructions.
(k) Sales of Securities. PNC Bank shall settle sold securities upon receipt
-------------------
of Oral or Written Instructions from the Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom the
sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any. PNC Bank shall deliver the
securities upon receipt of the total amount payable to the Fund
upon such sale, provided that the total amount payable is the
same as was set forth in the Oral or Written Instructions.
Subject to the foregoing, PNC Bank may accept payment in such
form as shall be satisfactory to it, and may deliver securities
and arrange for payment in accordance with the customs
prevailing among dealers in securities.
(l) Reports.
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(i) PNC Bank shall furnish the Fund the following reports:
(A) such periodic and special reports as the Fund may
reasonably request;
(B) a monthly statement summarizing all transactions and
entries for the account of the Fund, listing the
portfolio securities belonging to the Fund with the
adjusted average cost of each issue and the market
value at the end of such month, and stating the cash
account of the Fund including disbursement;
(C) the reports to be furnished to the Fund pursuant to
Rule 17f-4; and
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(D) such other information as may be agreed upon from time
to time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or conversion or
similar communication received by it as custodian of the
Property. PNC Bank shall be under no other obligation to inform
the Fund as to such actions or events.
(m) Collections. All collections of monies or other property, in respect, or
-----------
which are to become part of the Property (but not the safekeeping thereof upon
receipt by PNC Bank) shall be at the sole risk of the Fund. If payment is not
received by PNC Bank within a reasonable time after proper demands have been
made, PNC Bank shall notify the Fund in writing, including copies of all demand
letters, any written responses, memoranda of all oral responses and telephonic
demands thereto, and await instructions from the Fund. PNC Bank shall not be
obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. PNC Bank shall also notify the Fund as soon as
reasonably practicable whenever income due on securities is not collected in due
course.
15. Duration and Termination. This Agreement shall continue until terminated
------------------------
by the Fund or by PNC Bank on sixty (60) days' prior written notice to the other
party. In the event this Agreement is terminated (pending appointment of a
successor to PNC Bank or vote of the shareholders of the Fund to dissolve or to
function without a custodian of its cash, securities or other property), PNC
Bank shall not deliver cash, securities or other property of the Fund to the
Fund. It may deliver them to a bank or trust company of PNC Bank's choice,
having an aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than twenty million dollars ($20,000,000), as a
custodian for the Fund to be held under terms similar to those of this
Agreement. PNC Bank shall not be required to make any such delivery or payment
until full payment shall have been made to PNC Bank of all of its fees,
compensation, costs and expenses. PNC Bank shall have a security interest in
and shall have a right of setoff against Property in the Fund's possession as
security for the payment of such fees, compensation, costs and expenses.
16. Notices. All notices and other communications, including Written
-------
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at PNC
Bank's address: Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, marked
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for the attention of the Custodian Services Department (or its successor) (b) if
to the Fund, at the address of the Fund; or (c) if to neither of the foregoing,
at such other address as shall have been notified to the sender of any such
notice or other communication. If notice is sent by confirming telegram, cable,
telex or facsimile sending device, it shall be deemed to have been given
immediately. If notice is sent by first-class mail, it shall be deemed to have
been given five days after it has been mailed. If notice is sent by messenger,
it shall be deemed to have been given on the day it is delivered.
17. Amendments. This Agreement, or any term hereof, may be changed or waived
----------
only by a written amendment, signed by the party against whom enforcement of
such change or waiver is sought.
18. Delegation. PNC Bank may assign its rights and delegate its duties
----------
hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PNC Bank gives the
Fund thirty (30) days prior written notice; (ii) the delegate agrees with PNC
Bank to comply with all relevant provisions of the 1940 Act; and (iii) PNC Bank
and such delegate promptly provide such information as the Fund may request, and
respond to such questions as the Fund may ask, relative to the assignment,
including (without limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Further Actions. Each party agrees to perform such further acts and
---------------
execute such further documents as are necessary to effectuate the purposes
hereof.
21. Miscellaneous. This Agreement embodies the entire agreement and
-------------
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and/or Oral Instructions. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect.
This Agreement shall be deemed to be a contract made in Pennsylvania and
governed by Pennsylvania law, without regard to principles of conflicts of law.
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This
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Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PNC BANK, NATIONAL ASSOCIATION
By:
Title:
SMITH BARNEY EQUITY FUNDS
By:
Title:
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<PAGE>
EXHIBIT 99.L2
CONSENT OF WILLKIE FARR & GALLAGHER
-----------------------------------
We hereby consent to the references to us in Pre-Effective Amendment No. 1
of the registration statement on Form N-2 (the "Registration Statement") of
Travelers Corporate Loan Fund Inc., and to the filing of this consent as an
exhibit to such Registration Statement, and any amendments thereto.
/s/ Willkie Farr & Gallagher
- -----------------------------
Willkie Farr & Gallagher
New York, New York
October 1, 1998
<PAGE>
EXHIBIT 99.P
SUBSCRIPTION AGREEMENT
between
TRAVELERS CORPORATE LOAN FUND INC.
and
SALOMON SMITH BARNEY INC.
For and in consideration of the mutual agreements herein contained, Salomon
Smith Barney Inc. (the "Subscriber") hereby agrees to purchase from Travelers
Corporate Loan Fund Inc. (the "Fund"), a Maryland corporation, and Fund agrees
to sell to subscriber 6,667 shares of its Common Stock, par value $.001 per
share, for cash at the price of $15.00 a share upon the following terms and
conditions:
Subscriber agrees to pay $100,005 to Fund upon demand.
Subscriber agrees that these initial shares are being purchased for investment
with no present intention of reselling or redeeming said shares.
SALOMON SMITH BARNEY INC.
(Subscriber for shares of Travelers Corporate Loan Fund Inc.)
By:_______________________________
Subscription agreed to:
TRAVELERS CORPORATE LOAN FUND INC.
By:___________________________________________________
Heath B. McLendon, Chief Executive Officer
Date:_________________________________________________
