AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1998.
SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO.
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. / /
(CHECK APPROPRIATE BOX OR BOXES)
____________________
SENIOR FLOATING INCOME FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 282-2800
ARTHUR ZEIKEL
SENIOR FLOATING INCOME FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
____________________
Copies to:
FRANK P. BRUNO, ESQ. PATRICK D. SWEENEY, ESQ.
BROWN & WOOD LLP FUND ASSET MANAGEMENT, L.P.
ONE WORLD TRADE CENTER P.O. BOX 9011
NEW YORK, NEW YORK 10048-0557 PRINCETON, NEW JERSEY 08543-9011
____________________
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
____________________
<TABLE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<CAPTION>
===============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE(1) FEE(2)
- ------------------------------------------------- ----------------------- ------------------- ------------------ --------------
<S> <C> <C> <C> <C>
Common Stock ($.10 par value) 66,667 shares $15.00 $1,000,005 $278
===============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA.
================================================================================
____________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
<PAGE>
<TABLE>
SENIOR FLOATING INCOME FUND, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(C)
<CAPTION>
ITEM NUMBER, FORM N-2 CAPTION IN PROSPECTUS
--------------------- ---------------------
<S> <C> <C>
PART A
1. Outside Front Cover Page...................................... Cover Page
2. Inside Front and Outside Back Cover Pages..................... Cover Page
3. Fee Table and Synopsis........................................ Prospectus Summary; Risk Factors and
Special Considerations; Fee Table
4. Plan of Distribution.......................................... Prospectus Summary; Purchase of
Shares
5. Selling Shareholders.......................................... Not Applicable
6. Use of Proceeds............................................... Investment Objective and Policies
7. General Description of the Registrant......................... The Fund; Prospectus Summary; Risk
Factors and Special
Considerations; Investment
Objective and Policies;
Leverage; Investment Restrictions
8. Management.................................................... Directors and Officers; Investment
Advisory and Management
Arrangements
9. Capital Stock, Long-Term Debt, and Other Securities........... Description of Capital Stock
10. Defaults and Arrears on Senior Securities..................... Not Applicable
11. Legal Proceedings............................................. Not Applicable
12. Table of Contents of the Statement of Additional Information.. Not Applicable
PART B
13. Cover Page.................................................... Not Applicable
14. Table of Contents............................................. Not Applicable
15. General Information and History............................... Not Applicable
16. Investment Objective and Policies............................. Investment Objective and Policies;
Investment Restrictions
17. Management.................................................... Directors and Officers; Investment
Advisory and Management
Arrangements
18. Control Persons and Principal Holders of Securities........... Investment Advisory and Management
Arrangements
19. Investment Advisory and Other Services........................ Investment Advisory and Management
Arrangements; Custodian; Experts
20. Brokerage Allocation and Other Practices...................... Portfolio Transactions
21. Tax Status.................................................... Taxes
22. Financial Statements.......................................... Report of Independent Auditors;
Statement of Assets, Liabilities
and Capital
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.
</TABLE>
<PAGE>
THE INFORMATION CONTAINED 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 IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 24, 1998
PROSPECTUS
----------
SHARES
SENIOR FLOATING INCOME FUND, INC.
COMMON STOCK
____________________
Senior Floating Income Fund, Inc. (the "Fund") is a newly organized,
non-diversified, closed-end fund. The Fund seeks to provide high current income
by investing primarily in senior loans made by banks and other financial
institutions. There can be no assurance that the investment objective of the
Fund will be realized. At times, the Fund may utilize leverage through
borrowings, including the issuance of debt securities. The use of leverage can
create special risks.
Because the Fund is newly organized, its shares have no history of public
trading, and shares of closed-end investment companies frequently trade at a
discount from their net asset value. The risk of loss may be greater for initial
investors expecting to sell their shares in a relatively short period after
completion of the public offering. The Fund plans to apply to list its shares on
the New York Stock Exchange under the symbol " ." Trading of the Fund's common
stock on the exchange is expected to begin within two weeks of the date of this
prospectus. During that time, the underwriter does not intend to make a market
in the Fund's shares. Consequently, an investment in the Fund may be illiquid
during that time.
____________________
This Prospectus contains information you should know before investing,
including information about risks. Please read it before
you invest and keep it for future reference.
____________________
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS AND SPECIAL CONSIDERATIONS" SECTION BEGINNING ON PAGE 5 OF THIS
PROSPECTUS.
Per Share Total
--------- -----
Public Offering Price........................... $15.00 $
Sales Load...................................... None None
Proceeds, before expenses, to Fund.............. $15.00 $
The Fund's investment adviser or an affiliate will pay the underwriter a
commission in the amount of ___% of the public offering price per share in
connection with the sale of the common stock.
The underwriter may also purchase up to an additional
shares at the public offering price within 45 days from the date of this
prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We expect that the shares of common stock will be ready for delivery in New
York, New York on or about _______ __, 1999.
____________________
MERRILL LYNCH & CO.
____________________
The date of this prospectus is __________ __, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary............................................................3
Risk Factors and Special Considerations.......................................5
Fee Table.....................................................................7
The Fund......................................................................8
Use of Proceeds...............................................................8
Investment Objective and Policies.............................................8
Other Investment Policies....................................................14
Investment Restrictions......................................................18
Directors and Officers.......................................................19
Investment Advisory and Management Arrangements..............................21
Portfolio Transactions.......................................................23
Dividends and Distributions..................................................23
Taxes........................................................................24
Automatic Dividend Reinvestment Plan.........................................27
Mutual Fund Investment Option................................................28
Net Asset Value..............................................................29
Description of Capital Stock.................................................29
Custodian....................................................................31
Underwriting.................................................................31
Transfer Agent, Dividend Disbursing Agent and Registrar......................32
Legal Opinions...............................................................32
Experts......................................................................32
Additional Information.......................................................32
Appendix - Ratings of Securities.............................................37
____________________
INFORMATION ABOUT THE FUND CAN BE REVIEWED AND COPIED AT THE SEC'S PUBLIC
REFERENCE ROOM IN WASHINGTON, D.C. CALL 1-800-SEC-0330 FOR INFORMATION ON THE
OPERATION OF THE PUBLIC REFERENCE ROOM. THIS INFORMATION IS ALSO AVAILABLE ON
THE SEC'S INTERNET SITE AT http://www.sec.gov AND COPIES MAY BE OBTAINED UPON
------------------
PAYMENT OF A DUPLICATING FEE BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC,
WASHINGTON, D.C., 20549-6009.
____________________
You should rely only on the information contained in this prospectus. We
have not, and the underwriter has not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate as of the date on the front cover of
this prospectus only. Our business, financial condition, results of operations
and prospects may have changed since that date.
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the detailed
information included in this Prospectus.
THE FUND................................ Senior Floating Income Fund, Inc. is
a newly organized, non-diversified,
closed-end fund.
THE OFFERING............................ The Fund is offering
shares of common stock at an initial
offering price of $15.00 per share.
The common stock is being offered by
Merrill Lynch, Pierce, Fenner &
Smith Incorporated as Underwriter.
The Underwriter may purchase up to
an additional _____ shares of common
stock within 45 days from the date
of this prospectus to cover
over-allotments.
INVESTMENT OBJECTIVE
AND POLICIES............................ The Fund seeks to provide
shareholders with high current
income by investing primarily in
senior loans made by banks and other
financial institutions to U.S. or
non-U.S. corporations, partnerships,
trusts and other similar entities
that meet credit standards
established by the Fund's investment
adviser.
Senior Loans. The Fund invests
primarily in senior loans that are
direct obligations of a borrower
undertaken to finance the growth of
the borrower's business or a capital
restructuring. A significant portion
of such senior loans are highly
leveraged loans such as leveraged
buy-out loans, leveraged
recapitalization loans and other
types of acquisition loans.
Generally, the Fund invests at least
80% of its assets in senior loans.
The remainder of the Fund's assets
may be invested in subordinated
loans.
Credit Quality. The Fund will invest
in a senior loan only if, in the
Investment Adviser's judgment, the
borrower can meet debt service on
such loan. The Investment Adviser
performs its own credit analysis of
each borrower. In evaluating senior
loans, the credit ratings assigned
to other debt obligations of a
borrower may not be a determining
factor since they may be
subordinated to the senior loans.
Floating or Variable Rate
Instruments. Under normal market
conditions, the Fund will invest at
least 90% of its assets in debt
instruments that have floating or
variable interest rates. Floating or
variable interest rates adjust
periodically at a margin above a
generally-recognized base lending
rate such as the prime rate of a
designated U.S. bank, the
Certificate of Deposit rate or the
London InterBank Offered Rate.
Portfolio Maturity. The Fund has no
restrictions on portfolio maturity,
but it is anticipated that a
majority of the senior loans in
which it invests will have stated
maturities ranging from three to ten
years. As a result of prepayments,
however, the average life of the
senior loans is expected to be in
the two to three year range.
Foreign and Domestic Borrowers. The
Fund may invest in senior loans made
to U.S. or non-U.S. borrowers,
provided that the loans are U.S.
dollar-denominated or other
arrangements are made to provide for
payment to the Fund in U.S. dollars.
Hedging Techniques. The Fund may
engage in certain interest rate
hedging transactions, such as
"swaps", "caps" or "floors," to
reduce the Fund's exposure to
interest rate movements. The Fund
also may invest in senior loans that
pay interest in a currency other
than U.S. dollars if the loan
arrangement also includes a foreign
currency swap that entitles the Fund
to receive payments in U.S. dollars,
or if the Fund hedges the foreign
currency exposure itself utilizing
forward contracts or other methods.
LEVERAGE................................ The Fund may borrow money or issue
debt securities in amounts up to
33-1/3% of the value of its total
assets to finance additional
investments. While such leverage
creates an opportunity for increased
net income, it also creates special
risks, including increased costs and
greater volatility in the net asset
value and market price of the common
stock. The Fund may borrow to
finance additional investments when
the Investment Adviser believes that
the potential return on such
additional investments will exceed
the costs incurred in connection
with the borrowing. When the Fund is
utilizing leverage, the fees paid to
the Investment Adviser for
investment advisory and management
services will be higher than if the
Fund did not utilize leverage
because the fees paid will be
calculated based on the Fund's net
assets plus the proceeds of any
outstanding borrowings used for
leverage.
LISTING................................. Currently, there is no public market
for the Fund's common stock.
However, the Fund plans to apply to
list the Fund's shares of common
stock on the New York Stock
Exchange. Trading of the Fund's
common stock on the exchange is
expected to begin within two weeks
of the date of this prospectus.
During that time, the underwriter
does not intend to make a market in
the Fund's shares. Consequently, an
investment in the Fund may be
illiquid during that time.
INVESTMENT ADVISER...................... Fund Asset Management, L.P., the
Fund's Investment Adviser, provides
investment advisory and management
services to the Fund. For its
services, the Fund pays the
Investment Adviser a fee at the
annual rate of ____% of the Fund's
average weekly net assets plus the
proceeds of any outstanding
borrowings used for leverage. While
the investment advisory and
management fee is higher than that
paid by other funds, it is similar
to that paid by other closed-end
funds investing primarily in senior
loans.
DIVIDENDS AND DISTRIBUTIONS............. The Fund intends to distribute
dividends of substantially all of
its net investment income monthly to
holders of common stock. Net capital
gains, if any, will be distributed
at least annually. At times, in
order to maintain a stable level of
distributions, the Fund may pay out
less than all of its net investment
income or pay out accumulated
undistributed income in addition to
net investment income.
AUTOMATIC DIVIDEND
REINVESTMENT PLAN....................... All dividend and capital gains
distributions will be used to
purchase additional shares of the
Fund's common stock. However, an
investor can choose to receive cash.
Since not all investors can
participate in the automatic
dividend reinvestment plan, you
should call your broker or nominee
to confirm that you are eligible to
participate in the plan.
MUTUAL FUND
INVESTMENT OPTION....................... Investors who purchase shares
through the Underwriter in this
offering and later sell their shares
have the option, subject to certain
conditions, to purchase Class D
shares of certain Merrill Lynch
funds with the proceeds from such
sale.
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Liquidity and Market Price of Shares. The Fund is newly organized and
has no operating history or history of public trading. Prior to the time the
Fund's common stock is listed on the New York Stock Exchange, an investment in
the Fund may be illiquid.
Shares of closed-end funds that trade in a secondary market frequently
trade at a market price that is below their net asset value. This is commonly
referred to as "trading at a discount." Investors who sell their shares within a
relatively short period after completion of the public offering are more likely
to be exposed to this risk. Accordingly, the Fund is designed primarily for
long-term investors and should not be considered a vehicle for trading purposes.
Non-payment. The debt instruments in which the Fund invests are subject
to the risk of non-payment of interest and principal. When a borrower fails to
make scheduled interest or principal payments on a debt instrument, the value of
the instrument, and hence the value of the Fund's shares, may go down. While a
senior position in the capital structure of a borrower may provide some
protection, losses may still occur.
The Fund has no minimum credit rating for the senior loans in which it
invests. Investments rated below investment grade (i.e., below BBB or Baa), or
which are unrated but of similar credit quality, have a higher risk of
non-payment than investment grade investments.
Senior loans made in connection with highly leveraged transactions are
subject to greater risks than other senior loans. For example, the risks of
default or bankruptcy of the borrower or the risks that other creditors of the
borrower may seek to nullify or subordinate the Fund's claims on any collateral
securing the loan are greater in highly leveraged transactions.
Intermediary. The Fund may invest in senior loans either by
participating as a co-lender at the time the loan is originated or by buying an
interest in the loan from an institution acting as agent, co-lender or
participant. The financial status of the institutions interposed between the
Fund and a borrower may affect the ability of the Fund to receive principal and
interest payments. For this reason, the Fund will invest in senior loans only
if, at the time of investment, the outstanding debt obligations of these
intermediary institutions are rated investment grade or are of comparable
quality in the judgment of the Investment Adviser.
The success of the Fund depends, to a great degree, on the skill with
which an agent bank administers the terms of the senior loan agreements,
monitors borrower compliance with covenants, collects principal, interest and
fee payments from borrowers and, where necessary, enforces creditor remedies
against borrowers. Agent banks typically have broad discretion in enforcing
senior loan agreements.
Net Asset Value; Interest Rate Sensitivity. Generally, when interest
rates go up, the value of debt securities goes down. Therefore, the net asset
value of a fund that invests primarily in fixed-income debt securities changes
as interest rates fluctuate. Because the Fund invests primarily in floating or
variable rate senior loans, the Investment Adviser expects that it will be
insulated to a significant degree from net asset value fluctuations caused by
movements in interest rates. However, because floating and variable senior loans
only reset periodically, the Fund's net asset value may fluctuate from time to
time when there is an imperfect correlation between the interest rates on the
floating or variable rate loans in the Fund's portfolio and prevailing interest
rates. Also, these fluctuations are usually greater in the case of funds
utilizing leverage as contemplated by the Fund. Changes in the creditworthiness
of borrowers or of co-lenders or participants interposed between the Fund and
the borrowers also may affect the Fund's net asset value. Furthermore,
volatility in the capital markets may affect the Fund's net asset value given
that the Fund uses market prices to value many of its senior loan investments.
Leverage. The Fund may borrow money or issue debt securities in amounts
up to 33-1/3% of the value of its total assets. Borrowing creates the risk of
increased volatility in the net asset value and market price of the Fund's
common stock. Such leverage also creates the risk that the investment return on
shares of the Fund's common stock will be reduced to the extent the cost of the
borrowings exceeds income on retained investments.
Hedging. Hedging transactions subject the Fund to the risk that, if the
Investment Adviser incorrectly forecasts market values, interest rates, currency
movements or other applicable factors, the Fund's performance could suffer. In
addition, if the counterparty to an interest rate hedging transaction defaults,
the Fund's risk of loss consists of the net amount of interest payments that the
Fund contractually is entitled to receive. If the counterparty to a foreign
currency hedging transaction defaults, the Fund will seek a replacement foreign
currency hedge, which may result in additional costs to the Fund, and will be
subject to fluctuations in the applicable exchange rate until a replacement
foreign currency hedge is obtained.
Concentration. The Fund's investments may be concentrated in
obligations issued by financial institutions and their holding companies,
including commercial banks, thrift institutions, insurance companies and finance
companies. As a result, the Fund is subject to certain risks associated with
such institutions, including, among other things, changes in government
regulation, interest rate levels and general economic conditions.
Foreign Investment. Loans to non-U.S. borrowers or U.S. borrowers with
significant non-U.S. dollar denominated revenue may involve risks not typically
involved in domestic investment, including fluctuation in foreign interest
rates, future foreign political and economic developments and the possible
imposition of exchange controls or other governmental laws or restrictions.
Non-diversification. The Fund is classified as a non-diversified
investment company, meaning that the Fund may invest a greater percentage of its
assets in the obligations of a single issuer than a diversified investment
company. Even as a non-diversified fund, the Fund is still subject to the
diversification requirements of the U.S. tax laws. However, since the Fund may
invest a higher percentage of its assets in obligations of a single issuer than
a diversified fund, it is more susceptible than a diversified fund to any
economic, political or regulatory occurrence that affects an individual issuer.
Liquidity of Investments. Certain senior loans in which the Fund
invests may be deemed to be illiquid. Illiquid investments may impair the Fund's
ability to realize the full value of those investments in the event the Fund
must dispose of them quickly. Illiquid investments also may impair the Fund's
ability to use mark-to-market pricing to value Fund investments.
Antitakeover Provisions. The Fund's Articles of Incorporation include
provisions that could limit the ability of other entities or persons to acquire
control of the Fund or to change the composition of its Board of Directors. Such
provisions could limit the ability of shareholders to sell their shares at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Fund.
<PAGE>
<TABLE>
FEE TABLE
<CAPTION>
Net Assets
With Net Assets
Leverage Without
(a) Leverage
------------- ------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering price)................... None None
Dividend Reinvestment Plan Fees.......................................... None None
ANNUAL EXPENSES (as a percentage of net assets attributable to common stock)
Investment Advisory Fees (a)(b).......................................... ____% ___%
Interest payments on Borrowed Funds (a).................................. ____% None
Other Expenses (a)(b).................................................... ____% ___%
Total Annual Expenses (a)(b)........................... % %
============ ============
</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 % (assuming
leverage of 33-1/3% of the Fund's total assets) and % (assuming
no leverage), (2) a 5% annual return throughout the periods:
Assuming Leverage............................................. $_____ $______ $______ $______
Assuming No Leverage.......................................... $_____ $______ $______ $______
</TABLE>
- -----------
(a) The Fund intends to utilize leverage only if the Investment Adviser
believes that it would result in higher income to shareholders over time.
See "Other Investment Policies - Leverage." Assumes borrowings of 33-1/3%
of total assets (including amounts borrowed) at an interest rate of ___%.
(b) See "Investment Advisory and Management Arrangements" -- page 21.
The 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. The Example set forth
above assumes reinvestment of all dividends and distributions and utilizes a 5%
annual rate of return as mandated by Securities and Exchange Commission
regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE.
<PAGE>
THE FUND
Senior Floating Income Fund, Inc. is a newly organized,
non-diversified, closed-end management investment company. The Fund was
incorporated under the laws of the State of Maryland on November 13, 1998 and
has registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund's principal office is located at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536 and its telephone number is (609) 282-2800.
The Fund has been organized as a closed-end investment company.
Closed-end investment companies differ from open-end investment companies
(commonly referred to as mutual funds) in that closed-end investment companies
do not redeem their securities at the option of the shareholder, whereas
open-end companies issue securities redeemable at net asset value at any time at
the option of the shareholder and typically engage in a continuous offering of
their shares. Accordingly, open-end companies are subject to continuous asset
in-flows and out-flows that can complicate portfolio management. However, shares
of closed-end investment companies frequently trade at a discount from net asset
value. This risk may be greater for initial investors expecting to sell their
shares in a relatively short period after completion of the public offering.
USE OF PROCEEDS
The net proceeds of this offering will be approximately $ (or
approximately $ assuming the Underwriter exercises the over-allotment
option in full) after payment of organizational and offering costs estimated to
be approximately $__________________.
The net proceeds of the offering will be invested in accordance with
the Fund's investment objective and policies within approximately three months
after the completion of the offering of common stock, depending on market
conditions and the availability of appropriate investments. Pending such
investment, it is anticipated that all or a portion of the proceeds will be
invested in U.S. Government securities or high grade, short-term money market
instruments. See "Investment Objective and Policies."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide high current income by
investing primarily in senior loans ("Senior Loans") made by banks or other
financial institutions to U.S. or non-U.S. corporations, partnerships, trusts
and other similar entities that meet standards established by the Fund's
Investment Adviser. It is anticipated that the Senior Loans generally will pay
interest at rates that float at a margin above a generally recognized base
lending rate such as the prime rate of a designated U.S. bank, or which adjust
periodically at a margin above the Certificate of Deposit ("CD") rate or the
London InterBank Offered Rate ("LIBOR"). This is a fundamental policy of the
Fund and may not be changed without a vote of a majority of the outstanding
shares of the Fund. There can be no assurance that the investment objective of
the Fund will be realized.
Under normal market conditions, the Fund will invest at least 80% of
its total assets in interests in Senior Loans. The Fund may invest up to 20% of
its total assets in loans that are subordinated in right of payment to senior
debt of a borrower ("Subordinated Loans"). Under normal market conditions, the
Fund will invest at least 90% of its assets in debt instruments that have
floating or variable interest rates. Up to 10% of the Fund's total assets may be
invested in long-term, fixed-rate debt instruments. To a limited extent,
incidental to and in connection with its lending activities, the Fund also may
acquire warrants and other debt and equity securities.
The Fund may invest up to 20% of its total assets in cash or in
short-term debt obligations including, but not limited to, U.S. Government and
Government agency securities (some of which may not be backed by the full faith
and credit of the United States), bank money instruments (such as certificates
of deposit and bankers' acceptances), corporate and commercial obligations (such
as commercial paper and medium-term notes) and repurchase agreements. Such
short-term debt obligations, which need not be secured, will all be investment
grade (rated Baa, P-3 or higher by Moody's Investors Service, Inc. ("Moody's")
or BBB, A-3 or higher by Standard & Poor's ("S&P") or, if unrated, determined to
be of comparable quality in the judgment of the Investment Adviser). Securities
rated Baa, BBB, P-3 or A-3 are considered to have adequate capacity for payment
of principal and interest, but are more susceptible to adverse economic
conditions and, in the case of securities rated BBB or Baa (or comparable
unrated securities), have speculative characteristics. Such securities or cash
will not exceed 20% of the Fund's total assets except during interim periods
pending investment of the net proceeds of the offering of the Fund's common
stock and during temporary defensive periods when, in the opinion of the
Investment Adviser, suitable Senior Loans are not available for investment by
the Fund or prevailing market or economic conditions warrant.
The Fund has no restrictions on portfolio maturity, but it is
anticipated that a majority of the Senior Loans in which it will invest will
have stated maturities ranging from three to ten years. As a result of
prepayments, however, it is expected that the average life of the Senior Loans
will be in the two to three year range. See "--Description of Senior Loans."
Investment in shares of the Fund's common stock offers several
benefits. The Fund offers investors the opportunity to receive a high level of
current income by investing in a professionally managed portfolio comprised
primarily of Senior Loans, a type of investment typically not available to
individual investors. In managing such portfolio, the Investment Adviser
provides the Fund and its shareholders with professional credit analysis and
portfolio diversification. The Fund also relieves the investor of the burdensome
administrative details involved in managing a portfolio of such investments, if
available to individual investors. The benefits are at least partially offset by
the expenses involved in operating an investment company. Such expenses
primarily consist of the investment advisory and management fees and operational
costs.
The net asset value of the shares of common stock of an investment
company that invests primarily in fixed-income securities changes as the general
levels of interest rates fluctuate. When interest rates decline, the value of a
fixed-income portfolio can be expected to rise. Conversely, when interest rates
rise, the value of a fixed-income portfolio can be expected to decline. The
Investment Adviser expects the Fund's net asset value to be relatively stable
during normal market conditions, because the Fund's portfolio will consist
primarily of floating and variable rate Senior Loans. For these reasons, the
Investment Adviser expects the value of the Fund's portfolio to fluctuate
significantly less as a result of interest rate changes than would a portfolio
consisting primarily of fixed-rate obligations. However, because variable
interest rates only reset periodically, the Fund's net asset value may fluctuate
from time to time in the event of an imperfect correlation between the interest
rates on the variable rate loans in the Fund's portfolio and prevailing interest
rates. Additionally, a portion of the Fund's portfolio may be invested in
long-term, fixed-rate debt instruments that will likely increase fluctuations in
the Fund's net asset value as a result of changes in interest rates. Also, a
default on a Senior Loan in which the Fund has invested or a sudden and extreme
increase in prevailing interest rates may cause a decline in the Fund's net
asset value. Conversely, a sudden and extreme decline in interest rates could
result in an increase in the Fund's net asset value. Furthermore, volatility in
the capital markets may affect the Fund's net asset value given that the Fund
uses market prices to value many of its Senior Loan investments.
The Fund is classified as non-diversified within the meaning of the
1940 Act, which means that the Fund is not limited by such Act in the proportion
of its assets that it may invest in securities of a single issuer. However, the
Fund's investments will be limited so as to qualify the Fund as a "regulated
investment company" for purposes of the Federal tax laws. See "Taxes." To
qualify, among other requirements, the Fund will limit its investments so that,
at the close of each quarter of the taxable year, (i) not more than 25% of the
market value of the Fund's total assets will be invested in the securities
(other than U.S. Government securities) of a single issuer and (ii) with respect
to 50% of the market value of its total assets, not more than 5% of the market
value of its total assets will be invested in the securities (other than U.S.
Government securities) of a single issuer. A fund that elects to be classified
as "diversified" under the 1940 Act must satisfy the foregoing 5% requirement
with respect to 75% of its total assets. To the extent that the Fund assumes
large positions in the securities of a small number of issuers, the Fund's net
asset value may fluctuate to a greater extent than that of a diversified company
as a result of changes in the financial condition or in the market's assessment
of the issuers.
DESCRIPTION OF SENIOR LOANS
The Senior Loans in which the Fund invests primarily consist of direct
obligations of a borrower undertaken to finance the growth of the borrower's
business, internally or externally, or to finance a capital restructuring.
Senior Loans may also include debtor in possession financing pursuant to Chapter
11 of the U.S. Bankruptcy Code and obligations of a borrower issued in
connection with a restructuring pursuant to Chapter 11 of the U.S. Bankruptcy
Code. A significant portion of such Senior Loans is highly leveraged loans such
as leveraged buy-out loans, leveraged recapitalization loans and other types of
acquisition loans. Such Senior Loans may be structured to include both term
loans, which are generally fully funded at the time of the Fund's investment,
and revolving credit facilities, which would require the Fund to make additional
investments in the Senior Loans as required under the terms of the credit
facility. Such Senior Loans may also include receivables purchase facilities,
which are similar to revolving credit facilities secured by a borrower's
receivables. Senior Loans generally are issued in the form of senior syndicated
loans, but the Fund also may invest from time to time in privately placed or
publicly offered notes and bonds with credit and pricing terms which are, in the
opinion of the Investment Adviser, consistent with investments in senior loan
obligations. The Fund may invest without limitation in highly leveraged Senior
Loans that are rated below investment grade or are unrated. See "Risk Factors
and Special Considerations."
The Senior Loans in which the Fund invests will, in many instances,
hold the most senior position in the capitalization structure of the borrower
(i.e., not subordinated to other debt obligations in right of payment), and, in
any case, will, in the judgment of the Investment Adviser, be in the category of
senior debt of the borrower. The Fund may also invest up to 20% of its total
assets in Subordinated Loans which otherwise meet the credit standards and
criteria established by the Investment Adviser for investments in Senior Loans
discussed below.
The Senior Loans in which the Fund invests may be wholly or partially
secured by collateral, or may be unsecured. In the event of a default, the
ability of an investor to have access to any collateral may be limited by
bankruptcy and other insolvency laws. The value of the collateral also may
decline subsequent to the Fund's investment in the Senior Loan. Under certain
circumstances, the collateral may be released with the consent of the Agent Bank
and Co-Lenders or pursuant to the terms of the underlying credit agreement with
the borrower. There is no assurance that the liquidation of the collateral will
satisfy the borrower's obligation in the event of nonpayment of scheduled
interest or principal, or that the collateral could be readily liquidated. As a
result, the Fund might not receive payments to which it is entitled and thereby
may experience a decline in the value of the investment, and possibly, its net
asset value.
In the case of highly leveraged Senior Loans, a borrower generally is
required to pledge collateral that may include (i) working capital assets, such
as accounts receivable and inventory, (ii) tangible fixed assets, such as real
property, buildings and equipment, (iii) intangible assets, such as trademarks,
copyrights and patent rights and (iv) security interests in securities of
subsidiaries or affiliates. In the case of Senior Loans to privately held
entities, the entities' owners may provide additional credit support in the form
of guarantees and/or pledges of other securities that they own.
In the case of project finance loans, the borrower is generally a
special purpose entity that pledges undeveloped land and other non-income
producing assets as collateral and obtains construction completion guaranties
from third parties, such as the project sponsor. Project finance credit
facilities typically provide for payment of interest from escrowed funds during
a scheduled construction period, and for the pledge of current and fixed assets
after the project is constructed and becomes operational. During the
construction period, however, the lenders bear the risk that the project will
not be constructed in a timely manner, or will exhaust project funds prior to
completion. In such an event, the lenders may need to take legal action to
enforce the completion guaranties, or may need to lend more money to the project
on less favorable financing terms, or may need to liquidate the undeveloped
project assets. There can be no assurance in any of such cases that the lenders
will recover all of their invested capital.
The rate of interest payable on floating or variable rate Senior Loans
is established as the sum of a base lending rate plus a specified margin. These
base lending rates generally are the Prime Rate of a designated U.S. bank,
LIBOR, the CD rate or another base lending rate used by commercial lenders. The
interest rate on Prime Rate-based Senior Loans floats daily as the Prime Rate
changes, while the interest rate on LIBOR-based and CD-based Senior Loans is
reset periodically, typically every 30 days to one year. Certain of the floating
or variable rate Senior Loans in which the Fund invests permit the borrower to
select an interest rate reset period of up to one year. A portion of the Fund's
portfolio may be invested in Senior Loans with interest rates that are fixed for
the term of the loan. Investment in Senior Loans with longer interest rate reset
periods or fixed interest rates will likely increase fluctuations in the Fund's
net asset value as a result of changes in interest rates. The Fund also attempts
to maintain a portfolio of floating or variable rate Senior Loans that have a
dollar weighted average period to the next interest rate adjustment of no more
than 90 days.
The Fund may receive and/or pay certain fees in connection with its
lending activities. These fees are in addition to interest payments received and
may include facility fees, commitment fees, amendment fees, commissions and
prepayment fees. When the Fund buys a Senior Loan it may receive a facility fee,
and when it sells a Senior Loan may pay a facility fee. In certain
circumstances, the Fund may receive a prepayment fee on the prepayment of a
Senior Loan by a borrower. In connection with the acquisition of Senior Loans,
the Fund also may acquire warrants and other debt and equity securities of the
borrower or its affiliates. The acquisition of such debt and equity securities
will only be incidental to the Fund's purchase of an interest in a Senior Loan.
The Fund invests in a Senior Loan only if, in the Investment Adviser's
judgment, the borrower can meet debt service on such loan. In addition, the
Investment Adviser will consider other factors deemed by it to be appropriate to
the analysis of the borrower and the Senior Loan. Such factors include financial
ratios of the borrower such as pre-tax interest coverage, leverage ratios, the
ratio of cash flows to total debt and the ratio of tangible assets to debt. In
its analysis of these factors, the Investment Adviser also will be influenced by
the nature of the industry in which the borrower is engaged, the nature of the
borrower's assets and the Investment Adviser's assessments of the general
quality of the borrower.
The primary consideration in selecting such Senior Loans for investment
by the Fund is the creditworthiness of the borrower. The Investment Adviser
performs its own independent credit analysis of the borrower in addition to
utilizing information prepared and supplied by the Agent Bank, Co-Lender or
Participant (each defined below) from whom the Fund purchases its Participation
Interest in a Senior Loan. The Investment Adviser's analysis continues on an
ongoing basis for any Senior Loans in which the Fund has invested. Although the
Investment Adviser uses due care in making such analysis, there can be no
assurance that such analysis will disclose factors that may impair the value of
the Senior Loan.
Senior Loans made in connection with highly leveraged transactions are
subject to greater credit risks than other Senior Loans 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.
The Fund does not have a policy with regard to minimum ratings for
Senior Loans in which it may invest. Investments in Senior Loans are based
primarily on the Investment Adviser's independent credit analyses of a
particular borrower. In evaluating Senior Loans, the credit ratings assigned to
other debt obligations of a borrower may not be a determining factor since they
may be subordinated to the Senior Loans. See "Appendix--Ratings of Securities."
A borrower also must comply with various restrictive covenants
contained in any Senior Loan agreement between the borrower and the lending
syndicate. Such covenants, in addition to requiring the scheduled payment of
interest and principal, may include restrictions on dividend payments and other
distributions to shareholders, provisions requiring the borrower to maintain
specific financial ratios or relationships and limits on total debt. In
addition, the Senior Loan agreement may contain a covenant requiring the
borrower to prepay the Senior Loan with any excess cash flow. Excess cash flow
generally includes net cash flow after scheduled debt service payments and
permitted capital expenditures, among other things, as well as the proceeds from
asset dispositions or sales of securities. A breach of a covenant (after giving
effect to any cure period) which is not waived by the Agent Bank and the lending
syndicate normally is an event of acceleration (i.e., the Agent Bank has the
right to call the outstanding Senior Loan).
It is expected that a majority of the Senior Loans will have stated
maturities ranging from three to ten years. However, such Senior Loans usually
require, in addition to scheduled payments of interest and principal, the
prepayment of the Senior Loan from excess cash flow, as discussed above, and may
permit the borrower to prepay at its election. The degree to which borrowers
prepay Senior Loans, whether as a contractual requirement or at their election,
may be affected by general business conditions, the financial condition of the
borrower and competitive conditions among lenders, among other factors.
Accordingly, prepayments cannot be predicted with accuracy. Upon a prepayment,
the Fund may receive both a prepayment fee from the prepaying borrower and a
facility fee on the purchase of a new Senior Loan with the proceeds from the
prepayment of the former. Such fees may mitigate any adverse impact on the yield
on the Fund's portfolio which may arise as a result of prepayments and the
reinvestment of such proceeds in Senior Loans bearing lower interest rates.
The Fund may invest in Senior Loans that are made to non-U.S. borrowers
(if they are domiciled in a country that is a member of the OECD) or to U.S.
borrowers with significant non-dollar denominated revenues, provided that any
such borrower meets the credit standards established by the Investment Adviser.
The Fund may invest in loans made to such borrowers only when (i) the loan is
U.S. dollar-denominated, (ii) the loan includes a foreign currency swap that
provides for payment in U.S. dollars, or (iii) the Fund otherwise provides for
payment in U.S. dollars by entering into a foreign forward exchange contract or
other currency hedging transaction. Also, loans to non-U.S. borrowers or to U.S.
borrowers with significant non-U.S. dollar denominated revenues may provide for
conversion of all or part of the loan from a U.S. dollar denominated obligation
into a foreign currency obligation at the option of the borrower. The Fund may
invest in Senior Loans that may convert into non-U.S. dollar denominated
obligations only when the terms of the Senior Loan facility or the Fund itself
through a foreign currency hedging transaction provides that the Fund will
receive payment in U.S. dollars. See "Other Investment Policies--Other
Investment Strategies--Foreign Currency Hedging Transactions."
Loans to non-U.S. borrowers or U.S. borrowers with significant
non-U.S. dollar denominated revenue may involve risks not typically involved in
domestic investment, including fluctuation in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
currency or exchange controls or other foreign or U.S. governmental laws or
restrictions applicable to such loans. With respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments which could affect
the Fund's investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payment position. In
addition, information with respect to non-U.S. borrowers may differ from that
available with respect to U.S. borrowers, since foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to U.S.
borrowers.
DESCRIPTION OF PARTICIPATION INTERESTS
A Senior Loan in which the Fund may invest typically is originated,
negotiated and structured by a syndicate of lenders ("Co-Lenders") consisting of
commercial banks, thrift institutions, insurance companies, finance companies or
other financial institutions one or more of which administers the Loan on behalf
of the syndicate (the "Agent Bank"). Co-Lenders may sell Senior Loans to third
parties called "Participants." The Fund invests in a Senior Loan either by
participating as a Co-Lender at the time the loan is originated or by buying an
interest in the Senior Loan from a Co-Lender or a Participant. Co-Lenders and
Participants interposed between the Fund and a borrower, together with Agent
Banks, are referred to herein as "Intermediate Participants."
The Fund may invest in a Senior Loan at origination as a Co-Lender or
by acquiring participations in, assignments of or novations of a Senior Loan
(collectively, "Participation Interests"). In a novation, the Fund accepts all
of the rights of the Intermediate Participants in a Senior Loan, including the
right to receive payments of principal and interest and other amounts directly
from the borrower and to enforce its rights as a lender directly against the
borrower and assumes all of the obligations of the Intermediate Participants,
including any obligations to make future advances to the borrower. As a result,
therefore, the Fund has the status of a Co-Lender. As an alternative, the Fund
may purchase an assignment of all or a portion of an Intermediate Participant's
interest in a Senior Loan, in which case the Fund is required generally to rely
on the assigning lender to demand payment and enforce its rights against the
borrower but would otherwise be entitled to all of such lender's rights in the
Senior Loan. The Fund also may purchase a participation in a portion of the
rights of an Intermediate Participant in a Senior Loan by means of a
participation agreement with such Intermediate Participant. A participation in
the rights of an Intermediate Participant is similar to an assignment in that
the Intermediate Participant transfers to the Fund all or a portion of an
interest in a Senior Loan. Unlike an assignment, however, a participation does
not establish any direct relationship between the Fund and the borrower. In such
a case, the Fund is required to rely on the Intermediate Participant that sold
the participation not only for the enforcement of the Fund's rights against the
borrower but also for the receipt and processing of payments due to the Fund
under the Senior Loans. The Fund will not act as an Agent Bank, guarantor, sole
negotiator or sole structuror with respect to a Senior Loan.
Because it may be necessary to assert through an Intermediate
Participant such rights as may exist against the borrower, in the event the
borrower fails to pay principal and interest when due, the Fund may be subject
to delays, expenses and risks that are greater than those that would be involved
if the Fund could enforce its rights directly against the borrower. Moreover,
under the terms of a participation, the Fund may be regarded as a creditor of
the Intermediate Participant (rather than of the borrower), so that the Fund may
also be subject to the risk that the Intermediate Participant may become
insolvent. Similar risks may arise with respect to the Agent Bank, as described
below. Further, in the event of the bankruptcy or insolvency of the borrower,
the obligation of the borrower to repay the Senior Loan may be subject to
certain defenses that can be asserted by such borrower as a result of improper
conduct by the Agent Bank or Intermediate Participant. The Fund invests in
Senior Loans only if, at the time of investment, the outstanding debt
obligations of the Agent Bank and Intermediate Participants are investment grade
(i.e., rated BBB or A-3 or higher by S&P or Baa or P-3 or higher by Moody's, or
determined to be of comparable quality in the judgment of the Investment
Adviser).
Because the Fund regards the issuer of a Senior Loan as including the
borrower under a Senior Loan Agreement, the Agent Bank and any Intermediate
Participant, the Fund may be deemed to be concentrated in securities of issuers
in the industry group consisting of financial institutions and their holding
companies, including commercial banks, thrift institutions, insurance companies
and finance companies. As a result, the Fund is subject to certain risks
associated with such institutions. Banking and thrift institutions are subject
to extensive governmental regulations which may limit both the amounts and types
of loans and other financial commitments that such institutions may make and the
interest rates and fees that such institutions may charge. The profitability of
these institutions is largely dependent on the availability and cost of capital
funds, and has shown significant recent fluctuation as a result of volatile
interest rate levels. In addition, general economic conditions are important to
the operations of these institutions, with exposure to credit losses resulting
from possible financial difficulties of borrowers potentially having an adverse
effect. Insurance companies also are affected by economic and financial
conditions and are subject to extensive government regulation, including rate
regulation. The property and casualty industry is cyclical, being subject to
dramatic swings in profitability which can be affected by natural catastrophes
and other disasters. Individual companies may be exposed to material risks,
including reserve inadequacy, latent health exposure and inability to collect
from their reinsurance carriers. The financial services area is currently
undergoing relatively rapid change as existing distinctions between financial
service segments become less clear. In this regard, recent business combinations
have included insurance, banking, finance and securities brokerage under single
ownership. Moreover, changes to the Federal laws generally separating commercial
and investment banking continue to be studied by Congress.
In a typical Senior Loan, the Agent Bank administers the terms of the
Senior 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 lenders which are parties to the Senior Loan
agreement. The Fund generally relies on the Agent Bank or an Intermediate
Participant to collect its portion of the payments on the Senior Loan.
Furthermore, the Fund generally relies on the Agent Bank to use appropriate
creditor remedies against the borrower. Typically, under Senior Loan agreements,
the Agent Bank is given broad discretion in enforcing the Senior Loan agreement,
and is obligated to use only the same care it would use in the management of its
own property. The borrower compensates the Agent Bank for these services. Such
compensation may include special fees paid on structuring and funding the Senior
Loan and other fees paid on a continuing basis.
In the event that an Agent Bank becomes insolvent, or has a receiver,
conservator, or similar official appointed for it by the appropriate bank
regulatory authority or becomes a debtor in a bankruptcy proceeding, assets held
by the Agent Bank under the Senior Loan agreement should remain available to
holders of Senior Loans. If, however, assets held by the Agent Bank for the
benefit of the Fund were determined by an appropriate regulatory authority or
court to be subject to the claims of the Agent Bank's general or secured
creditors, the Fund might incur certain costs and delays in realizing payment on
a Senior Loan or suffer a loss of principal and/or interest. In situations
involving Intermediate Participants similar risks may arise, as described above.
The Fund may have certain obligations pursuant to a Senior Loan
agreement, which may include the obligation to make future advances to the
borrower in connection with revolving credit facilities in certain
circumstances. The Fund currently intends to reserve against such contingent
obligations by segregating sufficient investments in liquid instruments. The
Fund will not invest in Senior Loans that would require the Fund to make any
additional investments in connection with such future advances if such
commitments would exceed 20% of the Fund's total assets or would cause the Fund
to fail to meet the diversification requirements for Federal tax law purposes
described above.
ILLIQUID SECURITIES
Certain Senior Loans are, at present, not readily marketable and may be
subject to restrictions on resale. Although the market for Senior Loans has
developed significantly during recent years, certain of the Senior Loans in
which the Fund invests do not have the liquidity of conventional debt securities
traded in the secondary market and may be considered illiquid. The Fund has no
limitation on the amount of its investments which are not readily marketable or
are subject to restrictions on resale. Such investments, which may be considered
illiquid, may affect the Fund's ability to realize the net asset value in the
event of a voluntary or involuntary liquidation of its assets. See "Net Asset
Value" for information with respect to valuation of illiquid Senior Loans.
OTHER INVESTMENT POLICIES
The Fund has adopted certain other policies as set forth below:
LEVERAGE
At times, the Fund expects to utilize leverage through borrowings,
including the issuance of debt securities. Under current market conditions, the
Fund intends to utilize leverage in an amount up to approximately 33-1/3% of
its total assets (including the amount obtained from leverage). The Fund
generally will not utilize leverage if it anticipates that the Fund's leveraged
capital structure would result in a lower return to shareholders for any
significant amount of time. The Fund also may borrow money as a temporary
measure for extraordinary or emergency purposes, including the payment of
dividends and the settlement of securities transactions which otherwise might
require untimely dispositions of Fund securities. The Fund at times may borrow
from affiliates of the Investment Adviser, provided that the terms of such
borrowings are no less favorable than those available from comparable sources of
funds in the marketplace. As discussed under "Investment Advisory and Management
Arrangements," when the Fund is utilizing leverage, the fee paid to the
Investment Adviser for investment advisory and management services will be
higher than if the Fund did not utilize leverage because the fee paid will be
calculated based on the Fund's net assets plus the proceeds of any outstanding
borrowings used for leverage.
Leverage creates risks for the holders of common stock, including the
likelihood of greater volatility of net asset value and market price of shares
of the common stock. Although there is a risk that fluctuations in interest
rates on borrowings may adversely affect the return to shareholders, the
Investment Adviser believes that this should be mitigated when the Fund uses
leverage with floating rate costs, because the Fund's costs of leverage and its
portfolio of Senior Loans will ordinarily have the same or similar interest
reference rates. To the extent the income derived from securities purchased with
funds received from leverage exceeds the cost of leverage, the Fund's return
will be greater than if leverage had not been used. Conversely, if the income
from the securities purchased with such funds is not sufficient to cover the
cost of leverage, the return of the Fund will be less than if leverage had not
been used, and therefore the amount available to shareholders as dividends and
other distributions will be reduced. In the latter case, the Investment Adviser
in its best judgment may nevertheless determine to maintain the Fund's leveraged
position if it expects that the benefits to the Fund's shareholders of
maintaining the leveraged position will outweigh the current reduced return.
Capital raised through leverage will be subject to interest costs which
may or may not exceed the interest income on the assets purchased. The Fund also
may be required to maintain, among other things, minimum average balances in
connection with borrowings or to pay a commitment or other fee to maintain a
line of credit; any such requirements will increase the cost of borrowing over
the stated interest rate. Borrowings create an opportunity for greater income
per share of common stock, but at the same time such borrowing is a speculative
technique in that it will increase the Fund's exposure to capital risk. Such
risks may be reduced through the use of borrowings that have floating rates of
interest. Unless the income on assets acquired with borrowed funds exceeds the
cost of borrowing, the use of leverage will diminish the investment performance
of the Fund's shares compared with what it would have been without leverage.
Certain types of borrowings may result in the Fund being subject to
covenants in credit agreements, including those relating to asset coverage and
portfolio composition requirements and those restricting the Fund's payment of
dividends and distributions on the common stock in certain circumstances. The
Fund may be subject to certain restrictions on investments imposed by guidelines
of one or more rating agencies that may issue ratings for any debt securities
issued by the Fund. These guidelines may impose asset coverage or portfolio
composition requirements that are more stringent than those imposed on the Fund
by the 1940 Act. It is not anticipated that these covenants or guidelines will
impede the Investment Adviser from managing the Fund's portfolio in accordance
with the Fund's investment objective and policies.
Under the 1940 Act, the Fund is not permitted to incur indebtedness
unless immediately after such incurrence the Fund has an asset coverage of at
least 300% of the aggregate outstanding principal balance of indebtedness (i.e.,
such indebtedness may not exceed 33-1/3% of the Fund's total assets).
Additionally, under the 1940 Act the Fund may not declare any dividend or other
distribution upon any class of its capital stock (including the common stock),
or purchase any such capital stock, unless the aggregate indebtedness of the
Fund has, at the time of the declaration of any such dividend or distribution or
at the time of any such purchase, an asset coverage of at least 300% after
deducting the amount of such dividend, distribution, or purchase price, as the
case may be.
The Fund's failure to pay dividends and distributions on its common
stock could adversely affect the Fund's qualification as a regulated investment
company under Federal tax law. The Fund intends, however, to take all measures
necessary to continue to make dividend and distribution payments on its common
stock. See "Taxes."
The Fund's willingness to borrow money for investment purposes, and the
amount it will borrow, will depend on many factors, the most important of which
are investment outlook, market conditions and interest rates. Successful use of
a leveraging strategy depends on the Investment Adviser's ability to predict
correctly interest rates and market movements, and there is no assurance that a
leveraging strategy will be successful during any period in which it is
employed.
Assuming the utilization of leverage by borrowings in the amount of
approximately 33-1/3% of the Fund's total assets (including the amount
obtained from leverage), and an estimated annual interest rate of % payable on
such leverage based on market rates as of the date of this prospectus, the
annual return that the Fund's portfolio must experience (net of expenses) in
order to cover such interest payments would be %. The Fund's actual cost of
leverage will be based on market rates at the time the Fund undertakes a
leveraging strategy, and such actual cost of leverage may be higher or lower
than that assumed in the previous example.
The following table is designed to illustrate the effect on the return
to a holder of the Fund's common stock of the leverage obtained by borrowings in
the amount of approximately 33-1/3% 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>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of expenses)................. (10)% (5)% 0% 5% 10%
Corresponding Common Stock Return.......................... ( )% ( )% ( )% % %
</TABLE>
Until the Fund borrows, 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 Senior Loans in accordance with the Fund's investment objectives and
policies.
OTHER INVESTMENT STRATEGIES
Interest Rate Hedging Transactions. The Fund may hedge all or a portion
of its portfolio investments against fluctuations in interest rates by entering
into interest rate hedging transactions. While the Fund's use of hedging
strategies is intended to further the Fund's investment objective, there can be
no assurance that the Fund's interest rate hedging transactions will be
effective. Suitable hedging instruments may not be available on a timely basis
and on acceptable terms. Furthermore, the Fund has no obligation to enter into
interest rate hedging transactions and may only be engaged in interest rate
hedging transactions from time to time and may not necessarily engage in hedging
transactions when moves in interest rates occur.
Certain Federal income tax requirements may limit the Fund's ability to
engage in interest rate hedging transactions. Gains from transactions in
interest rate hedges distributed to shareholders are taxable as ordinary income
or, in certain circumstances, as long-term capital gains to shareholders. See
"Taxes."
The Fund expects to enter into interest rate hedging transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities
the Fund anticipates purchasing at a later date. The Fund also may attempt to
enter into interest rate hedging transactions from time to time to hedge its
fixed rate Senior Loans against fluctuations in interest rates. The Fund may
enter into interest rate hedges on either an asset-based or liability-based
basis, depending on whether it is hedging its assets or its liabilities.
Typically, the parties with which the Fund enters into interest rate hedging
transactions are broker-dealers and other financial institutions.
The interest rate hedging transactions in which the Fund may engage
include interest rate swaps involving the exchange by the Fund with another
party of their respective commitments to pay or receive interest, such as an
exchange of fixed rate payments for floating rate payments. The Fund also may
engage in interest rate hedging transactions in the form of purchasing or
selling interest rate caps or floors. The Fund will not sell interest rate caps
or floors that it does not own. 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 equal to the difference of the
index and the predetermined rate on a notional principal amount (the reference
amount with respect to which interest obligations are determined although no
actual exchange of principal occurs) 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 at the difference of the index and the
predetermined rate on a notional principal amount from the party selling such
interest rate floor.
There can be no assurance that the Fund will be able to enter into
interest rate swaps or to purchase interest rate caps or floors at prices or on
terms the Investment Adviser believes are advantageous to the Fund. In addition,
although the terms of interest rate swaps, caps and floors may provide for
termination, there can be no assurance the Fund will be able to terminate an
interest rate swap or to sell or offset interest rate caps or floors that it has
purchased.
The use of interest rate hedges is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Investment Adviser is
incorrect in its forecasts of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish compared with
what it would have been if these investment techniques were not used.
There is no limit on the amount of interest rate hedging transactions
that may be entered into by the Fund. These transactions do not involve the
delivery of securities or other underlying assets or principal. Accordingly, the
risk of loss with respect to interest rate hedges is limited to the net amount
of interest payments that the Fund is contractually obligated to make. If the
Senior Loan underlying an interest rate swap is prepaid and the Fund continues
to be obligated to make payments to the other party to the swap, the Fund would
have to make such payments from another source. If the other party to an
interest rate swap defaults, the Fund's risk of loss consists of the net amount
of interest payments that the Fund contractually is entitled to receive.
Foreign Currency Hedging Transactions. The Fund may engage in currency
swaps, spot and forward foreign exchange transactions, purchase and sell options
on currencies and purchase and sell currency futures and related options thereon
(collectively, "Currency Instruments") for the purpose of hedging against the
decline in the value of currencies in which its portfolio holdings are
denominated against the United States dollar.
Foreign currency swaps involve the exchange by one party (i.e., the
lenders, including the Fund) with another party (the "counterparty") of the
right to receive the currency in which an instrument is denominated for the
right to receive another currency (i.e., U.S. dollars). The amount of U.S.
dollars to be received by the Fund and the foreign currency payments to be
received by the counterparty are fixed at the time the swap arrangement is
entered into. Accordingly, the swap protects the Fund from fluctuations in
exchange rates and locks in the right to receive payments on an instrument in a
predetermined amount of U.S. dollars.
Forward foreign exchange transactions are over-the-counter ("OTC")
contracts to purchase or sell a specified amount of a specified currency or
multinational currency unit at a price and future date set at the time of the
contract. Spot foreign exchange transactions are similar but require current,
rather than future, settlement. The Fund will enter into foreign exchange
transactions to hedge either a specific transaction or a portfolio position. The
Fund may use a foreign exchange transaction to hedge a specific transaction by,
for example, purchasing a currency needed to settle a security transaction or
selling a currency in which the Fund has received or anticipates receiving
interest or a distribution. The Fund may use a foreign exchange transaction to
hedge a portfolio position by selling forward a currency in which a portfolio
position of the Fund is denominated or by purchasing a currency in which the
Fund anticipates acquiring a portfolio position in the near future. The Fund
also may hedge against the decline in the value of a currency against the United
States dollar through use of currency futures or options thereon. Currency
futures are similar to forward foreign exchange transactions except that futures
are standardized, exchange-traded contracts.
Currency options are similar to options on securities, but in
consideration for an option premium the writer of currency option is obligated
to sell (in the case of a call option) or purchase (in the case of a put option)
a specified amount of a specified currency on or before the expiration date for
a specified amount of another currency. The Fund may engage in transactions in
options on currencies either on exchanges or in the OTC markets.
When using a Currency Instrument, the Fund will not hedge a currency
substantially in excess of the aggregate market value of the securities it owns
(including receivables for unsettled securities sales), or has committed to or
anticipates purchasing, that are denominated in such currency. While the Fund's
use of Currency Instruments to hedge is intended to reduce the net asset value
volatility, the net asset value of the Fund's shares will fluctuate. Moreover,
although Currency Instruments will be used with the intention of hedging against
adverse currency movements, Currency Instruments involve the risk that currency
movements will not be accurately predicted and that the Fund's hedging
strategies will be ineffective. To the extent that the Fund hedges against
anticipated currency movements that do not occur, the Fund may realize losses,
and lower its total return, as the result of its hedging transactions. If the
counterparty to a Currency Instrument defaults, the Fund will seek a replacement
Currency Instrument, which may result in additional costs to the Fund, and the
Fund will be subject to fluctuations in the applicable exchange rate until a
replacement Currency Instrument is obtained.
Repurchase Agreements. The Fund may enter into repurchase agreements
with respect to its permitted investments but currently intends to do so only
with member banks of the Federal Reserve System or with primary dealers in U.S.
Government securities. Under a repurchase agreement the Fund buys a security at
one price and simultaneously promises to sell that same security back to the
seller at a higher price. The Fund's repurchase agreements will provide that the
value of the collateral underlying the repurchase agreement will always be at
least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement, and will be marked to market daily. The repurchase
date usually is within seven days of the original purchase date. Repurchase
agreements are deemed to be loans under the 1940 Act. In all cases, the
Investment Adviser must be satisfied with the creditworthiness of the other
party to the agreement before entering into a repurchase agreement. In the event
of the bankruptcy (or other insolvency proceeding) of the other party to are
purchase agreement, the Fund might experience delays in recovering its cash. To
the extent that, in the meantime, the value of the securities the Fund purchases
may have declined, the Fund could experience a loss.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33-1/3% of its total
assets to banks, brokers and other financial institutions and receive collateral
in cash or securities issued or guaranteed by the U.S. Government. Such
collateral will be maintained at all times in an amount equal to at least 100%of
the current market value of the loaned securities. This limitation is a
fundamental policy, and it may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, as defined in
the 1940 Act. The purpose of such loans is to permit the borrower to use such
securities for delivery to purchasers when such borrower has sold short. If cash
collateral is received by the Fund, it is invested in short-term money market
securities, and a portion of the yield received in respect of such investment is
retained by the Fund. Alternatively, if securities are delivered to the Fund as
collateral, the Fund and the borrower negotiate a rate for the loan premium to
be received by the Fund for lending its portfolio securities. In either event,
the total yield on the Fund's portfolio is increased by loans of its portfolio
securities. The Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights such as voting rights, subscription
rights and rights to dividends, interest or other distributions. Such loans are
terminable at any time. The Fund may pay reasonable finder's, administrative and
custodial fees in connection with such loans. In the event that the borrower
defaults on its obligation to return borrowed securities, because of insolvency
or otherwise, the Fund could experience delays and costs in gaining access to
the collateral and could suffer a loss to the extent that the value of the
collateral falls below the market value of the borrowed securities.
"When Issued" and "Delayed Delivery" Transactions. The Fund also may
purchase and sell interests in Senior Loans and other portfolio securities on a
"when issued" and "delayed delivery" basis. No income accrues to the Fund on
such interests or securities in connection with such transactions prior to the
date the Fund actually takes delivery of such interests or securities. These
transactions are subject to market fluctuation; the value of the interests in
Senior Loans and other portfolio debt securities at delivery may be more or less
than their purchase price, and yields generally available on such interests or
securities when delivery occurs may be higher than yields on the interests or
securities obtained pursuant to such transactions. Because the Fund relies on
the buyer or seller, as the case may be, to consummate the transaction, failure
by the other party to complete the transaction may result in the Fund missing
the opportunity of obtaining a price or yield considered to be advantageous.
When the Fund is the buyer in such a transaction, however, it will maintain, in
a segregated account with its custodian, cash or liquid securities having an
aggregate value equal to the amount of such purchase commitments until payment
is made. The Fund will make commitments to purchase such interest or securities
on such basis only with the intention of actually acquiring these interests or
securities, but the Fund may sell such interests or securities prior to the
settlement date if such sale is considered to be advisable. To the extent the
Fund engages in "when issued" and "delayed delivery" transactions, it will do so
for the purpose of acquiring interests or securities for the Fund's portfolio
consistent with the Fund's investment objective and policies and not for the
purpose of investment leverage. No specific limitation exists as to the
percentage of the Fund's assets which may be used to acquire securities on a
"when issued" or "delayed delivery" basis.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund and,
may not be changed without the approval of the holders of a majority of the
Fund's outstanding shares of common stock (which for this purpose and under the
1940 Act means the lesser of (i) 67% of the shares of common stock represented
at a meeting at which more than 50% of the outstanding shares of common stock
are represented or (ii) more than 50% of the outstanding shares).
The Fund may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase or sell real estate, commodities or commodity contracts;
provided that the Fund may invest in securities secured by real estate or
interests therein or issued by companies that invest in real estate or interests
therein, and the Fund may purchase and sell financial futures contracts and
options thereon.
3. Issue senior securities or borrow money, except as permitted by Section
18 of the Investment Company Act.
4. Underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933, as amended, in selling
portfolio securities.
5. Make loans to other persons, except (i) to the extent that the Fund may
be deemed to be making loans by purchasing Senior Loans and Subordinated Loans,
as a Co-Lender or otherwise, and other debt securities and entering into
repurchase agreements in accordance with its investment objectives, policies and
limitations, and (ii) the Fund may lend its portfolio securities in an amount
not in excess of 33-1/3% of its total assets, taken at market value, provided
that such loans shall be made in accordance with the guidelines set forth in
this prospectus.
6. Invest more than 25% of its total assets in the securities of issuers in
any one industry; provided that this limitation shall not apply with respect to
obligations issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities; and provided further that to the extent that the Fund invests
in Senior Loans and Subordinated Loans the Fund may invest more than 25% and may
invest up to 100% of its assets in securities of issuers in the industry group
consisting of financial institutions and their holding companies, including
commercial banks, thrift institutions, insurance companies and finance
companies. For purposes of this restriction, the term "issuer" includes the
Borrower, the Agent Bank and any Intermediate Participant (as defined under
"Investment Objectives and Policies").
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Directors, provide that the Fund may not:
a. Purchase securities of other investment companies, except to the
extent that such purchases are permitted by applicable law. Applicable law
currently prohibits the Fund from purchasing the securities of other
investment companies except if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the Fund,
(ii) 5% of the Fund's total assets, taken at market value, would be
invested in any one such company, (iii) 10% of the Fund's total assets,
taken at market value, would be invested in such securities, and (iv) the
Fund, together with other investment companies having the same investment
adviser and companies controlled by such companies, owns not more than 10%
of the total outstanding stock of any one closed-end investment company.
b. Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the Fund except
as may be necessary in connection with borrowings mentioned in investment
restriction (3) above or except as may be necessary in connection with
transactions in financial futures contracts and options thereon.
c. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities.
d. Make short sales of securities or maintain a short position or
invest in put, call, straddle or spread options.
If a percentage restriction on investment policies or the investment or
use of assets set forth above is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not be
considered a violation.
Because of the affiliation of Merrill Lynch with the Investment
Adviser, the Fund is prohibited from engaging in certain transactions involving
Merrill Lynch except pursuant to an exemptive order or otherwise in compliance
with the provisions of the 1940 Act and the rules and regulations thereunder.
Included among such restricted transactions will be purchases from or sales to
Merrill Lynch of securities in transactions in which it acts as principal. See
"Portfolio Transactions."
The Fund has established procedures for blocking the use of inside
information in securities transactions (commonly referred to as "Chinese Wall
procedures"). As a result, in relation to other funds managed by the same
portfolio manager as the Fund, if one fund buys a security that is publicly
traded or privately placed, respectively, the other fund may be deprived of the
opportunity to buy a security of the same issuer that is privately placed or
publicly traded, respectively.
DIRECTORS AND OFFICERS
Information about the Directors, executive officers and portfolio
manager of the Fund, including their ages and their principal occupations for at
least the last five years, is set forth below. Unless otherwise noted, the
address of each Director, executive officer and portfolio manager is P.O. Box
9011, Princeton, New Jersey 08536-9011.
ARTHUR ZEIKEL (66) - President and Director (1)(2) -- Chairman of the
Investment Adviser and its affiliate, Merrill Lynch Asset Management, L.P.
("MLAM") (which terms as used herein include their corporate predecessors),
since 1997; President of the Investment Adviser and MLAM from 1977 to 1997;
Chairman of Princeton Services, Inc. ("Princeton Services") since 1997 and
Director thereof since 1993; President of Princeton Services from 1993 to 1997;
Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1990.
RONALD W. FORBES (58) - Director (2) -- 1400 Washington Avenue, Albany,
New York 12222. Professor of Finance, School of Business, State University of
New York at Albany since 1989; Consultant, Urban Institute, Washington, D.C.
since 1995.
CYNTHIA A. MONTGOMERY (46) - Director (2) -- Harvard Business School,
Soldiers Field Road, Boston, Massachusetts 02163. Professor, Harvard Business
School since 1989; Associate Professor, J.L. Kellogg Graduate School of
Management, Northwestern University from 1985 to 1989; Assistant Professor,
Graduate School of Business Administration, The University of Michigan from 1979
to 1985; Director, UNUM Corporation since 1990 and Director of Newell Co. since
1995.
CHARLES C. REILLY (67) - Director (2) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, The University of Pennsylvania from 1989 to
1990; Partner, Small Cities Cable Television from 1986 to 1997.
KEVIN A. RYAN (66) - Director (2) -- 127 Commonwealth Avenue, Chestnut
Hill, Massachusetts 02167. Founder and current Director of The Boston University
Center for the Advancement of Ethics and Character; Professor of Education at
Boston University since 1982; formerly taught on the faculties of The University
of Chicago, Stanford University and Ohio State University.
RICHARD R. WEST (60) - Director (2) -- Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, and Dean from 1984 to 1993, and currently Dean
Emeritus of New York University, Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc. (financial printers), Vornado
Realty Trust, Inc. (real estate holding company), and Alexander's Inc. (real
estate company).
TERRY K. GLENN (58) - Executive Vice President (1)(2) -- Executive Vice
President of the Investment Adviser and MLAM since 1983; Executive Vice
President and Director of Princeton Services since 1993; President of Princeton
Funds Distributor, Inc. ("PFD") since 1986 and Director thereof since 1991;
President of Princeton Administrators, L.P. since 1988.
JOSEPH T. MONAGLE, JR. (50) - Senior Vice President (1)(2) -- Senior
Vice President of the Investment Adviser and MLAM since 1990; Department Head of
the Global Fixed Income Division of the Investment Adviser and MLAM since 1997;
Senior Vice President of Princeton Services since 1993.
R. DOUGLAS HENDERSON (41) - Senior Vice President and Portfolio Manager
(1)(2) -- First Vice President of MLAM since 1997; Vice President of the MLAM
from 1989 to 1997.
DONALD C. BURKE (38) - Vice President (1)(2) -- First Vice President of
MLAM since 1997; Vice President of MLAM from 1990 to 1997; Director of Taxation
of the MLAM since 1990.
GERALD M. RICHARD (49) - Treasurer (1)(2) -- Senior Vice President and
Treasurer of the Investment Adviser and MLAM since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of PFD since 1981
and Treasurer thereof since 1984.
PATRICK D. SWEENEY (44) - Secretary (1)(2) -- First Vice President of
MLAM since 1997; Vice President of MLAM from 1990 to 1997.
- ----------
(1) Interested person, as defined in the 1940 Act, of the Fund.
(2) Such Director or officer is a director, trustee, officer or member of
the advisory board of certain other investment companies for which the
Investment Adviser or MLAM acts as investment adviser.
COMPENSATION OF DIRECTORS
Pursuant to its investment advisory agreement with the Fund (the
"Investment Advisory Agreement"), the Investment Adviser pays all compensation
of officers and employees of the Fund as well as the fees of all Directors of
the Fund who are affiliated persons of ML & Co. or its subsidiaries. The Fund
pays each Director not affiliated with the Investment Adviser (each a
"non-affiliated Director") a fee of $ per year plus $ per
meeting attended and pays all Directors' actual out-of-pocket expenses relating
to attendance at meetings. The Fund also pays members of the Board's Audit and
Nominating Committee (the "Committee"), which consists of all of the
non-affiliated Directors, an annual fee of $ . The Chairman of the
Committee receives an additional annual fee of $ .
The following table sets forth compensation to be paid by the Fund to
the non-affiliated Directors projected through the end of the Fund's first full
fiscal year and for the calendar year ended December 31, 1997 the aggregate
compensation paid to non-affiliated Directors from all registered investment
companies advised by the Investment Adviser and its affiliate MLAM ("FAM/MLAM
Advised Funds").
<TABLE>
<CAPTION>
PENSION OR AGGREGATE FROM
RETIREMENT BENEFITS FUND AND FAM/MLAM
COMPENSATION FROM ACCRUED AS PART OF ADVISED FUNDS
NAME OF TRUSTEE FUND FUND EXPENSE PAID TO DIRECTORS
- --------------- ---- ------------ -----------------
<S> <C> <C> <C>
Ronald W. Forbes(1)................................. $ None $153,500
Cynthia A. Montgomery(1)............................ $ None $153,500
Charles C. Reilly(1)................................ $ None $313,000
Kevin A. Ryan(1).................................... $ None $153,000
Richard R. West(1).................................. $ None $299,000
</TABLE>
- -----------
(1) The Directors serve on the Boards of other FAM/MLAM Advised Funds as
follows: Mr. Forbes (35 registered investment companies consisting of
48 portfolios); Ms. Montgomery (35 registered investment companies
consisting of 48 portfolios); Mr. Reilly (54 registered investment
companies consisting of 67 portfolios); Mr. Ryan (35 registered
investment companies consisting of 48 portfolios); and Mr. West (56
registered investment companies consisting of 81 portfolios).
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS
The Investment Adviser, which is owned and controlled by ML & Co., a
financial services holding company and the parent of Merrill Lynch, provides the
Fund with investment advisory and management services. The Merrill Lynch Asset
Management Group (which includes the Investment Adviser) acts as the investment
adviser to more than 100 registered investment companies. The Investment Adviser
also offers investment advisory services to individuals and institutions. As of
November 1998, the Asset Management Group had a total of approximately $483
billion in investment company and other portfolio assets under management. This
amount includes assets managed for certain affiliates of the Investment Adviser.
The Investment Adviser is a limited partnership, the partners of which are ML &
Co. and Princeton Services. The principal business address of the Investment
Adviser is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
The Investment Advisory Agreement provides that, subject to the
direction of the Board of Directors of the Fund, the Investment Adviser is
responsible for the actual management of the Fund's portfolio. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to review by the Board of Directors.
The Investment Adviser provides the portfolio management for the Fund.
Such portfolio management will consider analyses from various sources, make the
necessary investment decisions, and place orders for transactions accordingly.
The Investment Adviser will also be responsible for the performance of certain
administrative and management services for the Fund. R. Douglas Henderson is the
portfolio manager of the Fund and is primarily responsible for the Fund's
day-to-day management.
For the services provided by the Investment Adviser under the
Investment Advisory Agreement, the Fund will pay a monthly fee at an annual rate
of ____% of the Fund's average weekly net assets plus the proceeds of any
outstanding borrowings used for leverage ("average weekly net assets" means the
average weekly value of the total assets of the Fund, including proceeds from
the issuance of any preferred stock, minus the sum of (i) accrued liabilities of
the Fund, (ii) any accrued and unpaid interest on outstanding borrowings and
(iii) accumulated dividends on shares of preferred stocks). For purposes of this
calculation, average weekly net assets is determined at the end of each month on
the basis of the average net assets of the Fund for each week during the month.
The assets for each weekly period are determined by averaging the net assets at
the last business day of a week with the net assets at the last business day of
the prior week.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as well as
the compensation of all Directors of the Fund who are affiliated persons of the
Investment Adviser or any of its affiliates. The investment advisory and
management fee is higher than that paid by most funds, but is similar to that
paid by other closed-end funds investing primarily in Senior Loans.
The Fund pays all other expenses incurred in the operation of the Fund,
including, among other things, expenses for legal and auditing services, taxes,
costs of printing proxies, listing fees, stock certificates and shareholder
reports, charges of the Custodian and the Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent, expenses of registering the shares under
Federal and state securities laws, fees and expenses with respect to any
borrowings, Commission fees, fees and expenses of non-interested Directors,
accounting and pricing costs, insurance, interest, brokerage costs, litigation
and other extraordinary or non-recurring expenses, mailing and other expenses
properly payable by the Fund. Accounting services are provided to the Fund by
the Investment Adviser, and the Fund reimburses the Investment Adviser for its
costs in connection with such services.
The Investment Adviser also has entered into a Sub-Advisory Agreement
with Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), an indirect,
wholly-owned subsidiary of ML & Co. and an affiliate of the Investment Adviser,
pursuant to which the Investment Adviser pays MLAM U.K. a fee for providing
investment advisory services to the Investment Adviser with respect to the Fund
in an amount to be determined from time to time by the Investment Adviser and
MLAM U.K. but in no event in excess of the amount the Investment Adviser
actually receives for providing services to the Fund pursuant to the Investment
Advisory Agreement. MLAM U.K. has offices at Milton Gate, 1 Moor Lane, London
EC2Y 9HA, England.
Unless earlier terminated as described below, the Investment Advisory
and Sub-Advisory Agreements will remain in effect for a period of two years from
the date of execution and will remain in effect from year to year thereafter if
approved annually (a) by the Board of Directors of the Fund or by a majority of
the outstanding shares of the Fund and (b) by a majority of the Directors who
are not parties to such contract or interested persons (as defined in the 1940
Act) of any such party. Such contracts are not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Fund.
Securities held by the Fund, including Senior Loans, may also be held
by, or be appropriate investments for, other funds or investment advisory
clients for which the Investment Adviser or its affiliates act as an adviser.
Because of different objectives or other factors, a particular security may be
bought for an advisory client when other clients are selling the same security.
If purchases or sales of securities by the Investment Adviser for the Fund or
other funds for which it acts as investment adviser or for advisory clients
arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. Transactions effected by the
Investment Adviser (or its affiliates) on behalf of more than one of its clients
during the same period may increase the demand for securities being purchased or
the supply of securities being sold, causing an adverse effect on price.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under
Rule17j-1 of the 1940 Act which incorporates the Code of Ethics of the
Investment Adviser (together, the "Codes"). The Codes significantly restrict the
personal investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on Fund
investment personnel.
The Codes require that all employees of the Investment Adviser preclear
any personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading
insecurities. In addition, no employee may purchase or sell any security which
at the time is being purchased or sold (as the case may be), or to the knowledge
of the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" which prohibit trading by investment personnel of the Fund within
periods of trading by the Fund in the same (or equivalent) security (15 or 30
days depending upon the transaction).
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund,
the Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for the Fund, taking into account such factors
as price (including the applicable fee, commission or spread), size of order,
difficulty of execution and operational facilities of the firm involved and the
firm's risk in positioning a block of securities and the provision of
supplemental investment research by the firm. While the Investment Adviser
generally seeks reasonably competitive fees commissions or spreads, the Fund
does not necessarily pay the lowest fee, commission or spread available.
The Fund purchases Senior Loans in individually negotiated transactions
with commercial banks, thrifts, insurance companies, finance companies and other
financial institutions. In selecting such financial institutions, the Investment
Adviser may consider, among other factors, the financial strength, professional
ability, level of service and research capability of the institution. See
"Investment Objective and Policies - Description of Participation Interests."
While such financial institutions generally are not required to repurchase
Participation Interests in Senior Loans which they have sold, they may act as
principal or on an agency basis in connection with the Fund's disposition of
Senior Loans.
The Fund has no obligation to deal with any bank, broker or dealer in
execution of transactions in portfolio securities. Subject to providing the best
price and execution, securities firms that provide supplemental investment
research to the Investment Adviser, including Merrill Lynch, may receive orders
for transactions by the Fund. Research information provided to the Investment
Adviser by securities firms is supplemental. It does not replace or reduce the
level of services performed by the Investment Adviser and the expenses of the
Investment Adviser will not be reduced.
The Fund invests in securities traded primarily in the over-the-counter
markets, and the Fund intends to deal directly with dealers who make markets in
the securities involved, except in those circumstances where better prices and
execution are available elsewhere. Under the 1940 Act, except as permitted by
exemptive order, persons affiliated with the Fund, including Merrill Lynch, are
prohibited from dealing with the Fund as principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principal for their own account, the Fund
does not deal with Merrill Lynch and its affiliates in connection with such
transactions. See "Investment Restrictions." An affiliated person of the Fund
may serve as its broker in over-the-counter transactions conducted on an agency
basis.
PORTFOLIO TURNOVER
The Fund may dispose of securities without regard to the length of time
they have been held when such actions, for defensive or other reasons, appear
advisable to the Investment Adviser. While it is not possible to predict
turnover rates with any certainty, presently it is anticipated that the Fund's
annual portfolio turnover rate, under normal circumstances, should be less than
100%. (The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the particular fiscal year by the
monthly average value of the portfolio securities owned by the Fund during the
particular fiscal year. For purposes of determining this rate, all securities
whose maturities at the time of acquisition are one year or less are excluded.)
A high portfolio turnover rate bears certain tax consequences and results in
greater transaction costs, which are borne directly by the Fund.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute dividends of all or a portion of its net
investment income monthly. Monthly distributions to holders of common stock
consist of all or a portion of the Fund's net investment income remaining after
the payment of interest on any borrowings by the Fund. The Fund may at times pay
out less than the entire amount of net investment income earned in any
particular period and may at times pay out such accumulated undistributed income
in addition to net investment income earned in other periods in order to permit
the Fund to maintain a more stable level of distributions. As a result, the
distribution paid by the Fund for any particular period may be more or less than
the amount of net investment income earned by the Fund during such period. For
Federal tax purposes, the Fund is required to distribute substantially all of
its net investment income for each calendar year. All net realized capital
gains, if any, are distributed at least annually to holders of common stock.
Under the 1940 Act, the Fund may not declare any dividend or other
distribution upon any class of its capital stock, or purchase any such capital
stock, unless the aggregate indebtedness of the Fund has, at the time of the
declaration of any such dividend or distribution or at the time of any such
purchase, an asset coverage of at least 300% after deducting the amount of such
dividend, distribution, or purchase price, as the case may be. In addition to
the limitations imposed by the 1940 Act, certain lenders may impose additional
restrictions on the payment of dividends or distributions on the Fund's common
stock in the event of a default on the Fund's borrowings. Any limitation on the
Fund's ability to make distributions on its common stock could under certain
circumstances impair the ability of the Fund to maintain its qualification for
taxation as a regulated investment company. See "Other Investment Policies
- --Leverage" and "Taxes."
See "Automatic Dividend Reinvestment Plan" for information concerning
the manner in which dividends and distributions to holders of common stock may
be automatically reinvested in shares of common stock of the Fund. Dividends and
distributions will be taxable to shareholders whether they are reinvested in
shares of the Fund or received in cash.
The Fund expects that it will commence paying dividends within 90 days
of the date of this prospectus.
TAXES
GENERAL
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). As long as it so qualifies, in any taxable
year in which it distributes at least 90% of its net income (see below), the
Fund will not be subject to Federal income tax to the extent that it distributes
its net investment income and net realized capital gains. The Fund intends to
distribute substantially all of its net investment income and net capital gains.
Dividends paid by the Fund from its ordinary income or from an excess
of net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions, if any, from the excess of net
long-term capital gains over net short-term capital losses derived from the sale
of securities or from certain transactions in interest rate swaps ("capital gain
dividends") are taxable as long-term capital gains, regardless of the length of
time the shareholder has owned Fund shares. Certain categories of capital gains
are taxable at different rates. Generally not later than 60 days after the close
of its taxable year, the Fund will provide its shareholders with a written
notice designating the amounts of any ordinary income dividends or capital gain
dividends as well as any amounts of capital gain dividends in the different
categories of capital gain referred to above. Any loss upon the sale of Fund
shares held for six months or less is treated as long-term capital loss to the
extent of any capital gain dividends received by the shareholder. Distributions
in excess of the Fund's earnings and profits first reduce the adjusted tax basis
of a holder's common stock and, after such adjusted tax basis is reduced to
zero, constitute capital gains to such holder (assuming such common stock is
held as a capital asset).
Dividends are taxable to shareholders even though they are reinvested
in additional shares of the Fund. Distributions by the Fund, whether from
ordinary income or capital gains, generally are not eligible for the dividends
received deduction allowed to corporations under the Code. If the Fund pays a
dividend in January which was declared in the previous October, November or
December to shareholders of record on a specified date in one of such months,
then such dividend is treated for tax purposes as being paid and received on
December 31 of the year in which the dividend was declared.
The Code requires a RIC to pay a nondeductible 4% excise tax to the
extent the RIC does not distribute during each calendar year 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to minimize imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
Certain types of borrowings may result in the Fund being subject to
covenants in credit agreements that may restrict the Fund's declaration and
payment of dividends and distributions on the common stock in certain
circumstances. Also, if at any time when borrowings are outstanding the Fund
does not meet the asset coverage requirements of the 1940 Act, the Fund will be
required to suspend distributions to holders of common stock until the asset
coverage is restored. See "Dividends and Distributions." Limits on the Fund's
payment of dividends may prevent the Fund from distributing at least 90% of its
net income and may therefore jeopardize the Fund's qualification for taxation as
a RIC and/or may subject the Fund to the 4% Federal excise tax described above.
Upon any failure to satisfy credit agreement covenants or meet the asset
coverage requirement of the 1940 Act, the Fund may, in its sole discretion, pay
down borrowings in order to satisfy the covenants or maintain or restore the
requisite asset coverage and avoid the adverse consequences to the Fund and its
shareholders of failing to qualify as a RIC. There can be no assurance, however,
that any such action would achieve these objectives.
The Federal income tax rules governing the taxation of interest rate
swaps are not entirely clear and may require the Fund to treat payments received
under such arrangements as ordinary income and to amortize payments under
certain circumstances. Additionally, because the treatment of swaps under the
RIC qualification rules is not clear, the Fund will limit its activity in this
regard in order to maintain its qualification as a RIC.
Under certain Code provisions, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding tax.
Ordinary income dividends paid to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% United States withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the United States
withholding tax.
Interest income from non-U.S. securities may be subject to withholding
and other taxes imposed by the country in which the issuer is located. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
Shareholders may be able to claim United States foreign tax credits
with respect to such taxes, subject to certain conditions and limitations
contained in the Code. For example, certain retirement accounts cannot claim
foreign tax credits on investments in foreign securities held in the Fund. In
addition, recent legislation permits a foreign tax credit to be claimed with
respect to withholding tax on a dividend paid by the Fund only if the
shareholder meets certain holding period requirements. The Fund also must meet
these holding period requirements, and if the Fund fails to do so, it will not
be able to "pass through" to shareholders the ability to claim a credit or a
deduction for the related foreign taxes paid by the Fund. If the Fund satisfies
the holding period requirements and more than 50% in value of its total assets
at the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible, and intends, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
include their proportionate share of such withholding taxes in their United
States income tax returns as gross income, treat such proportionate shares as
taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against their
United States income taxes. No deductions for foreign taxes, moreover, may be
claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to United States withholding taxes on the income resulting from the
Fund's election described in this paragraph but may not be able to claim a
credit or deduction against such United States tax for the foreign taxes treated
as having been paid by such shareholder. The Fund will report annually to its
shareholders the amount per share of such withholding taxes and other
information needed to claim the foreign tax credit.
A loss realized on a sale of shares of the Fund will be disallowed if
other Fund shares are acquired (whether through the automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE TRANSACTIONS
The Fund may write, purchase or sell options, futures and forward
foreign exchange contracts. Options and futures contracts that are "Section 1256
contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year, i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year. Unless
such contract is a forward foreign exchange contract, or a non-equity, option or
a regulated futures contract for a non-U.S. currency for which the Fund elects
to have gain or loss treated as ordinary gain or loss under code Section 988 (as
described below), gain or loss from Section 1256 contracts will be 60% long-term
and 40% short-term capital gain or loss. Application of these rules to Section
1256 contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above, however,
will not apply to certain transactions entered into by the Fund solely to reduce
the risk of changes in price or interest or currency exchange rates with respect
to its investments.
A forward foreign exchange contract that is a Section 1256 contract
will be marked to market, as described above. However, the character of gain or
loss from such a contract will generally be ordinary under Code Section 988. The
Fund may, nonetheless, elect to treat the gain or loss from certain forward
foreign exchange contracts as capital. In this case, gain or loss realized in
connection with a forward foreign exchange contract that is a Section 1256
contract will be characterized as 60% long-term and 40% short-term capital gain
or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's sales of securities and transactions in swaps, options,
futures and forward foreign exchange contracts. Under Section 1092, the Fund may
be required to postpone recognition for tax purposes of losses incurred in
certain sales of securities and certain closing transactions in swaps, options,
futures and forward foreign exchange contracts.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain
transactions in a currency other than the taxpayer's function currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains and losses in connection with the Fund's foreign
currency swaps, if any, will be treated as ordinary income or loss under Code
Section 988 and will increase or decrease the amount of the Fund's investment
company taxable income available to be distributed to shareholders as ordinary
income. Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
ordinary income dividend distributions, and any distributions made before the
losses were realized but in the same taxable year would be recharacterized as a
return of capital to shareholders, thereby reducing the basis of each
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than the shareholder's tax basis in Fund
shares (assuming the shares were held as a capital asset). These rules, however,
will not apply to certain transactions entered into by the Fund solely to reduce
the risk of currency fluctuations with respect to its investments.
____________________
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and the Treasury
Regulations are subject to change by legislative, judicial, or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state
and local taxes.
The Fund does not currently expect to issue preferred stock, but does
have the authority to do so. If preferred stock is issued, the Fund will be
required to comply with tax rules regarding the allocation of capital gains
between the preferred stock and the common stock as well as the deductibility
of dividends paid on the preferred stock.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the
"Plan"), unless a shareholder otherwise elects, all dividend and capital gains
distributions will be automatically reinvested by ,
as agent for shareholders in administering the Plan (the "Plan Agent"), in
additional shares of common stock of the Fund. Shareholders who elect not to
participate in the Plan will receive all dividends and distributions in cash
paid by check mailed directly to the shareholder of record (or, if the shares
are held in street or other nominee name, then to such nominee) by ,
as dividend paying agent. The Fund is not responsible for any failure of
delivery to the shareholder's address of record and no interest will accrue on
amounts represented by uncashed dividend or distribution checks. Such
participants may elect not to participate in the Plan and to receive all
distributions of dividends and capital gains in cash by sending written
instructions to , as dividend-paying agent, at the address
set forth below. Participation in the Plan is completely voluntary and may be
terminated or resumed at any time without penalty by written notice if received
by the Plan Agent not less than ten days prior to any dividend record date;
otherwise such termination will be effective with respect to any subsequently
declared dividend or distribution.
Whenever the Fund declares an income dividend or a capital gains
distribution (collectively referred to as "dividends") payable either in shares
or in cash, non-participants in the Plan will receive cash, and participants in
the Plan will receive the equivalent in shares of common stock. The shares will
be acquired by the Plan Agent for the participant's account, depending upon the
circumstances described below, either (i) through receipt of additional unissued
but authorized shares of common stock from the Fund ("newly issued shares") or
(ii) by purchase of outstanding shares of common stock on the open market
("open-market purchases") on the New York Stock Exchange or elsewhere. If on the
payment date for the dividend, the net asset value per share of the common stock
is equal to or less than the market price per share of the common stock plus
estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
common stock to be credited to the participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share on
the date the shares are issued, provided that the maximum discount from the then
current market price per share on the date of issuance may not exceed 5%. If on
the dividend payment date the net asset value per share is greater than the
market value (such condition being referred to herein as "market discount"), the
Plan Agent will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases. Prior to the time the shares of common
stock commence trading on the New York Stock Exchange, participants in the Plan
will receive any dividends in newly issued shares.
In the event of a market discount on the dividend payment date, the
Plan Agent will have until the last business day before the next date on which
the shares trade on an "ex-dividend" basis or in no event more than 30 days
after the dividend payment date (the "last purchase date") to invest the
dividend amount in shares acquired in open-market purchases. It is contemplated
that the Fund will pay monthly income dividends. Therefore, the period during
which open-market purchases can be made will exist only from the payment date on
the dividend through the date before the next "ex-dividend" date which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market purchases, the market price of a share of common stock exceeds the
net asset value per share, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if the dividend had been paid in newly issued
shares on the dividend payment date. Because of the foregoing difficulty with
respect to open-market purchases, the Plan provides that if the Plan Agent is
unable to invest the full dividend amount in open-market purchases during the
purchase period or if the market discount shifts to a market premium during the
purchase period, the Plan Agent will cease making open-market purchases and will
invest the uninvested portion of the dividend amount in newly issued shares at
the close of business on the last purchase date.
The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant will be held by the Plan Agent on behalf of the Plan
participant, and each shareholder's proxy will include those shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for shares held pursuant
to the Plan in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which
hold shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of shares certified from time to
time by the record shareholders as representing the total amount registered in
the record shareholder's name and held for the account of beneficial owners who
are to participate in the Plan.
There will be no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains distributions
payable either in shares or in cash. However, each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open-market purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions will not
relieve participants of any Federal, state or local income tax that may be
payable (or required to be withheld) on such dividends. See "Taxes."
Shareholders participating in the Plan may receive benefits not
available to shareholders not participating in the Plan. If the market price
plus commissions of the Fund's shares is above the net asset value, participants
in the Plan will receive shares of the Fund at less than they could otherwise
purchase them and will have shares with a cash value greater than the value of
any cash distribution they would have received on their shares. If the market
price plus commissions is below the net asset value, participants will receive
distributions in shares with a net asset value greater than the value of any
cash distribution they would have received on their shares. However, there may
be insufficient shares available in the market to make distributions in shares
at prices below the net asset value. Also, since the Fund does not redeem its
shares, the price on resale may be more or less than the net asset value. See
"Taxes" for a discussion of tax consequences of the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants.
All correspondence concerning the Plan should be directed to the Plan
Agent at .
MUTUAL FUND INVESTMENT OPTION
Purchasers of shares of common stock of the Fund through Merrill Lynch
in this offering will have an investment option consisting of the right to
reinvest the net proceeds from a sale of such shares (the "Original Shares") in
Class D initial sales charge shares of certain Merrill Lynch-sponsored open-end
funds ("Eligible Class D Shares") at their net asset value, without the
imposition of the initial sales charge, if the conditions set forth below are
satisfied. First, the sale of the Original Shares must be made through Merrill
Lynch, and the net proceeds therefrom must be immediately reinvested in Eligible
Class D Shares. Second, the Original Shares must have been either acquired in
this offering or be shares representing reinvested dividends from shares of
common stock acquired in this offering. Third, the Original Shares must have
been continuously maintained in a Merrill Lynch securities account. Fourth,
there must be a minimum purchase of $250 to be eligible for the investment
option. Class D shares of the mutual funds are subject to an account maintenance
fee at an annual rate of up to 0.25% of the average daily net asset value of
such mutual fund. The Eligible Class D Shares may be redeemed at any time at the
next determined net asset value, subject in certain cases to a redemption fee.
Prior to the time the shares of common stock commence trading on the New York
Stock Exchange, the distributor for the mutual funds will advise Merrill Lynch
Financial Consultants as to those mutual funds that offer the investment option
described above.
NET ASSET VALUE
The net asset value per share of common stock is determined as of 15
minutes after the close of business on the New York Stock Exchange (generally,
4:00 p.m., Eastern time), on the last business day in each week. For purposes of
determining the net asset value of a share of common stock, the value of the
securities held by the Fund plus any cash or other assets (including interest
accrued but not yet received) minus all liabilities (including accrued expenses)
is divided by the total number of shares of common stock outstanding at such
time. Expenses, including the fees payable to the Investment Adviser, are
accrued daily.
The Fund will determine and make available for publication the net
asset value of its shares of common stock weekly. Currently, the net asset
values of shares of publicly traded closed-end investment companies investing in
debt securities are published in Barrons, the Monday edition of The Wall Street
Journal and the Monday and Saturday editions of The New York Times.
Senior Loans will be valued in accordance with guidelines established
by the Board of Directors. Under the Fund's current guidelines, Senior Loans for
which the Investment Adviser can obtain at least two quotations from banks or
dealers in Senior Loans will be valued by the Investment Adviser by calculating
the mean of the last available bid and asked prices in the market for such
Senior Loans, and then using the mean of those two means. If only one quote for
a particular Senior Loan is available, and the Investment Adviser believes that
such quote is a reliable indicator of value, such Senior Loan will be valued on
the basis of the mean of the last available bid and asked prices in the market.
For Senior Loans for which no reliable quotes are available, such Senior Loans
will be valued by the Investment Adviser at fair value, which is intended to
approximate market value. In valuing a Senior Loan at fair value, the Investment
Adviser will consider, among other factors, (i) the creditworthiness of the
borrower and any Intermediate Participants, (ii) the current interest rate
period until next interest rate reset and maturity of the Senior Loan, (iii)
recent prices in the market for similar Senior Loans, if any, and (iv) recent
prices in the market for instruments of similar quality, rate, period until next
interest rate reset and maturity.
Other portfolio securities (other than short-term obligations but
including listed issues, if any) may be valued on the basis of prices furnished
by one or more pricing services which determine prices for normal,
institutional-size trading units of such securities using market information,
transactions for comparable securities and various relationships between
securities which are generally recognized by institutional traders. In certain
circumstances, such other portfolio securities are valued at the last sale price
on the exchange that is the primary market for such securities, or the last
quoted bid price for those securities for which the over-the-counter market is
the primary market or for listed securities in which there were no sales during
the day. The value of interest rate swaps, caps and floors is determined in
accordance with a formula and then confirmed periodically by obtaining a bank
quotation. Positions in options are valued at the last sale price on the market
where any such option is principally traded. Obligations with remaining
maturities of 60 days or less are valued at amortized cost unless this method no
longer produces fair valuations. Repurchase agreements are valued at cost plus
accrued interest. Rights or warrants to acquire stock, or stock acquired
pursuant to the exercise of a right or warrant, may be valued taking into
account various factors such as original cost to the Fund, earnings and net
worth of the issuer, market prices for securities of similar issuers, assessment
of the issuer's future prosperity, liquidation value or third party transactions
involving the issuer's securities. Securities for which there exist no price
quotations or valuations and all other assets are valued at fair value as
determined in good faith by or on behalf of the Board of Directors of the Fund.
DESCRIPTION OF CAPITAL STOCK
The Fund is authorized to issue 200,000,000 shares of capital stock,
par value $.10 per share, all of which shares are initially classified as common
stock. The Board of Directors is authorized, however, to classify and reclassify
any unissued shares of capital stock into one or more additional or other
classes or series as may be established from time to time by setting or changing
in any one or more respects the designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock and pursuant to
such classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series. The Fund may reclassify an
amount of unissued common stock as preferred stock and at that time offer shares
of preferred stock representing up to approximately 50% of the Fund's total
assets immediately after the issuance of such preferred stock. The Fund does not
currently anticipate issuing any preferred stock.
COMMON STOCK
Shares of common stock, when issued and outstanding, will be fully paid
and non-assessable. Shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to shareholders upon liquidation
of the Fund. Shareholders are entitled to one vote for each share held.
In the event the Fund issues preferred stock and so long as any shares
of the Fund's preferred stock are outstanding, holders of common stock are not
entitled to receive any net income of or other distributions from the Fund
unless all accumulated dividends on preferred stock have been paid, and unless
asset coverage (as defined in the 1940 Act) with respect to preferred stock
would be at least 200% after giving effect to such distributions. The issuance
of preferred stock by the Fund involves many of the same risks and special
considerations to the holders of common stock as borrowings discussed under
"Other Investment Policies - Leverage" and "Taxes - General."
The Fund sends unaudited reports at least semi-annually and audited
annual financial statements to all of its shareholders of record.
The Investment Adviser provided the initial capital for the Fund by
purchasing 6,667 shares of common stock of the Fund for $100,005. As of the date
of this Prospectus, the Investment Adviser owned 100% of the outstanding shares
of common stock of the Fund. The Investment Adviser may be deemed to control the
Fund until such time as it owns less than 25% of the outstanding shares of the
Fund.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION
The Fund's Articles of Incorporation include provisions that could have
the effect of limiting the ability of other entities or persons to acquire
control of the Fund or to change the composition of its Board of Directors and
could have the effect of depriving shareholders of an opportunity to sell their
shares at a premium over prevailing market prices by discouraging a third party
from seeking to obtain control of the Fund. A Director elected by all holders of
capital stock or by the holders of preferred stock may be removed from office
only for cause by vote of the holders of at least 66-2/3% of the shares of
capital stock or preferred stock, as the case may be, of the Fund entitled to be
voted on the matter.
In addition, the Articles of Incorporation require the favorable vote
of the holders of at least 66-2/3% of the Fund's shares of capital stock, then
entitled to be voted, voting as a single class, to approve, adopt or authorize
the following:
- a merger or consolidation or statutory share exchange of the Fund
with other corporations;
- a sale of all or substantially all of the Fund's assets (other
than in the regular course of the Fund's investment activities);
or
- a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of two-thirds of the total number of Directors fixed in accordance with the
by-laws, in which case the affirmative vote of a majority of the Fund's shares
of capital stock is required. Following any issuance of preferred stock by the
Fund, it is anticipated that the approval, adoption or authorization of the
foregoing would also require the favorable vote of a majority of the Fund's
shares of preferred stock then entitled to be voted, voting as a separate class.
In addition, conversion of the Fund to an open-end investment company
would require an amendment to the Fund's Article of Incorporation. The amendment
would have to be declared advisable by the Board of Directors prior to its
submission to shareholders. Such an amendment would require the favorable vote
of the holders of at least 66-2/3% of the Fund's outstanding shares (including
any preferred stock) entitled to be voted on the matter, voting as a single
class (or a majority of such shares if the amendment was previously approved,
adopted or authorized by two-thirds of the total number of Directors fixed in
accordance with the by-laws), and, assuming preferred stock is issued, the
affirmative vote of a majority of outstanding shares of preferred stock of the
Fund, voting as a separate class. Such a vote also would satisfy a separate
requirement in the 1940 Act that the change be approved by the shareholders.
Shareholders of an open-end investment company may require the company to redeem
their shares of common stock at any time (except in certain circumstances as
authorized by or under the 1940 Act) at their net asset value, less such
redemption charge, if any, as might be in effect at the time of a redemption.
All redemptions would usually be made in cash. If the Fund is converted to an
open-end investment company, it could be required to liquidate portfolio
securities to meet requests for redemption, and the shares would no longer be
listed on a stock exchange. Conversion to an open-end investment company would
also require changes in certain of the Fund's investment policies and
restrictions, such as those relating to the borrowing of money and the purchase
of illiquid securities including Senior Loans.
The Board of Directors has determined that the 66-2/3% voting
requirements described above which are greater than the minimum requirements
under Maryland law or the 1940 Act, are in the best interests of shareholders
generally. Reference should be made to the Articles of Incorporation on file
with the Securities and Exchange Commission for the full text of these
provisions.
CUSTODIAN
The Fund's securities and cash are held under a custodial agreement
with .
UNDERWRITING
Merrill Lynch, Pierce, Fenner and Smith Incorporated ("Merrill Lynch"
or the "Underwriter") has agreed, subject to the terms and conditions of a
Purchase Agreement with the Fund and the Investment Adviser, to purchase _____
shares of common stock from the Fund. The Underwriter is committed to purchase
all of such shares if any are purchased.
The Underwriter has advised the Fund that it proposes initially to
offer the shares of common stock to the public at the public offering price set
forth on the cover page of this Prospectus. There is no sales charge or
underwriting discount charged to investors on purchases of shares of common
stock in the offering. The Investment Adviser or an affiliate has agreed to pay
the Underwriter from its own assets a commission in connection with the sale of
shares of common stock in the offering in the amount of $ per share.
Such payment is equal to % of the initial public offering price per share.
The Underwriter also has advised the Fund that from this amount the Underwriter
may pay a concession to certain dealers not in excess of $ per share on
sales by such dealers. After the initial public offering, the public offering
price and other selling terms may be changed. Investors must pay for shares of
common stock purchased in the offering on or before 1999.
The Fund has granted the Underwriter an option, exercisable for 45 days
after the date hereof, to purchase up to additional shares of common
stock to cover over-allotments, if any, at the initial offering price.
The Underwriter may engage in certain transactions that stabilize the
price of the shares of common stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
shares of common stock.
If the Underwriter creates a short position in the shares of common
stock in connection with the offering, i.e., if it sells more shares of common
stock than are set forth on the cover page of this Prospectus, the Underwriter
may reduce that short position by purchasing shares of common stock in the open
market. The Underwriter also may elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Underwriter may also impose a penalty bid on certain selling group
members. This means that if the Underwriter purchases shares of common stock in
the open market to reduce the Underwriter's short position or to stabilize the
price of the shares of common stock, it may reclaim the amount of the selling
concession from the selling group members who sold those shares of common stock
as part of the offering.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Fund nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the shares of common stock. In
addition, neither the Fund nor the Underwriter makes any representation that the
Underwriter will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Prior to this offering, there has been no public market for the shares
of the common stock. The Fund plans to apply to list the Fund's shares of common
stock on the New York Stock Exchange, subject to official notice of issuance.
However, during an initial period, which is not expected to exceed two weeks
from the date of this prospectus, the Fund's shares will not be listed on any
securities exchange. Additionally, during such period, the Underwriter does not
intend to make a market in the Fund's shares, although a limited market may
develop. Consequently, it is anticipated that an investment in the Fund will be
illiquid during such period. In order to meet the requirements for listing, the
Underwriter has undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
The Fund anticipates that the Underwriter may from time to time act as
broker in connection with the execution of its portfolio transactions.
The Underwriter is an affiliate of the Investment Adviser of the Fund.
The Fund and the Investment Adviser have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT
AND REGISTRAR
The transfer agent dividend disbursing agent and registrar for the
shares of the Fund is .
LEGAL OPINIONS
Certain legal matters in connection with the common stock offered
hereby are passed on for the Fund and the Underwriter by Brown & Wood LLP, New
York, New York.
EXPERTS
The statement of assets, liabilities and capital of the Fund included
in this Prospectus has been so included in reliance on the report of ,
independent auditors, and on their authority as experts in auditing and
accounting. The selection of independent auditors is subject to ratification by
shareholders of the Fund.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 and in accordance
therewith is required to file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Any such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: Regional Office, at Seven World Trade Center, Suite
1300, New York, New York 10048; Pacific Regional Office, at 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036; and Midwest Regional
Office, at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such materials can be obtained from the
public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
at http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Fund, that file
electronically with the Commission. Reports, proxy statements and other
information concerning the Fund can also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
Additional information regarding the Fund is contained in the
Registration Statement on Form N-2, including amendments, exhibits and schedules
thereto, relating to such shares filed by the Fund with the Commission in
Washington, D.C. This Prospectus does not contain all of the information set
forth in the Registration Statement, including any amendments, exhibits and
schedules thereto. For further information with respect to the Fund and the
shares offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). Like other investment
companies and financial and business organizations, the Fund could be adversely
affected if the computer systems used by the Investment Adviser or other Fund
service providers do not properly address this problem prior to January 1, 2000.
The Investment Adviser has established a dedicated group to analyze these issues
and to implement any systems modifications necessary to prepare for the Year
2000. Currently, the Investment Adviser does not anticipate that the transition
to the Year 2000 will have any material impact on its ability to continue to
service the Fund at current levels. In addition, the Investment Adviser has
sought assurances from the Fund's other service providers that they are taking
all necessary steps to ensure that their computer systems will accurately
reflect the Year 2000, and the Investment Adviser will continue to monitor the
situation. At this time, however, no assurance can be given that the Fund's
other service providers have anticipated every step necessary to avoid any
adverse effect on the Fund attributable to the Year 2000 Problem.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
Senior Floating Income Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and
capital of Senior Floating Income Fund, Inc. as of , 1999. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets, liabilities and capital
presents fairly, in all material respects, the financial position of Senior
Floating Income Fund, Inc. as of , 1999 in conformity with generally
accepted accounting principles.
<PAGE>
SENIOR FLOATING INCOME FUND, INC.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
, 1999
ASSETS
Cash.................................................................$
Offering costs (Note 1)..............................................
Deferred organization costs (Note 1).................................
Total Assets.................................................... ________
LIABILITIES ________
Liabilities and accrued expenses (Note 1)............................ ________
NET ASSETS............................................................. $
========
CAPITAL
Common stock, par value $.10 per share; shares authorized;
shares Issued and outstanding (Note 1)....................... $
Paid-in Capital in excess of par.....................................
Total Capital--Equivalent to $15.00 net asset value ________
per share of common stock (Note 1)...........................$
========
NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
NOTE 1. ORGANIZATION
The Fund was incorporated under the laws of the State of Maryland on
November 13, 1998, as a closed-end, non-diversified management investment
company and has had no operations other than the sale to Fund Asset Management,
L.P. (the "Investment Adviser") of an aggregate of 6,667 shares of common stock
for $100,005 on , 1999. The General Partner of the Investment Adviser
is an indirectly wholly-owned subsidiary of Merrill Lynch & Co., Inc.
Deferred organization costs will be amortized on a straight-line basis
over a period not exceeding five years beginning with the commencement of
operations of the Fund. Direct costs relating to the public offering of the
Fund's shares will be charged to capital at the time of issuance of shares. In
accordance with Statement of Position 98-5, unamortized costs existing at ,
1999 (start of the Fund's new fiscal year), will be charged to expense on that
date. At the present time, management believes this change will not have any
material impact to the operations of the Fund.
NOTE 2. MANAGEMENT ARRANGEMENTS
The Fund has engaged the Investment Adviser to provide investment
advisory and management services to the Fund. The Investment Adviser will
receive a monthly fee at the annual rate of ____% of the Fund's average weekly
net assets plus the proceeds of any outstanding borrowings used for leverage.
NOTE 3. FEDERAL INCOME TAXES
The Fund intends to qualify as a "regulated investment company" and as
such (and by complying with the applicable provisions of the Internal Revenue
Code of 1986, as amended) will not be subject to Federal income tax on a taxable
income (including realized capital gains) that is distributed to shareholders.
<PAGE>
APPENDIX
RATINGS OF SECURITIES
DESCRIPTION OF STANDARD AND POOR'S, A DIVISION OF
THE McGRAW HILL COMPANIES, INC. ("STANDARD AND POOR'S") RATINGS
- ---------------------------------------------------------------
ISSUE CREDIT RATiNGS DEFINITIONS
A Standard & Poor's issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program
(including ratings on medium-term note programs and commercial paper programs.)
It takes into consideration the creditworthiness of guarantors, insurers, or
other forms of credit enhancement on the obligation and takes into account the
currency in which the obligation is denominated. The issue credit rating is not
a recommendation to purchase, sell, or hold a financial obligation, inasmuch as
it does not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current information furnished by the
obligors or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
credit rating and may, on occasion, rely on unaudited financial information.
Credit ratings may be changed, suspended, or withdrawn as a result of changes
in, or unavailability of, such information, or based on other circumstances.
Issue credit ratings can be either long-term or short-term. Short-term
ratings are generally assigned to those obligations considered short-term in the
relevant market. In the U.S., for example, that means obligations with an
original maturity of no more than 365 days - including commercial paper.
Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual
rating, in which the short-term rating addresses the put feature, in addition to
the usual long-term rating. Medium-term notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to
meet its financial commitment on an obligation in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentiation applies when an entity has
both senior and subordinated obligations, secured and unsecured obligations, or
operating company and holding company obligations.) Accordingly, in the case of
junior debt, the rating may not conform exactly with the category definition.
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB 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. Obligations rated BB, B, CCC,
CC, and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the
highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC 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. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
D An 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.
PLUS (+) OR MINUS (-) The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative
standing within the major rating categories.
r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or
commodities; obligations exposed to severe prepayment risk-such as
interest-only or principal-only mortgage securities; and obligations
with unusually risky interest terms, such as inverse floaters.
SHORT-TERM ISSUE CREDIT RATINGS
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-2A 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-3A 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.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS
- ------------------------------------------------
LONG TERM RATINGS - DEBT RATINGS - TAXABLE DEBT & DEPOSITS GLOBALLY
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 the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa 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 short-comings.
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 bond ratings, where specified, are applicable to financial
contracts, senior bank obligations and insurance company senior policyholder and
claims obligations with an original maturity in excess of one year. Obligations
relying upon support mechanisms such as letters-of-credit and bonds of indemnity
are excluded unless explicitly rated. Obligations of a branch of a bank are
considered to be domiciled in the country in which the branch is located.
Unless noted as an exception, Moody's rating on a bank's ability to
repay senior obligations extends only to branches located in countries which
carry a Moody's Sovereign Rating for Bank Deposits. Such branch obligations are
rated at the lower of the bank's rating or Moody's Sovereign Rating for the Bank
Deposits for the country in which the branch is located. When the currency in
which an obligation is denominated is not the same as the currency of the
country in which the obligation is domiciled, Moody's ratings do not incorporate
an opinion as to whether payment of the obligation will be affected by the
actions of the government controlling the currency of denomination. In addition,
risk associated with bilateral conflicts between an investor's home country and
either the issuer's home country or the country where an issuer branch is
located are not incorporated into Moody's ratings.
Moody's makes no representation that rated bank obligations or
insurance company obligations are exempt from registration under the U.S.
Securities Act of 1933 or issued in conformity with any other applicable law or
regulation. Nor does Moody's represent any specific bank or insurance company
obligation is legally enforceable or a valid senior obligation of a rated
issuer.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
SHORT-TERM RATINGS - SHORT-TERM PRIME RATING SYSTEM - TAXABLE DEBT & DEPOSITS
GLOBALLY
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-Well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
NOT PRIME Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Obligations of a branch of a bank are considered to be domiciled in the
country in which the branch is located. Unless noted as an exception, Moody's
rating on a bank's ability to repay senior obligations extends only to branches
located in countries which carry a Moody's Sovereign Rating for Bank Deposits.
Such branch obligations are rated at the lower of the bank's rating or Moody's
Sovereign Rating for Bank Deposits for the country in which the branch is
located.
When the currency in which an obligation is denominated is not the same
as the currency of the country in which the obligation is domiciled, Moody's
ratings do not incorporate an opinion as to whether payment of the obligation
will be affected by actions of the government controlling the currency of
denomination. In addition, risks associated with bilateral conflicts between an
investor's home country and either the issuer's home country or the country
where an issuer's branch is located are not incorporated into Moody's short-term
debt ratings.
Moody's makes no representation that rated bank or insurance company
obligations are exempt from the registration under the U.S. Securities Act of
1933 or issued in conformity with any other applicable law or regulation. Nor
does Moody's represent that any specific bank or insurance company obligation is
legally enforceable or a valid senior obligation of a rated issuer.
If an issuer represents to Moody's that its short-term debt obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within the parenthesis
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the affiliated corporations, commercial banks, insurance companies, foreign
governments or other entities, but only as one factor in the total rating
assessment. Moody's makes no representation and gives no opinion on the legal
validity or enforceability of any support arrangement.
Moody's ratings are opinions, not recommendations to buy or sell, and
their accuracy is not guaranteed. A rating should be weighed solely as one
factor in an investment decision and you should make your own study and
evaluation of any issuer whose securities or debt obligations you consider
buying or selling.
<PAGE>
================================================================================
Through and including ____________ __, 1999 (the 90th day after the
date of this prospectus), all dealers effecting transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SHARES
SENIOR FLOATING INCOME FUND, INC.
COMMON STOCK
____________________
PROSPECTUS
____________________
MERRILL LYNCH & CO.
__________ __, 1999
CODE-19046
================================================================================
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(1) Financial Statements:
Independent Auditors' Report
Statement of Assets, Liabilities and Capital as of , 1999
<TABLE>
EXHIBITS:
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
(a) -- Articles of Incorporation.
(b) -- By-Laws.
(c) -- Not applicable.
(d) (1)-- Portions of the Articles of Incorporation and By-Laws of the Fund defining the rights of
holders of shares of the Fund.(a)
(2)-- Form of specimen certificate for the shares of common stock of the Fund.*
(e) -- Not applicable.
(f) -- Not applicable.
(g) (1)-- Form of Investment Advisory Agreement between the Fund and Fund Asset Management, L.P.*
(2)-- Form of Sub-Advisory Agreement between the Investment Adviser and Merrill Lynch Asset
Management U.K. Limited.*
(h) (1)-- Form of Purchase Agreement between the Fund and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.*
(2)-- Form of Merrill Lynch Standard Dealer Agreement.*
(i) -- Not applicable.
(j) -- Form of Custody Agreement between the Fund and .*
(k) -- Form of Registrar, Transfer Agency and Service Agreement between the Fund and .*
(l) -- Opinion and Consent of Brown & Wood LLP.*
(m) -- Not applicable.
(n) -- Consent of , independent auditors for the Fund.*
(o) -- Not applicable.
(p) -- Certificate of Fund Asset Management, L.P.*
(q) -- Not applicable.
(r) -- Not applicable.
</TABLE>
- -----------
(a) Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6),
Article VII, Article VIII, Article X, Article XI, Article XII and
Article XIII of the Registrant's Articles of Incorporation, filed as
Exhibit (a)(1) to this Registration Statement; and to Article II,
Article III (sections 1, 2, 3, 5 and 17), Article VI, Article VII,
Article XII, Article XIII and Article XIV of the Registrant's By-Laws,
previously filed as Exhibit (b) to this Registration Statement.
* To be provided by amendment.
ITEM 25. MARKETING ARRANGEMENTS.
See Exhibits (h)(1) and (h)(2).
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
Registration fees................................ $ *
Printing......................................... *
Legal fees and expenses.......................... *
Accounting fees and expenses..................... *
Rating Agency fees............................... *
Miscellaneous *
________________
Total $ *
================
_______________
* To be provided by amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The information in the Prospectus under the caption "Investment
Advisory and Management Arrangements" and "Description of Capital Stock--Common
Stock" and in Note 1 to the Statement of Assets, Liabilities and Capital is
incorporated herein by reference.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
NUMBER OF
HOLDERS
TITLE OF CLASS , 1999
- -------------- --------------
Shares of Common Stock, par value $0.10 per share............
ITEM 29. INDEMNIFICATION.
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VI of the Registrant's Articles of Incorporation, filed as Exhibit
(a)(1) to this Registration Statement, Article VI of the Registrant's By-Laws,
filed as Exhibit (b) to this Registration Statement, and the Investment Advisory
Agreement, a form of which will be filed as Exhibit (g)(1) to this Registration
Statement, provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act") may be provided to directors, officers
and controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Fund of
expenses incurred or paid by a director, officer or controlling person of the
Fund in connection with any successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Reference is made to Section Six of the Purchase Agreement, a form of
which will be filed as Exhibit (h)(1) hereto, for provisions relating to the
indemnification of the underwriter.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Investment Adviser" or "FAM"), an
affiliate of the Investment Adviser, acts as the investment adviser for the
following open-end registered investment companies: CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Puerto Rico Tax Exempt Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc. and The
Municipal Fund Accumulation Program, Inc.; and for the following closed-end
registered investment companies: Apex Municipal Fund Inc., Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III,
Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies
Fund III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund
2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniHoldings California Insured
Fund, Inc., MuniHoldings California Insured Fund II, Inc., MuniHoldings
California Insured Fund III, Inc., MuniHoldings Florida Insured Fund,
MuniHoldings Florida Insured Fund II, MuniHoldings Florida Insured Fund III,
MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings Insured Fund,
Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey
Insured Fund II, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York
Insured Fund, Inc., MuniHoldings New York Insured Fund II, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund,
Inc., MuniYield Quality Fund II, Senior High Income Portfolio, Inc. and
WorldWide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM") acts as the investment
adviser for the following open-end registered investment companies: Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund,
Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth
Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Capital Fund,
Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch Developing Capital
Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Euro Fund,
Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation
Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement,
Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global Holdings, Inc.,
Merrill Lynch Global Resources Trust, Inc., Merrill Lynch Global Small Cap Fund,
Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch Global Utility
Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund,
Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond
Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund,
Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Real Estate Fund,
Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund,
Inc., Merrill Lynch U.S.A. Government Reserves, Merrill Lynch U.S. Treasury
Money Fund, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable
Series Fund, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a
division of MLAM) and for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch
Senior Floating Rate Fund, Inc. MLAM also acts as sub-adviser to Merrill Lynch
World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio, two
investment portfolios of EQ Advisory Trust.
The address of each of these registered investment companies is P.O.
Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds
for Institutions Series and Merrill Lynch Intermediate Government Bond Fund is
One Financial Center, 23rd Floor, Boston, Massachusetts 02110-2665. The address
of the Investment Adviser, FAM, Princeton Services, Inc. ("Princeton Services")
and Princeton Administrators, L.P. is also P.O. Box 9011,Princeton, New Jersey
08543-9011. The address of Princeton Funds Distributor, Inc. ("PFD") and of
Merrill Lynch Funds Distributor ("MLFD") is P.O. Box 9081,Princeton, New Jersey
08543-9081. The address of Merrill Lynch and Merrill Lynch & Co., Inc. ("ML&
Co.") is North Tower, World Financial Center, 250 Vesey Street, New York, New
York 10281-1201. The address of Merrill Lynch Financial Data Services, Inc.
("MLFDS") is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and director of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person has been engaged since August
31, 1996 for his, her or its own account or in the capacity of director,
officer, employee, partner or trustee. In addition, Mr. Zeikel is President,
director and trustee, Mr. Glenn is Executive Vice President and Mr. Richard is
Treasurer of all or substantially all of the investment companies listed in the
first two paragraphs of this Item 30. Messrs. Zeikel, Glenn and Richard also
hold the same position with all or substantially all of the investment companies
advised by FAM as they do with those advised by the Investment Adviser. Messrs.
Giordano, Harvey, Kirstein and Monagle are officers or directors/trustees of one
or more of such companies.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
- ----------------------- --------------------- ---------------------------------------
<S> <C> <C>
ML & Co................ Limited Partner Financial Services Holding Company; Limited Partner of MLAM
Princeton Services..... General Partner General Partner of MLAM
Arthur Zeikel.......... Chairman Chairman of MLAM; President of MLAM and FAM (from 1977 to 1997);
Chairman and Director of Princeton Services; President of
Princeton Services (from 1993 to 1997); Executive Vice President
of ML & Co.
Jeffrey M. Peek........ President President of MLAM since 1997; President and Director of
Princeton Services; Executive Vice President of ML & Co.; Managing
Director and Co-Head of the Investment Banking Division of Merrill
Lynch (in 1997); Senior Vice President and Director of the Global
Securities and Economics Division of Merrill Lynch (from 1995 to
1997).
Mark DeSario........... Senior Vice President Senior Vice President of MLAM
Terry K. Glenn......... Executive Vice Executive Vice President of MLAM; Executive Vice President and
President Director of Princeton Services; President and Director of Princeton
Funds Distributor; President of Princeton Administrators, L.P.
Linda L. Federici...... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Vincent R. Giordano.... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Elizabeth A. Griffin... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Norman R. Harvey....... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Michael J. Hennewinkel. Senior Vice Senior Vice President, General Counsel and Secretary of MLAM;
President, General Senior Vice President of Princeton Services
Counsel and Secretary
Philip L. Kirstein..... Senior Vice President Senior Vice President of MLAM; Senior Vice President, Director
and Secretary of Princeton Services
Ronald M. Kloss........ Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Debra W. Landsman-Yaros Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services; Vice President of Princeton Funds Distributor
Stephen M. M. Miller... Senior Vice President Executive Vice President of Princeton Administrators L.P.;
Senior Vice President of Princeton Services
Joseph T. Monagle, Jr. Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Michael L. Quinn....... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services; Managing Director and First Vice President of
Merrill Lynch from 1989 to 1995
Brian A. Murdock....... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services and Director of Princeton Funds Distributor
Gerald M. Richard...... Senior Vice President Senior Vice President and Treasurer of MLAM; Senior Vice
and Treasurer President and Treasurer of Princeton Services; Vice
President and Treasurer of Princeton Funds Distributor
Gregory D. Upah........ Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
Ronald L. Welburn...... Senior Vice President Senior Vice President of MLAM; Senior Vice President of
Princeton Services
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Income Opportunities
Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Consults
International Portfolio, Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Developing Capital Markets, Inc., Merrill Lynch Dragon Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Growth Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch
Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch
Global Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill
Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill
Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Real
Estate Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term
Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch
Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch
Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc., Merrill
Lynch World Income Fund, Inc., The Municipal Fund Accumulation Program, Inc. and
Worldwide DollarVest Fund, Inc. The address of each of these registered
investment companies is P.O. Box 9011, Princeton, New Jersey 08543-9011. The
address of MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
Set forth below is a list of each executive officer and director of
MLAM U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since January 1,
1996, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert and Richard are officers
of one or more of the registered investment companies listed in the first two
paragraphs of this Item 28.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION WITH MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------ ------------------------------ ----------------------------------
<S> <C> <C>
Arthur Zeikel Director and Chairman Chairman of the Manager and FAM; President of the Manager
and FAM from 1977 to 1997; Chairman and Director of
Princeton Services; President of Princeton Services from
1973 to 1997; Executive Vice President of ML & Co.
Alan J. Albert Senior Managing Director Vice President of the Manager
Nicholas C.D. Hall Director Director of Merrill Lynch Europe PLC.; General
Counsel of Merrill Lynch International Private
Banking Group
Gerald M. Richard Senior Vice President Senior Vice President and Treasurer of the Manager and
FAM; Senior Vice President and Treasurer of Princeton
Services; Vice President and Treasurer of Princeton
Funds Distributor
Carol Ann Langham Company Secretary None
Debra Anne Searle Assistant Company Secretary None
</TABLE>
ITEM 31. LOCATION OF ACCOUNT AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder are maintained at the offices of the registrant (800
Scudders Mill Road, Plainsboro, New Jersey 08536), its investment adviser (800
Scudders Mill Road, Plainsboro, New Jersey 08536), and its custodian and
transfer agent.
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
(a) Registrant undertakes to suspend the offering of the
shares of common stock covered hereby until it amends its Prospectus
contained herein if (1) subsequent to the effective date of this
Registration Statement, its net asset value per share of common stock
declines more than 10 percent from its net asset value per share of
common stock as of the effective date of this Registration Statement,
or (2) its net asset value per share of common stock increases to an
amount greater than its net proceeds as stated in the Prospectus
contained herein.
(b) Registrant undertakes that:
(1) For purposes of determining any liability under
the 1933 Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in 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.
(2) For the purpose of determining any liability
under the 1933 Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Plainsboro, and State of New Jersey, on the 23rd
day of November, 1998.
Senior Floating Income Fund, Inc.
(Registrant)
By: /s/ Patrick D. Sweeney
---------------------------------------
(Patrick D. Sweeney, President)
Each person whose signature appears below hereby authorizes Patrick D.
Sweeney, William E. Zitelli, Jr. or Bradley J. Lucido or any of them, as
attorney-in-fact, to sign on his behalf, individually and in each capacity
stated below, any amendment to this Registration Statement (including
post-effective amendments) and to file the same, with all exhibits thereto, with
the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Patrick D. Sweeney President (Principal Executive November 23, 1998
-------------------------
(Patrick D. Sweeney) Officer) and Director
/s/ William E. Zitelli, Jr. Treasurer (Principal Financial November 23, 1998
- -----------------------------------
(William E. Zitelli, Jr.) and Accounting Officer) and
Director
/s/ Bradley J. Lucido Secretary and Director November 23, 1998
-------------------------
(Bradley J. Lucido)
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
(a) Articles of Incorporation
(b) By-Laws
Exhibit A
ARTICLES OF INCORPORATION
OF
SENIOR FLOATING INCOME FUND, INC.
THE UNDERSIGNED, CAROLINE DOOLEY, whose post-office address is c/o
Brown & Wood LLP, One World Trade Center, 56th Floor, New York, New York 10048,
being at least eighteen (18) years of age, does hereby act as incorporator,
under and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a corporation.
ARTICLE I.
NAME
----
The name of the corporation is SENIOR FLOATING INCOME FUND, INC. (the
"Corporation").
ARTICLE II.
PURPOSES AND POWERS
-------------------
The purpose or purposes for which the Corporation is formed is to act
as a closed-end, management investment company under the federal Investment
Company Act of 1940, as amended, and in effect from time to time (the
"Investment Company Act"), and to exercise and enjoy all of the powers, rights
and privileges granted to, or conferred upon, corporations by the General Laws
of the State of Maryland now or hereafter in force.
ARTICLE III.
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post-office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 300 East
Lombard Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a corporation
of this State, and the post-office address of the resident agent is The
Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland
21202.
ARTICLE IV.
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is 200,000,000 shares, all initially classified as
one class called Common Stock, of the par value of Ten Cents ($0.10) per share,
and of the aggregate par value of Twenty Million Dollars ($20,000,000).
(2) The Board of Directors may classify and reclassify any unissued
shares of capital stock into one or more additional or other classes or series
as may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series provided, however, that the
total amount of shares of all classes or series shall not exceed the total
number of shares of capital stock authorized in the Charter.
(3) Unless otherwise expressly provided in the Charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class or series of capital stock shall be
entitled to dividends and distributions in such amounts and at such times as may
be determined by the Board of Directors, and the dividends and distributions
paid with respect to the various classes or series of capital stock may vary
among such classes and series.
(4) Unless otherwise expressly provided in the Charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to one
vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of all
classes and series shall vote together as a single class; provided, however,
that as to any matter with respect to which a separate vote of any class or
series is required by the Investment Company Act, or any rules, regulations or
orders issued thereunder, or by the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series shall apply in lieu of
a general vote of all classes and series as described above.
(5) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all classes
or series of capital stock of the Corporation (or of any class or series
entitled to vote thereon as a separate class or series) to take or authorize any
action, the Corporation is hereby authorized (subject to the requirements of the
Investment Company Act, and any rules, regulations and orders issued thereunder)
to take such action upon the concurrence of a majority of the votes entitled to
be cast by holders of capital stock of the Corporation (or a majority of the
votes entitled to be cast by holders of a class or series as a separate class or
series) unless a greater proportion is specified in the Charter.
(6) Unless otherwise expressly provided in the Charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of each class or
series of capital stock of the Corporation shall be entitled, after payment or
provision for payment of the debts and other liabilities of the Corporation, to
share ratably in the remaining net assets of the Corporation.
(7) Any fractional shares shall carry proportionately all of the rights
of a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends.
(8) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute a
quorum at any meeting of stockholders, except with respect to any matter which
requires approval by a separate vote of one or more classes or series of stock,
in which case the presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast by each class or
series entitled to vote as a separate class shall constitute a quorum.
(9) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of the Charter and the By-Laws of the
Corporation. As used in the Charter of the Corporation, the terms "Charter" and
"Articles of Incorporation" shall mean and include the Articles of Incorporation
of the Corporation as amended, supplemented and restated from time to time by
Articles of Amendment, Articles Supplementary, Articles of Restatement or
otherwise.
ARTICLE V.
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
---------------------------------------------
(1) The initial number of directors of the Corporation shall be three
(3), which number may be increased or decreased pursuant to the By-Laws of the
Corporation but shall never be less than the minimum number permitted by the
General Laws of the State of Maryland. The names of the directors who shall act
until the first annual meeting or until their successors are duly elected and
qualify are:
Patrick D. Sweeney
William E. Zitelli, Jr.
Bradley J. Lucido
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock of any class
or series, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable, without any action by the stockholders,
subject to such limitations as may be set forth in these Articles of
Incorporation or in the By-Laws of the Corporation or in the General Laws of the
State of Maryland.
(3) No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the capital stock of the
Corporation or any other security of the Corporation which it may issue or sell
(whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the Corporation
acquired by it after the issue thereof, or otherwise) other than such right, if
any, as the Board of Directors, in its discretion, may determine.
(4) Each director and each officer of the Corporation shall be
indemnified and advanced expenses by the Corporation to the full extent
permitted by the General Laws of the State of Maryland now or hereafter in
force, including the advance of expenses under the procedures and to the full
extent permitted by law subject to the requirements of the Investment Company
Act. The foregoing rights of indemnification shall not be exclusive of any other
rights to which those seeking indemnification may be entitled. No amendment of
these Articles of Incorporation or repeal of any provision hereof shall limit or
eliminate the benefits provided to directors and officers under this provision
in connection with any act or omission that occurred prior to such amendment or
repeal.
(5) To the fullest extent permitted by the General Laws of the State of
Maryland or decisional law, as amended or interpreted, subject to the
requirements of the Investment Company Act, no director or officer of the
Corporation shall be personally liable to the Corporation or its security
holders for money damages. No amendment of these Articles of Incorporation or
repeal of any provision hereof shall limit or eliminate the benefits provided to
directors and officers under this provision in connection with any act or
omission that occurred prior to such amendment or repeal.
(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal from time
to time any of the By-Laws of the Corporation except any particular By-Law which
is specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act.
(7) A director elected by the holders of capital stock may be removed
(with or without cause), but only by action taken by the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the shares of capital stock then
entitled to vote in an election to fill that directorship.
(8) The enumeration and definition of the particular powers of the
Board of Directors included in the Charter shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the Charter of the Corporation, or construed as or
deemed by inference or otherwise in any manner to exclude or limit any powers
conferred upon the Board of Directors under the General Laws of the State of
Maryland now or hereinafter in force.
ARTICLE VI.
DENIAL OF PREEMPTIVE RIGHTS
---------------------------
No stockholder of the Corporation shall by reason of his holding shares
of capital stock have any preemptive or preferential right to purchase or
subscribe to any shares of capital stock of the Corporation, now or hereafter to
be authorized, or any notes, debentures, bonds or other securities convertible
into shares of capital stock, now or hereafter to be authorized, whether or not
the issuance of any such shares, or notes, debentures, bonds or other securities
would adversely affect the dividend or voting rights of such stockholder; except
that the Board of Directors, in its discretion, may issue shares of any class of
the Corporation, or any notes, debentures, bonds, other securities convertible
into shares of any class, either in whole or in part, to the existing
stockholders or holders of any class, series or type of stock or other
securities at the time outstanding to the exclusion of any or all of the holders
of any or all of the classes, series or types of stock or other securities at
the time outstanding.
ARTICLE VII.
DETERMINATION BINDING
---------------------
Any determination made in good faith and consistent with applicable
law, so far as accounting matters are involved, in accordance with accepted
accounting practice by or pursuant to the direction of the Board of Directors,
as to the amount of assets, obligations or liabilities of the Corporation, as to
the amount of net income of the Corporation from dividends and interest for any
period or amounts at any time legally available for the payment of dividends, as
to the amount of any reserves or charges set up and the propriety thereof, as to
the time of or purpose for creating reserves or as to the use, alteration or
cancellation of any reserves or charges (whether or not any obligation or
liability for which such reserves or as to the use, alteration or cancellation
of any reserves or charges shall have been created, shall have been paid or
discharged or shall be then or thereafter required to be paid or discharged), as
to the price of any security owned by the Corporation or as to any other matters
relating to the issuance, sale, redemption or other acquisition or disposition
of securities or shares of capital stock of the Corporation, and any reasonable
determination made in good faith by the Board of Directors as to whether any
transaction constitutes a purchase of securities on "margin," a sale of
securities "short," or an underwriting or the sale of, or a participation in any
underwriting or selling group in connection with the public distribution of, any
securities, shall be final and conclusive, and shall be binding upon the
Corporation and all holders of its capital stock, past, present and future, and
shares of the capital stock of the Corporation are issued and sold on the
condition and understanding, evidenced by the purchase of shares of capital
stock or acceptance of share certificates, that any and all such determinations
shall be binding as aforesaid. No provision in this Charter shall be effective
to (a) require a waiver of compliance with any provision of the Securities Act
of 1933, as amended, or the Investment Company Act, or of any valid rule,
regulation or order of the Securities and Exchange Commission thereunder or (b)
protect or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
ARTICLE VIII.
PRIVATE PROPERTY OF STOCKHOLDERS
--------------------------------
The private property of stockholders shall not be subject to the
payment of corporate debts to any extent whatsoever.
ARTICLE IX.
CONVERSION TO OPEN-END COMPANY
------------------------------
Notwithstanding any other provisions of these Articles of Incorporation
or the By-Laws of the Corporation, a favorable vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital
stock of the Corporation entitled to be voted on the matter shall be required to
approve, adopt or authorize an amendment to these Articles of Incorporation of
the Corporation that makes the Common Stock a "redeemable security" (as that
term is defined in section 2(a) (32) the Investment Company Act) unless such
action has previously been approved, adopted or authorized by the affirmative
vote of at least two-thirds of the total number of directors fixed in accordance
with the By-Laws of the Corporation, in which case the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Corporation entitled to vote thereon shall be required.
ARTICLE X.
MERGER, SALE OF ASSETS, LIQUIDATION
-----------------------------------
Notwithstanding any other provisions of these Articles of Incorporation
or the By-Laws of the Corporation, a favorable vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital
stock of the Corporation entitled to be voted on the matter shall be required to
approve, adopt or authorize (i) a merger or consolidation or statutory share
exchange of the Corporation with any other corporation, (ii) a sale of all or
substantially all of the assets of the Corporation (other than in the regular
course of its investment activities), or (iii) a liquidation or dissolution of
the Corporation, unless such action has previously been approved, adopted or
authorized by the affirmative vote of at least two-thirds of the total number of
directors fixed in accordance with the By-Laws of the Corporation, in which case
the affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Corporation entitled to vote thereon shall be required.
ARTICLE XI.
PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.
ARTICLE XII.
AMENDMENT
---------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in its Charter, in any manner now or hereafter
prescribed by statute, including any amendment which alters the contract rights,
as expressly set forth in the Charter, of any outstanding stock and
substantially adversely affects the stockholders' rights, and all rights
conferred upon stockholders herein are granted subject to this reservation.
Notwithstanding any other provisions of these Articles of Incorporation or the
By-Laws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, these Articles of Incorporation or the
By-Laws of the Corporation), the amendment or repeal of Section (5) of Article
IV, Section (1), Section (4), Section (5), Section (6) and Section (7) of
Article V, Article VIII, Article IX, Article X, Article XI or this Article XII,
of these Articles of Incorporation shall require the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of capital stock of the Corporation entitled to be voted on
the matter.
IN WITNESS WHEREOF, the undersigned incorporator of SENIOR FLOATING
INCOME FUND, INC. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to be her act.
Dated this 13th day of November, 1998
/s/ Caroline Dooley
-----------------------------
CAROLINE DOOLEY
Exhibit B
BY-LAWS
OF
SENIOR FLOATING INCOME FUND, INC.
ARTICLE I.
Offices
Section 1.01. Principal Office. The principal office of the Corporation
-----------------
shall be in the City of Baltimore and State of Maryland.
Section 1.02. Principal Executive Office. The principal executive office of
-------------------------
the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Section 1.03. Other Offices. The Corporation may have such other offices in
-------------
such places as the Board of Directors from time to time may determine.
ARTICLE II.
Meetings of Stockholders
Section 2.01. Annual Meeting. Except as otherwise required by the rules of
--------------
any stock exchange on which the Corporation's shares of stock may be listed, the
Corporation shall not be required to hold an annual meeting of its stockholders
in any year in which the election of directors is not required to be acted upon
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"). In the event that the Corporation shall be required to hold an annual
meeting of stockholders to elect directors under the Investment Company Act,
such meeting shall be held no later than 120 days after the occurrence of the
event requiring the meeting. Any stockholders' meeting held in accordance with
this Section shall for all purposes constitute the annual meeting of
stockholders for the year in which the meeting is held.
In the event an annual meeting is required by the rules of a stock exchange
on which the Corporation's shares of stock are listed, the annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as may properly be brought before the meeting
shall be held on such day and month of each year as shall be designated annually
by the Board of Directors.
Section 2.02. Special Meetings. Special meetings of the stockholders,
-----------------
unless otherwise provided by law, may be called for any purpose or purposes by a
majority of the Board of Directors, the President, or on the written request of
the holders of at least 10% of the outstanding shares of capital stock of the
Corporation entitled to vote at such meeting if they comply with Section
2-502(b) or (c) of the Maryland General Corporation Law.
Section 2.03. Place of Meetings. The annual meeting and any special meeting
-----------------
of the stockholders shall be held at such place within the United States as the
Board of Directors from time to time may determine.
Section 2.04. Notice of Meetings; Waiver of Notice. Notice of the place,
-------------------------------------
date and time of the holding of each annual and special meeting of the
stockholders and the purpose or purposes of each special meeting shall be given
personally or by mail, not less than ten nor more than 90 days before the date
of such meeting, to each stockholder entitled to vote at such meeting and to
each other stockholder entitled to notice of the meeting. Notice by mail shall
be deemed to be duly given when deposited in the United States mail addressed to
the stockholder at his or her address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who, either
before or after the meeting, shall submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or unless the adjournment is for
more than 120 days after the original record date, notice of such adjourned
meeting need not be given if the time and place to which the meeting shall be
adjourned were announced at the meeting at which the adjournment is taken.
Section 2.05. Quorum. The presence in person or by proxy of the holders of
------
shares of stock entitled to cast one-third of the votes entitled to be cast
shall constitute a quorum at any meeting of stockholders, except with respect to
any matter which requires approval by a separate vote of one or more classes or
series of stock, in which case the presence in person or by proxy of the holders
of shares entitled to cast one-third of the votes entitled to be cast by each
class or series entitled to vote as a separate class or series shall constitute
a quorum. In the absence of a quorum no business may be transacted, except that
the holders of a majority of the shares of stock present in person or by proxy
and entitled to vote may adjourn the meeting from time to time, without notice
other than announcement thereat except as otherwise required by these By-Laws,
until the holders of the requisite amount of shares of stock shall be so
present. At any such adjourned meeting at which a quorum may be present any
business may be transacted which might have been transacted at the meeting as
originally called. The absence from any meeting, in person or by proxy, of
holders of the number of shares of stock of the Corporation in excess of a
majority thereof which may be required by the laws of the State of Maryland, the
Investment Company Act, or other applicable statute, the Charter, or these
By-Laws, for action upon any given matter shall not prevent action at such
meeting upon any other matter or matters which properly may come before the
meeting, if there shall be present thereat, in person or by proxy, holders of
the number of shares of stock of the Corporation required for action in respect
of such other matter or matters.
Section 2.06. Organization. At each meeting of the stockholders, the
------------
Chairman of the Board (if one has been designated by the Board), or in his or
her absence or inability to act, the President, or in the absence or inability
to act of the Chairman of the Board and the President, a Vice President, shall
act as chairman of the meeting. The Secretary, or in his or her absence or
inability to act, any person appointed by the chairman of the meeting, shall act
as secretary of the meeting and keep the minutes thereof.
Section 2.07. Order of Business. The order of business at all meetings of
-----------------
the stockholders shall be as determined by the chairman of the meeting.
Section 2.08. Voting. Except as otherwise provided by statute or the
------
Charter, each holder of record of shares of stock of the Corporation having
voting power shall be entitled at each meeting of the stockholders to one vote
for every share of such stock standing in his or her name on the record of
stockholders of the Corporation as of the record date determined pursuant to
Section 9 of this Article or, if such record date shall not have been so fixed,
then at the later of (i) the close of business on the day on which notice of the
meeting is mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her by a proxy signed by
such stockholder or his or her attorney-in-fact. No proxy shall be valid after
the expiration of eleven months from the date thereof, unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Charter or these By-Laws, any corporate
action to be taken by vote of the stockholders (other than the election of
directors, which shall be by a plurality of votes cast) shall be authorized by a
majority of the total votes cast at a meeting of stockholders by the holders of
shares present in person or represented by proxy and entitled to vote on such
action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his or her proxy, if there be such
proxy, and shall state the number of shares voted.
Section 2.09. Fixing of Record Date. The Board of Directors may set a
----------------------
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date, which may not be prior to the
close of business on the day the record date is fixed, shall be not more than 90
nor less than ten days before the date of the meeting of the stockholders. All
persons who were holders of record of shares at such time, and not others, shall
be entitled to vote at such meeting and any adjournment thereof.
Section 2.10. Inspectors. The Board, in advance of any meeting of
----------
stockholders, may appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of his or her
ability. The inspectors shall determine the number of shares outstanding and the
voting powers of each, the number of shares represented at the meeting, the
existence of a quorum, and the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as inspector of an
election of directors. Inspectors need not be stockholders.
Section 2.11. Consent of Stockholders in Lieu of Meeting. Except as
-----------------------------------------------
otherwise provided by statute or the Charter, any action required to be taken at
any annual or special meeting of stockholders, or any action which may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following are filed
with the records of stockholders' meetings: (i) a unanimous written consent
which sets forth the action and is signed by each stockholder entitled to vote
on the matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.
ARTICLE III.
Board of Directors
Section 3.01. General Powers. Except as otherwise provided in the Charter,
--------------
the business and affairs of the Corporation shall be managed under the direction
of the Board of Directors. All powers of the Corporation may be exercised by or
under authority of the Board of Directors except as conferred on or reserved to
the stockholders by law or by the Charter or these By-Laws.
Section 3.02. Number of Directors. The number of directors shall be fixed
-------------------
from time to time by resolution of the Board of Directors adopted by a majority
of the entire Board of Directors then in office; provided, however, that in no
event shall the number of directors be less than the minimum permitted by the
General Law of the State of Maryland nor more than 15. Any vacancy created by an
increase in the number of directors may be filled in accordance with Section 6
of this Article III. No reduction in the number of directors shall have the
effect of removing any director from office prior to the expiration of his or
her term unless such director specifically is removed pursuant to Section 5 of
this Article III at the time of such decrease. Directors need not be
stockholders. As long as any preferred stock of the Corporation is outstanding,
the number of directors shall be not less than five.
Section 3.03. Election and Term of Directors. Directors shall be elected
------------------------------
annually at a meeting of stockholders held for that purpose; provided, however,
that if no meeting of the stockholders of the Corporation is required to be held
in a particular year pursuant to Section 1 of Article II of these By-Laws,
directors shall be elected at the next meeting held. The term of office of each
director shall be from the time of his election and qualification until the
election of directors next succeeding his election and until his successor shall
have been elected and shall have qualified, or until his death, or until he
shall have resigned or until December 31 of the year in which he shall have
reached seventy-two years of age, or until he shall have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or by
the Charter.
Section 3.04. Resignation. A director of the Corporation may resign at any
-----------
time by giving written notice of his or her resignation to the Board or the
Chairman of the Board or the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3.05. Removal of Directors. Any director of the Corporation may be
--------------------
removed (with or without cause) by the stockholders by a vote of sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares of capital stock then
entitled to vote in the election of such director.
Section 3.06. Vacancies. Subject to the provisions of the Investment
---------
Company Act, any vacancies in the Board of Directors, whether arising from
death, resignation, removal, an increase in the number of directors or any other
cause, shall be filled by a vote of a majority of the Board of Directors then in
office, regardless of whether they constitute a quorum.
Section 3.07. Place of Meetings. Meetings of the Board may be held at such
-----------------
place as the Board from time to time may determine or as shall be specified in
the notice of such meeting.
Section 3.08. Regular Meeting. Regular meetings of the Board may be held
----------------
without notice at such time and place as may be determined by the Board of
Directors.
Section 3.09. Special Meetings. Special meetings of the Board may be called
----------------
by two or more directors of the Corporation or by the Chairman of the Board or
the President.
Section 3.10. Telephone Meetings. Members of the Board of Directors or of
------------------
any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act, participation in a meeting by these means
constitutes presence in person at the meeting.
Section 3.11. Notice of Special Meetings. Notice of each special meeting of
--------------------------
the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least 24 hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid,
addressed to him or her at his or her residence or usual place of business, at
least three days before the day on which such meeting is to be held.
Section 3.12. Waiver of Notice of Meetings. Notice of any special meeting
----------------------------
need not be given to any director who, either before or after the meeting, shall
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver of notice of any meeting need not state the
purposes of such meeting.
Section 3.13. Quorum and Voting. One-third, but not less than two (unless
-----------------
there is only one director) of the members of the entire Board shall be present
in person at any meeting of the Board in order to constitute a quorum for the
transaction of business at such meeting, and except as otherwise expressly
required by statute, the Charter, these By-Laws, the Investment Company Act, or
other applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and place until a
quorum shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 3.14. Organization. The Board, by resolution adopted by a majority
------------
of the entire Board, may designate a Chairman of the Board, who shall preside at
each meeting of the Board. In the absence or inability of the Chairman of the
Board to preside at a meeting, the President or, in his or her absence or
inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his or her absence or inability to act, any person appointed by the
Chairman) shall act as secretary of the meeting and keep the minutes thereof.
Section 3.15. Written Consent of Directors in Lieu of a Meeting. Subject to
-------------------------------------------------
the provisions of the Investment Company Act, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or the committee, as
the case may be, consent thereto in writing, and the writings or writing are
filed with the minutes of the proceedings of the Board or the committee.
Section 3.16. Compensation. Directors may receive compensation for services
------------
to the Corporation in their capacities as directors or otherwise in such manner
and in such amounts as may be fixed from time to time by the Board.
Section 3.17. Investment Policies. It shall be the duty of the Board of
--------------------
Directors to direct that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation at all times
are consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
Prospectus of the Corporation included in the registration statement of the
Corporation relating to the initial public offering of its capital stock, as
filed with the Securities and Exchange Commission (or as such investment
policies and restrictions may be modified by the Board of Directors, or, if
required, by a majority vote of the stockholders of the Corporation in
accordance with the Investment Company Act) and as required by the Investment
Company Act. The Board, however, may delegate the duty of management of the
assets and the administration of its day to day operations to an individual or
corporate management company and/or investment adviser pursuant to a written
contract or contracts which have obtained the requisite approvals, including the
requisite approvals of renewals thereof, of the Board of Directors and/or the
stockholders of the Corporation in accordance with the provisions of the
Investment Company Act.
ARTICLE IV.
Committees
Section 4.01. Executive Committee. The Board, by resolution adopted by a
--------------------
majority of the entire board, may designate an Executive Committee consisting of
two or more of the directors of the Corporation, which committee shall have and
may exercise all of the powers and authority of the Board with respect to all
matters other than:
(i) the submission to stockholders of any action requiring authorization of
stockholders pursuant to statute or the Charter;
(ii) the filling of vacancies on the Board of Directors;
(iii) the fixing of compensation of the directors for serving on the Board
or on any committee of the Board, including the Executive Committee;
(iv) the approval or termination of any contract with an investment adviser
or principal underwriter, as such terms are defined in the Investment
Company Act, or the taking of any other action required to be taken by the
Board of Directors by the Investment Company Act;
(v) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
(vi) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(vii) the declaration of dividends and, except to the extent permitted by
law, the issuance of capital stock of the Corporation; and
(viii) the approval of any merger or share exchange which does not require
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 4.02. Other Committees of the Board. The Board of Directors from
------------------------------
time to time, by resolution adopted by a majority of the whole Board, may
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors, by resolution, may prescribe.
Section 4.03. General. One-third, but not less than two, of the members of
-------
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The Board
may designate a chairman of any committee and such chairman or any two members
of any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority or
power of the Board in the management of the business or affairs of the
Corporation except as may be prescribed by the Board.
ARTICLE V.
Officers, Agents and Employees
Section 5.01. Number of Qualifications. The officers of the Corporation
-------------------------
shall be a President, who shall be a director of the Corporation, a Secretary
and a Treasurer, each of whom shall be elected by the Board of Directors. The
Board of Directors may elect or appoint one or more Vice Presidents and also may
appoint such other officers, agents and employees as it may deem necessary or
proper. Any two or more offices may be held by the same person, except the
offices of President and Vice President, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. Such officers
shall be elected by the Board of Directors each year at its first meeting held
after the annual meeting of stockholders, each to hold office until the next
meeting of the stockholders and until his or her successor shall have been duly
elected and shall have qualified, or until his or her death, or until he or she
shall have resigned, or have been removed, as hereinafter provided in these
By-Laws. The Board from time to time may elect such officers (including one or
more Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. The President also shall have the power to appoint
such assistant officers (including one or more Assistant Vice Presidents, one or
more Assistant Treasurers and one or more Assistant Secretaries) as may be
necessary or appropriate to facilitate the management of the Corporation's
affairs. Such officers and agents shall have such duties and shall hold their
offices for such terms as may be prescribed by the Board or by the appointing
authority.
Section 5.02. Resignations. Any officer of the Corporation may resign at
------------
any time by giving written notice of resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall be
necessary to make it effective.
Section 5.03. Removal of Officer, Agent or Employee. Any officer, agent or
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employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 5.04. Vacancies. A vacancy in any office, whether arising from
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death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5.05. Compensation. The compensation of the officers of the
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Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her control.
Section 5.06. Bonds or Other Security. If required by the Board, any
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officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his or her duties, in such amount and
with such surety or sureties as the Board may require.
Section 5.07. President. The President shall be the chief executive officer
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of the Corporation. In the absence of the Chairman of the Board (or if there be
none), the President shall preside at all meetings of the stockholders and of
the Board of Directors. He or she shall have, subject to the control of the
Board of Directors, general charge of the business and affairs of the
Corporation. He or she may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he or she may
delegate these powers.
Section 5.08. Vice President. Each Vice President shall have such powers
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and perform such duties as the Board of Directors or the President from time to
time may prescribe.
Section 5.09. Treasurer. The Treasurer shall:
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(i) have charge and custody of, and be responsible for, all of the funds
and securities of the Corporation, except those which the Corporation has
placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act
of 1934, as amended) pursuant to a written agreement designating such bank
or trust company or member of a national securities exchange as custodian
of the property of the Corporation;
(ii) keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation;
(iii) cause all moneys and other valuables to be deposited to the credit of
the Corporation;
(iv) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(v) disburse the funds of the Corporation and supervise the investment of
its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(vi) in general, perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
or her by the Board or the President.
Section 5.10. Secretary. The Secretary shall:
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(i) keep or cause to be kept in one or more books provided for the purpose,
the minutes of all meetings of the Board, the committees of the Board and
the stockholders;
(ii) see that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law;
(iii) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents
to be executed on behalf of the Corporation under its seal;
(iv) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(v) in general, perform all of the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
or her by the Board or the President.
Section 5.11. Delegation of Duties. In case of the absence of any officer
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of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI.
Indemnification
Section 6.01. General Indemnification. Each officer and director of the
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Corporation shall be indemnified by the Corporation to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Corporation or
any stockholder thereof to which such person otherwise would be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office. Absent a court
determination that an officer or director seeking indemnification was not liable
on the merits or guilty of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office,
the decision by the Corporation to indemnify such person must be based upon the
reasonable determination of independent legal counsel or the vote of a majority
of a quorum of the directors who are neither "interested persons," as defined in
Section 2(a)(19) of the Investment Company Act, nor parties to the proceeding
("non-party independent directors"), after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him or her in
connection with proceedings to which he or she is a party in the manner and to
the full extent permitted under the General Laws of the State of Maryland;
provided, however, that the person seeking indemnification shall provide to the
Corporation a written affirmation of his or her good faith belief that the
standard of conduct necessary for indemnification by the Corporation has been
met and a written undertaking to repay any such advance, if it ultimately should
be determined that the standard of conduct has not been met, and provided
further that at least one of the following additional conditions is met:
(i) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his or her undertaking;
(ii) the Corporation is insured against losses arising by reason of the
advance; or
(iii) a majority of a quorum of non-party independent directors, or
independent legal counsel in a written opinion shall determine, based on a
review of facts readily available to the Corporation at the time the
advance is proposed to be made, that there is reason to believe that the
person seeking indemnification will ultimately be found to be entitled to
indemnification.
The Corporation may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland, from liability arising from his or her activities as an
officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director otherwise would be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.
The Corporation may indemnify, make advances or purchase insurance to the
extent provided in this Article VI on behalf of an employee or agent who is not
an officer or director of the Corporation.
Section 6.02. Other Rights. The indemnification provided by this Article VI
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shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of stockholders or disinterested
directors or otherwise, both as to action by a director or officer of the
Corporation in his or her official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such person.
ARTICLE VII.
Capital Stock
Section 7.01. Stock Certificates. Each holder of stock of the Corporation
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shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him or her, provided, however, that
certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by or in the name of
the Corporation by the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the seal on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate shall be issued, it may be issued by the Corporation with the same
effect as if such officer, transfer agent or registrar were still in office at
the date of issue.
Section 7.02. Books of Account and Record of Stockholders. There shall be
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kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation.
Section 7.03. Transfers of Shares. Transfers of shares of stock of the
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Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
Section 7.04. Regulations. The Board may make such additional rules and
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regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 7.05. Lost, Destroyed or Mutilated Certificates. The holder of any
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certificates representing shares of stock of the Corporation immediately shall
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board, in its discretion, may require such owner or his or her legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 7.06. Fixing of a Record Date for Dividends and Distributions. The
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Board may fix, in advance, a date not more than 90 days preceding the date fixed
for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
Section 7.07. Information to Stockholders and Others. Any stockholder of
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the Corporation or his or her agent may inspect and copy during usual business
hours the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.
ARTICLE VIII.
Seal
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors, the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Maryland". Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or in any other manner reproduced.
ARTICLE IX.
Fiscal Year
The Board of Directors shall have the power from time to time to fix the
fiscal year of the corporation by a duly adopted resolution.
ARTICLE X.
Depositories and Custodians
Section 10.01. Depositories. The funds of the Corporation shall be
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deposited with such banks or other depositories as the Board of Directors of the
Corporation from time to time may determine.
Section 10.02. Custodians. All securities and other investments shall be
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deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation from time to time may determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act, and the general rules and regulations
thereunder.
ARTICLE XI.
Execution of Instruments
Section 11.01. Checks, Notes, Drafts, etc. Checks, notes, drafts,
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acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution from time to time shall designate.
Section 11.02. Sale or Transfer of Securities. Stock certificates, bonds or
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other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President or a Vice President or the Treasurer or pursuant
to any procedure approved by the Board of Directors, subject to applicable law.
ARTICLE XII.
Independent Public Accountants
The firm of independent public accountants which shall sign or certify the
financial statements of the Corporation which are filed with the Securities and
Exchange Commission shall be selected annually by the Board of Directors and
ratified by the stockholders in accordance with the provisions of the Investment
Company Act.
ARTICLE XIII.
Annual Statement
The books of account of the Corporation shall be examined by an independent
firm of public accountants at the close of each annual period of the Corporation
and at such other times as may be directed by the Board. A report to the
stockholders based upon each such examination shall be mailed to each
stockholder of record of the Corporation on such date with respect to each
report as may be determined by the Board, at his or her address as the same
appears on the books of the Corporation. Such annual statement also shall be
available at the annual meeting of stockholders and shall be placed on file at
the Corporation's principal office in the State of Maryland, and if no annual
meeting is held pursuant to Article II, Section 1, such annual statement of
affairs shall be placed on file as the Corporation's principal office within 120
days after the end of the Corporation's fiscal year. Each such report shall show
the assets and liabilities of the Corporation as of the close of the period
covered by the report and the securities in which the funds of the Corporation
then were invested. Such report also shall show the Corporation's income and
expenses for the period from the end of the Corporation's preceding fiscal year
to the close of the period covered by the report and any other information
required by the Investment Company Act, and shall set forth such other matters
as the Board or such firm of independent public accountants shall determine.
ARTICLE XIV.
Amendments
These By-Laws or any of them may be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors. The stockholders shall
have no power to make, amend, alter or repeal By-Laws.
