<PAGE>
As filed with the Securities and Exchange Commission on October 26, 1999
================================================================================
1933 Act File No. 333-86619
1940 Act File No. 811-09571
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-2
(Check appropriate box or boxes)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 3
[_] Post-Effective Amendment No. __________
and
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 3
Nuveen Senior Income Fund
Exact Name of Registrant as Specified in Declaration of Trust
333 West Wacker Drive, Chicago, Illinois 60606
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(312) 917-7700
Registrant's Telephone Number, including Area Code
Gifford R. Zimmerman
Vice President and Secretary
333 West Wacker Drive
Chicago, Illinois 60606
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
Copies of Communications to:
Janet D. Olsen Thomas A. Hale Eric F. Fess
Bell, Boyd & Lloyd Skadden, Arps, Slate, Chapman & Cutler
70 W. Madison St. Meagher & Flom (Illinois) 111 W. Monroe
Chicago, IL 60602 333 W. Wacker Drive Chicago, Illinois 60603
Chicago, IL 60606
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 offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [_]
It is proposed that this filing will become effective (check appropriate
box)
[X] when declared effective pursuant to section 8(c)
_____________________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
===============================================================================================================================
Proposed Maximum
Title of Securities Being Amount Proposed Maximum Offering Aggregate Offering Amount of
Registered Being Registered Price Per Unit Price (1) Registration Fee (2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, $.01 par value 32,000,000 Shares $10.00 $320,000,000 $88,960
===============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $16,680 of which has been previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
NUVEEN SENIOR INCOME FUND
________________
CROSS REFERENCE SHEET
Part A - Prospectus
<TABLE>
<CAPTION>
Items in Part A of Form N-2 Location in Prospectus
--------------------------- ----------------------
<S> <C> <C>
Item 1. Outside Front Cover Cover Page
Item 2. Cover Pages; Other Offering Information Cover Page
Item 3. Fee Table and Synopsis Prospectus Summary; Summary of Fund Expenses
Item 4. Financial Highlights Not Applicable
Item 5. Plan of Distribution Cover Page; Prospectus Summary; Underwriting
Item 6. Selling Shareholders Not Applicable
Item 7. Use of Proceeds Use of Proceeds; The Fund's Investments
Item 8. General Description of the Registrant The Fund; The Fund's Investments; Risks; Description of Shares;
Certain Provisions in the Declaration of Trust
Item 9. Management Management of the Fund; Custodian and Transfer Agent
Item 10. Capital Stock, Long-Term Debt, and Other
Securities Description of Capital Structure; Distributions; Dividend
Reinvestment Plan; Certain Provisions in the Declaration of
Trust; Tax Matters
Item 11. Defaults and Arrears on Senior Securities Not Applicable
Item 12. Legal Proceedings Other Matters
Item 13. Table of Contents of the Statement of
Additional Information Table of Contents for the Statement of
Additional Information
</TABLE>
<PAGE>
Part B - Statement of Additional Information
<TABLE>
<CAPTION>
Location in Statement of
Items in Part B of Form N-2 Additional Information
--------------------------- ----------------------
<S> <C> <C>
Item 14. Cover Page Cover Page
Item 15. Table of Contents Cover Page
Item 16. General Information and History Not Applicable
Item 17. Investment Objective and Policies The Fund's Investments; Additional Information About the
Fund's Investments; Portfolio Transactions
Item 18. Management Management of the Fund; Portfolio Transactions
Item 19. Control Persons and Principal Holders of
Securities Management of the Fund; Investment Adviser; Statement of
Net Assets
Item 20. Investment Advisory and Other Services Management of the Fund; Investment Adviser; Custodian and
Transfer Agent; Experts
Item 21. Brokerage Allocation and Other Practices Portfolio Transactions
Item 22. Tax Status Tax Matters; Distributions
Item 23. Financial Statements Report of Independent Auditors; Statement of Net Assets
</TABLE>
Part C - Other Information
Items 24-33 have been answered in Part C of this Registration Statement.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this Prospectus is not complete and may be changed. These +
+securities may not be sold until the registration statement filed with the +
+Securities and Exchange Commission is effective. This Prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, October 26, 1999
[LOGO OF NUVEEN]
Shares
Nuveen Senior Income Fund
-----------
Investment Objective. Nuveen Senior Income Fund, referred to throughout this
Prospectus as the "Fund," is a non-diversified, closed-end management
investment company. The Fund's investment objective is to seek a high level of
current income, consistent with preservation of capital.
(continued on following page)
-----------
An investment in the Fund involves certain risks. See "Risks" beginning on
page 21.
This Prospectus sets forth concisely important information about the Fund
that you should know before deciding whether to invest. You should read the
Prospectus and retain it for future reference. A Statement of Additional
Information dated , 1999, containing additional information about the
Fund, has been filed with the Securities and Exchange Commission and is hereby
incorporated by reference in its entirety into this Prospectus. You can review
the table of contents of the Statement of Additional Information on page 41 of
this Prospectus. You may request a free copy of the Statement of Additional
Information by calling (800) 257-8787. You may also obtain the Statement of
Additional Information on the Securities and Exchange Commission's web site
(http://www.sec.gov).
<TABLE>
<CAPTION>
Price
to Proceeds to
Public Sales Load Fund
------ ---------- -----------
<S> <C> <C> <C>
Per Share........................................ $10.00 $ $
Total............................................ $ $ $
Total Assuming Full Exercise of Over-Allotment
Option.......................................... $ $ $
</TABLE>
The underwriters named in this prospectus may purchase up to
additional common shares from the Fund in certain circumstances.
John Nuveen & Co. Incorporated has agreed to pay (i) all organizational
expenses and (ii) offering costs (other than the sales load) that exceed $.01
per common share.
The underwriters are offering the common shares subject to various
conditions. The underwriters expect to deliver the common shares to purchasers
on or about , 1999.
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.
-----------
PaineWebber Incorporated John Nuveen & Co.
Incorporated
Deutsche Banc Alex. Brown
A.G. Edwards & Sons, Inc.
Prudential Securities
First Union Securities, Inc.
Janney Montgomery Scott LLC
Legg Mason Wood Walker
Incorporated
-----------
The date of this Prospectus is , 1999
<PAGE>
(continued from previous page)
Portfolio Investments. The Fund seeks to achieve its objective primarily by
investing in senior secured loans whose interest rates float or adjust
periodically based on a benchmark interest rate. Senior loans hold the most
senior position in the capital structure of the borrower, are usually secured
with specific collateral, and have a claim on the assets of the borrower that
comes before other lenders to and holders of securities of the borrower, such
as holders of subordinated debt, preferred stock or common stock. However,
senior loans typically are below investment grade quality and have speculative
characteristics.
An investment in the Fund may not be appropriate for all investors and the
Fund cannot assure you that it will achieve its investment objective.
No Operating History. Because the Fund is newly organized, its common shares
have no history of public trading. Shares of closed-end management investment
companies frequently trade at a discount from their net asset value. This risk
may be greater for investors expecting to sell their shares in a relatively
short period after completion of the public offering. The common shares have
been approved for listing on the New York Stock Exchange, subject to notice of
issuance. The trading or "ticker" symbol of the common shares is expected to be
"NSL."
----------------
The Fund's shares do not represent a deposit or obligation of, and are not
guaranteed or endorsed by, any bank or other insured depository institution,
and are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other government agency.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................ 1
Fund Expenses..................... 10
The Fund.......................... 11
Use of Proceeds................... 11
The Fund's Investments............ 11
Risks............................. 21
Management of the Fund............ 27
Net Asset Value................... 29
Distributions..................... 30
Dividend Reinvestment Plan........ 30
Description of Capital Structure.. 31
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Provisions in the
Declaration of Trust............... 35
Repurchase of Fund Shares;
Conversion to Open-End Fund........ 36
Tax Matters......................... 36
Other Matters....................... 38
Underwriting........................ 39
Custodian and Transfer Agent........ 42
Legal Opinions...................... 42
Table of Contents for the Statement
of Additional Information.......... 43
</TABLE>
You should rely only on the information contained in this Prospectus.
Neither the Fund nor the Underwriters have 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. Neither the Fund nor
the Underwriters are 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 only.
<PAGE>
PROSPECTUS SUMMARY
This is only a summary. You should review the more detailed information
contained in the Prospectus and in the Statement of Additional Information.
The Fund................ Nuveen Senior Income Fund (the "Fund") is a newly
organized, non-diversified, closed-end management
investment company organized as a Massachusetts
business trust.
The Offering............ The Fund is offering common shares of
beneficial interest at $10.00 per share through a
group of underwriters (the "Underwriters") led by
PaineWebber Incorporated, John Nuveen & Co.
Incorporated, Deutsche Bank Securities Inc., A.G.
Edwards & Sons, Inc., Prudential Securities, First
Union Securities, Inc., Janney Montgomery Scott LLC
and Legg Mason Wood Walker Incorporated. The common
shares of beneficial interest are called "Common
Shares" throughout the rest of this Prospectus. To
participate in this offering you must purchase at
least 100 Common Shares ($1,000 worth). The Fund has
given the Underwriters an option to purchase up to
additional Common Shares. See
"Underwriting."
Investment Objective
and Policies ..........
The Fund's investment objective is to seek a high
level of current income, consistent with preservation
of capital. There can be no assurance that the Fund
will achieve its investment objective.
The Fund seeks to achieve its objective primarily by
investing in senior secured loans whose interest
rates adjust periodically based on a benchmark, such
as the prime rate offered by one or more major United
States banks, or the London Inter-Bank Offered Rate
(known as "LIBOR").
Under normal circumstances, the Fund will invest at
least 80% of its total assets in adjustable rate,
U.S. dollar-denominated senior loans ("Senior Loans")
that are secured. Senior Loans are made to
corporations, partnerships, limited liability
companies and other entities ("Borrowers") to finance
leveraged buyouts, recapitalizations, mergers,
acquisitions, stock repurchases, debt refinancings
and, to a lesser extent, for general operating and
other purposes. See "The Fund's Investments."
The Fund seeks to increase the income available for
distribution to holders of Common Shares by utilizing
financial leverage through borrowing, issuing
commercial paper or notes and/or offering preferred
shares of beneficial interest ("Preferred Shares")
(each a "Leverage Instrument" and collectively, the
"Leverage Instruments"). Financial leverage of this
nature presents risks to holders of Common Shares, as
described later under "Financial Leverage" and
"Risks."
Although Senior Loans have the most senior position
in a Borrower's capital structure and the Fund
normally will invest at least 80% of its total assets
in Senior Loans that are secured by specific
collateral, Senior
1
<PAGE>
Loans are typically below investment grade quality
and may have below investment grade ratings; these
ratings are associated with securities having
speculative characteristics. Because of the features
of Senior Loans, the Fund's investment adviser
believes, based on its experience, that these ratings
do not necessarily reflect the true risk of loss of
principal or interest on a Senior Loan. For example,
the Fund's investment adviser believes that Senior
Loans tend to have more favorable loss recovery rates
as compared to other types of below investment grade
quality debt obligations. Accordingly, the Fund's
investment adviser generally does not take ratings
into account when determining whether to invest in a
Senior Loan and, in any event, does not view ratings
as a determinative factor in its investment
decisions. Investing in Senior Loans does, however,
involve investment risk, and some Borrowers default
on their Senior Loan payments. The Fund attempts to
manage these risks through portfolio diversification
and ongoing analysis and monitoring of Borrowers. As
a result, the Fund is highly dependent on the credit
analysis abilities of the Fund's investment adviser.
The Fund may invest up to 20% of its total assets in
U.S. dollar-denominated Senior Loans of Borrowers
that are organized or located in countries outside
the United States.
In addition, the Fund may invest up to 20% of its
total assets, in the aggregate, in:
. Senior Loans which are not secured by
any collateral;
. other income producing securities such
as investment and non-investment grade
corporate debt securities, high
quality, short-term debt securities
with remaining maturities of one year
or less and U.S. government securities
(subject to the limit that the Fund may
not invest more than 5% of its total
assets in junior debt securities or
fixed rate income securities with
effective maturities greater than one
year, provided that the 5% limitation
does not apply to securities acquired
in connection with the Fund's
investments in Senior Loans); and
. equity securities and warrants acquired
in connection with the Fund's
investments in Senior Loans.
The Fund may also engage in lending of its
securities, repurchase agreements, reverse repurchase
agreements and, for hedging and risk management
purposes, certain derivative transactions. See
"Risks."
Listing................. The Common Shares have been approved for listing on
the New York Stock Exchange subject to notice of
issuance. The trading or "ticker" symbol of the
Common Shares is expected to be "NSL."
Financial Leverage...... The Fund seeks to increase the income available for
distribution to holders of the Common Shares by
utilizing Leverage Instruments. The Fund currently
anticipates that Leverage Instruments
2
<PAGE>
will represent approximately 40% (and in no event
will exceed 50%) of the Fund's total assets
(including the proceeds of such Leverage
Instruments). The timing and terms of transactions
relating to Leverage Instruments will be determined
by the Fund's Board of Trustees. See "The Fund's
Investments." The Fund's use of Leverage Instruments
may increase the volatility of the net asset value or
the market price of, and the distributions paid on,
the Common Shares. However, because leverage achieved
through use of Leverage Instruments is expected to be
based on floating rates of interest or dividends that
fluctuate similarly to the floating rate on Senior
Loans in the Fund's portfolio, the Fund's investment
adviser believes that the risk of this volatility
resulting from changes in market interest rates will
be mitigated.
Investment Adviser ..... Nuveen Senior Loan Asset Management Inc. (the
"Adviser") will be the Fund's investment adviser. The
Adviser is a newly-formed, wholly-owned subsidiary of
The John Nuveen Company. The Adviser will receive an
annual fee, payable monthly, in a maximum amount
equal to .85% of the Fund's average daily managed
assets (including assets acquired through the use of
Leverage Instruments (1.42% of net assets
attributable to Common Shares, assuming 40%
leverage)), with lower fee levels for average daily
managed assets that exceed $1 billion. The Adviser
has agreed to reimburse the Fund for fees and
expenses in an amount of .45% of average daily
managed assets of the Fund for the first five years
of the Fund's operations (through October 31, 2004)
(.75% of net assets attributable to Common Shares,
assuming 40% leverage), and for a declining amount
for an additional five years (through October 31,
2009). See "Management of the Fund."
Distributions........... Commencing with the Fund's first Common Share
dividend, the Fund intends to make monthly cash
distributions to you based on the actual and
projected earnings of the Fund. Because the Senior
Loans in which the Fund will invest have interest
rates that adjust periodically with movements in
market rates of interest, the Fund's income, and
therefore its monthly distributions, should be
expected to increase when market interest rates
increase and to decline as market interest rates
fall. Over time, the Fund will distribute to holders
of Common Shares all of its net investment income
(after it pays interest on commercial paper or notes
issued by the Fund and accrued dividends on any
outstanding Preferred Shares). In addition, at least
annually, the Fund intends to distribute net realized
capital gains, if any, to you. The Fund expects to
declare its first distribution to investors in
approximately 30 days, and pay such distribution in
approximately 60 days, from the completion of the
Common Share offering, depending on market
conditions.
Dividend Reinvestment
Plan................... You may elect to have all dividend and capital gain
distributions on your Common Shares automatically
reinvested in additional Common Shares. See
"Distributions" and "Dividend Reinvestment Plan."
Closed-End Fund
Structure.............. Closed-end funds differ from open-end investment
companies (commonly referred to as mutual funds) in
that closed-end funds generally list their shares for
trading on a securities exchange and do not
3
<PAGE>
redeem their shares at the option of the shareholder.
By comparison, mutual funds issue securities
redeemable on a daily basis at a price based on its
net asset value at the option of the shareholder and
typically engage in a continuous offering of their
shares. Mutual funds are subject to continuous asset
in-flows and out-flows that can complicate portfolio
management, whereas closed-end funds generally can
stay more fully invested in securities consistent
with the closed-end fund's investment objective and
policies. In addition, in comparison to open-end
funds, closed-end funds have greater flexibility in
the use of Leverage Instruments and in the ability to
make certain types of investments, including
investments in illiquid securities such as Senior
Loans.
However, shares of closed-end funds frequently trade
at a discount from their net asset value. See
"Risks--Closed-End Funds." In recognition of the
possibility that the Common Shares might trade at a
discount to net asset value and that any such
discount may not be in the interest of holders of
Common Shares, the Fund's Board of Trustees, in
consultation with the Adviser, from time to time may
review possible actions to reduce any such discount.
The Board may consider open market repurchases or
tender offers for Common Shares at net asset value.
There can be no assurance that the Board will decide
to undertake any of these actions or that, if
undertaken, such actions would result in the Common
Shares trading at a price equal to or close to net
asset value per Common Share. The Board may also
consider the conversion of the Fund to an open-end
investment company. The Board of Trustees believes,
however, that the closed-end fund structure is
desirable, given the Fund's investment objective and
policies and the generally illiquid nature of the
Senior Loans. Investors should assume, therefore,
that it is highly unlikely that the Board would vote
to convert the Fund to an open-end investment
company. See "Description of Capital Structure."
Risks................... No Operating History. The Fund is a newly organized
closed-end management investment company with no
history of operations. It is designed for long-term
investors and not as a trading vehicle.
Borrower Credit Risk. Investment in the Fund involves
the risk that Borrowers under Senior Loans may
default on their obligations to pay principal or
interest when due. This non-payment would result in a
reduction of income to the Fund, a reduction in the
value of the Senior Loan experiencing non-payment and
a decrease in the net asset value of the Fund. Many
Senior Loans are unrated at the time of investment,
and most Borrowers with rated debt obligations,
including Senior Loans, have ratings below investment
grade credit quality. Companies of lower credit
quality present greater risk of default on interest
and principal payments. Although Senior Loans in
which the Fund invests may be secured by specific
collateral, there can be no assurance that
liquidation of such collateral would satisfy the
Borrower's obligation in the event of non-payment of
scheduled interest or principal or that such
collateral could be readily liquidated. In the event
of bankruptcy of a Borrower, the Fund could
experience delays or limitations with respect to its
ability to realize the benefits of any collateral
securing a Senior Loan. See "The Fund's Investments."
4
<PAGE>
Senior Loans. Senior Loans in which the Fund will
invest may not be rated by a nationally recognized
statistical rating organization at the time of the
Fund's investment, generally will not be registered
with the Securities and Exchange Commission or any
state securities commission and generally will not be
listed on any securities exchange. The Fund will
generally have access to financial and other
information made available to the commercial banks or
other financial institutions ("Lenders") in
connection with Senior Loans. However, the amount of
public information available with respect to Senior
Loans generally will be less extensive than that
available for more widely rated, registered and
exchange-listed securities. As a result, the
performance of the Fund and its ability to meet its
investment objective is more dependent on the
analytical abilities of the Adviser than would be the
case for an investment company that invests primarily
in more widely rated, registered or exchange-listed
securities. See "The Fund's Investments."
High-Yield/High Risk Securities. The Fund may invest
up to 100% of its assets in Senior Loans and other
securities that are rated below investment grade or
that are unrated but determined by the Adviser to be
below investment grade quality. Securities that are
below investment grade quality are commonly referred
to as "junk bonds." The purchase of such securities
exposes the Fund to financial, market and interest-
rate risks and greater credit risks than the purchase
of higher quality securities, particularly in
response to economic downturns. Such investments are
also likely to result in increased fluctuation in the
Fund's net asset value.
Credit Risks Associated with Investments in
Participations. The Fund may acquire from a Lender a
portion of the Lender's rights under a loan
agreement. This is commonly referred to as purchasing
a "Participation" in a Senior Loan. After the period
of initial investment, the Fund does not currently
intend to invest more than 20% of its total assets in
Participations. Under a Participation, the Fund
generally will have rights that are more limited than
the rights of Lenders or of persons who acquire a
Senior Loan by Assignment (as defined below). In a
Participation, the Fund typically has a contractual
relationship with the Lender selling the
Participation, but not with the Borrower. If the
Lender selling the Participation becomes insolvent,
the Fund may be treated as a general creditor of such
Lender, and may not have any exclusive or senior
claim with respect to such Lender's interest in, or
the collateral with respect to, the Senior Loan. As a
result, the Fund assumes the credit risk of the
Lender selling the Participation in addition to the
credit risk of the Borrower. The Fund may pay a fee
or forgo a portion of interest payments when
acquiring Participations or purchase assignments or
novations ("Assignments"). A Lender selling a
Participation and other persons interpositioned
between the Lender and the Fund with respect to a
Participation will likely conduct their principal
business activities in the banking, finance and
financial services industries. Because the Fund may
invest in Participations, the Fund may be more
susceptible than a fund without such a policy to any
single economic, political or regulatory
5
<PAGE>
occurrence affecting such industries. The Fund
intends to take measures which it believes will
reduce its exposure to such risks but no assurances
can be given as to their effectiveness. See "The
Fund's Investments."
Interest Rate Fluctuations. When interest rates
decline, the value of a portfolio invested in fixed-
rate obligations can be expected to rise. Conversely,
when interest rates rise, the value of a portfolio
invested in fixed-rate obligations can be expected to
decline. Although the Fund's net asset value will
vary, the Adviser expects the Fund's policy of
acquiring primarily interests in floating rate Senior
Loans to minimize fluctuations in net asset value
resulting from changes in market interest rates.
However, because floating or variable rates on Senior
Loans only reset periodically, changes in prevailing
interest rates can be expected to cause some
fluctuations in the Fund's net asset value.
Similarly, a sudden and significant increase in
market interest rates may cause a decline in the
Fund's net asset value.
Income Risk. The Fund invests primarily in Senior
Loans whose interest rates reset frequently. If
market interest rates fall, these interest rates will
be reset at lower levels, reducing the Fund's income
and in turn, dividends paid to holders of Common
Shares.
Portfolio Liquidity. No active trading market
currently exists for many of the Senior Loans in
which the Fund will invest. Senior Loans are thus
relatively illiquid. Liquidity relates to the ability
of the Fund to sell an investment in a timely manner
at a price approximately equal to its value on the
Fund's books. The illiquidity of Senior Loans may
impair the Fund's ability to realize the full value
of its assets in the event of a voluntary or
involuntary liquidation of such assets, and the Fund
may suffer capital losses as a result. The market for
relatively illiquid securities could be disrupted in
the event of an economic downturn or a substantial
increase or decrease in interest rates. Although the
Fund believes that investing in adjustable rate
Senior Loans should limit fluctuations in the Fund's
net asset value from changes in interest rates,
extraordinary and sudden changes in market interest
rates could disrupt the market for Senior Loans and
result in fluctuations in the Fund's net asset value.
See "The Fund's Investments" and "Net Asset Value."
A substantial portion of the Fund's assets may be
invested in relatively illiquid Senior Loan
interests. However, many of the Senior Loans in which
the Fund expects to invest are of a relatively large
principal amount and are held by a relatively large
number of financial institutions which should, in the
Adviser's opinion, enhance the relative liquidity of
such interests. The risks associated with illiquidity
are particularly acute in situations where the Fund's
operations require cash, such as when, based on a
Board determination, the Fund makes open market
repurchases or tender offers for its Common Shares,
or if the Adviser considers it advantageous to
increase the percentage of the Fund's portfolio
invested in high quality, short-term securities. See
"The Fund's Investments."
6
<PAGE>
Net Asset Value Fluctuations. The Senior Loans in
which the Fund will invest generally are not listed
on any securities exchange. Certain Senior Loans are
traded by institutional investors in an over-the-
counter secondary market for Senior Loan obligations
that has developed over the past several years. The
secondary market for those Senior Loans generally is
comparatively illiquid relative to markets for other
income securities and no active trading market exists
for many Senior Loans. Because of the lack of an
active trading market, Senior Loans are generally
more difficult to value than liquid securities for
which an active trading market exists. In determining
net asset value, the Fund will utilize the valuations
of Senior Loans furnished by an independent third-
party pricing service, which typically values Senior
Loans at the mean of the highest bona fide bid and
lowest bona fide ask prices when current quotations
are readily available. Senior Loans for which current
quotations are not readily available are valued at a
fair value as determined by the pricing service using
pricing matrices and other information and analyses,
including credit considerations considered relevant
by such pricing service, to determine valuations. If
the pricing service does not provide a value for a
Senior Loan, a value will be determined by the
Adviser. To the extent that an active secondary
trading market in Senior Loan interests develops to a
reliable degree, the pricing service may rely to an
increasing extent on such market prices and
quotations in determining valuations of the Senior
Loan interests in the Fund's portfolio. The Fund
purchases Senior Loans primarily to seek to achieve
its investment objective of high current income,
consistent with preservation of capital, and does not
anticipate that it will actively trade Senior Loans.
To the extent a trading market continues to develop,
certain participants in the market may have
objectives other than current income and may pursue
short-term trading strategies, which may result in
erratic movements in the market prices for Senior
Loans as a result of movements in short-term interest
rates or otherwise. Although the Fund's policy of
acquiring interests in floating rate Senior Loans is
intended to minimize fluctuations in net asset value
resulting from changes in market interest rates, the
Fund's net asset value will fluctuate.
Foreign Investments. The Fund may invest up to 20% of
its total assets in U.S. dollar-denominated Senior
Loans of Borrowers that are organized or located in
countries outside the United States. Although their
Senior Loans are denominated in U.S. dollars, these
Borrowers may have significant non-U.S. dollar
revenues. Investment in foreign Borrowers involves
special risks, including that foreign Borrowers may
be subject to:
. less rigorous regulatory, accounting
and reporting requirements than U.S.
Borrowers;
. differing legal systems and laws
relating to creditors' rights;
. the potential inability to enforce
legal judgments;
. economic adversity that would result if
the value of the Borrower's non-U.S.
denominated revenues and assets
7
<PAGE>
were to fall (in U.S. dollar terms)
because of fluctuations in currency
values; and
. the potential for political, social and
economic adversity in the foreign
Borrower's country.
Warrants, Equity Securities and Junior Debt.
Investments in warrants, equity and junior debt
securities entail certain risks in addition to those
associated with investments in Senior Loans.
Effects of Leverage. The Fund intends to utilize
financial leverage for investment purposes by
employing Leverage Instruments in an amount currently
anticipated to represent approximately 40% of the
Fund's total assets (including the proceeds of such
Leverage Instruments), and in no event exceeding 50%
of the Fund's total assets. Financial leverage poses
certain risks for holders of Common Shares, including
the possibility of higher volatility of the net asset
value and market value of, and distributions paid on,
the Common Shares. See "The Fund's Investments."
So long as the Fund is able to invest the proceeds of
Leverage Instruments in securities that provide a
higher net return than the then current interest rate
or dividend rate on the Leverage Instruments (after
taking into account the expenses of employing each
Leverage Instrument and the Fund's operating
expenses), the effect of leverage will be to cause
the holders of Common Shares to realize a higher
current rate of return than if the Fund were not
leveraged. However, if the current interest rate or
dividend rate on the Leverage Instruments were to
approach the return on such proceeds after expenses,
the benefit of leverage to holders of Common Shares
would be reduced, and if the current interest rate or
dividend rate on the Leverage Instruments were to
exceed such net return, the Fund's leveraged capital
structure would result in a lower rate of return to
the holders of Common Shares than if the Fund had an
unleveraged capital structure. See "Risks."
As discussed under "Management of the Fund," the fee
paid to the Adviser will be calculated on the basis
of the Fund's average daily managed assets, including
proceeds from Leverage Instruments, so the fees will
be higher when leverage is utilized.
If the Fund seeks an investment grade rating from one
or more nationally recognized statistical rating
organizations for any commercial paper, notes or
Preferred Shares issued by the Fund (which the Fund
expects to do), asset coverage or portfolio
composition provisions in addition to and more
stringent than those required by the Investment
Company Act of 1940, as amended (the "1940 Act"), may
be imposed in connection with the issuance of such a
rating. In addition, restrictions may be imposed on
certain investment practices in which the Fund may
otherwise engage. Any lender from which the Fund
borrows may require additional asset coverage and
portfolio composition provisions as well as
restrictions on the Fund's investment practices. The
Adviser does not anticipate that
8
<PAGE>
these provisions or restrictions will adversely
affect the Adviser's ability to manage the Fund's
portfolio in accordance with its investment objective
and policies. See "Description of Capital Structure."
Market Price of Common Shares. Shares of closed-end
management investment companies frequently trade at
prices lower than their net asset value. The Fund
cannot assure you that the Common Shares will trade
at a price equal to (or higher than) their net asset
value in the future. The Fund's net asset value will
be reduced immediately following the offering by the
sales load and the amount of offering expenses paid
by the Fund. John Nuveen & Co. Incorporated
("Nuveen") has agreed to pay (i) all organizational
expenses and (ii) offering costs (other than the
sales load) that exceed $.01 per Common Share. In
addition to net asset value, the market price of the
Common Shares may be affected by such factors as
dividend levels (which in turn are affected by
expenses), dividend stability, portfolio credit
quality and liquidity and market supply and demand.
See "Risks," "Description of Capital Structure," and
"Repurchase of Fund Shares; Conversion to Open-End
Fund."
Non-Diversification. Because the Fund is classified
as "non-diversified" under the 1940 Act it can invest
a greater portion of its assets in obligations of a
single Borrower or issuer. As a result, the Fund will
be more susceptible than a more widely diversified
fund to any single corporate, economic, political or
regulatory occurrence. The Fund does not intend to
invest, however, more than 10% of the value of its
assets in interests in Senior Loans of a single
Borrower. See "The Fund's Investments." In addition,
the Fund must satisfy certain asset diversification
rules in order to qualify as a regulated investment
company for federal income tax purposes.
Anti-Takeover Provisions. The Fund's organizational
documents include provisions that could limit the
ability of other entities or persons to acquire
control of the Fund or convert the Fund to an open-
end fund. The provisions of these documents could
have the effect of depriving the Common Shareholders
of opportunities to sell their Common Shares at a
premium over the then current market price of the
Common Shares.
9
<PAGE>
FUND EXPENSES
The following tables are intended to assist investors in understanding the
various costs and expenses directly or indirectly associated with investing in
the Fund.
Shareholder Transaction Expenses
<TABLE>
<S> <C>
Sales Load
Paid by You
(as a
percentage
of offering
price)...... 4.50%
Dividend
Reinvestment
Plan Fees... None*
Management
Fees........ 1.42%
Other
Expenses.... .35%
Leverage-
Related
Expenses.... 3.93%
----
Total Annual
Operating
Expenses.... 5.70%
Fees and
Expense
Reimbursement
(Years 1-5). (.75)%***
----
Total Net
Annual
Operating
Expenses.... 4.95%***
====
</TABLE>
Annual Expenses (as a percentage of net assets attributable to Common Shares)**
- --------
* You will be charged a $2.50 service charge and pay brokerage charges if you
direct the Plan Agent (as defined below) to sell your Common Shares held in
a dividend reinvestment account.
** The Fund's Investment Management Agreement provides for the payment by the
Fund of Management Fees declining from .85% of the Fund's "managed assets,"
a defined term including the proceeds of leverage. Figures assume that the
Fund utilizes Leverage Instruments in an amount representing approximately
40% of the Fund's total assets (including the proceeds of such Leverage
Instruments at a combined interest rate and dividend rate of 5.90%, which is
based on the Fund's estimate of current market conditions). The Management
Fees and Fees and Expense Reimbursement in the table above have been
restated from their contractual rates (which are percentages of the Fund's
managed assets) to percentages of the Fund's assets attributable only to
Common Shares. If the Fund does not utilize any leverage, the Fund estimates
that annual operating expenses (expressed as a percentage of net assets
attributable to Common Shares) would be approximately as follows:
<TABLE>
<S> <C>
Management Fees..................................................... .85%
Other Expenses...................................................... .21%
Leverage-Related Expenses........................................... 0.00%
----
Total Annual Operating Expenses..................................... 1.06%
Fees and Expense Reimbursement (Years 1-5).......................... (.45)%
----
Total Net Annual Operating Expenses................................. .61%
====
</TABLE>
*** The Adviser has agreed to reimburse the Fund for fees and expenses in the
following amounts (expressed as a percentage of net assets attributable to
Common Shares): .75% for each of the first 5 years of the Fund's
operations, .58% in year 6, .42% in year 7, .25% in year 8, .17% in year 9
and .08% in year 10.
The purpose of the table above is to help you understand all fees and
expenses that you, as a Common Shareholder, would bear directly or indirectly.
The expenses shown in the table are based on estimated amounts for the Fund's
first year of operations and assume that the Fund issues Leverage Instruments
as described in this Prospectus. See "Management of the Fund" and "Dividend
Reinvestment Plan."
The following example illustrates the expenses (including the sales load of
$45) that you would pay on a $1,000 investment in Common Shares, assuming (1)
total net annual expenses of 4.95% in years 1 through 5, increasing to 5.62% in
year 10 and (2) a 5% annual return:(/1/)
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years(/2/)
------ ------- ------- -------------
<S> <C> <C> <C> <C>
Assuming Leverage Representing 40% of
Total Assets............................. $92 $187 $282 $538
</TABLE>
The example should not be considered a representation of future expenses.
Actual expenses may be higher or lower.
- --------
(1) The example assumes that the estimated "Other Expenses" set forth in the
Annual Expenses table are accurate and that all dividends and distributions
are reinvested at net asset value. Actual expenses may be greater or less
than those assumed. Moreover, the Fund's actual rate of return may be
greater or less than the hypothetical 5% return shown in the example. In
the event that the Fund does not utilize any leverage an investor would pay
the following expenses based on the assumptions in the example: 1 Year $51;
3 Years $64; 5 Years $77; and 10 Years $136.
(2) Assumes reimbursement of fees and expenses (expressed as a percentage of
net assets attributable to Common Shares) of .58% in year 6, .42% in year
7, .25% in year 8, .17% in year 9 and .08% in year 10. The Adviser has not
agreed to reimburse the Fund for any portion of its fees and expenses
beyond October 31, 2009.
10
<PAGE>
THE FUND
The Fund is a newly organized, non-diversified, closed-end management
investment company registered under the 1940 Act. The Fund was organized as a
Massachusetts business trust on August 13, 1999, pursuant to an Agreement and
Declaration of Trust governed by the laws of The Commonwealth of Massachusetts
(the "Declaration"). As a newly organized entity, the Fund has no operating
history. The Fund's principal office is located at 333 West Wacker Drive,
Chicago, Illinois 60606, and its telephone number is (800) 257-8787. The Fund
has registered as a "non-diversified" management investment company. Investment
in the Fund involves certain risks and special considerations, including risks
associated with the Fund's use of leverage. See "Risks."
This Prospectus relates to the initial public offering of the Fund's Common
Shares. As soon as practicable after the date of this Prospectus, the Fund
intends to employ Leverage Instruments, which would result in the financial
leveraging of the Fund for investment purposes. Holders of the Common Shares
are called "Common Shareholders." There can be no assurance that the Fund will
be able to employ Leverage Instruments on terms acceptable to the Fund.
USE OF PROCEEDS
The net proceeds of the offering of Common Shares will be approximately
$ ($ if the Underwriters exercise the over-allotment option in full)
after payment of the estimated organizational and offering costs. The Fund will
invest the net proceeds of the offering in accordance with the Fund's
investment objective and policies as soon as practicable. It is anticipated
that, under normal market conditions, such investments will be completed no
later than one month after the completion of the offering. The Fund's actual
investment timetable will depend on the availability of Senior Loans and other
market conditions. Pending such investment, it is anticipated that the proceeds
will be invested in high-quality, short-term debt securities. Nuveen has agreed
to pay (i) all organizational expenses and (ii) offering costs (other than the
sales load) that exceed $.01 per Common Share.
THE FUND'S INVESTMENTS
Investment Objective and Policies
The Fund's investment objective is to seek a high level of current income,
consistent with preservation of capital. The Fund's investment objective is a
fundamental policy of the Fund, meaning that it may be changed only by a vote
of a majority of the shareholders of the Fund. See "Investment Restrictions" in
the Statement of Additional Information. The Fund will invest primarily in
adjustable rate U.S. dollar-denominated secured Senior Loans. Investment in
such floating rate instruments is expected to minimize changes in the
underlying principal value of the Senior Loans, and therefore the Fund's net
asset value, resulting from changes in market interest rates. The Borrowers of
such Senior Loans operate in a variety of industries and geographical regions.
The Fund provides individual investors with access to a market normally
accessible only to financial institutions and larger corporate or institutional
investors.
Under normal circumstances, the Fund will invest at least 80% of its total
assets in adjustable rate, U.S. dollar-denominated, secured Senior Loans. The
Fund may invest up to 20% of its total assets in U.S. dollar-denominated Senior
Loans of Borrowers that are organized or located in countries outside the
United States. The Fund may invest up to 20% of its total assets, in the
aggregate, in:
. Senior Loans which are not secured by any collateral;
. other income producing securities such as investment and non-
investment grade corporate debt securities, high quality, short-term
debt securities with remaining maturities of one year or less and
U.S. government securities (subject to the limit that the Fund may
not invest more than 5% of its total assets in junior debt
securities or fixed rate income securities with effective maturities
11
<PAGE>
greater than one year, provided that the 5% limitation does not apply
to securities acquired in connection with the Fund's investments in
Senior Loans); and
. equity securities and warrants acquired in connection with the
Fund's investments in Senior Loans.
Pending initial investment in Senior Loans, or if the Adviser determines
that market conditions temporarily warrant a defensive investment policy, the
Fund may invest, subject to its ability to liquidate its relatively illiquid
portfolio of Senior Loans, up to 100% of its assets in cash and high quality,
short-term debt securities.
Certain Characteristics of Senior Loans
General Description. Senior Loans generally are negotiated between a
Borrower and the Lenders represented by one or more Lenders acting as agent
("Agent") of all the Lenders. The Agent is responsible for negotiating the loan
agreement ("Loan Agreement") that establishes the terms and conditions of the
Senior Loan and the rights of the Borrower and the Lenders. The Agent is paid a
fee by the Borrower for its services.
Rates of Interest. Interest rates on Senior Loans adjust periodically. The
interest rates are adjusted based on a base rate plus a premium or spread over
the base rate. The base rate usually is the London Inter-Bank Offered Rate
("LIBOR"), the prime rate offered by one or more major United States banks (the
"Prime Rate") or the certificate of deposit ("CD") rate or other base lending
rates used by commercial lenders. LIBOR, as provided for in Loan Agreements,
usually is an average of the interest rates quoted by several designated banks
as the rates at which they pay interest to major depositors in the London
Inter-Bank market on U.S. dollar-denominated deposits. The Adviser believes
that changes in short-term LIBOR rates are closely related to changes in the
Federal Reserve federal funds rate, although the two are not technically
linked. The Prime Rate quoted by a major U.S. bank is generally the interest
rate at which that bank is willing to lend U.S. dollars to its most
creditworthy borrowers, although it may not be the bank's lowest available
rate. The CD rate, as provided for in Loan Agreements, usually is the average
rate paid on large certificates of deposit traded in the secondary market.
Interest rates on Senior Loans may adjust daily, monthly, quarterly, semi-
annually or annually. The Fund will not invest more than 10% of its total
assets in Senior Loans with interest rates that adjust less often than semi-
annually. The Fund's portfolio of Senior Loans will at all times have a dollar-
weighted average time until the next interest rate adjustment of 90 days or
less. The Fund may use interest rate swaps and other investment practices to
shorten the effective interest rate adjustment period of Senior Loans. If the
Fund does so, it considers the shortened period to be the adjustment period of
the Senior Loans. See "Risks--Investment Practices and Special Risks."
When interest rates decline, the value of a portfolio invested in fixed-rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a portfolio invested in fixed-rate obligations can be expected to
decline. Although the Fund's net asset value will vary, the Fund's management
expects the Fund's policy of acquiring interests in Senior Loans, the interest
rates on which are adjustable, to limit fluctuations in net asset value as a
result of changes in interest rates. Accordingly, the Fund's management expects
the value of the Fund's portfolio to fluctuate less than a portfolio of fixed-
rate, longer-term obligations as a result of interest rate changes. However,
changes in prevailing interest rates can be expected to cause some fluctuation
in the Fund's net asset value. In addition to changes in interest rates,
changes in the credit quality of Borrowers (and Lenders where the Fund holds a
Participation) will also affect the Fund's net asset value. Further, a serious
deterioration in the credit quality of one or more Borrowers could cause a
prolonged or permanent decrease in the Fund's net asset value. Fluctuations in
net asset value would be magnified as a result of the Fund's use of leverage.
Maturity. The Fund expects that its Senior Loans will have stated maturities
ranging from three to ten years, although the Fund has no policy limiting the
maturity of the Senior Loans that it purchases. Senior Loans usually have
mandatory and optional prepayment provisions. Because of prepayments, the
actual remaining maturity of Senior Loans may be considerably less than their
stated maturity. The Fund estimates that the
12
<PAGE>
actual maturity of the Senior Loans in its portfolio at any given time will be
approximately 18-24 months. Because the interest rates on Senior Loans adjust
periodically, the Fund and the Adviser believe that reinvestment by the Fund in
Senior Loans after prepayment generally should not result in a significant
reduction in the interest payable to the Fund.
Protective Provisions of Senior Loans. Secured Senior Loans generally have
the most senior position in a Borrower's capital structure, although some
Senior Loans may hold an equal ranking with other senior securities of the
Borrower. The capital structure of a Borrower may include Senior Loans, senior
and junior subordinated debt (which may include "junk bonds"), preferred stock
and common stock issued by the Borrower, typically in descending order of
seniority with respect to claims on the Borrower's assets.
Senior Loans generally are secured by specific collateral, which may include
guarantees. In order to borrow money pursuant to collateralized Senior Loans, a
Borrower will frequently, for the term of the Senior Loan, pledge as collateral
assets such as trademarks, accounts receivable, inventory, buildings, real
estate, franchises and common and preferred stock in its subsidiaries. In
addition, in the case of some Senior Loans, there may be additional collateral
pledged in the form of guarantees or other credit support by and/or securities
of affiliates of the Borrowers. In certain instances, a collateralized Senior
Loan may be secured only by stock in the Borrower or its subsidiaries.
Collateral may consist of assets that may not be readily liquidated, and there
is no assurance that the liquidation of such assets would satisfy fully a
Borrower's obligations under a Senior Loan. The Fund may invest in Senior Loans
which are not secured by any collateral, subject to the limitations set forth
under "The Fund's Investments--Investment Objective and Policies." Senior Loans
that are not secured by specific collateral generally pose a greater risk of
non-payment of interest or loss of principal than do collateralized Senior
Loans.
Loan Agreements may include various restrictive covenants designed to limit
the activities of the Borrower in an effort to protect the right of the Lenders
to receive timely payments of interest on and repayment of principal of the
Senior Loans. Restrictive covenants may include mandatory prepayment provisions
arising from excess cash flows and typically include restrictions on dividend
payments, specific mandatory minimum financial ratios, limits on total debt and
other financial tests. Breach of such covenants, if not waived by the Lenders,
is generally an event of default under the applicable Loan Agreement and may
give the Lenders the right to accelerate principal and interest payments. The
Adviser will consider the terms of such restrictive covenants in deciding
whether to invest in Senior Loans for the Fund's portfolio. When the Fund holds
a Participation in a Senior Loan it may not have the right to vote to waive
enforcement of any restrictive covenant breached by a Borrower. Lenders voting
in connection with a potential waiver of a restrictive covenant may have
interests different from those of the Fund and such Lenders may not consider
the interests of the Fund in connection with their votes.
Investing in Senior Loans involves investment risk despite these covenants,
and some Borrowers default on their Senior Loan payments. The Adviser and the
Fund attempt to manage these risks through selection of a varied portfolio of
Senior Loans and analysis and monitoring of Borrowers and any collateral
pledged to secure the loans.
Borrowers. Borrowers operate in a variety of industries and geographic
regions. The Fund does not intend to invest more than 10% of its total assets
in Senior Loans of a single Borrower. In addition, the Fund will not invest
more than 25% of its total assets in Borrowers that conduct their principal
businesses in the same industry. Most Senior Loans are made to U.S. Borrowers.
The Fund may, however, invest up to 20% of its total assets in Senior Loans
made to Borrowers organized or located outside the U.S. These Senior Loans must
be U.S. dollar-denominated. Investing in the Senior Loans of foreign Borrowers
involves special risks. See "Risks--Investments in Foreign Issuers."
The capital structure of a Borrower may include Senior Loans, senior and
junior subordinated debt (which may include "junk bonds"), preferred stock and
common stock. Senior Loans typically have the most senior claim on Borrower's
assets and common stock the most junior claim. The proceeds of Senior Loans
that the Fund will purchase usually will be used by Borrowers to finance
leveraged buyouts, recapitalizations, mergers, acquisitions, stock repurchases,
debt refinancings and, to a lesser extent, for general operating and other
purposes. Although Senior Loans have the most senior position in a Borrower's
capital structure and are
13
<PAGE>
usually secured by specific collateral, they are typically below investment
grade quality and may have below investment grade ratings; these ratings are
associated with securities having speculative characteristics. See "Risks--High
Yield/High Risk Securites."
The Fund may purchase and retain in its portfolio Senior Loans of Borrowers
that have filed for protection under the federal bankruptcy laws or that have
had involuntary bankruptcy petitions filed against them by creditors. Because
of the protective features of Senior Loans, the Fund and the Adviser believe
that Senior Loans of Borrowers that either are experiencing, or are more likely
to experience, financial difficulty may sometimes represent attractive
investment opportunities.
The Adviser performs its own credit analysis of the Borrower in addition to
utilizing information prepared and supplied by an Agent or other Lenders. When
evaluating a Borrower, the Adviser considers many factors, including the
Borrower's past and future projected financial performance. The Adviser also
considers a Borrower's management, collateral and industry. The Adviser
continues to monitor a Borrower on an ongoing basis for so long as the Fund
continues to own the Senior Loan. Although the Adviser will use its best
judgment in selecting Senior Loans, there can be no assurance that such
analysis will disclose factors that may impair the value of a Senior Loan. You
should expect the Fund's net asset value to fluctuate as a result of changes in
the credit quality of Borrowers and other factors. A serious deterioration in
the credit quality of one or more Borrowers could cause a permanent decrease in
the Fund's net asset value. See "Risks--Borrower Credit Risk."
The Adviser generally relies on its own credit analysis of Borrowers and not
on analyses prepared by ratings agencies or other independent parties. Because
of the features of Senior Loans, the Adviser believes, based on its experience,
that ratings may not necessarily reflect the true risk of loss of principal or
interest on a Senior Loan. For example, the Adviser believes that Senior Loans
tend to have more favorable loss recovery rates as compared to other types of
below investment grade quality debt obligations.
There is no minimum rating or other independent evaluation of a Borrower or
its securities limiting the Fund's investments. Although a Senior Loan often is
not rated by any rating agency at the time the Fund purchases the Senior Loan,
rating agencies have become more active in rating an increasing number of
Senior Loans and at any given time a substantial portion of the Senior Loans in
the Fund's portfolio may be rated. The lack of a rating does not necessarily
imply that a Senior Loan is of lesser investment quality; however, most Senior
Loans, when rated, are below investment grade quality. The Adviser generally
does not take ratings into account when determining whether to invest in a
Senior Loan and does not view ratings as a determinative factor in its
investment decisions. There is no limit on the percentage of the Fund's assets
that may be invested in Senior Loans that are rated below investment grade or
that are unrated but of comparable quality. Investing in Senior Loans involves
risk and the Fund attempts to manage these risks through portfolio
diversification and ongoing analyses and monitoring of Borrowers.
The Senior Loan Market
The volume of newly issued Senior Loans increased from approximately $66
billion in 1987 to approximately $273 billion in 1998 (Source: Donaldson,
Lufkin & Jenrette; Loan Pricing Corporation) and transactions in Senior Loans
in the secondary market increased from approximately $8 billion in 1991 to
approximately $67 billion in 1998 (Source: Loan Pricing Corporation; Securities
Data Corporation). See "Performance Related and Comparative Information" in the
Statement of Additional Information.
The Senior Loan Process
The Fund normally relies on the Agent to collect principal and interest
payments on a Senior Loan. Furthermore, the Fund also relies in part on the
Agent to monitor compliance by the Borrower with the restrictive covenants in
the Loan Agreement and to notify the Fund (or the Lender from which the Fund
has
14
<PAGE>
purchased a Participation) of any adverse change in the Borrower's financial
condition. The Fund will act as a Lender with respect to a syndicated Senior
Loan only where the Agent, at the time of the Fund's investment, has
outstanding debt or deposit obligations rated investment grade by a rating
agency, or where such debt or obligations are unrated but determined by the
Adviser to be of comparable quality. A rating agency's top four major rating
categories generally are considered to be investment grade. The lowest tier of
investment grade rating is considered to have speculative characteristics. The
Fund will not purchase interests in Senior Loans unless the Agent, Lender and
any other person positioned between the Fund and the Borrower has entered into
an agreement that provides for the holding of assets in safekeeping for, or the
prompt disbursement of assets to, the Fund. Insolvency of the Agent or other
persons positioned between the Fund and the Borrower could result in losses for
the Fund. See "Risks."
The Fund may be required to pay and may receive various fees and commissions
in connection with purchasing, selling and holding interests in Senior Loans.
The fees normally paid by Borrowers include three primary types: facility fees,
commitment fees and prepayment penalties. Facility fees are paid to Lenders
when a Senior Loan is originated. Commitment fees are paid to Lenders on an
ongoing basis based on the unused portion of a Senior Loan commitment. Lenders
may receive prepayment penalties when a Borrower prepays a Senior Loan. The
Fund receives these fees directly from the Borrower if the Fund is an Original
Lender (as defined below) or, in the case of commitment fees and prepayment
penalties, if the Fund acquires an Assignment. Whether the Fund receives a
facility fee in the case of an Assignment, or any fees in the case of a
Participation, depends on negotiations between the Fund and the Lender selling
such interests. When the Fund buys an Assignment, it may be required to pay a
fee, or forgo a portion of interest and fees payable to it, to the Lender
selling the Assignment. Occasionally, the assignor pays a fee to the assignee.
A person selling a Participation to the Fund may deduct a portion of the
interest and any fees payable to the Fund as an administrative fee. The Fund
may be required to pass along to a person that buys a Senior Loan from the Fund
a portion of any fees that the Fund is entitled to. Fees that the Fund
occasionally may receive may enhance the Fund's income.
Types of Senior Loan Investments
The Fund may act as one of the group of Lenders originating a Senior Loan
(an "Original Lender"), act as an Agent, purchase Assignments of portions of
Senior Loans from third parties and invest in Participations in Senior Loans.
Senior Loans also include certain foreign debt obligations that are in the form
of notes rather than Loan Agreements. All of these interests in Senior Loans
are sometimes referred to simply as Senior Loans.
The Fund as Original Lender. When the Fund acts as an Original Lender it may
participate in structuring the Senior Loan. The Fund will not act as sole Agent
or sole principal negotiator of a Senior Loan. When the Fund is a member of the
originating syndicate group for a Senior Loan, it may share in a fee paid to
the Original Lenders. When the Fund is an Original Lender it will have a direct
contractual relationship with the Borrower, may enforce compliance by the
Borrower with the terms of the Loan Agreement and may have rights with respect
to any funds acquired by other Lenders through set-off. Lenders also have full
voting and consent rights under the applicable Loan Agreement. Action subject
to Lender vote or consent generally requires the vote or consent of the holders
of some specified percentage of the outstanding principal amount of the Senior
Loan. Certain decisions, such as reducing the amount of interest on or
principal of a Senior Loan, releasing all or substantially all of the
collateral or changing the maturity of a Senior Loan, frequently require the
unanimous vote or consent of all Lenders affected.
The Fund as Agent. Acting in the capacity of an Agent in a Senior Loan may
subject the Fund to certain risks in addition to those associated with the
Fund's current role as a Lender. In consideration of such risks, the Fund will
invest no more than 20% of its total assets in Senior Loans in which it acts as
an Agent or co-Agent and the size of any such individual Senior Loan will not
exceed 5% of the Fund's total assets. The Fund's ability to receive fee income
may also be constrained by certain requirements for qualifying as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund intends to comply with those requirements and may limit its
investments in Senior Loans in which it acts as Agent in order to do so.
Assignments. The purchaser of an Assignment typically succeeds to all the
rights and obligations under the Loan Agreement of the assigning Lender and
becomes a Lender under the Loan Agreement. Assignments may,
15
<PAGE>
however, be arranged through private negotiations, and the rights and
obligations acquired by the purchaser of an Assignment may differ from, and be
more limited than, those held by the assigning Lender.
Participations. Participations by the Fund in a Lender's portion of a Senior
Loan typically will result in the Fund having a contractual relationship only
with such Lender, not with the Borrower. As a result, the Fund may have the
right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt
by such Lender of such payments from the Borrower. In connection with
purchasing Participations, the Fund generally will have no right to enforce
compliance by the Borrower with the terms of the Loan Agreement, nor have any
rights with respect to any funds acquired by other Lenders through set-off
against the Borrower, and the Fund may not directly benefit from the collateral
supporting the Senior Loan in which it has purchased the Participation. As a
result, the Fund may assume the credit risk of both the Borrower and the Lender
selling the Participation. In the event of the insolvency of the Lender selling
a Participation, the Fund may be treated as a general creditor of such Lender.
After the period of initial investment, the Fund does not currently intend to
invest more than 20% of its total assets in Participations.
The Fund has taken the following measures in an effort to minimize risks from
investing in Participations. The Fund will only acquire Participations if the
Lender selling the Participation, and any other persons interpositioned between
the Fund and the Lender, (i) at the time of investment has outstanding debt or
deposit obligations rated investment grade (BBB or A-3 or higher by Standard &
Poor's Corporation ("S&P"), Baa or P-3 or higher by Moody's Investor Service,
Inc. ("Moody's") or BBB or F3 or higher by Fitch IBCA, Inc. ("Fitch")) or has
debt or obligations that are unrated by S&P, Moody's and Fitch and determined
by the Adviser to be of comparable quality and (ii) has entered into an
agreement which provides for the holding of assets in safekeeping for, or the
prompt disbursement of assets to, the Fund. Long-term debt rated BBB by S&P is
regarded by S&P as having adequate capacity to pay interest and repay principal
and debt rated Baa by Moody's is regarded by Moody's as a medium grade
obligation, i.e., it is neither highly protected nor poorly secured and debt
rated BBB by Fitch is regarded by Fitch as having adequate capacity for timely
payment of financial commitments. Commercial paper rated A-3 by S&P indicates
that S&P believes such obligations exhibit adequate protection parameters but
that adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial commitment on
the obligation, issues of commercial paper rated P-3 by Moody's are considered
by Moody's to have an acceptable ability for repayment of short-term debt
obligations but the effect of industry characteristics and market compositions
may be more pronounced and issues of commercial paper rated F3 by Fitch are
considered to be of fair credit quality with an adequate capacity for timely
payment of financial commitments but near-term adverse changes could result in
a reduction to non-investment grade.
The selling Lenders and other persons interpositioned between such Lenders
and the Fund with respect to such Participations will likely conduct their
principal business activities in the banking, finance and financial services
industries. Although, as discussed above, the Fund will take measures which it
believes reduce its exposure to any risks incident to this practice, the Fund
may be more susceptible than an investment company without such a practice to
any single economic, political or regulatory occurrence affecting such
industries. Persons engaged in such industries may be more susceptible than are
persons engaged in some other industry to, among other things, fluctuations in
interest rates, changes in the Federal Open Market Committee's monetary policy,
governmental regulations concerning such industries and capital raising
activities generally and fluctuations in the financial markets generally.
When the Fund holds a Participation in a Senior Loan, the Fund generally
will not have the right to enforce compliance by the Borrower with the Loan
Agreement, nor rights to any funds acquired by other Lenders through set-off
against the Borrower. In addition, the Fund may not have the right to vote on
whether to waive enforcement of any restrictive covenant breached by a
Borrower. Lenders voting in connection with a potential waiver of a restrictive
covenant may have interests different from those of the Fund and may not
consider the interests of the Fund. The Fund may not benefit directly from the
collateral supporting a Senior Loan in which it has purchased the
Participation, although Lenders that sell Participations generally are required
to distribute liquidation proceeds received by them pro rata among the holders
of such Participations. For purposes of the Fund's policy of investing at least
80% of its total assets in secured Senior Loans, a Participation in a Senior
Loan will be deemed to be secured if the underlying Senior Loan is secured.
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Role of Agent. On behalf of the several Lenders, an Agent generally will be
required to administer and manage the Senior Loan and, with respect to
collateralized Senior Loans, to service or monitor the collateral. In this
connection, the valuation of assets pledged as collateral will reflect market
value and the Agent may rely on independent appraisals as to the value of
specific collateral. The Agent, however, may not obtain an independent
appraisal as to the value of assets pledged as collateral in all cases. The
Fund normally will rely primarily on the Agent (where the Fund is an Original
Lender or owns an Assignment) or the selling Lender (where the Fund owns a
Participation) to collect principal of and interest on a Senior Loan.
Furthermore, the Fund usually will rely on the Agent (where the Fund is an
Original Lender or owns an Assignment) or the selling Lender (where the Fund
owns a Participation) to monitor compliance by the Borrower with the
restrictive covenants in the Loan Agreement and notify the Fund of any adverse
change in the Borrower's financial condition or any declaration of insolvency.
Loan Agreements may provide for the termination of the Agent's agency status
in the event that it fails to act as required under the relevant Loan
Agreement, becomes insolvent, enters FDIC receivership or, if not FDIC insured,
enters into bankruptcy. Should such an Agent, Lender or assignor with respect
to an Assignment interpositioned between the Fund and the Borrower become
insolvent or enter FDIC receivership or bankruptcy, any interest in the Senior
Loan of such person and any loan payment held by such person for the benefit of
the Fund should not be included in such person's or entity's bankruptcy estate.
If, however, any such amount were included in such person's or entity's
bankruptcy estate, the Fund would incur certain costs and delays in realizing
payment or could suffer a loss of principal or interest. In such event, the
Fund could experience a decrease in net asset value.
Prepayments. Pursuant to the relevant Loan Agreement, a Borrower may be
required in certain circumstances, and may have the option at any time, to
prepay the principal amount of a Senior Loan, often without incurring a
prepayment penalty. Because the interest rates on Senior Loans are periodically
redetermined at relatively short intervals, the Fund and the Adviser believe
that the prepayment of, and subsequent reinvestment by the Fund in, Senior
Loans will not have a materially adverse impact on the yield on the Fund's
portfolio and may have a beneficial impact on income due to receipt of
prepayment penalties, if any, and any facility fees earned in connection with
reinvestment.
Commitments to Make Additional Loans. A Lender may have certain obligations
pursuant to a Loan Agreement, which may include the obligation to make
additional loans in certain circumstances. The Fund currently intends to
reserve against such contingent obligations by segregating a sufficient amount
of cash, liquid securities and liquid Senior Loans as a reserve against such
commitments. The Fund will not purchase interests in Senior Loans that would
require the Fund to make any such additional loans if such additional loan
commitments in the aggregate would exceed 20% of the Fund's total assets or
would cause the Fund to fail to meet the diversification requirements set forth
under the heading "Investment Restrictions" in the Statement of Additional
Information.
Warrants, Equity Securities and Junior Debt; Short-Term Debt Securities
The Fund may acquire equity securities and warrants issued by a Borrower or
its affiliates as part of a package of investments in the Borrower or its
affiliates issued in connection with a Senior Loan of the Borrower. The Fund
also may convert a warrant so acquired into the underlying security. The Fund
may acquire junior debt securities as part of a package of investments in the
Borrower or its affiliates issued in connection with a Senior Loan of the
Borrower, and may invest separately up to 5% of its total assets in junior debt
securities. The Fund generally will acquire interests in warrants, equity and
junior bonds or other debt securities only when the Adviser believes that the
value the Fund gives in exchange for such interests is substantially outweighed
by their potential value. However, investments in warrants, equity and junior
debt securities entail certain risks in addition to those associated with
investments in Senior Loans. The value of these securities may be affected more
rapidly, and to a greater extent, by company-specific developments and general
market conditions. These risks may increase fluctuations in the Fund's net
asset value. The Fund may frequently possess material non-public information
about a Borrower as a result of its ownership of a Senior Loan of such
Borrower. Because of prohibitions on trading in securities of issuers while in
possession of such information the Fund might be unable to enter into a
transaction in a security of such a Borrower when it would otherwise be
advantageous to do so. The Fund's investments in warrants, equity securities
and junior
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debt securities are subject to the limitations set forth under "The Fund's
Investments--Investment Objective and Policies."
The Fund may invest in high quality, short-term debt securities with
remaining maturities of one year or less. These may include commercial paper
rated at least in the top two rating categories by S&P, Moody's or Fitch, or
unrated commercial paper considered by the Adviser to be of similar quality;
interests in short-term loans of Borrowers having short-term debt obligations
rated, or a short-term credit rating, at least in such top two rating
categories, or having no rating but determined by the Adviser to be of
comparable quality; certificates of deposit and bankers' acceptances; and
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. These securities may pay interest at adjustable rates or at
fixed rates. The Fund's investments in high quality, short-term debt securities
are subject to the limitations set forth under "The Fund's Investments--
Investment Objective and Policies." In spite of those limitations, pending
initial investment in Senior Loans, or if the Adviser determines that market
conditions temporarily warrant a defensive investment policy, the Fund may
invest, subject to its ability to liquidate its relatively illiquid portfolio
of Senior Loans, up to 100% of its assets in cash and high quality, short-term
debt securities.
Structured Notes
The Fund may invest up to 10% of its total assets in structured notes, which
are privately negotiated debt obligations with rates of return determined by
reference to the total rate of return on one or more Senior Loans referenced in
such notes. The rate of return on the structured note may be determined by
applying a multiplier to the rate of total return on the referenced loan or
loans. Application of a multiplier is comparable to the use of financial
leverage, a speculative technique. Leverage magnifies the potential for gain
and the risk of loss; as a result, a relatively small decline in the value of a
referenced Senior Loan could result in a relatively large loss in the value of
a structured note.
Use of Leverage
The Fund intends to utilize financial leverage for investment purposes by
employing Leverage Instruments in an amount currently anticipated to represent
approximately 40% (and in no event exceeding 50%) of its total assets
(including the proceeds from such Leverage Instruments). The Fund may employ
Leverage Instruments for the purpose of acquiring additional income-producing
investments when the Adviser believes that such use of proceeds will enhance
the Fund's net income. The amount of outstanding Leverage Instruments may vary
with prevailing market or economic conditions. The Fund currently expects to
(i) borrow money at rates generally available to institutional investors as
soon as possible after the completion of the Common Share offering described in
this Prospectus and issue commercial paper or notes within approximately three
months of the completion of the Common Share offering, in an aggregate amount
currently anticipated to represent, approximately 30% of the Fund's total
assets immediately after such borrowing or issuance; and (ii) issue Preferred
Shares in an amount currently anticipated to represent approximately 10% of the
Fund's total assets immediately after such issuance. Leverage entails special
risks. See "Risks--Leverage." The management fee paid to the Adviser will be
calculated on the basis of the Fund's total managed assets, including proceeds
of Leverage Instruments, so the fees will be higher when leverage is utilized.
See "Description of Capital Structure--Borrowings" and "Description of Capital
Structure--Preferred Shares."
Interest Rate and Other Hedging Transactions
The Fund may enter into various interest rate hedging and risk management
transactions. Certain of these interest rate hedging and risk management
transactions involve derivative instruments. A derivative is a financial
instrument whose performance is derived at least in part from the performance
of an underlying index, security or asset. The values of certain derivatives
can be affected dramatically by even small market movements, sometimes in ways
that are difficult to predict.
There are many different types of derivatives, with many different uses.
. The Fund expects to enter into these transactions primarily to seek
to preserve a return on a particular investment or portion of its
portfolio, and may also enter into such transactions to seek to
protect against decreases in the anticipated rate of return on
floating or variable rate financial
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<PAGE>
instruments the Fund owns or anticipates purchasing at a later date, or
for other risk management strategies such as managing the effective
dollar-weighted average duration of the Fund's portfolio.
. The Fund may also engage in hedging transactions to seek to protect
the value of its portfolio against declines in net asset value
resulting from changes in interest rates, credit conditions or other
market changes.
. The Fund does not intend to engage in such transactions to enhance
the yield on its portfolio or to increase income available for
distributions.
Market conditions will determine whether and in what circumstances the Fund
would employ any of the hedging and risk management techniques described below.
The successful utilization of hedging and risk management transactions requires
skills different from those needed in the selection of the Fund's portfolio
securities. The Fund believes that the Adviser possesses the skills necessary
for the successful utilization of hedging and risk management transactions. The
Fund will incur brokerage and other costs in connection with its hedging
transactions.
The Fund may enter into interest rate swaps or purchase or sell interest
rate caps or floors. Interest rate swaps involve the exchange by the Fund with
another party of their respective obligations to pay or receive interest, e.g.,
an exchange of an obligation to make floating rate payments for an obligation
to make fixed rate payments. For example, the Fund may seek to shorten the
effective interest rate redetermination period of a Senior Loan in its
portfolio. The Fund could exchange the Borrower's obligation to make fixed rate
payments for an obligation to make payments that readjust monthly. In such
event, the Fund would consider the interest rate redetermination period of such
Senior Loan to be the shorter period.
The successful use of swaps, caps and floors to preserve the rate of return
on a portfolio of financial instruments depends on the Adviser's ability to
predict correctly the direction and extent of movements in interest rates.
Although the Fund believes that use of the hedging and risk management
techniques described above will benefit the Fund, if the Adviser's judgment
about the direction or extent of the movement in interest rates is incorrect,
the Fund's overall performance would be worse than if it had not entered into
any such transactions. For example, if the Fund had purchased an interest rate
swap or an interest rate floor to hedge against its expectation that interest
rates would decline but instead interest rates rose, the Fund would lose part
or all of the benefit of the increased payments it would receive as a result of
the rising interest rates because it would have to pay amounts to its
counterparty under the swap agreement or would have paid the purchase price of
the interest rate floor.
Because these hedging transactions are entered into for good-faith risk
management purposes, the Adviser and the Fund believe such obligations do not
constitute senior securities. The Fund will usually enter into interest rate
swaps on a net basis, i.e., where the two parties make net payments with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued and an
amount of cash or liquid securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in a segregated account by
the Fund's custodian. If the Fund enters into a swap on other than a net basis,
the Fund will maintain in the segregated account the full amount of the Fund's
obligations under each such swap. Accordingly, the Fund does not treat swaps as
senior securities. The Fund may enter into swaps, caps and floors with member
banks of the Federal Reserve System, members of the New York Stock Exchange or
other entities determined by the Adviser to be creditworthy. If a default
occurs by the other party to such transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transaction but such
remedies may be subject to bankruptcy and insolvency laws which could affect
the Fund's rights as a creditor. The swap market has grown substantially in
recent years with a large number of banks and financial services firms acting
both as principals and as agents utilizing standardized swap documentation. As
a result, the swap market has become relatively liquid. Caps and floors are
more recent innovations and they are less liquid than swaps. There can be no
assurance, however, 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
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 that 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.
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New financial products continue to be developed and the Fund may invest in
any such products as may be developed to the extent consistent with its
investment objective and the regulatory and federal tax requirements applicable
to investment companies.
Lending of Portfolio Holdings
The Fund may seek to increase its income by lending financial instruments in
its portfolio in accordance with present regulatory policies, including those
of the Board of Governors of the Federal Reserve System and the SEC. Such loans
may be made, without limit, to brokers, dealers, banks or other recognized
institutional borrowers of financial instruments and would be required to be
secured continuously by collateral, including cash, cash equivalents or U.S.
Treasury bills maintained on a current basis at an amount at least equal to the
market value of the financial instruments loaned. The Fund would have the right
to call a loan and obtain the financial instruments loaned at any time on five
days' notice. For the duration of a loan, the Fund would continue to receive
the equivalent of the interest paid by the issuer on the financial instruments
loaned and also may receive compensation from the investment of the collateral.
The Fund would not have the right to vote any financial instruments having
voting rights during the existence of the loan, but the Fund could call the
loan in anticipation of an important vote to be taken among holders of the
financial instruments or in anticipation of the giving or withholding of their
consent on a material matter affecting the financial instruments. As with other
extensions of credit, risks of delay in recovery or even loss of rights in the
collateral exist should the borrower of the financial instruments fail
financially. However, the loans would be made only to firms deemed by the
Adviser to be creditworthy and when, in the judgment of the Adviser, the
consideration which can be earned currently from loans of this type justifies
the attendant risk. The creditworthiness of firms to which the Fund lends its
portfolio holdings will be monitored on an ongoing basis by the Adviser. No
specific limitation exists as to the percentage of the Fund's assets which the
Fund may lend.
"When-Issued" and "Delayed Delivery" Transactions
The Fund may also purchase and sell interests in Senior Loans and other
portfolio securities on a "when issued" or "delayed delivery" basis. No income
accrues to the Fund on such interests or securities in connection with such
purchase 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 or lower 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 interests 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" or "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.
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Repurchase Agreements
The Fund may enter into repurchase agreements (a purchase of, and a
simultaneous commitment to resell, a financial instrument at an agreed upon
price on an agreed upon date) only with member banks of the Federal Reserve
System and member firms of the New York Stock Exchange. When participating in
repurchase agreements, the Fund buys securities from a vendor, e.g., a bank or
brokerage firm, with the agreement that the vendor will repurchase the
securities at a higher price at a later date. Such transactions afford an
opportunity for the Fund to earn a return on available cash at minimal market
risk, although the Fund may be subject to various delays and risks of loss if
the vendor is unable to meet its obligation to repurchase. Under the 1940 Act,
repurchase agreements are deemed to be collateralized loans of money by the
Fund to the seller. In evaluating whether to enter into a repurchase agreement,
the Adviser will consider carefully the creditworthiness of the vendor. If the
member bank or member firm that is the party to the repurchase agreement
petitions for bankruptcy or otherwise becomes subject to the U.S. Bankruptcy
Code, the Fund might experience delays in recovering its cash. The securities
underlying a repurchase agreement will be marked to market every business day
so that the value of the collateral is at least equal to the value of the loan,
including the accrued interest thereon, and the Adviser will monitor the value
of the collateral. No specific limitation exists as to the percentage of the
Fund's assets which may be used to participate in repurchase agreements.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements with respect to debt
obligations which could otherwise be sold by the Fund. A reverse repurchase
agreement is an instrument under which the Fund may sell an underlying debt
instrument and simultaneously obtain the commitment of the purchaser (a
commercial bank or a broker or dealer) to sell the security back to the Fund at
an agreed upon price on an agreed upon date. The Fund will maintain in a
segregated account with its custodian cash or liquid securities in an amount
sufficient to cover its obligations with respect to reverse repurchase
agreements. The Fund receives payment for such securities only upon physical
delivery or evidence of book entry transfer by its custodian. Reverse
repurchase agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. An additional risk
is that the market value of securities sold by the Fund under a reverse
repurchase agreement could decline below the price at which the Fund is
obligated to repurchase them. Reverse repurchase agreements will be considered
borrowings by the Fund and as such would be subject to the restrictions on
borrowing described in the Statement of Additional Information under
"Investment Restrictions." The Fund will not hold more than 5% of the value of
its total assets in reverse repurchase agreements.
RISKS
Risk is inherent in all investing. Investing in any investment company
security involves risk, including the risk that you may receive little or no
return on your investment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in the Common Shares.
Closed-End Funds
The Fund is a closed-end management investment company with no history of
operations and is designed primarily for long-term investors and not as a
trading vehicle. The shares of closed-end investment companies frequently trade
at a price lower than their net asset value. The Fund cannot assure you that
the Common Shares will trade at a price equal to or higher than net asset value
in the future. The Fund's net asset value will be reduced immediately following
the offering by the sales load and the amount of the organizational and
offering expenses paid by the Fund. Nuveen has agreed to pay (i) all
organizational expenses and (ii) offering costs (other than the sales load)
that exceed $.01 per Common Share. This market price risk may be greater for
investors who intend to sell their Common Shares within a relatively short
period after completion of this offering.
Borrower Credit Risk
Senior Loans, like most other debt obligations, are subject to the risk of
default. Default in the payment of interest or principal on a Senior Loan
results in a reduction in income to the Fund, a reduction in the value of the
Senior Loan and a decrease in the Fund's net asset value. This decrease in the
Fund's net asset value would be magnified by the Fund's use of Leverage
Instruments. The risk of default increases in the event of an
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economic downturn or a substantial increase in interest rates. An increased
risk of default could result in a decline in the value of Senior Loans and in
the Fund's net asset value.
The Fund may acquire Senior Loans of Borrowers that are experiencing, or are
more likely to experience, financial difficulty, including Senior Loans of
Borrowers that have filed for bankruptcy protection. Borrowers may have Senior
Loans or other outstanding debt obligations that are rated below investment
grade or that are unrated but of comparable quality to such securities. Debt
securities rated below investment grade are viewed by the rating agencies as
speculative and are commonly known as "junk bonds."
Senior Loans may not be rated at the time that the Fund purchases them.
However, rating agencies (including, but not limited to, Moody's, S&P and
Fitch) have begun rating Senior Loans. If a Senior Loan is rated at the time of
purchase, the Adviser may consider the rating when evaluating the Senior Loan
but, in any event, the Adviser does not view ratings as a determinative factor
in investment decisions. As a result, the Fund is more dependent on the
Adviser's credit analysis abilities. Because of the protective terms of most
Senior Loans, the Adviser believes that the Fund is more likely to recover more
of its investment in a defaulted Senior Loan than would be the case for most
other types of defaulted debt securities. The values of Senior Loans of
Borrowers that have filed for bankruptcy protection or that are experiencing
payment difficulty will reflect, among other things, the Adviser's assessment
of the likelihood that the Fund ultimately will receive repayment of the
principal amount of such Senior Loans, the likely duration, if any, of a lapse
in the scheduled payment of interest and repayment of principal and prevailing
interest rates.
In the case of collateralized Senior Loans, there is no assurance that sale
of the collateral would raise enough cash to satisfy the Borrower's payment
obligation or that the collateral can or will be liquidated. In the event of
bankruptcy, liquidation may not occur and the court may not give Lenders the
full benefit of their senior positions. If the terms of a Senior Loan do not
require the Borrower to pledge additional collateral in the event of a decline
in the value of the original collateral, the Fund will be exposed to the risk
that the value of the collateral will not at all times equal or exceed the
amount of the Borrower's obligations under the Senior Loan. To the extent that
a Senior Loan is collateralized by stock in the Borrower or its subsidiaries,
such stock may lose all of its value in the event of bankruptcy of the
Borrower. Uncollateralized Senior Loans involve a greater risk of loss. Some
Senior Loans in which the Fund may invest are subject to the risk that a court,
pursuant to fraudulent conveyance or other similar laws, could subordinate such
Senior Loans to presently existing or future indebtedness of the Borrower or
take other action detrimental to the holders of Senior Loans, such as the Fund,
including, under certain circumstances, invalidating such Senior Loans. Lenders
commonly have certain obligations pursuant to the Loan Agreement, which may
include the obligation to make additional loans or release collateral in
certain circumstances.
Senior Loans
Information about most Senior Loans is less readily available and reliable
than is the case for many other types of securities. In addition, there is no
minimum rating or other independent evaluation of a Borrower or its securities
limiting the Fund's investments. The Adviser relies exclusively or primarily on
its own evaluation of Borrower credit quality in selecting Senior Loans for
purchase. As a result, the Fund is particularly dependent on the analytical
abilities of the Adviser.
No active trading market currently exists for many Senior Loans. Senior
Loans are thus relatively illiquid. Liquidity relates to the ability of the
Fund to sell an investment in a timely manner at a price approximately equal to
its value on the Fund's books. The illiquidity of Senior Loans may impair the
Fund's ability to realize the full value of its assets in the event of a
voluntary or involuntary liquidation of such assets. Because of the lack of an
active trading market, illiquid securities are also difficult to value and
prices provided by external pricing services may not reflect the true fair
value of the securities. However, many Senior Loans are of a large principal
amount and are held by a large number of financial institutions. In the
Adviser's opinion, this should enhance their liquidity. In addition, in recent
years the number of institutional investors purchasing Senior Loans has
increased. The risks of illiquidity are particularly important when the Fund's
operations require cash, and may in certain circumstances require that the Fund
borrow to meet short-term cash requirements. To the extent that a secondary
market does exist for certain Senior Loans, the market may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods. The Fund has no limitation on the
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amount of its assets that may be invested in securities that are not readily
marketable or that are subject to restrictions on resale (except as noted
elsewhere herein). The substantial portion of the Fund's assets invested in
Senior Loans may restrict the ability of the Fund to dispose of its investments
in a timely fashion and at a fair price, and could result in capital losses to
the Fund and holders of its shares. The market for Senior Loans could be
disrupted in the event of an economic downturn or a substantial increase or
decrease in interest rates. This could result in increased volatility in the
market and in the Fund's net asset value and market price per share.
If legislation or state or federal regulators impose additional requirements
or restrictions on the ability of financial institutions to make loans that are
considered highly leveraged transactions, the availability of Senior Loans for
investment by the Fund may be adversely affected. In addition, such
requirements or restrictions could reduce or eliminate sources of financing for
certain Borrowers. This would increase the risk of default. If legislation or
federal or state regulators require financial institutions to dispose of Senior
Loans that are considered highly leveraged transactions or subject such Senior
Loans to increased regulatory scrutiny, financial institutions may determine to
sell such Senior Loans. Such sales could result in prices that, in the opinion
of the Adviser, do not represent fair value. If the Fund attempts to sell a
Senior Loan at a time when a financial institution is engaging in such a sale,
the price the Fund could get for the Senior Loan may be adversely affected.
Acting in the capacity of an Agent in a Senior Loan may subject the Fund to
certain risks in addition to those associated with the Fund's current role as a
Lender. Should an Agent or a Lender positioned between the Fund and a Borrower
become insolvent or enter FDIC receivership or bankruptcy, where the Fund is an
Original Lender or has purchased an Assignment any interest of such person in
the Senior Loan and in any loan payment held by such person for the benefit of
the Fund should not be included in the person's estate. If, however, these
items are included in their estate, the Fund would incur costs and delays in
realizing payment and could suffer a loss of principal or interest.
Some Senior Loans are subject to the risk that a court, pursuant to
fraudulent conveyance or other similar laws, could subordinate the Senior Loans
to presently existing or future indebtedness of the Borrower or take other
action detrimental to Lenders. Such court action could under certain
circumstances include invalidation of Senior Loans. Any Lender, which could
include the Fund, is subject to the risk that a court could find the Lender
liable for damages in a claim by a Borrower arising under the common laws of
tort or contracts or anti-fraud provisions of certain securities laws for
actions taken or omitted to be taken by the Lenders under the relevant terms of
a Loan Agreement or in connection with actions with respect to the collateral
underlying in the Senior Loan.
Participations
The Fund may purchase Participations in Senior Loans. Under a Participation,
the Fund generally will have rights that are more limited than the rights of
Lenders or of persons who acquire a Senior Loan by Assignment. In a
Participation, the Fund typically has a contractual relationship with the
Lender selling the Participation, but not with the Borrower. As a result, the
Fund assumes the credit risk of the Lender selling the Participation in
addition to the credit risk of the Borrower. In the event of insolvency of the
Lender selling the Participation, the Fund may be treated as a general creditor
of the Lender and may not have a senior claim to the Lenders' interest in the
Senior Loan. A Lender selling a Participation and other persons interpositioned
between the Lender and the Fund with respect to Participations will likely
conduct their principal business activities in the banking, finance and
financial services industries. The Fund does not currently intend to invest
more than 20% of its total assets in such Participations but may invest a
greater portion of its assets in Participations during its period of initial
investment. To the extent the Fund invests in Participations, the Fund may be
more susceptible than a fund without such a policy to any single economic,
political or regulatory occurrence affecting such industries. The Fund has
taken measures which it believes reduce its exposure to such risks but no
assurances can be given as to their effectiveness.
Investment In Foreign Issuers
The Fund may invest up to 20% of its total assets, measured at the time of
investment, in U.S. dollar-denominated Senior Loans to Borrowers that are
organized or located in countries outside the United States.
23
<PAGE>
Although the Senior Loans will require payment of interest and principal in
U.S. dollars, these Borrowers may have significant non-U.S. dollar revenues.
Investment in foreign Borrowers involves special risks, including that foreign
Borrowers may be subject to:
. less rigorous regulatory requirements and accounting and reporting
requirements than U.S. Borrowers;
. differing legal systems and laws relating to creditors' rights;
. the potential inability to enforce legal judgments;
. economic adversity that would result if the value of the Borrower's
non-U.S. dollar-denominated revenues and assets were to fall (in
U.S. dollar-denominated terms) because of fluctuations in currency
values; and
. the potential for political, social and economic adversity in the
foreign Borrower's country.
High Yield/High Risk Securities
The Fund may invest up to 100% of its assets in Senior Loans and other
securities that are rated below investment grade, or that are unrated but
determined by the Adviser to be below investment grade quality. Securities
rated below investment grade quality are commonly known as "high-yield/high
risk" or "junk" bonds. Junk bonds, while generally offering higher yields than
investment grade securities with similar maturities and features, involve
greater risks, including the possibility of default or bankruptcy. They are
regarded as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal. The price volatility of these securities due
to factors such as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity is likely to result
in increased fluctuation in the Fund's net asset value, particularly in
response to economic downturns. See "Additional Information About the Fund's
Investments" in the Statement of Additional Information.
Leverage
The Fund intends to utilize financial leverage for investment purposes by
employing Leverage Instruments in an amount currently anticipated to represent
approximately 40% (and in no event exceeding 50%) of its total assets
(including the proceeds from such Leverage Instruments). As soon as possible
after the completion of the Common Share offering, the Fund expects to borrow
money and, within approximately three months from the completion of the Common
Share offering, the Fund expects to issue commercial paper or notes in an
aggregate amount currently anticipated to represent approximately 30% of the
Fund's total assets immediately after such borrowing or issuance. The Fund also
will issue Preferred Shares in an amount currently anticipated to represent
approximately 10% of the Fund's total assets immediately after such issuance.
The timing and terms of any transactions relating to Leverage Instruments will
be determined by the Fund's Board of Trustees.
Under the requirements of the 1940 Act, the value of the Fund's total
assets, less all liabilities and indebtedness of the Fund not represented by
senior securities, must be at least equal, immediately after any borrowing or
commercial paper or note issuance, to 300% of the aggregate value of borrowings
represented by senior securities. Upon the issuance of Preferred Shares, the
value of the Fund's total assets, less all liabilities and indebtedness of the
Fund not represented by senior securities, must be at least equal, immediately
after the issuance of the Preferred Shares, to 200% of the aggregate value of
borrowings represented by senior securities and the Preferred Shares.
If the Fund seeks an investment grade rating from one or more nationally
recognized statistical rating organizations for any commercial paper, notes or
Preferred Shares issued by the Fund (which the Fund expects to do), asset
coverage or portfolio composition provisions in addition to and more stringent
than those required by the 1940 Act may be imposed in connection with the
issuance of such a rating. In addition, restrictions may be imposed on certain
investment practices in which the Fund may otherwise engage. Any lender with
respect to borrowings by the Fund may require additional asset coverage and
portfolio composition provisions as well as restrictions on the Fund's
investment practices. See "Description of Capital Structure." The Adviser does
not anticipate that these restrictions will adversely affect the Adviser's
ability to manage the Fund's portfolio in accordance with its investment
objective and policies.
24
<PAGE>
There are risks associated with employing Leverage Instruments in an effort
to increase the yield on the Common Shares, including higher volatility of both
the net asset value and the market value of the Common Shares, and the risk
that fluctuations in the interest rates or dividend rates on the Leverage
Instruments will likely affect the yield to the Common Shareholders. So long as
the Fund is able to realize a higher return after expenses on its investment of
the proceeds of the Leverage Instruments than the then current interest rate or
dividend rate on the Leverage Instruments, the effect of the leverage will be
to cause the Common Shareholders to realize a higher return than if the Fund
were not so leveraged. On the other hand, to the extent that the then current
interest rate or dividend rate on the Leverage Instruments approaches the
return on such proceeds after expenses, the benefit of leverage to the Common
Shareholders will be reduced, and if the then current interest rate or dividend
rate on the Leverage Instruments were to exceed the return on such investment
after expenses, the Fund's leveraged capital structure would result in a lower
rate of return to the Common Shareholders than if the Fund were not so
structured.
Similarly, since any decline in the net asset value of the Fund's
investments will be borne entirely by the Common Shareholders, the effect of
leverage in a market of declining asset values would result in a greater
decrease in net asset value to the Common Shareholders than if the Fund were
not so leveraged. Any such decrease would likely be reflected in a decline in
the market price for Common Shares.
Because the fee paid to the Adviser will be calculated on the basis of total
managed assets, the fee will be higher when leverage is utilized, giving the
Adviser an incentive to utilize leverage.
The floating or variable rate nature of Senior Loans in which the Fund
invests helps mitigate against the risks of increased dividend or interest
costs as a result of increasing interest rates. The Adviser may also seek to
manage certain of the risks of financial leverage in anticipation of changes in
interest rates in a number of ways, including extending the length of the
interest rate period on any commercial paper, notes or borrowing so as to fix
an interest rate for a period of time, reducing the Fund's leverage by
redeeming all or a portion of the outstanding Preferred Shares or repaying all
or a portion of any outstanding commercial paper, notes or borrowing, entering
into certain transactions in an effort to hedge against changes in interest
rates and purchasing securities the terms of which have elements of, or are
similar in effect to, certain hedging transactions in which the Fund may
engage. There can be no assurance that the Adviser can successfully manage the
risks of leverage.
Employing Leverage Instruments will entail certain initial costs and
expenses and certain ongoing administrative and accounting expenses. These
costs and expenses will be borne by the Fund and will reduce the income or net
assets available to Common Shareholders. If the Fund's current investment
income were not sufficient to meet interest expenses on any Leverage
Instrument, the Fund might have to liquidate certain of its investments in
order to meet required dividend or interest payments. In addition, the Fund is
not permitted to declare any cash dividend or other distribution on its Common
Shares unless, at the time of such declaration, the Fund meets certain asset
coverage requirements (determined after deducting the amount of such dividend
or distribution). Such prohibition on the payment of dividends or other
distributions might impair the ability of the Fund to maintain its
qualification, for federal income tax purposes, as a regulated investment
company. The Fund intends, however, to the extent possible to repay commercial
paper, notes or borrowing, which may involve the payment by the Fund of a
premium and the sale by the Fund of portfolio securities at a time when it may
be disadvantageous to do so, to maintain such asset coverage requirements.
Subject to the restrictions of the 1940 Act, the Fund may "releverage" through
the reissuance of commercial paper, notes, or Preferred Shares or incurrence of
new borrowing, and in connection with which the Fund, and indirectly the Common
Shareholders, would incur the expenses of such releveraging. See "Tax Matters."
Assuming the utilization of leverage through (i) borrowing and issuing
commercial paper or notes in the aggregate amount currently anticipated to
represent approximately 30% of the Fund's total assets and (ii) issuing
Preferred Shares in an amount currently anticipated to represent approximately
10% of the Fund's total assets, at a combined interest and dividend rate of
5.90% 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
non-leverage expenses) in order to cover such interest payments and dividend
payments would be 2.37%. 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.
25
<PAGE>
The following table is designed to assist the investor in understanding the
effects of leverage and to illustrate the effect on the return to a holder of
the Fund's Common Shares of leverage in the amount of approximately 40% of the
Fund's total assets, assuming hypothetical annual returns of the Fund's
portfolio of minus 10% to plus 10%. As the table shows, leverage generally
increases the return to shareholders when portfolio return is positive and
greater than the cost of leverage and decreases the return when the portfolio
return is negative or less than the cost of leverage. The figures appearing in
the table are hypothetical and actual returns may be greater or less than those
appearing in the table.
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of
expenses).............................. (10)% (5)% 0% 5% 10%
Corresponding Common Share Return
Assuming 40% Leverage.................. (20.60)% (12.27)% (3.93)% 4.40% 12.73%
</TABLE>
If there are no Preferred Shares issued and outstanding, Common Shareholders
will elect all of the trustees of the Fund. If there are Preferred Shares
issued and outstanding, holders of any Preferred Shares will elect two
trustees. Under the 1940 Act, upon failure by the Fund to pay dividends on the
Preferred Shares in an amount equal to two full years' dividends arrearage, the
holders of the Preferred Shares shall be entitled to elect a majority of the
Board of Trustees until all such dividends arrearage has been paid or provided
for.
Until the Fund issues Leverage Instruments, the Fund's capital structure
will not be leveraged, and the special leverage considerations described in
this Prospectus will not apply. There can be no assurance that any commercial
paper or notes or Preferred Shares will be issued or, if issued, that the
commercial paper or notes or Preferred Shares will remain outstanding or that
the Fund will borrow or, if it borrows, that such borrowing will be continued.
Investment Practices and Special Risks
The Fund may use interest rate and other hedging transactions, lend
portfolio holdings, purchase and sell Senior Loans and other securities on a
"when issued" or "delayed delivery" basis, and use repurchase and reverse
repurchase agreements. These investment practices involve risks. The values of
certain derivatives can be affected dramatically by even small market
movements, sometimes in ways that are difficult to predict. The successful
utilization of hedging and risk management transactions requires skills
different from those needed in the selection of the Fund's portfolio
securities. Although the Adviser believes that these investment practices may
aid the Fund in achieving its investment objective, there is no assurance that
these practices will achieve this result. If these transactions are not
successful, they may result in losses.
Interest Rate Fluctuations
When interest rates decline, the value of a portfolio invested in fixed-rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a portfolio invested in fixed-rate obligations can be expected to
decline. Although the Fund's net asset value will vary, the Adviser expects the
Fund's policy of acquiring primarily interests in floating rate Senior Loans to
minimize fluctuations in net asset value resulting from changes in market
interest rates. However, because floating or variable rates on Senior Loans
only reset periodically, changes in prevailing interest rates can be expected
to cause some fluctuations in the Fund's net asset value. Similarly, a sudden
and significant increase in market interest rates, may cause a decline in the
Fund's net asset value.
Income Risk. The Fund invests primarily in Senior Loans whose interest rates
reset frequently. If market interest rates fall, these interest rates will be
reset at lower levels, reducing the Fund's income and in turn, dividends paid
to Common Shareholders.
Net Asset Value Fluctuations. The Senior Loans in which the Fund will invest
generally are not listed on any securities exchange. Certain Senior Loans are
traded by institutional investors in an over-the-counter secondary market for
Senior Loan obligations that has developed over the past several years. No
active trading market currently exists for many of the Senior Loans in which
the Fund will invest. The secondary market for those Senior Loans generally is
comparatively illiquid relative to markets for other income securities. Because
of the lack of an active trading market, Senior Loans are generally more
difficult to value than liquid securities for which an active trading market
exists. In determining net asset value, the Fund will utilize the valuations of
Senior Loans furnished by an independent third-party pricing service, which
typically values Senior Loans at the mean of the highest bona fide bid and
lowest bona fide ask prices when current quotations are readily available.
Senior Loans for which current quotations are not readily available are valued
at a fair value as
26
<PAGE>
determined by the pricing service using pricing methods and other information
and analyses, including credit considerations considered relevant by such
pricing service, to determine valuations. If the pricing service does not
provide a value for a Senior Loan, a value will be determined by the Adviser.
To the extent that an active secondary trading market in Senior Loan interests
develops to a reliable degree, the pricing service may rely to an increasing
extent on such market prices and quotations in determining valuations of the
Senior Loan interests in the Fund's portfolio. The Fund purchases Senior Loans
primarily to seek to achieve its investment objective of high current income,
consistent with preservation of capital, and does not anticipate that it will
actively trade Senior Loans. To the extent a trading market continues to
develop, certain participants in the market may have objectives other than
current income and may pursue short-term trading strategies, which may result
in erratic movements in the market prices for Senior Loans as a result of
movements in short-term interest rates or otherwise. Although the Fund's policy
of acquiring interests in floating rate Senior Loans is intended to minimize
fluctuations in net asset value resulting from changes in market interest
rates, the Fund's net asset value will fluctuate.
Non-Diversification
The Fund has registered as a "non-diversified" investment company. This
means that it may invest more than 5% of the value of its assets in the
obligations of any single issuer, including Senior Loans of a single Borrower
and Participations purchased from a single Lender. However, the Fund does not
intend to invest more than 10% of the value of its assets in Senior Loans of a
single Borrower. If the Fund invests a relatively high percentage of its assets
in obligations of a limited number of issuers, the Fund will be more at risk to
any single corporate, economic, political or regulatory event that impacts one
or more of those issuers. In addition, the Fund must satisfy certain asset
diversification rules to qualify as a regulated investment company for federal
income tax purposes.
Year 2000 Compliance
Year 2000 risk is the risk that the computer systems used by the Adviser,
its service providers and industry wide information and transaction
clearinghouses to manage the Fund's investments and process shareholder
transactions may not be able to correctly process activity occurring in the
Year 2000 because of the way computers historically have stored dates. In
addition, it is possible that the markets for Senior Loans and other securities
in which the Fund invests may be detrimentally affected by computer failures
throughout the financial services industry beginning January 1, 2000.
Improperly functioning trading systems may result in settlement problems and
liquidity issues. In addition, corporate and governmental data processing
errors may result in production problems for individual companies and overall
economic uncertainties. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in U.S. and foreign financial statements. Accordingly, the Fund's investments
may be adversely affected.
The statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of a dispute.
MANAGEMENT OF THE FUND
Trustees and Officers
The Board of Trustees is responsible for the management of the Fund,
including supervision of the duties performed by the Adviser. There are six
trustees of the Fund, one of whom is an "interested person" (as defined in the
1940 Act) and five of whom are not "interested persons." The names and business
addresses of the trustees and officers of the Fund and their principal
occupations and other affiliations during the past five years are set forth
under "Management of the Fund" in the Statement of Additional Information.
Investment Adviser
Nuveen Senior Loan Asset Management Inc., 333 West Wacker Drive, Chicago, IL
60606, serves as the investment adviser to the Fund. In this capacity, the
Adviser is responsible for the selection and ongoing monitoring of the assets
in the Fund's investment portfolio, managing the Fund's business affairs and
providing certain clerical, bookkeeping and administrative services. The
Adviser is a newly-formed, wholly-owned
27
<PAGE>
subsidiary of The John Nuveen Company, the parent of Nuveen. The John Nuveen
Company is a majority-owned subsidiary of The St. Paul Companies, Inc., a
publicly-traded company which is principally engaged in providing property-
liability insurance through subsidiaries. See the Statement of Additional
Information under "Investment Adviser."
Day to day operations and execution of specific investment strategies is
the responsibility of the Adviser. Jeffrey W. Maillet is the Executive
Managing Director of the Adviser and is primarily responsible for the day to
day management of the Fund's portfolio. Mr. Maillet has been employed by the
Adviser since August 1999. Prior to joining the Adviser, Mr. Maillet was a
Senior Vice President of Van Kampen Investment Advisory Corp. since 1989. Mr.
Maillet has 18 years experience in managing portfolios and creating
investments, particularly those featuring floating rate senior collateralized
loans to companies and other entities in diverse industries and regions. He
has managed the purchase of over 2,000 Senior Loans with an aggregate
principal amount of approximately $28 billion.
Investment Management Agreement
Pursuant to an investment management agreement between the Adviser and the
Fund, the Fund has agreed to pay for the services and facilities provided by
the Adviser an annual management fee, payable on a monthly basis, according to
the following schedule:
<TABLE>
<CAPTION>
Average Daily Managed Assets* Management Fee
- ----------------------------- --------------
<S> <C>
Less than $1 billion............................................. .8500 of 1%
$1 billion to $2 billion......................................... .8375 of 1%
$2 billion to $5 billion......................................... .8250 of 1%
$5 billion to $10 billion........................................ .8000 of 1%
$10 billion and over............................................. .7750 of 1%
</TABLE>
- --------
* For purposes of calculation of the management fee, the Fund's "managed
assets" shall mean the average daily gross asset value of the Fund, minus
the sum of the Fund's accrued and unpaid dividends on any outstanding
Preferred Shares and accrued liabilities (other than the principal amount
of any borrowings incurred, commercial paper or notes issued by the Fund
and the liquidation preference of any outstanding Preferred Shares).
Because the fee paid to the Adviser will be calculated on the basis of the
Fund's managed assets, which include the proceeds of leverage, the dollar
amount of the Adviser's fees from the Fund will be higher (and the Adviser
will be benefitted to that extent) when leverage is utilized.
In addition to the fee of the Adviser, the Fund pays all other costs and
expenses of its operations, including compensation of its trustees (other than
those affiliated with the Adviser), custodian, transfer and dividend
disbursing expenses, legal fees, expenses of independent auditors, expenses of
repurchasing shares, expenses of preparing, printing and distributing
shareholder reports, notices, proxy statements and reports to governmental
agencies, and taxes, if any.
For the first ten years of the Fund's operations, the Adviser has agreed to
reimburse the Fund for fees and expenses in the amounts, and for the time
periods, set forth below:
<TABLE>
<CAPTION>
Percentage Percentage
Reimbursed Reimbursed
(as a percentage (as a percentage
Year Ending of Managed Year Ending of Managed
Oct. 31, Assets) Oct. 31, Assets)
- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C>
1999* .45% 2005 .35%
2000 .45% 2006 .25%
2001 .45% 2007 .15%
2002 .45% 2008 .10%
2003 .45% 2009 .05%
2004 .45%
</TABLE>
- --------
* From the commencement of operations.
The Adviser has not agreed to reimburse the Fund for any portion of its fees
and expenses beyond October 31, 2009.
28
<PAGE>
NET ASSET VALUE
The Fund's net asset value per Common Share will be determined as of the
close of trading (normally 4:00 p.m. eastern time) on each day the New York
Stock Exchange is open for business. Net asset value is calculated by taking
the fair value of the Fund's total assets, including interest or dividends
accrued but not yet collected, less liabilities (including Leverage
Instruments), and dividing by the total number of shares outstanding. The
result, rounded to the nearest cent, is the net asset value per share.
The Senior Loans in which the Fund will invest generally are not listed on
any securities exchange. Certain Senior Loans are traded by institutional
investors in an over-the-counter secondary market for Senior Loan obligations
that has developed over the past several years. This secondary market for those
Senior Loans generally is comparatively illiquid relative to markets for other
income securities and no active trading market exists for many Senior Loans. In
determining net asset value, the Fund will utilize the valuations of Senior
Loans furnished to the Adviser by an independent third-party pricing service
approved by the Board of Trustees.The Board of Trustees has reviewed the
various alternatives for pricing the Fund's portfolio of Senior Loans and has
determined that the use of a pricing service is a reasonable, fair and
appropriate method of valuing Senior Loans. The Adviser has not yet entered
into an agreement, but has entered into negotiations with potential pricing
services that the Adviser expects will result in an agreement to provide
pricing services for the Fund. The Agreement is expected to be terminable by
either party and to provide that the pricing service assumes no fiduciary
responsibility to the Fund or to any investor in the Fund, and that the pricing
service will have no liability under the Agreement to any third party,
including any investor in the Fund. The Agreement is expected to provide that
the pricing service will be indemnified by the Adviser unless the pricing
service has acted with willful misconduct. The pricing service will be
explicitly permitted to act as principal for its own account in connection with
the purchase and sale (from or to the Fund or otherwise) of any Senior Loan at
any price simultaneously while it provides pricing services to the Fund.
Furthermore, the pricing service is not expected to have any obligation to
provide a valuation for a Senior Loan if it believes that it cannot determine
such a valuation and, accordingly, the pricing service may not provide
valuations for all the Senior Loans in the Fund's portfolio. There can be no
assurance that the negotiations will result in an agreement for pricing
services, or that any pricing service engaged will continue to provide those
services. However, the Adviser believes that, if the current negotiations do
not result in an agreement, or if a pricing service declines to continue to
act, one or more alternative independent third-party pricing services will be
available to provide comparable services on similar terms. During any period in
which no pricing service is acting, the Adviser will value the Fund's Senior
Loans as described below.
Pricing services typically will value Senior Loans at the mean of the
highest bona fide bid and lowest bona fide ask prices when current quotations
are readily available. Senior Loans for which current quotations will not be
readily available are valued at a fair value as determined by the pricing
service using a wide range of market data and other information and analysis,
including credit considerations considered relevant by such pricing service to
determine valuations. The procedures of any pricing service and its valuations
will be reviewed by the officers of the Adviser under the general supervision
of the Board of Trustees. If the Adviser believes that a value provided by a
pricing service does not represent a fair value as a result of information,
specific to that Senior Loan or Borrower or its affiliates, of which the
Adviser believes that the pricing agent may not be aware, the Adviser may in
its discretion value the Senior Loan, and the Fund will utilize that price
instead of the price as determined by the pricing service. In addition to such
information the Adviser will consider, among other factors, (i) the
creditworthiness of the Borrower and (ii) the current interest rate, the period
until next interest rate reset and maturity of such Senior Loan interests in
determining a fair value of a Senior Loan. If the pricing service does not
provide a value for a Senior Loan or if no pricing service is then acting, a
value will be determined by the Adviser in the manner described above.
It is expected that the Fund's net asset value will fluctuate as a function
of interest rate and credit factors. Because of the short-term nature of such
instruments, however, the Fund's net asset value is expected to fluctuate less
in response to changes in interest rates than the net asset values of
investment companies with portfolios consisting primarily of longer term fixed-
income securities.
Because a secondary trading market in Senior Loans has not yet fully
developed, the pricing service or the Adviser may not rely solely on but may
consider, to the extent they believe such information to be reliable, prices or
quotations provided by banks, dealers or other pricing services with respect to
secondary market transactions in Senior Loans. To the extent that an active
secondary trading market in Senior Loan interests
29
<PAGE>
develops to a reliable degree, the pricing service or the Adviser may rely to
an increasing extent on such market prices and quotations in reviewing the
valuations of the Senior Loan interests in the Fund's portfolio. To the extent
a trading market continues to develop, certain participants in the market may
have objectives other than current income and may pursue short-term trading
strategies, which may result in erratic movements in the market prices for
Senior Loans as a result of movements in short-term interest rates. Although
the Fund's policy of acquiring interests in floating rate Senior Loans is
intended to minimize fluctuations in net asset value resulting from changes in
market interest rates, the Fund's net asset value will fluctuate. In light of
the senior nature of Senior Loan interests that may be included in the Fund's
portfolio and taking into account the Fund's access to non-public information
with respect to Borrowers relating to such Senior Loan interests, the Adviser
does not currently believe that consideration on a systematic basis of ratings
provided by any nationally recognized statistical rating organization or price
fluctuations with respect to long- or short-term debt of such Borrowers
subordinate to the Senior Loans of such Borrowers is necessary in order to
review the value of such Senior Loan interests. Accordingly, the Adviser
generally will not systematically consider (but may consider in certain
instances) and, in any event, will not rely solely upon such ratings or price
fluctuations in determining or reviewing valuations of Senior Loan interests in
the Fund's portfolio.
See "Net Asset Value" in the Statement of Additional Information.
DISTRIBUTIONS
Commencing with the first dividend, the Fund intends to make monthly cash
distributions to Common Shareholders at a rate that reflects the past and
projected performance of the Fund. Because the Senior Loans in which the Fund
will invest have interest rates that adjust periodically with movements in
market rates of interest, the Fund's income, and therefore its monthly
distributions, should be expected to increase when market interest rates
increase and to decline as market interest rates fall. Distributions can only
be made from net investment income. The net income of the Fund consists of all
interest income accrued on portfolio assets less all expenses of the Fund
(including interest expense on borrowings or commercial paper and dividend
payments on preferred shares issued by the Fund). Expenses of the Fund are
accrued each day.
Over time, the Fund will distribute to Common Shareholders all of its net
investment income (after it pays interest on commercial paper or notes issued
by the Fund and accrued dividends on any outstanding Preferred Shares). At
least annually, the Fund also intends to distribute net capital gains, if any.
Initial distributions to Common Shareholders are expected to be declared
approximately 30 days, and paid approximately 60 days, from the completion of
this offering, depending on market conditions. Although it does not now intend
to do so, the Board of Trustees may change the Fund's dividend policy and the
amount or timing of the distributions, based on a number of factors, including
the amount of the Fund's undistributed net investment income.
To permit the Fund to maintain a more stable monthly distribution, the Fund
will initially distribute less than the entire amount of net investment income
earned in a particular period. The undistributed net investment income would be
available to supplement future distributions. As a result, the distributions
paid by the Fund for any particular monthly period may be more or less than the
amount of net investment income actually earned by the Fund during the period.
Undistributed net investment income will be added to the Fund's net asset value
and, correspondingly, distributions from undistributed net investment income
will be deducted from the Fund's net asset value.
DIVIDEND REINVESTMENT PLAN
You may elect to have all dividends or capital gains distributions on your
Common Shares, or both, automatically reinvested by The Chase Manhattan Bank,
as agent for the Common Shareholders (the "Plan Agent"), in additional Common
Shares under the Dividend Reinvestment Plan (the "Plan"). You may elect to
participate in the Plan by completing the Dividend Reinvestment Plan
Application Form. If you do not participate, you will receive all distributions
in cash paid by check mailed directly to you by The Chase Manhattan Bank as
dividend paying agent.
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If you decide to participate in the Plan, the number of Common Shares you
will receive will be determined as follows:
(1) If on the payment date of the dividend, the Common Shares are trading
at or above net asset value, the Fund will issue new shares at a price
equal to the greater of (i) net asset value per Common Share on that
date or (ii) 95% of the market price on that date.
(2) If Common Shares are trading below net asset value at the time of
valuation, the Plan Agent will receive the dividend or distribution in
cash and will purchase Common Shares in the open market, on the New
York Stock Exchange or elsewhere, for the participants' accounts. It is
possible that the market price for the Common Shares may increase
before the Plan Agent has completed its purchases. Therefore, the
average purchase price per share paid by the Plan Agent may exceed the
market price at the time of valuation, resulting in the purchase of
fewer shares than if the dividend or distribution had been paid in
Common Shares issued by the Fund. The Plan Agent will use all dividends
and distributions received in cash to purchase Common Shares in the
open market within 30 days of the dividend payment date. Interest will
not be paid on any uninvested cash payments.
You may withdraw from the Plan at any time by giving written notice to the
Plan Agent. If you withdraw or the Plan is terminated, you will receive a
certificate for each whole share in your account under the Plan and you will
receive a cash payment for any fraction of a share in your account. If you
wish, the Plan Agent will sell your shares and send you the proceeds, minus
brokerage commissions and a $2.50 service fee.
The Plan Agent maintains all shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. Common Shares in your account will be held by the
Plan Agent in non-certificated form. Any proxy you receive will include all
Common Shares you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or
distributions in Common Shares. However, all participants will pay a pro rata
share of brokerage commissions incurred by the Plan Agent when it makes open
market purchases.
Automatically reinvesting dividends and distributions does not mean that you
do not have to pay income taxes due upon receiving dividends and distributions.
In the case of Common Shareholders such as banks, brokers or nominees that
hold Common Shares for others who are the beneficial owners, the Plan Agent
will administer the Plan on the basis of the number of Common Shares certified
from time to time by the record Common Shareholder and held for the account of
beneficial owners who participate in the Plan.
The Fund reserves the right to amend or terminate the Plan if change seems
desirable to the Board of Trustees. 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. Additional
information about the Plan may be obtained from The Chase Manhattan Bank.
DESCRIPTION OF CAPITAL STRUCTURE
Common Shares
The Declaration authorizes the issuance of an unlimited number of Common
Shares, par value $.01 per share. All Common Shares have equal rights to the
payment of dividends and the distribution of assets upon liquidation. Common
Shares will, when issued, be fully paid and, subject to matters discussed in
"Certain Provisions in the Declaration of Trust," non-assessable, and will have
no pre-emptive or conversion rights or rights to cumulative voting. Whenever
the Fund utilizes Leverage Instruments, Common Shareholders will not be
entitled to receive any distributions from the Fund unless all accrued
dividends on Preferred Shares have been paid, all interest on commercial paper
or notes has been paid and (i) unless asset coverage (as defined in the 1940
Act) with respect to Preferred Shares would be at least 200% after giving
effect to the distributions
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and (ii) unless asset coverage (as defined in the 1940 Act) with respect to any
borrowing or commercial paper or note issuance would be at least 300% after
giving effect to the distributions. See "Preferred Shares" below.
The Fund has applied for listing of the Common Shares on the New York Stock
Exchange. The Fund intends to hold annual meetings of shareholders so long as
the Common Shares are listed on a national securities exchange and such
meetings are required as a condition to such listing.
The Fund's net asset value per share generally increases when interest rates
decline, and decreases when interest rates rise, and these changes are likely
to be greater because the Fund intends to have a leveraged capital structure.
Closed-end funds differ from open-end management investment companies
(commonly referred to as mutual funds) in that closed-end funds generally list
their shares for trading on a securities exchange and do not redeem their
shares at the option of the shareholder. By comparison, mutual funds issue
securities redeemable at net asset value at the option of the shareholder and
typically engage in a continuous offering of their shares. Mutual funds are
subject to continuous asset in-flows and out-flows that can complicate
portfolio management, whereas closed-end funds generally can stay more fully
invested in securities consistent with the closed-end fund's investment
objective and policies. In addition, in comparison to open-end funds, closed-
end funds have greater flexibility in the use of Leverage Instruments and in
the ability to make certain types of investments, including investments in
illiquid securities such as Senior Loans. However, shares of closed-end funds
frequently trade at a discount from their net asset value. In recognition of
the possibility that the Common Shares might trade at a discount to net asset
value and that any such discount may not be in the interest of Common
Shareholders, the Fund's Board of Trustees, in consultation with the Adviser,
from time to time may review possible actions to reduce any such discount. The
Board might consider open market repurchases or tender offers for Common Shares
at net asset value. There can be no assurance that the Board will decide to
undertake any of these actions or that, if undertaken, such actions would
result in the Common Shares trading at a price equal to or close to net asset
value per Common Share. The Board might also consider the conversion of the
Fund to an open-end mutual fund. The Board of Trustees believes, however, that
the closed-end structure is desirable, given the Fund's investment objective
and policies. Investors should assume, therefore, that it is highly unlikely
that the Board would vote to convert the Fund to an open-end investment
company.
Borrowings
The Fund's Declaration authorizes the Fund, without prior approval of the
Common Shareholders, to borrow money. In this connection, the Fund may issue
notes or other evidence of indebtedness (including bank borrowings or
commercial paper) and may secure any such borrowings by mortgaging, pledging or
otherwise subjecting as security the Fund's assets. In connection with such
borrowing, the Fund may be required to maintain minimum average balances with
the lender 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. Under the requirements of the 1940 Act, the Fund, immediately
after any such borrowings, must have an "asset coverage" of at least 300%. With
respect to any such borrowing, asset coverage means the ratio which the value
of the total assets of the Fund, less all liabilities and indebtedness not
represented by senior securities (as defined in the 1940 Act), bears to the
aggregate amount of such borrowing represented by senior securities issued by
the Fund. Certain types of borrowing may result in the Fund being subject to
covenants in credit agreements relating to asset coverages or portfolio
composition or otherwise. In addition, the Fund may be subject to certain
restrictions imposed by guidelines of one or more rating agencies which may
issue ratings for commercial paper or notes issued by the Fund. Such
restrictions may be more stringent than those imposed by the 1940 Act.
The rights of lenders to the Fund to receive interest on and repayment of
principal of any such borrowings will be senior to those of the Common
Shareholders, and the terms of any such borrowings may contain provisions which
limit certain activities of the Fund, including the payment of dividends to
Common Shareholders in certain circumstances. Further, the 1940 Act does (in
certain circumstances) grant to the lenders to the Fund certain voting rights
in the event of default in the payment of interest on or repayment of
principal. In the event that such provisions would impair the Fund's status as
a regulated investment company
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under the Code, the Fund, subject to its ability to liquidate its relatively
illiquid portfolio, intends to repay the borrowings. Any borrowing will likely
be ranked senior or equal to all other existing and future borrowings of the
Fund. The Fund may also borrow up to an additional 5% of its total assets for
temporary purposes. See "Investment Restrictions" in the Statement of
Additional Information.
The Fund currently expects that it will enter into definitive agreements
with respect to a credit facility as soon as possible after the completion of
the Common Share offering. The Fund is currently in negotiations with a small
number of money center banks to arrange a senior revolving credit facility
pursuant to which the Fund expects to be entitled to borrow an amount currently
anticipated to represent approximately 30% of the Fund's total assets as of the
closing of the offer and sale of the Common Shares offered hereby (taking the
borrowed amounts into account). Any such borrowings would constitute Leverage
Instruments. The terms of any agreements relating to such a credit facility
have not been determined and are subject to definitive agreement and other
conditions, but the Fund anticipates that such a credit facility would have
terms substantially similar to the following: (i) a final maturity not expected
to exceed three years subject to possible extension by the Fund; (ii) with
respect to each draw under the facility, an interest rate equal to the lesser
of LIBOR plus a stated premium or an alternate rate on the outstanding amount
of each such draw, reset over periods ranging from one to six months; and (iii)
payment by the Fund of certain fees and expenses including an underwriting fee,
a commitment fee on the average undrawn amount of the facility, an ongoing
administration fee and the expenses of the lenders under the facility incurred
in connection therewith. The Fund currently expects that the aggregate
annualized cost to the Fund over the life of the facility of the interest rate
and fees referred to in clauses (ii) and (iii) will not exceed an amount equal
to the stated principal amount of the facility times an amount equal to LIBOR
plus 65 basis points.
Individual draws on the facility may have maturities ranging from seven days
to one year. The facility is not expected to be convertible into any other
securities of the Fund, outstanding amounts are expected to be prepayable by
the Fund prior to final maturity without significant penalty, and there are not
expected to be any sinking fund or mandatory retirement provisions. Outstanding
amounts would be payable at maturity or such earlier times as required by the
agreement. The Fund may be required to prepay outstanding amounts under the
facility or incur a penalty rate of interest in the event of the occurrence of
certain events of default.
The Fund expects to indemnify the lenders under the facility against
liabilities they may incur in connection with the facility. In addition the
Fund expects that such a credit facility would contain covenants which, among
other things, likely will limit the Fund's ability to pay dividends in certain
circumstances, incur additional debt, change its fundamental investment
policies and engage in certain transactions including mergers and
consolidations, and may require asset coverage ratios in addition to those
required by the 1940 Act. The Fund may be required to maintain a portion of its
assets in cash or high-grade securities as a reserve against interest or
principal payments and expenses. The Fund expects that any credit facility
would have customary covenant, negative covenant and default provisions.
There can be no assurance that the Fund will enter into an agreement for a
credit facility on terms and conditions representative of the foregoing, or
that additional material terms will not apply. The Fund currently anticipates
that, within the three month period following the Common Share offering, it
will issue commercial paper in replacement of all or part of the borrowings
under the bank credit facility. If entered into, any such credit facility or
issuance of commercial paper may in the future be replaced or refinanced by
commercial paper or one or more credit facilities having substantially
different terms or by the issuance of preferred shares or debt securities.
Preferred Shares
The Fund's Agreement and Declaration of Trust (the "Declaration") authorizes
the issuance of an unlimited number of Preferred Shares, par value $.01 per
share, in one or more classes or series, with rights as determined by the Board
of Trustees, by action of the Board of Trustees without the approval of the
Common Shareholders.
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Any decision to offer Preferred Shares is subject to market conditions and
to the Board's continuing belief that leveraging the Fund's capital structure
through the issuance of Preferred Shares is likely to achieve the benefits to
the Common Shareholders described in this Prospectus. Although the terms of
the Preferred Shares will be determined by the Board of Trustees (subject to
applicable law and the Fund's Declaration) if and when it authorizes a
Preferred Shares offering, the Board has determined that the Preferred Shares,
at least initially, would likely pay cumulative dividends at rates determined
over relatively shorter-term periods (such as seven days), by providing for
the periodic redetermination of the dividend rate through an auction or
remarketing procedure. The preference on distribution, liquidation preference,
voting rights and redemption provisions of the Preferred Shares will likely be
as stated below.
Under the 1940 Act, the Fund could issue Preferred Shares with an aggregate
liquidation value of up to one-half of the value of the Fund's total net
assets measured immediately after issuance of the Preferred Shares.
"Liquidation value" means the original purchase price, less the value of any
senior securities representing indebtedness then outstanding, of the shares
being liquidated plus any accrued and unpaid dividends. In addition, the Fund
is not permitted to declare any cash dividend or other distribution on its
Common Shares unless the liquidation value of the Preferred shares is less
than one-half of the value of the Fund's total net assets (determined after
deducting the amount of such dividend or distribution) immediately after the
distribution.
The Preferred Shares would have complete priority over the Common Shares as
to distribution of assets.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Fund, holders of Preferred Shares would be
entitled to receive a preferential liquidating distribution (expected to equal
the original purchase price per share plus accumulated and unpaid dividends
thereon, whether or not earned or declared) before any distribution of assets
is made to holders of Common Shares.
Preferred Shares would be required to be voting shares and to have equal
voting rights with Common Shares. Except as otherwise indicated in this
Prospectus or the Statement of Additional Information and except as otherwise
required by applicable law, holders of Preferred Shares will vote together
with Common Shareholders as a single class.
Holders of Preferred Shares, voting as a separate class, would be entitled
to elect two of the Fund's trustees. The remaining trustees will be elected by
Common Shareholders and holders of Preferred Shares, voting together as a
single class. In the unlikely event that two full years of accrued dividends
are unpaid on the Preferred Shares, the holders of all outstanding Preferred
Shares, voting as a separate class, would be entitled to elect a majority of
the Fund's trustees until all dividends in arrears have been paid or declared
and set apart for payment. In order for the Fund to take certain actions or
enter into certain transactions, a separate class vote of holders of Preferred
Shares will be required, in addition to the single class vote of the holders
of Preferred Shares and Common Shares.
The terms of the Preferred Shares may provide that they are redeemable at
certain times, in whole or in part, at the original purchase price per share
plus accumulated dividends. The terms may also state that the Fund may tender
for or purchase Preferred Shares and resell any shares so tendered. Any
redemption or purchase of Preferred Shares by the Fund will reduce the
leverage applicable to Common Shares, while any resale of shares by the Fund
will increase such leverage. See "Risks."
The discussion above describes the Board of Trustees' present intention
with respect to a possible offering of Preferred Shares. If the Board of
Trustees determines to authorize such an offering, the terms of the Preferred
Shares may be the same as, or different from, the terms described above,
subject to applicable law and the Fund's Declaration.
The Fund may be subject to certain restrictions imposed by guidelines of
one or more rating agencies which may issue ratings for Preferred Shares
issued by the Fund. These guidelines may impose asset coverage or Fund
composition requirements that are more stringent than those imposed on the
Fund by the 1940 Act. The Adviser does not believe that these covenants or
guidelines will impede it from managing the Fund's portfolio in accordance
with the Fund's investment objective and policies.
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CERTAIN PROVISIONS IN THE DECLARATION OF TRUST
Under Massachusetts law, shareholders could, in certain circumstances, be
held personally liable for the obligations of the Fund. However, the
Declaration contains an express disclaimer of shareholder liability for debts
or obligations of the Fund and requires that notice of such limited liability
be given in each agreement, obligation or instrument entered into or executed
by the Fund or the trustees. The Declaration further provides for
indemnification out of the assets and property of the Fund for all loss and
expense of any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund would be
unable to meet its obligations. The Fund believes that the likelihood of such
circumstances is very remote.
The Declaration includes provisions that could limit the ability of other
entities or persons to acquire control of the Fund or to convert the Fund to
open-end status. Specifically, the Declaration requires a vote by holders of at
least two-thirds of the Common Shares and Preferred Shares, voting together as
a single class, except as described below, to authorize (1) a conversion of the
Fund from a closed-end to an open-end investment company, (2) a merger or
consolidation of the Fund, or a series or class of the Fund, with any
corporation, association, trust or other organization or a reorganization or
recapitalization of the Fund, or a series or class of the Fund, (3) a sale,
lease or transfer of all or substantially all of the Fund's assets (other than
in the regular course of the Fund's investment activities), (4) in certain
circumstances, a termination of the Fund, or a series or class of the Fund, or
(5) a removal of trustees by shareholders, and then only for cause, unless,
with respect to (1) through (4), such transaction has already been authorized
by the affirmative vote of two-thirds of the total number of trustees fixed in
accordance with the Declaration or the By-laws, in which case the affirmative
vote of the holders of at least a majority of the Fund's Common Shares and
Preferred Shares outstanding at the time, voting together as a single class, is
required, provided, however, that where only a particular class or series is
affected (or, in the case of removing a trustee, when the trustee has been
elected by only one class), only the required vote by the applicable class or
series will be required. None of the foregoing provisions may be amended except
by the vote of at least two-thirds of the Common Shares and Preferred Shares,
voting together as a single class. In the case of the conversion of the Fund to
an open-end investment company, or in the case of any of the foregoing
transactions constituting a plan of reorganization which adversely affects the
holders of Preferred Shares, the action in question will also require the
affirmative vote of the holders of at least two-thirds of the Fund's Preferred
Shares outstanding at the time, voting as a separate class, or, if such action
has been authorized by the affirmative vote of two-thirds of the total number
of trustees fixed in accordance with the Declaration or the By-laws, the
affirmative vote of the holders of at least a majority of the Fund's Preferred
Shares outstanding at the time, voting as a separate class. The votes required
to approve the conversion of the Fund from a closed-end to an open-end
investment company or to approve transactions constituting a plan of
reorganization which adversely affects the holders of Preferred Shares are
higher than those required by the 1940 Act. The Board of Trustees believes that
the provisions of the Declaration relating to such higher votes are in the best
interest of the Fund and its shareholders.
The provisions of the Declaration described above could have the effect of
depriving the Common Shareholders of opportunities to sell their Common Shares
at a premium over the then current market price of the Common Shares by
discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. The overall effect of these provisions is
to render more difficult the accomplishment of a merger or the assumption of
control by a third party. They provide, however, the advantage of potentially
requiring persons seeking control of the Fund to negotiate with its management
regarding the price to be paid and facilitating the continuity of the Fund's
investment objective and policies. The Board of Trustees of the Fund has
considered the foregoing anti-takeover provisions and concluded that they are
in the best interests of the Fund and its Common Shareholders.
Reference should be made to the Declaration on file with the Securities and
Exchange Commission for the full text of these provisions.
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REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
Common Shares will trade in the open market at a price that will be a function
of several factors, including dividend levels (which are in turn affected by
expenses), net asset value, price, dividend stability, relative demand for and
supply of such shares in the market, general market and economic conditions and
other factors. Because shares of closed-end investment companies may frequently
trade at prices lower than net asset value, the Fund's Board of Trustees has
currently determined that, at least annually, it will consider action that
might be taken to reduce or eliminate any material discount from net asset
value in respect of Common Shares, which may include the repurchase of such
shares in the open market or in private transactions, the making of a tender
offer for such shares at net asset value, or the conversion of the Fund to an
open-end investment company. The Fund cannot assure you that its Board of
Trustees will decide to take any of these actions, or that share repurchases or
tender offers will actually reduce market discount.
If the Fund converted to an open-end company, it would be required to redeem
all Preferred Shares then outstanding (requiring in turn that it liquidate a
portion of its investment portfolio) and repay all outstanding borrowings and
commercial paper or notes, and the Common Shares would no longer be listed on
the New York Stock Exchange. In contrast to a closed-end investment company,
shareholders of an open-end investment company may require the company to
redeem their shares at any time (except in certain circumstances as authorized
by or under the 1940 Act) at a price based on their net asset value, less any
redemption charge that is in effect at the time of redemption. Because its
shares are redeemable, an open-end fund is required to invest no more than 15%
of its total assets in illiquid securities. Many Senior Loans are illiquid,
which might require that the Fund change its overall investment strategy if a
decision were made to convert the Fund to an open-end fund. The Board of
Trustees believes that the closed-end fund structure is desirable, given the
Fund's investment objective and policies, and the generally illiquid nature of
Senior Loans. Investors should assume, therefore, that it is highly unlikely
that the Board would vote to convert the Fund to an open-end investment
company. See "Certain Provisions in the Declaration of Trust" for a discussion
of the voting requirements applicable to the conversion of the Fund to an open-
end company.
Before deciding whether to take any action if the Common Shares trade below
net asset value, the Board would consider all relevant factors, including the
extent and duration of the discount, the liquidity of the Fund's portfolio, the
impact of any action that might be taken on the Fund or its shareholders, and
market considerations. Based on these considerations, even if the Fund's shares
should trade at a discount, the Board of Trustees may determine that, in the
interest of the Fund and its shareholders, no action should be taken.
TAX MATTERS
The discussion below and in the Statement of Additional Information provides
general tax information related to an investment in the Common Shares. Because
tax laws are complex and often change, you should consult your tax adviser
about the tax consequences of an investment in the Fund.
The Fund intends to elect and to qualify each year to be treated as a
regulated investment company under Subchapter M of the Code. If the Fund so
qualifies and distributes each year to its Common Shareholders at least 90% of
its net investment income (including, among other things, interest and net
short-term capital gains, but not net capital gains, which are the excess of
net long-term capital gains over net short-term capital losses) from that year,
the Fund will not be required to pay federal income taxes on any income
distributed to Common Shareholders. The Fund will not be subject to federal
income tax on any net realized capital gains distributed to Common
Shareholders. As a Massachusetts business trust, the Fund will not be subject
to any excise or income taxes in Massachusetts as long as it qualifies as a
regulated investment company for federal income tax purposes.
If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its Common Shareholders) and all distributions out of
earnings and profits would be taxed to Common Shareholders as ordinary income.
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Distributions
Distributions of the Fund's net investment income are taxable to Common
Shareholders as ordinary income, whether paid in cash or reinvested in
additional Common Shares. Distributions of the Fund's net realized capital
gains ("capital gain dividends"), if any, are taxable to Common Shareholders at
the rates applicable to long-term capital gains regardless of the length of
time Common Shares of the Fund have been held by such Common Shareholders. For
a summary of the tax rates applicable to capital gains (including capital gain
dividends), see "Capital Gains Rates" below. The Fund will inform Common
Shareholders of the source and tax status of all distributions promptly after
the close of each calendar year. For a discussion of the allocation of capital
gain dividends between Common Shareholders and holders of Preferred Shares, if
any, see "Tax Matters" in the Statement of Additional Information.
Sale of Shares
Except as discussed below, selling Common Shareholders will generally
recognize gain or loss in an amount equal to the difference between their
adjusted tax basis in the Common Shares and the amount received. If such Common
Shares are held as a capital asset, the gain or loss will be a capital gain or
loss. For a summary of the tax rates applicable to capital gains, see "Capital
Gains Rates" below. The federal income tax consequences of the repurchase by
the Fund of Common Shares pursuant to tender offers will be disclosed in the
related offering documents. Any loss recognized upon a taxable disposition of
Common Shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends received with respect
to such Common Shares. For purposes of determining whether Common Shares have
been held for six months or less, the holding period is suspended for any
periods during which the Common Shareholder's risk of loss is diminished as a
result of holding one or more other positions in substantially similar or
related property or through certain options or short sales.
Capital Gains Rates
The maximum tax rate applicable to net capital gains with respect to
securities recognized by individuals and other non-corporate taxpayers is (i)
the same as the maximum ordinary income tax rate for capital assets held for
one year or less and (ii) 20% for capital assets held for more than one year.
Common Shareholders should consult their tax advisors regarding a certain
election to mark-to-market Common Shares held on January 1, 2001. The maximum
net capital gains tax rate for corporations is 35%.
Non-U.S. Shareholders
A Common Shareholder that is not a "United States person" within the meaning
of the Code (a "Non-U.S. Shareholder") generally will be subject to a
withholding tax of 30% (or lower applicable treaty rate) on dividends from the
Fund (other than capital gain dividends) that are not "effectively connected"
with a United States trade or business carried on by such Common Shareholder.
Accordingly, investment in the Fund is likely to be appropriate for a Non-U.S.
Shareholder only if such person can utilize a foreign tax credit or
corresponding tax benefit in respect of such United States withholding tax.
Non-effectively connected capital gain dividends and gains realized from the
sale of Common Shares will not be subject to United States federal income tax
in the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-
U.S. Shareholder that is not present in the United States for more than 182
days during the taxable year (assuming that certain other conditions are met).
Prospective foreign investors should consult their U.S. tax advisors concerning
the tax consequences to them of an investment in Common Shares.
Possible Legislative Changes
Congress is currently considering amendments to the federal income tax laws
that could, if enacted, alter the tax rates applicable to ordinary income and
capital gains and make other changes that could be relevant to shareholders of
the Fund. It cannot be predicted whether any of these changes (or other
legislative amendments) will become law or when they will take effect.
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OTHER MATTERS
A lawsuit brought in June 1996 (Green et al. v. Nuveen Advisory Corp., et
al.) by certain individual common shareholders of six leveraged closed-end
funds sponsored by Nuveen is currently pending in federal district court. The
plaintiffs allege that the leveraged closed-end funds engaged in certain
practices that violated various provisions of the 1940 Act and common law. The
plaintiffs also alleged, among other things, breaches of fiduciary duty by the
funds' directors and Nuveen Advisory Corp., an affiliate of the Adviser, and
various misrepresentations and omissions in prospectuses and shareholder
reports relating to the use of leverage through the issuance and periodic
auctioning of preferred stock and the basis of the calculation and payment of
management fees to Nuveen Advisory Corp. and Nuveen. Plaintiffs also filed a
motion to certify defendant and plaintiff classes.
The defendants are vigorously defending the case and filed motions to
dismiss the entire lawsuit asserting that the claims are without merit and to
oppose certification of any classes. By opinion dated March 30, 1999, the court
granted most of the defendants' motion to dismiss and denied plaintiffs' motion
to certify defendant and plaintiff classes. The court dismissed all claims
against the funds, the funds' directors and Nuveen. The court dismissed these
claims without prejudice (which means that the plaintiffs can re-file the
claims if they can correct the defects that led to the claims being dismissed)
on the ground that the claims should have been brought as derivative claims on
behalf of the funds. The only remaining claim is brought under Section 36(b) of
the 1940 Act against Nuveen Advisory Corp., and relates solely to advisory fees
Nuveen Advisory Corp. received from the six relevant funds. Discovery is
underway on that single claim. While the Fund cannot assure you that the
litigation will be decided in Nuveen Advisory Corp.'s favor, the Adviser
believes a decision, if any, against the defendants would have no material
effect on the Fund, its Common Shares, or the ability of the Adviser to perform
its duties under the investment management agreement.
38
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York, as
lead manager, and John Nuveen & Co. Incorporated, Deutsche Bank Securities
Inc., A.G. Edwards & Sons, Inc., Prudential Securities Incorporated, First
Union Securities, Inc., Janney Montgomery Scott LLC and Legg Mason Wood Walker
Incorporated as their representatives (the "Representatives"), have severally
agreed, subject to the terms and conditions of the Underwriting Agreement with
the Fund and the Adviser (the "Underwriting Agreement"), to purchase from the
Fund the number of Common Shares set forth opposite their respective names. The
Underwriters are committed to purchase all of such Common Shares if any are
purchased.
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
<S> <C>
PaineWebber Incorporated......................................
John Nuveen & Co. Incorporated................................
Deutsche Bank Securities Inc..................................
A.G. Edwards & Sons, Inc......................................
Prudential Securities Incorporated............................
First Union Securities, Inc...................................
Janney Montgomery Scott LLC...................................
Legg Mason Wood Walker Incorporated...........................
Bear, Stearns & Co., Inc......................................
CIBC World Markets Corp.......................................
Schroder & Co. Inc............................................
SG Cowen Securities Corporation...............................
Advest, Inc...................................................
Robert W. Baird & Co. Incorporated............................
BHC Securities................................................
J.C. Bradford & Co............................................
Crowell, Weedon & Co..........................................
Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated.................................................
Fahnestock & Co. Inc..........................................
Fidelity Capital Markets - a division of National Financial
Services.....................................................
Fifth Third Securities, Inc...................................
First Albany Corporation......................................
First Security Van Kasper.....................................
Gibraltar Securities Co.......................................
Gruntal & Co., L.L.C..........................................
Josephthal & Company Inc......................................
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
<S> <C>
McDonald Investments Inc., a KeyCorp Company...................
Morgan Keegan & Company, Inc...................................
David A. Noyes & Company, Inc..................................
Parker/Hunter Incorporated.....................................
Pennsylvania Merchant Group Ltd................................
Ragen McKenzie Incorporated....................................
The Robinson-Humphrey Company, Inc.............................
Scott & Stringfellow Inc.......................................
Stephens Inc...................................................
Suntrust Equitable Securities Corporation......................
Sutro & Co. Incorporated.......................................
Tucker, Anthony Cleary Gull....................................
C. E. Unterberg, Towbin........................................
U.S. Bancorp Piper Jaffray Inc.................................
Waichovia Securities, Inc......................................
Wedbush Morgan Securities Inc..................................
Allen & Company of Florida, Inc................................
American Frontier Financial Corporation........................
Anderson & Strudwick, Inc......................................
Branch, Cabell and Company.....................................
City Securities Corporation....................................
D. A. Davidson & Co. Inc.......................................
Allen C. Ewing & Co............................................
Ferris, Baker Watts Incorporated...............................
J. B. Hanauer & Co.............................................
Hazlett, Burt & Watson, Inc....................................
J. J. B. Hilliard, W. L. Lyons, Inc............................
Howe, Barnes Investments Inc...................................
Huntleigh Securities Corporation...............................
JW Genesis Capital Markets, LLC................................
Kirkpatrick, Pettis, Smith, Polian Incorporated................
Mesirow Financial, Inc.........................................
Moors & Cabot, Inc.............................................
NatCity Investment, Inc........................................
M. L. Stern & Co., Inc.........................................
Stifel, Nicolaus & Company Incorporated........................
TD Securities (USA) Inc........................................
H.C. Wainwright & Co., Inc.....................................
Total........................................................
</TABLE>
The Fund has granted to the Underwriters an option, exercisable for 45 days
from the date of this Prospectus to purchase up to an additional Common
Shares to cover over-allotments, if any, at the initial offering price. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments incurred in the sale of the Common Shares offered hereby. To the
extent that the Underwriters exercise this option, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase an
additional number of Common Shares proportionate to such Underwriter's initial
commitment.
40
<PAGE>
The Fund has agreed to pay a commission to the Underwriters in the amount of
$ per Common Share ( % of the public offering price per Common Share)
or an aggregate amount of $ ($ assuming full exercise of the over-
allotment option) for all Common Shares covered by this Prospectus. The
Representatives have advised the Fund that the Underwriters may pay up to $
per Common Share from such commission to selected dealers who sell the Common
Shares and that such dealers may reallow a concession of up to $ per Common
Share to certain other dealers who sell Common Shares. As set forth on the
cover page of this Prospectus, Nuveen has agreed to pay (i) all organizational
expenses and (ii) offering costs (other than the sales load) that exceed $.01
per Common Share.
Prior to this offering, there has been no public market for the Common
Shares or any other securities of the Fund. The Common Shares have been
approved for listing on the New York Stock Exchange, subject to
notice of issuance. The trading or "ticker" symbol of the Fund is expected to
be "NSL." In order to meet the requirements of listing the Common Shares on the
New York Stock Exchange, the Underwriters have undertaken to sell lots of 100
or more Common Shares to a minimum of 2,000 beneficial holders. The minimum
investment requirement is 100 Common Shares ($1,000 worth).
The Fund and the Adviser have agreed to indemnify the several Underwriters
for or to contribute to the losses arising out of certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
The Fund has agreed not to offer or sell any equity securities of the Fund,
other than as contemplated by this Prospectus, for a period of 180 days after
the date of the Underwriting Agreement without the prior written consent of the
Representatives.
The Representatives have informed the Fund that the Underwriters do not
intend to confirm sale to any accounts over which they exercise discretionary
authority.
The Underwriters may take certain actions to discourage short-term trading
of Common Shares during a period of time following the initial offering date.
Included in these actions is the withholding of the concession and other
payments to dealers in connection with Common Shares which were sold by such
dealers and which are repurchased for the account of the Underwriters during
such period. In addition, physical delivery of certificates representing Common
Shares is required to transfer ownership of Common Shares for a certain period.
Until the distribution of Common Shares is completed, rules of the SEC may
limit the ability of the Underwriters and certain selling group members to bid
for and purchase the Common Shares. As an exception to these rules, the
Underwriters are permitted to engage in certain transactions that stabilize the
price of the Common Shares. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Common Shares.
If the Underwriters create a short position in this Prospectus, then the
Underwriters may reduce that short position by purchasing Common Shares in the
open market. The Underwriters may also elect to reduce any short position by
exercising all or a part of the overallotment option described above. 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. In addition, the Underwriters may
impose "penalty bids" under contractual arrangements with dealers participating
in the offering whereby they may reclaim the selling concession with respect to
Common Shares distributed in the offering but subsequently purchased for the
account of the Underwriters in the open market. Neither the Fund nor the
Underwriters make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Shares. In addition, neither the Fund nor the Underwriters
make any representation that the Underwriters will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
Under the terms of and subject to the conditions of the Underwriting
Agreement, the Underwriters are committed to purchase and pay for all Common
Shares offered hereby if any are purchased. The Underwriting Agreement provides
that it may be terminated at or prior to the closing date for the purchase of
the Common Shares if, in the judgement of the Representatives, payment for the
delivery of the Common Shares is rendered impracticable or inadvisable because
(1) trading in the equity securities of the Fund is suspended by the SEC,
41
<PAGE>
by the principal exchange that lists the Common Shares, (2) trading in
securities generally on the New York Stock Exchange, the American Stock
Exchange or the National Association of Securities Dealers Automated Quotation
National Market System ("Nasdaq") shall have been suspended or limited or
minimum or maximum prices shall have been generally established on such
exchange or over-the-counter market, (3) additional material governmental
restrictions not in force on the date of the Underwriting Agreement, have been
imposed upon trading in securities or trading has been suspended on any U.S.
securities exchange, (4) a general banking moratorium has been established by
U.S. Federal or New York authorities, or (5) any material adverse change in the
financial or securities markets in the United States or in political, financial
or economic conditions in the United States or any outbreak or material
escalation of hostilities or declaration by the United States of a national
emergency or war or other calamity or crisis occurs, the effect of which is
such as to make it impracticable or inadvisable to market any or all of the
Common Shares. The Underwriting Agreement also may be terminated if any of the
conditions specified in the Underwriting Agreement have not been fulfilled when
and as required by such agreement.
The Fund anticipates that the Representatives and certain other Underwriters
may from time to time act as brokers and dealers in connection with the
execution of its portfolio transactions after they have ceased to be
Underwriters and, subject to certain restrictions, may act as such brokers
while they are Underwriters.
Nuveen, one of the Representatives, is an affiliate of the Adviser.
CUSTODIAN AND TRANSFER AGENT
Chase Bank of Texas, National Association, 600 Travis Street, Houston, Texas
77002, is the custodian of the Fund and will maintain custody of the securities
and cash of the Fund. The custodian performs custodial, fund accounting and
portfolio accounting services. The Fund's transfer, shareholder services and
dividend paying agent is The Chase Manhattan Bank, 4 New York Plaza, New York,
New York 10004.
LEGAL OPINIONS
Certain legal matters in connection with the Common Shares will be passed
upon for the Fund by Bell, Boyd & Lloyd, Chicago, Illinois, and for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois). Bell, Boyd &
Lloyd may rely as to certain matters of Massachusetts law on the opinion of
Bingham Dana LLP, Boston, Massachusetts.
42
<PAGE>
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Use of Proceeds............................................................ B-2
Investment Objective....................................................... B-2
Investment Restrictions.................................................... B-2
Additional Information About the Fund's Investments........................ B-5
Management of the Fund..................................................... B-8
Investment Adviser......................................................... B-13
Portfolio Transactions..................................................... B-15
Net Asset Value............................................................ B-16
Tax Matters................................................................ B-18
Performance Related and Comparative Information............................ B-21
Experts.................................................................... B-26
Additional Information..................................................... B-27
Report of Independent Auditors............................................. B-28
Financial Statements....................................................... B-29
Ratings of Investments (Appendix A)........................................ A-1
</TABLE>
43
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
Nuveen Senior Income Fund
[nuveen logo]
---------------
PROSPECTUS
---------------
PaineWebber Incorporated
John Nuveen & Co.
Incorporated
Deutsche Banc Alex. Brown
A.G. Edwards & Sons, Inc.
Prudential Securities
First Union Securities, Inc.
Janney Montgomery Scott LLC
Legg Mason Wood Walker
Incorporated
----------------
, 1999
Until , 1999, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may
be required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as Underwriters and with respect to
their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this Statement of Additional Information is not complete
and may be changed. No person may sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION--DATED October 26, 1999
Nuveen Senior Income Fund
STATEMENT OF ADDITIONAL INFORMATION
Nuveen Senior Income Fund (the "Fund") is a newly organized, closed-end,
non-diversified management investment company. The Fund's investment objective
is to seek a high level of current income, consistent with preservation of
capital. This Statement of Additional Information relating to common shares of
the Fund ("Common Shares") does not constitute a prospectus, but should be read
in conjunction with the Fund's Prospectus relating thereto dated ________, 1999
(the "Prospectus"). This Statement of Additional Information does not include
all information that a prospective investor should consider before purchasing
Common Shares, and investors should obtain and read the Prospectus prior to
purchasing such shares. A copy of the Prospectus may be obtained without charge
by calling (800) 257-8787. You may also obtain a copy of the Prospectus on the
Securities and Exchange Commission's web site (http://www.sec.gov). Capitalized
terms used but not defined in this Statement of Additional Information have the
meanings ascribed to them in the Prospectus.
TABLE OF CONTENTS
Page
----
Use of Proceeds B-2
Investment Objective B-2
Investment Restrictions B-2
Additional Information About the Fund's Investments B-5
Management of the Fund B-8
Investment Adviser B-13
Portfolio Transactions B-15
Net Asset Value B-16
Tax Matters B-18
Performance Related and Comparative Information B-21
Experts B-26
Additional Information B-27
Report of Independent Auditors B-28
Financial Statements B-29
Ratings of Investments (Appendix A) A-1
This Statement of Additional Information is dated __________, 1999
B-1
<PAGE>
USE OF PROCEEDS
The net proceeds of the offering of Common Shares of the Fund will be
approximately: $_______ ($_______ if the Underwriters exercise the over-
allotment option in full) after payment of organization and offering costs.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek a high level of current income,
consistent with preservation of capital. The Fund seeks to achieve its objective
primarily by investing in senior secured loans whose interest rates adjust
periodically based on a benchmark index such as the Prime Rate or LIBOR.
Although the Fund's net asset value will vary, the Fund's policy of acquiring
interests in floating or variable rate, U.S. dollar-denominated senior loans
("Senior Loans") is expected to minimize the fluctuations in the Fund's net
asset value as a result of changes in interest rates. The Fund's net asset value
may be affected by changes in the credit quality of borrowers with respect to
Senior Loan interests in which the Fund invests. Fluctuations in net asset value
may be magnified as a result of the Fund's use of leverage. In addition, the
Fund's use of leverage may affect the Fund's ability to make distributions. The
Common Shares may trade at a discount or premium to net asset value. An
investment in the Fund may not be appropriate for all investors and is not
intended to be a complete investment program. No assurance can be given that the
Fund will achieve its investment objective. For further discussion of the
characteristics of Senior Loan interests and associated special risk
considerations, see "The Fund's Investments" in the Prospectus.
INVESTMENT RESTRICTIONS
The Fund's investment objective and certain fundamental investment policies
of the Fund are described in the Prospectus. The Fund, as a fundamental policy,
may not, without the approval of the holders of a majority of the shares of the
Fund:
1. Purchase any security if, as a result of such purchase, 25% or more of
the Fund's total assets (taken at current value) would be invested in
the securities of borrowers and other issuers having their principal
business activities in the same industry (the electric, gas, water and
telephone utility industries, commercial banks, thrift institutions
and finance companies being treated as separate industries for
purposes of this restriction); provided, that this limitation shall
not
B-2
<PAGE>
apply with respect to obligations issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities and provided
further that for purposes of this limitation, the term "issuer" shall
not include a lender selling a participation to the Fund together with
any other person interpositioned between such lender and the Fund with
respect to a participation.
2. Borrow money, except as permitted by the 1940 Act.
3. Issue senior securities, as defined in the 1940 Act, other than (i)
preferred shares which immediately after issuance will have asset
coverage of at least 200%, (ii) indebtedness which immediately after
issuance will have asset coverage of at least 300%, or (iii) the
borrowings permitted by investment restriction 2. above.
4. Make loans of money or property to any person, except for obtaining
interests in Senior Loans in accordance with its investment objective,
through loans of portfolio securities or the acquisition of securities
subject to repurchase agreements.
5. Act as an underwriter of securities, except to the extent the Fund may
be deemed to be an underwriter in certain cases when disposing of its
portfolio investments or acting as an agent or one of a group of co-
agents in originating senior loans.
6. Purchase or sell real estate, commodities or commodities contracts
except pursuant to the exercise by the Fund of its rights under loan
agreements, except to the extent the interests in senior loans the
Fund may invest in are considered to be interests in real estate,
commodities or commodities contracts and except to the extent that
hedging instruments the Fund may invest in are considered to be
commodities or commodities contracts.
In addition to the foregoing fundamental investment policies, the Fund is
also subject to the following non-fundamental restrictions and policies, which
may be changed by the Board of Trustees. The Fund may not:
B-3
<PAGE>
1. Purchase any securities (other than obligations issued or guaranteed
by the United States Government or by its agencies or
instrumentalities), if as a result more than 10% of the Fund's total
assets would then be invested in securities of a single issuer or if
as a result the Fund would hold more than 10% of the outstanding
voting securities of any single issuer; provided that, with respect to
50% of the Fund's assets, the Fund may invest up to 25% of its assets
in the securities of any one issuer. For purposes of this restriction,
the term issuer includes both the borrower under a loan agreement and
the lender selling a participation to the Fund together with any other
persons interpositioned between such lender and the Fund with respect
to a participation.
2. Sell any security "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell financial futures or
options, except to the extent that the hedging transactions in which
the Fund may engage would be deemed to be any of the foregoing
transactions.
3. Invest in securities of other investment companies, except that the
Fund may purchase securities of other investment companies to the
extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the Securities and
exchange Commission under the 1940 Act, as amended from time to time,
or (iii) an exemption or other relief from the provisions of the 1940
Act. The Fund will rely on representations of borrowers in loan
agreements in determining whether such borrowers are investment
companies.
4. Make investments for the purpose of exercising control or
participation in management, except to the extent that exercise by the
Fund of its rights under loan agreements would be deemed to constitute
such control or participation.
For purposes of non-fundamental investment restriction number 1, the Fund
will consider all relevant factors in determining whether to treat the Lender
selling a Participation and any persons interpositioned between such Lender and
the Fund as an issuer, including: the terms of the Loan Agreement and other
relevant agreements (including inter-creditor agreements and any agreements
between such person and the Fund's custodian); the credit quality of such Lender
or interpositioned person; general economic conditions applicable to such Lender
or interpositioned person; and other factors relating to the degree of credit
risk, if any, of such Lender or interpositioned person incurred by the Fund.
The Fund generally will not engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as it
deems advisable in view of prevailing or anticipated market conditions to
accomplish the Fund's investment objective. For example, the Fund may sell
portfolio securities in anticipation of a movement in interest rates. Frequency
of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. The Fund anticipates that the
annual portfolio turnover rate of the Fund will not be in excess of 100%. A high
rate of portfolio turnover involves correspondingly greater expenses than a
lower rate, which expenses must be borne by the Fund and its shareholders.
The foregoing restrictions and limitations will apply only at the time of
purchase of securities, and the percentage limitations will not be considered
violated unless an excess or deficiency occurs or exists immediately after and
as a result of an acquisition of securities, unless otherwise indicated.
The foregoing fundamental investment policies, together with the investment
objective of the Fund, cannot be changed without approval by holders of a
"majority of the Fund's outstanding voting shares." As defined in the 1940 Act,
this means the vote of (i) 67% or more of the Fund's shares present at a
meeting, if the holders of more than 50% of the Fund's shares are present or
represented by proxy, or (ii) more than 50% of the Fund's shares, whichever is
less.
The Fund is an entity commonly known as a "Massachusetts business trust."
Under Massachusetts law, shareholders of a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration contains an express disclaimer of shareholder liability
for acts or obligations of the Fund and requires that notice of this disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Fund or the trustees. The Declaration further provides for indemnification
out of the assets and property of the Fund for all loss and expense of any
shareholder personally liable for the obligations of the Fund. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
B-4
<PAGE>
is limited to circumstances in which both inadequate insurance existed and the
Fund itself were unable to meet its obligations. The Fund believes the
likelihood of these circumstances is remote.
ADDITIONAL INFORMATION ABOUT THE FUND'S INVESTMENTS
Originating Senior Loans
Senior Loans are typically arranged through private negotiations between a
borrower ("Borrower") and several lenders ("Lenders") represented in each case
by one or more such Lenders acting as agent of the several Lenders (the
"Agent"). On behalf of the several Lenders, the Agent, which is frequently the
entity that originates the Senior Loan and invites the other parties to join the
lending syndicate, will be primarily responsible for negotiating the Senior Loan
agreements that establish the relative terms, conditions and rights of the
Borrower and the several Lenders (the "Loan Agreements"). The co-agents, on the
other hand, are not responsible for administration of a Senior Loan, but are
part of the initial group of Lenders that commit to providing funding for a
Senior Loan. In large transactions, it is common to have several Agents;
however, one such Agent typically has primary responsibility for documentation
and administration of the Senior Loan. The Fund will not act as sole Agent in a
transaction. The Agent is required to administer and manage the Senior Loan and
to service or monitor the collateral. The Agent is also 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 Loan Agreement. The Agent is responsible for monitoring compliance by the
Borrower with the restrictive covenants in the loan agreement and of notifying
the Lenders of any adverse change in the Borrower's financial condition. In
addition, the Agent generally is responsible for determining that the Lenders
have obtained a perfected security interest in the collateral securing the
Senior Loan.
Lenders generally rely on the Agent to collect their portion of the
payments on the Senior Loan and to use appropriate creditor remedies against the
Borrower. Typically under Loan Agreements, the Agent is given broad discretion
in enforcing the Loan Agreement. The Borrower compensates the Agent 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. The precise
duties and rights of an Agent are defined in the Loan Agreement.
When the Fund is an Agent, it has, as a party to the Loan Agreement, a
direct contractual relationship with the Borrower and, prior to allocating
portions of the Senior Loan to Lenders, if any, assumes all risks associated
with the Senior Loan. The Agent may enforce compliance by the Borrower with the
terms of the Loan Agreement. Agents also have voting and consent rights under
the applicable Loan Agreement. Action subject to Agent vote or consent generally
requires the vote or consent of the holders of some specified percentage of the
outstanding principal amount of the Senior Loan, which percentage varies
depending on the relevant Loan Agreement. Certain decisions, such as reducing
the amount or increasing the time for payment of interest on or repayment of
principal of a Senior Loan, or releasing all or substantially all of the
collateral therefor, frequently require the unanimous or consent of all Lenders
affected.
B-5
<PAGE>
Pursuant to the terms of a Loan Agreement, the Fund as Agent typically has
sole responsibility for servicing and administering a loan on behalf of the
other Lenders. Each Lender in a Senior Loan is generally responsible for
performing its own credit analysis and its own investigation of the financial
condition of the Borrower. Generally, Loan Agreements will hold the Fund liable
for any action taken or omitted that amounts to gross negligence or willful
misconduct. In the event of a Borrower's default on a loan, the Loan Agreements
generally provide that the Lenders do not have recourse against the Fund for its
activities as Agent. Instead, Lenders will be required to look to the Borrower
for recourse.
Acting in the capacity of an Agent in a Senior Loan may subject the Fund to
certain risks in addition to those associated with the Fund's role as a Lender.
An Agent is charged with the above described duties and responsibilities to
Lenders and Borrowers subject to the terms of the Loan Agreement. Failure to
adequately discharge such responsibilities in accordance with the standard of
care set forth in the Loan Agreement may expose the Fund to liability for breach
of contract. If a relationship of trust is found between the Agent and the
Lenders, the Agent will be held to a higher standard of conduct in administering
the loan. In consideration of such risks, the Fund will invest no more than 20%
of its total assets in Senior Loans in which it acts as an Agent or co-agent and
the size of any individual loan will not exceed 5% of the Fund's total assets.
Lending Fees
In the process of buying, selling and holding Senior Loans the Fund may
receive and/or pay certain fees. These fees are in addition to interest payments
received and may include facility fees, commitment fees, commissions and
prepayment penalty fees. When the Fund buys a Senior Loan it may receive a
facility fee and when it sells a Senior Loan it may pay a facility fee. On an
ongoing basis, the Fund may receive a commitment fee based on the undrawn
portion of the underlying line of credit portion of a Senior Loan. In certain
circumstances, the Fund may receive a prepayment penalty fee upon the prepayment
of a Senior Loan by a Borrower. Other fees received by the Trust may include
covenant waiver fees and covenant modification fees.
Borrower Covenants
A Borrower must comply with various restrictive covenants contained in a
Loan Agreement. Such covenants, in addition to requiring the scheduled payment
of interest and principal, may include restrictions on dividend payments and
other distributions to stockholders, provisions requiring the Borrower to
maintain specific minimum financial ratios, and limits on total debt. In
addition, the Loan Agreement may contain a covenant requiring the Borrower to
prepay the Senior Loan with any free cash flow. Free cash flow is generally
defined as net cash flow after scheduled debt service payments and permitted
capital expenditures, and includes the proceeds from asset dispositions or sales
of securities. A breach of a covenant which is not waived by the Agent, or by
the lenders directly, as the case may be, is normally an event of acceleration;
i.e., the Agent, or the lenders directly, as the case may be, has the right to
call the outstanding Senior Loan. The typical practice of an Agent or a Lender
in relying exclusively or primarily on reports from the Borrower may involve a
risk of fraud by the Borrower. In the case of a Senior Loan in the form of a
Participation, the agreement between the buyer and seller may limit the rights
of the holder of a Senior Loan to vote on certain changes which may be made to
the Loan Agreement, such as waiving a breach of a covenant. However, the holder
of the Participation will, in almost all cases, have the right to vote on
certain fundamental issues such as changes in principal amount, payment dates
and interest rate.
Administration of Loans
In a typical Senior Loan, the Agent administers the terms of the Loan
Agreement. In such cases, the Agent is normally responsible for the collection
of principal and interest payments from the Borrower and the apportionment of
these payments to the credit of all institutions which are parties to the Loan
Agreement. The Fund will generally rely upon the Agent or an intermediate
participant to receive and forward to the Fund its portion of the principal and
interest payments on the Senior Loan. Furthermore, unless under the terms of a
Participation Agreement the Fund has direct recourse against the Borrower, the
Fund will rely on the Agent and the other members of the lending syndicate to
use appropriate credit remedies against the Borrower. The Agent is typically
responsible for monitoring compliance with covenants contained in the Loan
Agreement based upon reports prepared by the Borrower. The seller of the Senior
Loan usually does, but is often not obligated to, notify holders of Senior Loans
of any failures of compliance. The Agent may monitor the value of the collateral
and, if the value of the collateral declines, may accelerate the Senior Loan,
may give the Borrower an opportunity to provide additional collateral or may
seek other protection for the benefit of the participants in the Senior Loan.
The Agent is compensated by the Borrower for providing these services under a
Loan Agreement, and such compensation may include special fees paid upon
structuring and funding the Senior Loan and other fees paid on a continuing
basis. With respect to Senior Loans for which the Agent does not perform such
administrative and enforcement functions, the Fund will perform such tasks on
its own behalf, although a collateral bank will typically hold any collateral on
behalf of the Fund and the other lenders pursuant to the applicable Loan
Agreement.
A financial institution's appointment as Agent may be terminated in the
event that it fails to observe the requisite standard of care or becomes
insolvent, enters Federal Deposit Insurance Corporation ("FDIC") receivership,
or, if not FDIC insured, enters into bankruptcy proceedings. A successor Agent
would generally be appointed to replace the terminated Agent, and assets held by
the Agent under the Loan Agreement should remain available to holders of Senior
Loans. However, if assets held by the Agent for the benefit of the Fund were
determined to be subject to the claims of the Agent's general 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 other
intermediate participants similar risks may arise.
Prepayments
Senior Loans may require, in addition to scheduled payments of interest
and principal, the prepayment of the Senior Loan from free cash flow or asset
sales. 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 others. As such, prepayments cannot be predicted
with accuracy. Upon a prepayment, either in part or in full, the actual
outstanding debt on which the Fund derives interest income will be reduced.
However, the Fund may receive both a prepayment penalty fee from the prepaying
Borrower and a facility fee upon the purchase of a new Senior Loan with the
proceeds from the prepayment of the former. Prepayments generally will not
materially affect the Fund's performance because the Fund should be able to
reinvest prepayments in other Senior Loans that have similar or identical yields
and because receipt of such fees may mitigate any adverse impact on the Fund's
yield.
Other Information Regarding Senior Loans
From time to time, the Adviser and its affiliates may borrow money from
various banks in connection with their business activities. Such banks may also
sell Senior Loans to or acquire them from the Fund or may be intermediate
participants with respect to Senior Loans in which the Fund owns interests. Such
banks may also act as Agents for Senior Loans held by the Fund.
The Fund may acquire interests in Senior Loans which are designed to
provide temporary or "bridge" financing to a Borrower pending the sale of
identified assets or the arrangement of longer-term loans or the issuance and
sale of debt obligations. The Fund may also invest in Senior Loans of Borrowers
who have obtained bridge loans from other parties. A Borrower's use of bridge
loans involves a risk that the Borrower may be unable to locate permanent
financing to replace the bridge loan, which may impair the Borrower's perceived
creditworthiness.
To the extent that collateral consists of the stock of the Borrower's
subsidiaries or other affiliates, the Fund will be subject to the risk that this
stock will decline in value. Such a decline, whether as a result of bankruptcy
proceedings or otherwise, could cause the Senior Loan to be undercollateralized
or unsecured. In most credit agreements there is no formal requirement to pledge
additional collateral. In addition, the Fund may invest in Senior Loans
guaranteed by, or fully secured by assets of, shareholders or owners, even if
the Senior Loans are not otherwise collateralized by assets of the Borrower;
provided, however, that such guarantees are fully secured. There may be
temporary periods when the principal asset held by a Borrower is the stock of a
related company, which may not legally be pledged to secure a Senior Loan. On
occasions when such stock cannot be pledged, the Senior Loan will be temporarily
unsecured until the stock can be pledged or is exchanged for or replaced by
other assets, which will be pledged as security for the Senior Loan. However,
the Borrower's ability to dispose of such securities, other than in connection
with such pledge or replacement, will be strictly limited for the protection of
the holders of Senior Loans. During any such period in which the Senior Loan is
temporarily unsecured, such Senior Loans will not be treated as secured Senior
Loans for purposes of the Fund's policy of investing in normal circumstances at
least 80% of its total assets in secured Senior Loans.
B-6
<PAGE>
If a Borrower becomes involved in bankruptcy proceedings, a court
may invalidate the Fund's security interest in the loan collateral or
subordinate the Fund's rights under the Senior Loan to the interests of the
Borrower's unsecured creditors. Such action by a court could be based, for
example, on a "fraudulent conveyance" claim to the effect that the Borrower did
not receive fair consideration for granting the security interest in the loan
collateral to the Fund. For Senior Loans made in connection with a highly
leveraged transaction, consideration for granting a security interest may be
deemed inadequate if the proceeds of the Loan were not received or retained by
the Borrower, but were instead paid to other persons (such as shareholders of
the Borrower) in an amount which left the Borrower insolvent or without
sufficient working capital. There are also other events, such as the failure to
perfect a security interest due to faulty documentation or faulty official
filings, which could lead to the invalidation of the Fund's security interest
in loan collateral. If the Fund's security interest in loan collateral is
invalidated or the Senior Loan is subordinated to other debt of a Borrower in
bankruptcy or other proceedings, it is unlikely that the Fund would be able to
recover the full amount of the principal and interest due on the Loan.
Interest Rate and Other Hedging Transactions
The Fund may enter into various interest rate hedging and risk management
transactions. Certain of these interest rate hedging and risk management
transactions involve derivative instruments. A derivative is a financial
instrument whose performance is derived at least in part from the performance of
an underlying index, security or asset. The values of certain derivatives can be
affected dramatically by even small market movements, sometimes in ways that are
difficult to predict. There are many different types of derivatives, with many
different uses. The Fund expects to enter into these transactions primarily to
seek to preserve a return on a particular investment or portion of its
portfolio, and may also enter into such transactions to seek to protect against
decreases in the anticipated rate of return on floating or variable rate
financial instruments the Fund owns or anticipates purchasing at a later date,
or for other risk management strategies such as managing the effective
dollar-weighted average duration of the Fund's portfolio. The Fund may also
engage in hedging transactions to seek to protect the value of its portfolio
against declines in net asset value resulting from changes in interest rates or
other market changes. The Fund does not intend to engage in such transactions to
enhance the yield on its portfolio or to increase income available for
distributions. Market conditions will determine whether and in what
circumstances the Fund would employ any of the hedging and risk management
techniques described below. The successful utilization of hedging and risk
management transactions requires skills different from those needed in the
selection of the Fund's portfolio securities. The Fund believes that the Adviser
possesses the skills necessary for the successful utilization of hedging and
risk management transactions. The Fund will incur brokerage and other costs in
connection with its hedging transactions.
The Fund may enter into interest rate swaps or purchase or sell interest
rate caps or floors. Interest rate swaps involve the exchange by the Fund with
another party of their respective obligations to pay or receive interest, e.g.,
an exchange of an obligation to make floating rate payments for an obligation to
make fixed rate payments. For example, the Fund may seek to shorten the
effective interest rate redetermination period of a Senior Loan in its portfolio
with an interest rate redetermination period of one year. The Fund could
exchange the Borrower's obligation to make fixed rate payments for one year for
an obligation to make payments that readjust monthly. In such event, the Fund
would consider the interest rate redetermination period of such Senior Loan to
be the shorter period.
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 at 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. The Fund will not enter
into swaps, caps or floors if, on a net basis, the aggregate notional principal
amount with respect to such agreements exceeds the net assets of the Fund. The
Fund will not sell interest rate caps or floors that it does not own.
In circumstances in which the Adviser anticipates that interest rates will
decline, the Fund might, for example, enter into an interest rate swap as the
floating rate payor or, alternatively, purchase an interest rate floor. In the
case of purchasing an interest rate floor, if interest rates declined below the
floor rate, the Fund would receive payments from its counterparty which would
wholly or partially offset the decrease in the payments it would receive in
respect of the portfolio assets being hedged. In the case where the Fund
purchases such an interest rate swap, if the floating rate payments fell below
the level of the fixed rate payment set in the swap agreement, the Fund's
counterparty would pay the Fund amounts equal to interest computed at the
difference between the fixed and floating rates over the notional principal
amount. Such payments would offset or partially offset the decrease in the
payments the Fund would receive in respect of floating rate portfolio assets
being hedged.
The successful use of swaps, caps and floors to preserve the rate of return
on a portfolio of financial instruments depends on the Adviser's ability to
predict correctly the direction and extent of movements in interest rates.
Although the Fund believes that use of the hedging and risk management
techniques described above will benefit the Fund, if the Adviser's judgment
about the direction or extent of the movement in interest rates is incorrect,
the Fund's overall performance would be worse than if it had not entered into
any such transactions. For example, if the Fund had purchased an interest rate
swap or an interest rate floor to hedge against its expectation that interest
rates would decline but instead interest rates rose, the Fund would lose part or
all of the benefit of the increased payments it would receive as a result of the
rising interest rates because it would have to pay amounts to its counterparty
under the swap agreement or would have paid the purchase price of the interest
rate floor.
Because these hedging transactions are entered into for good-faith risk
management purposes, the Adviser and the Fund believe such obligations do not
constitute senior securities. The Fund will usually enter into interest rate
swaps on a net basis, i.e., where the two parties make net payments with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each interest rate swap will be accrued and an
amount of cash or liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated account by the
Fund's custodian. If the Fund enters into a swap on other than a net basis, the
Fund will maintain in the segregated account the full amount of the Fund's
obligations under each such swap. Accordingly, the Fund does not treat swaps as
senior securities. The Fund may enter into swaps, caps and floors with member
banks of the Federal Reserve System, members of the New York Stock Exchange or
other entities determined by the Adviser, pursuant to procedures adopted and
reviewed on an ongoing basis by the Board of Trustees, to be creditworthy. If a
default occurs by the other party to such transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction but
such remedies may be subject to bankruptcy and insolvency laws which could
affect the Fund's rights as a creditor. The swap market has grown substantially
in recent years with a large number of banks and financial services firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps and floors are more
recent innovations and they are less liquid than swaps. There can be no
assurance, however, 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 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 that 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 Fund may also engage in credit derivative transactions. Default price
risk derivatives are linked to the price of reference securities or loans after
a default by the issuer or borrower, respectively. Market spread derivatives are
based on the risk that changes in market factors, such as credit spreads, can
cause a decline in the value of a security, loan or index. There are three basic
transactional forms for credit derivatives; swaps, options and structured
instruments. The use of credit derivatives is a highly specialized activity
which involves strategies and risks different from those associated with
ordinary portfolio security transactions. If the Adviser is incorrect in its
forecasts of default risks, market spreads or other applicable factors, the
investment performance of the Fund would diminish compared with what it would
have been if these techniques were not used. Moreover, even if the Adviser is
correct in its forecasts, there is a risk that a credit derivative position may
correlate imperfectly with the price of the asset or liability being hedged.
Credit derivative transaction exposure will be limited to 10% of the total
assets of the Fund.
New financial products continue to be developed and the Fund may invest in
any such products as may be developed to the extent consistent with its
investment objective and the regulatory and federal tax requirements applicable
to investment companies.
B-7
<PAGE>
MANAGEMENT OF THE FUND
Trustees and Officers
The management of the Fund, including general supervision of the duties
performed for the Fund under the Management Agreement, is the responsibility of
the Board of Trustees of the Fund. The number of trustees of the Fund is
currently set at six, one of whom is an "interested" person (as the term
"interested" persons is defined in the 1940 Act) and five of whom are not
"interested" persons. None of the trustees who are not "interested" persons of
the Fund has ever been a director or employee of, or consultant to, Nuveen or
its affiliates. The names and business addresses of the trustees and officers of
the Fund and their principal occupations and other affiliations during the past
five years are set forth below, with those trustees who are "interested persons"
of the Fund indicated by an asterisk.
<TABLE>
<CAPTION>
Positions and
-------------
Date of Offices with the Principal Occupations During Past Five
------- ---------------- --------------------------------------
Name and Address Birth Fund Years
---------------- ----- ---- -----
<S> <C> <C> <C>
Timothy R. Schwertfeger* 3/28/49 Chairman, President Chairman since July 1, 1996 of The John
333 West Wacker Drive and Trustee Nuveen Company, John Nuveen & Co.
Chicago, IL 60606 Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.;
prior thereto, Executive Vice President
and Director of The John Nuveen
Company, John Nuveen & Co.
Incorporated, Nuveen Advisory Corp. and
Nuveen Institutional Advisory Corp.;
Chairman and Director (since January
1997) of Nuveen Asset Management, Inc.;
Director (since 1996) of Institutional
Capital Corporation; Chairman and
Director of Rittenhouse Financial
Services Inc. (since 1999); Chairman
and Director of the Adviser (since
1999).
James E. Bacon 2/27/31 Trustee Business consultant; Director of Lone
114 W. 4th St. Star Industries, Inc. (cement); retired.
New York, NY 10036
Jack B. Evans 10/22/48 Trustee President, The Hall-Perrine Foundation,
115 Third Street, S.E. a private philanthropic corporation
Cedar Rapids, IA 52401 (since 1996); formerly President and
Chief Operating Officer, SCI Financial
Group, Inc., a regional financial
services firm.
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
Positions and
-------------
Date of Offices with the Principal Occupations During Past Five
------- ---------------- --------------------------------------
Name and Address Birth Fund Years
---------------- ----- ---- -----
<S> <C> <C> <C>
William L. Kissick 7/29/32 Trustee Professor, School of Medicine and the
University of Wharton School of Management and
Pennsylvania Chairman, Leonard Davis Institute of
224 NEB/2L Health Economics, University of
Philadelphia, PA 19104 Pennsylvania.
Thomas E. Leafstrand 11/11/31 Trustee Retired, previously Vice President in
412 W. Franklin charge of Municipal Underwriting and
Wheaton, IL 60187 Dealer Sales at The Northern Trust
Company.
Sheila W. Wellington 2/24/32 Trustee President (since 1993) of Catalyst (a
250 Park Avenue not-for-profit organization focusing on
New York, NY 10003 women's leadership development in
business and the professions).
Alan G. Berkshire 12/28/60 Vice President and Senior Vice President (since May 1999,
333 West Wacker Drive Assistant Secretary formerly Vice President) and General
Chicago, IL 60606 Counsel (since September 1997) and Secretary
(since May 1998) of John Nuveen & Co.
Incorporated and The John Nuveen Company;
Vice President (since Sept. 1997) and Assistant
Secretary (since July 1999) of Nuveen Advisory
Corp. and Nuveen Institutional Advisory Corp.,
prior thereto, Partner in the law
firm of Kirkland & Ellis.
Peter H. D'Arrigo 11/28/67 Vice President and Vice President of John Nuveen & Co.
333 West Wacker Drive Treasurer Incorporated (January 1999); Vice
Chicago, IL 60606 President and Treasurer of the Adviser
(September 1999); prior thereto,
Assistant Vice President (January
1997); formerly, Associate of John
Nuveen & Co. Incorporated; Chartered
Financial Analyst.
</TABLE>
B-9
<PAGE>
<TABLE>
<CAPTION>
Positions and
-------------
Date of Offices with the Principal Occupations During Past Five
------- ---------------- --------------------------------------
Name and Address Birth Fund Years
---------------- ----- ---- -----
<S> <C> <C> <C>
Lorna C. Ferguson 10/24/45 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated; Vice President (since
Chicago, IL 60606 January 1998) of Nuveen Advisory Corp.
and Nuveen Institutional Advisory Corp.
Stephen D. Foy 5/31/54 Vice President and Vice President of John Nuveen & Co.
333 West Wacker Drive Controller Incorporated; Certified Public
Chicago, IL 60606 Accountant.
Jeffrey W. Maillet 9/30/56 Vice President Executive Managing Director of the Adviser (since
333 West Wacker Drive September 1999); prior thereto, Senior
Chicago, IL 60606 Vice President of Van Kampen Investment
Advisory Corp. (since 1989); prior to 1989, assistant
portfolio manager and credit officer for The Pilgrim Group.
</TABLE>
B-10
<PAGE>
<TABLE>
<CAPTION>
Positions and
-------------
Date of Offices with the Principal Occupations During Past Five
------- ---------------- --------------------------------------
Name and Address Birth Fund Years
---------------- ----- ---- -----
<S> <C> <C> <C>
Larry W. Martin 7/27/51 Vice President and Vice President, Assistant Secretary and
333 West Wacker Drive Assistant Secretary Assistant General Counsel of John
Chicago, IL 60606 Nuveen & Co. Incorporated; Vice
President and Assistant Secretary of
Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.; Vice
President and Assistant Secretary
(since January 1997) of Nuveen Asset
Management, Inc.; Assistant Secretary
of The John Nuveen Company; Vice
President and Assistant Secretary of
the Adviser (since September 1999).
Stuart W. Rogers 5/1/56 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated.
Chicago, IL 60606
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
Positions and
-------------
Date of Offices with the Principal Occupations During Past Five
------- ---------------- --------------------------------------
Name and Address Birth Fund Years
---------------- ----- ---- -----
<S> <C> <C> <C>
Gifford R. Zimmerman 9/9/56 Vice President and Vice President, Assistant Secretary and
333 West Wacker Drive Secretary Associate General Counsel of John
Chicago, IL 60606 Nuveen & Co. Incorporated; Vice
President (since May 1993) and
Secretary (since July 1999) of Nuveen
Advisory Corp. and Nuveen Institutional
Advisory Corp.; Assistant Secretary,
The John Nuveen Company (since May
1994); Chartered Financial Analyst.
</TABLE>
Jeffrey W. Maillet will act as portfolio manager of the Fund. Mr. Maillet
has more than 18 years of experience in Senior Loan fund management and has
managed the purchase of more than 2,000 senior secured bank issues totaling in
excess of $28 billion.
Thomas E. Leafstrand and Timothy R. Schwertfeger serve as members of the
Executive Committee of the Board of Trustees of the Fund. The Executive
Committee, which meets between regular meetings of the Board of Trustees, is
authorized to exercise all of the powers of the Board of Trustees. Mr.
Schwertfeger is also a director or trustee, as the case may be, of 102 Nuveen
open-end and closed-end funds advised by Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.
The other trustees of the Fund are directors or trustees, as the case may
be, of 6 Nuveen open-end funds and 6 Nuveen closed-end funds advised by Nuveen
Institutional Advisory Corp.
The Common Shareholders will elect trustees at the next annual meeting of
Common Shareholders, unless any Preferred Shares are outstanding at that time,
in which event holders of Preferred Shares, voting as a separate class, will
elect two trustees and the remaining trustees shall be elected by Common
Shareholders and holders of Preferred Shares, voting together as a single class.
Holders of Preferred Shares will be entitled to elect a majority of the Fund's
trustees under certain circumstances.
The following table sets forth estimated compensation to be paid by the
Fund projected through the end of the Fund's first full fiscal year. The Fund
has no retirement or pension plans. The officers and trustees affiliated with
Nuveen serve without any compensation from the Fund.
B-12
<PAGE>
Estimated Total
Estimated Aggregate Compensation From Fund
Name of Trustee Compensation From Fund* and Fund Complex**
- --------------- ----------------------- ------------------
James E. Bacon $13,528 $45,434(1)
Jack B. Evans $13,528 $45,704(2)
William L. Kissick $14,327 $45,485(3)
Thomas E. Leafstrand $13,528 $50,159(4)
Sheila W. Wellington $13,528 $45,379(5)
* Based on the estimated compensation to be earned by the independent
trustees for the period from inception to the fiscal year ending July 31, 2000
for services to the Fund.
**Based on the estimated total compensation paid (including both deferred
compensation and compensation received in cash) to the trustees for the one year
period ending December 31, 1999 for services to the open-end and closed-end
funds advised by the Adviser.
(1) Includes $20,235 in estimated deferred compensation, including assumed
market appreciation/depreciation for each Trustee's actual investments.
(2) Includes $22,690 in estimated deferred compensation, including assumed
market appreciation/depreciation for each Trustee's actual investments.
(3) Includes $18,243 in estimated deferred compensation, including assumed
market appreciation/depreciation for each Trustee's actual investments.
(4) Includes $24,762 in estimated deferred compensation, including assumed
market appreciation/depreciation for each Trustee's actual investments.
(5) Includes $45,379 in estimated deferred compensation, including assumed
market appreciation/depreciation for each Trustee's actual investments.
The Fund has no employees. Its officers are compensated by the Adviser or
Nuveen.
INVESTMENT ADVISER
The Adviser acts as investment adviser to the Fund, with responsibility for
the overall management of the Fund. Its address is 333 West Wacker Drive,
Chicago, Illinois 60606. The Adviser is also responsible for managing the
Fund's business affairs and providing day-to-day administrative services to the
Fund. For additional information regarding the management services performed by
the Adviser, see "Management of the Fund" in the Prospectus.
The Adviser is a newly-formed, wholly-owned subsidiary of The John Nuveen
Company and is an affiliated entity of Nuveen, which is also a co-managing
underwriter of the Fund's Common Shares. Nuveen is sponsor of the Nuveen
Defined Portfolios, registered unit investment trusts, is the principal
underwriter for the Nuveen Mutual Funds, and has served as co-managing
underwriter for the shares of the Nuveen Exchange-Traded Funds. Over 1,300,000
individuals have invested to date in Nuveen's funds and trusts. Founded in
1898, Nuveen brings over a century of expertise to the municipal bond market.
Overall, Nuveen and its affiliates manage or oversee more than $70 billion in
assets in a variety of products. Nuveen currently sponsors 59 funds traded on
the New York or American Stock Exchange, with more than $27 billion in assets.
Nuveen, like the Adviser, is a subsidiary of The John Nuveen Company which, in
turn, is approximately 78% owned by The St. Paul Companies, Inc. ("St. Paul").
St. Paul is a publicly-traded company located in St. Paul, Minnesota, and is
principally engaged in providing property-liability insurance through
subsidiaries.
B-13
<PAGE>
Pursuant to an investment management agreement between the Adviser and the
Fund, the Fund has agreed to pay for the services and facilities provided by the
Adviser an annual management fee, payable on a monthly basis, according to the
following schedule:
Average Daily Managed Assets* Management Fee
----------------------------- --------------
Less than $1 billion.................... .8500 of 1%
$1 billion to $2 billion................ .8375 of 1%
$2 billion to $5 billion................ .8250 of 1%
$5 billion to $10 billion............... .8000 of 1%
$10 billion and over.................... .7750 of 1%
*For purposes of calculation of the management fee, the Fund's "managed assets"
shall mean the average daily gross asset value of the Fund, minus the sum of the
Fund's accrued and unpaid dividends on any outstanding Preferred Shares and
accrued liabilities (other than the principal amount of any borrowings incurred,
commercial paper or notes issued by the Fund and the liquidation preference of
any outstanding Preferred Shares).
All fees and expenses are accrued daily and deducted before payment of
dividends to investors. The investment management agreement has been approved
by a majority of the disinterested trustees of the Fund and the sole shareholder
of the Fund.
For the first ten years of the Fund's operation, the Adviser has agreed to
reimburse the Fund for fees and expenses in the amounts, and for the time
periods, set forth below:
<TABLE>
<CAPTION>
Percentage Percentage
Reimbursed (as a Reimbursed(as a
Year Ending percentage of Managed Year Ending percentage of
Oct. 31, Assets) Oct. 31, Managed Assets)
-------------- --------------------- --------------- -----------------
<S> <C> <C> <C>
1999* .45% 2005 .35%
2000 .45% 2006 .25%
2001 .45% 2007 .15%
2002 .45% 2008 .10%
2003 .45% 2009 .05%
2004 .45%
</TABLE>
________________________________________________________________________________
*From the commencement of operations.
Reducing Fund expenses in this manner will tend to increase the amount of
income available for the Common Shareholders during the period of reimbursement.
The Adviser has
B-14
<PAGE>
not agreed to reimburse the Fund for any portion of its fees and expenses beyond
October 31, 2009.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of the Fund's securities business, the negotiation of
the prices to be paid for principal trades and the allocation of its
transactions among various dealer firms. Portfolio securities will normally be
purchased directly from an underwriter or in the over-the-counter market from
the principal dealers in such securities, unless it appears that a better price
or execution may be obtained through other means. Portfolio securities will not
be purchased from Nuveen or its affiliates except in compliance with the 1940
Act.
With respect to interests in Senior Loans, the Fund generally will engage
in privately negotiated transactions for purchase or sale in which the Adviser
will negotiate on behalf of the Fund, although a more developed market may exist
for certain Senior Loans. The Fund may be required to pay fees, or forgo a
portion of interest and any fees payable to the Fund, to the Lender selling
Participations or Assignments to the Fund. The Adviser will determine the
Lenders from whom the Fund will purchase Assignments and Participations by
considering their professional ability, level of service, relationship with the
Borrower, financial condition, credit standards and quality of management.
Although the Fund intends generally to hold interests in Senior Loans until
maturity or prepayment of the Senior Loan, the illiquidity of many Senior Loans
may restrict the ability of the Adviser to locate in a timely manner persons
willing to purchase the Fund's interests in Senior Loans at a fair price should
the Fund desire to sell such interests. See "Risks" in the Prospectus.
The Fund expects that substantially all other portfolio transactions will
be effected on a principal (as opposed to an agency) basis and, accordingly,
does not expect to pay any brokerage commissions. Purchases from underwriters
will include a commission or concession paid by the issuer to the underwriter,
and purchases from dealers will include the spread between the bid and asked
price. It is the policy of the Adviser to seek the best execution under the
circumstances of each trade. The Adviser evaluates price as the primary
consideration, with the financial condition, reputation and responsiveness of
the dealer considered secondary in determining best execution. Given the best
execution obtainable, it will be the Adviser's practice to select dealers which,
in addition, furnish research information (primarily credit analyses of issuers
and general economic reports) and statistical and other services to the Adviser.
It is not possible to place a dollar value on information and statistical and
other services received from dealers. Since it is only supplementary to the
Adviser's own research efforts, the receipt of research information is not
expected to reduce significantly the Adviser's expenses. While the Adviser will
be primarily responsible for the placement of the business of the Fund, the
policies and practices of the Adviser in this regard must be consistent with the
foregoing and will, at all times, be subject to review by the Board of Trustees
of the Fund.
The Adviser may manage other investment accounts and investment companies
for other clients which have investment objectives similar to those of the Fund.
Subject to applicable laws and regulations, the Adviser seeks to allocate
portfolio transactions equitably whenever concurrent decisions are made to
purchase or sell assets or securities by the Fund and another advisory
B-15
<PAGE>
account. In making such allocations the main factors to be considered will be
the respective investment objectives, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment and
the size of investment commitments generally held. While this procedure could
have a detrimental effect on the price or amount of the securities available to
the Fund from time to time, it is the opinion of the Board of Trustees that the
benefits available from the Adviser's organization will outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
trading (normally 4:00 p.m. eastern time) on each day the New York Stock
Exchange is open for business. Net asset value per Common Share is calculated by
taking the fair value of the Fund's total assets, including interest or
dividends accrued but not yet collected, less liabilities (including Leverage
Instruments), and dividing by the total number of shares outstanding. The
result, rounded to the nearest cent, is the net asset value per share.
The Senior Loans in which the Fund will invest generally are not listed on
any securities exchange. Certain Senior Loans are traded by institutional
investors in an over-the-counter secondary market for Senior Loan obligations
that has developed over the past several years. This secondary market for those
Senior Loans generally is comparatively illiquid relative to markets for other
income securities and no active trading market exists for many Senior Loans. In
determining net asset value, the Fund will utilize the valuations of Senior
Loans furnished to the Adviser by an independent third-party pricing service
approved by the Board of Trustees. The Board of Trustees has reviewed the
various alternatives for pricing the Fund's portfolio of Senior Loans and has
determined that the use of a pricing service is a reasonable, fair and
appropriate method of valuing Senior Loans. The Adviser has not yet entered into
an agreement, but has entered into negotiations with potential pricing services
that the Adviser expects will result in an agreement to provide pricing services
for the Fund. The Agreement is expected to be terminable by either party and to
provide that the pricing service assumes no fiduciary responsibility to the Fund
or to any investor in the Fund, and that the pricing service will have no
liability under the Agreement to any third party, including any investor in the
Fund. The Agreement is expected to provide that the pricing service will be
indemnified by the Adviser unless the pricing service has acted with willful
misconduct. The pricing service will be explicitly permitted to act as principal
for its own account in connection with the purchase and sale (from or to the
Fund or otherwise) of any Senior Loan at any price simultaneously while it
provides pricing services to the Fund. Furthermore, the pricing service is not
expected to have any obligation to provide a valuation for a Senior Loan if it
believes that it cannot determine such a valuation and, accordingly, the pricing
service may not provide valuations for all the Senior Loans in the Fund's
portfolio. There can be no assurance that the negotiations will result in an
agreement for pricing services, or that any pricing service engaged will
continue to provide those services. However, the Adviser believes that, if the
current negotiations do not result in an agreement, or if a pricing service
declines to continue to act, one or more alternative independent third-party
pricing services will be available to provide comparable services on similar
terms. During any period in which no pricing service is acting, the Adviser will
value the Fund's Senior Loans as described below.
Pricing services typically will value Senior Loans at the mean of the
highest bona fide bid and lowest bona fide ask prices when current quotations
will be readily available. Senior Loans for which current quotations will not
be readily available are valued at a fair value as determined by the pricing
service using a wide range of market data and other information and analysis,
including credit considerations considered relevant by such pricing services to
determine valuations. The procedures of any pricing service and its valuations
will be reviewed by the officers of the Adviser under the general supervision of
the Board of Trustees. If the Adviser believes that a value provided by a
pricing service does not represent a fair value as a result of information,
specific to that Senior Loan or Borrower or its affiliates, which the Adviser
believes that the pricing agent may not be aware, the Adviser may in its
discretion value the Senior Loan and the Fund will utilize that price instead of
the price as determined by the pricing service. If the pricing service does not
provide a value for a Senior Loan, a value will be determined by the Adviser. In
addition to such information, if any, the Adviser will consider, among other
factors, (i) the creditworthiness of the Borrower and (ii) the current interest
rate, the period until next interest rate reset and maturity of such Senior Loan
interests in determining a fair value of a Senior Loan. If the pricing service
does not provide a value for a Senior Loan or if no service is then acting, a
value will be determined by the Adviser in the manner described above.
It is expected that the Fund's net asset value will fluctuate as a function
of interest rate and credit factors. Because of the short-term nature of such
instruments, however, the Fund's net asset value is expected to fluctuate less
in response to changes in interest rates
B-16
<PAGE>
than the net asset values of investment companies with portfolios consisting
primarily of longer term fixed-income securities.
Because a secondary trading market in Senior Loans has not yet fully
developed, the pricing service or the Adviser may not rely solely on but may
consider, to the extent they believe such information to be reliable, prices or
quotations provided by banks, dealers or other pricing services with respect to
secondary market transactions in Senior Loans. To the extent that an active
secondary trading market in Senior Loan interests develops to a reliable degree,
the pricing service or the Adviser may rely to an increasing extent on such
market prices and quotations in reviewing the valuations of the Senior Loan
interests in the Fund's portfolio. To the extent a trading market continues to
develop, certain participants in the market may have objectives other than
current income and may pursue short-term trading strategies, which may result in
erratic movements in the market prices for Senior Loans as a result of movements
in short-term interest rates or otherwise. Although the Fund's policy of
acquiring interests in floating rate Senior Loans is intended to minimize
fluctuations in net asset value resulting from changes in market interest rates,
the Fund's net asset value will fluctuate. In light of the senior nature of
Senior Loan interests that may be included in the Fund's portfolio and taking
into account the Fund's access to non-public information with respect to
Borrowers relating to such Senior Loan interests, the Adviser does not currently
believe that consideration on a systematic basis of ratings provided by any
nationally recognized statistical rating organization or price fluctuations with
respect to long- or short-term debt of such Borrowers subordinate to the Senior
Loans of such Borrowers is necessary in order to review the value of such Senior
Loan interests. Accordingly, the Adviser generally will not systematically
consider (but may consider in certain instances) and, in any event, will not
rely solely upon such ratings or price fluctuations in determining or reviewing
valuations of Senior Loan interests in the Fund's portfolio.
Other portfolio securities (other than short-term obligations, but
including listed issues) 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,
portfolio securities will be 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 will be determined in accordance with a discounted present
value formula and then confirmed by obtaining a bank quotation.
Short-term obligations which mature in 60 days or less will be valued at
amortized cost, if their original term to maturity when acquired by the Fund was
60 days or less, or will be valued at amortized cost using their value on the
61st day prior to maturity, if their original term to maturity when acquired by
the Fund was more than 60 days, unless in each case this is determined not to
represent fair value. Repurchase agreements will be valued at cost plus accrued
interest. Securities for which there exist no price quotations or valuations
and all other assets will be valued at a fair value as determined in good faith
by or on behalf of the trustees.
B-17
<PAGE>
TAX MATTERS
Federal Income Tax Matters
The following discussion of federal income tax matters is based upon the
advice of Bell, Boyd & Lloyd, special counsel to the Fund.
The Fund intends to qualify under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), for tax treatment as a regulated investment
company. In order to qualify as a regulated investment company, the Fund must
satisfy certain requirements relating to the source of its income,
diversification of its assets, and distributions of its income to Common
Shareholders. First, the Fund must derive at least 90% of its annual gross
income (including tax-exempt interest) from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities or foreign currencies, or other income (including but not limited
to gains from options and futures) derived with respect to its business of
investing in such stock, securities or currencies (the "90% gross income test").
Second, the Fund must diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
is comprised of cash, cash items, United States Government securities,
securities of other regulated investment companies and other securities limited
in respect of any one issuer to an amount not greater in value than 5% of the
value of the Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of the
total assets is invested in the securities of any one issuer (other than United
States Government securities and securities of other regulated investment
companies) or two or more issuers controlled by the Fund and engaged in the
same, similar or related trades or business.
As a regulated investment company, the Fund will not be subject to federal
income tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities lending, net short-term capital gain in excess of long-
term capital loss, and any other taxable income other than "net capital gain"
(as defined below) and is reduced by deductible expenses) and (ii) its net tax-
exempt interest (the excess of its gross tax-exempt interest income over certain
disallowed deductions). The Fund may retain for investment its net capital gain
(which consists of the excess of its net long-term capital gain over its short-
term capital loss). However, if the Fund retains any net capital gain or any
investment company taxable income, it will be subject to tax at regular
corporate rates on the amount retained. If the Fund retains any capital gain,
it may designate the retained amount as undistributed capital gains in a notice
to its Common Shareholders who, if subject to federal income tax on long-term
capital gains, (i) will be required to include in income for federal income tax
purposes, as long-term capital gain, their share of such undistributed amount,
and (ii) will be entitled to credit their proportionate shares of the tax paid
by the Fund against their federal income tax liabilities, if any, and to claim
refunds to the extent the credit exceeds such liabilities. For federal income
tax purposes, the tax basis of shares owned by a Common Shareholder of the Fund
will be increased by an amount equal under current law to the difference between
the amount of undistributed capital gains included in the Common Shareholder's
gross income and the tax deemed paid by the Common Shareholder under clause (ii)
of the preceding sentence. The Fund intends to distribute at least annually to
its Common Shareholders all or
B-18
<PAGE>
substantially all of its net tax-exempt interest and any investment company
taxable income and net capital gain.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain, i.e., the excess of
net long-term capital gain over net short-term capital loss for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
Distributions by the Fund of net investment income and net short-term
capital gains realized by the Fund, if any, will be taxable to Common
Shareholders as ordinary income whether received in cash or additional shares.
Any net long-term capital gains realized by the Fund and distributed to Common
Shareholders in cash or additional shares will be taxable to Common Shareholders
as long-term capital gains regardless of the length of time investors have owned
shares of the Fund. Distributions by the Fund that do not constitute ordinary
income dividends or capital gain dividends will be treated as a return of
capital to the extent of (and in reduction of) the Common Shareholder's tax
basis in his or her shares. Any excess will be treated as gain from the sale of
his or her shares, as discussed below.
The Internal Revenue Service has taken the position in a revenue ruling
that if a regulated investment company has two classes of shares, it may
designate distributions made to each class in any year as consisting of no more
than such class's proportionate share of particular types of income based on the
total distributions paid to each class for such year, including distributions of
capital gain dividends. Consequently if both Common Shares and Preferred Shares
are outstanding, the Fund intends to designate distributions made to the classes
as consisting of particular types of income in accordance with the classes'
proportionate shares of such income. Thus, capital gain dividends will be
allocated between the holders of Common Shares and the holders of Preferred
Shares in proportion to the total distributions made to each class during the
taxable year, or otherwise as required by applicable law.
If the Fund engages in hedging transactions involving financial futures and
options, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to the Fund, defer the Fund's losses, cause
adjustments in the holding periods of the Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to Common Shareholders.
Prior to purchasing shares in the Fund, an investor should carefully
consider the impact of dividends or distributions which are expected to be or
have been declared, but not paid. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to Common
Shareholders of record on a specified
B-19
<PAGE>
date in one of those months and paid during the following January, will be
treated as having been distributed by the Fund (and received by the Common
Shareholders) on December 31.
The sale of Common Shares normally will result in capital gain or loss to
the Common Shareholders. Generally, a Common Shareholder's gain or loss will be
long-term gain or loss if the shares have been held for more than one year.
Present law taxes both long- and short-term capital gains of corporations at the
rates applicable to ordinary income. For non-corporate taxpayers, however, net
capital gains (i.e., the excess of net long-term capital gain over net short-
term capital loss) with respect to securities will be taxed at a maximum rate of
20%, while short-term capital gains and other ordinary income will be taxed at a
maximum rate of 39.6%. Because of the limitations on itemized deductions and
the deduction for personal exemptions applicable to higher income taxpayers, the
effective tax rate may be higher in certain circumstances.
All or a portion of a sales charge paid in purchasing Common Shares cannot
be taken into account for purposes of determining gain or loss on the redemption
or exchange of such shares within 90 days after their purchase to the extent
Common Shares or shares of another fund are subsequently acquired without
payment of a sales charge pursuant to the reinvestment or exchange privilege.
Any disregarded portion of such charge will result in an increase in the Common
Shareholder's tax basis in the shares subsequently acquired. In addition, no
loss will be allowed on the sale of Common Shares if the Common Shareholder
purchases other shares of the Fund (whether through reinvestment of
distributions or otherwise) or the Common Shareholder acquires or enters into a
contract or option to acquire securities that are substantially identical to
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after such redemption or exchange. If disallowed, the loss will
be reflected in an adjustment to the basis of the shares acquired.
In order to avoid a 4% federal excise tax, the Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and any excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which the Fund paid no federal income tax. For purposes of the
excise tax, a regulated investment company may reduce its capital gain net
income (but not below its net capital gain) by the amount of any net ordinary
loss for the calendar year. The Fund intends to make timely distributions in
compliance with these requirements and consequently it is anticipated that it
generally will not be required to pay the excise tax.
If in any year the Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year, and distributions to
its Common Shareholders would be taxable to Common Shareholders as ordinary
dividend income for federal income tax purposes to the extent of the Fund's
earnings and profits.
The Fund is required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares who
have not furnished to the
B-20
<PAGE>
Fund their correct taxpayer identification number (in the case of individuals,
their Social Security number) and certain certifications, or who are otherwise
subject to backup withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its Common Shareholders. For complete provisions,
reference should be made to the pertinent Code sections and Treasury
Regulations. The Code and Treasury Regulations are subject to change by
legislative or administrative action, and any such change may be retroactive
with respect to Fund transactions. Common Shareholders are advised to consult
their own tax Advisers for more detailed information concerning the federal
taxation of the Fund and the income tax consequences to its Common Shareholders.
PERFORMANCE RELATED AND COMPARATIVE INFORMATION
The Fund may quote yield figures from time to time. The "Yield" of the
Fund is computed by dividing the net investment income per share earned during a
30-day period (using the average number of shares entitled to receive dividends)
by the net asset value per share on the last day of the period. The Yield
formula provides for semiannual compounding which assumes that net investment
income is earned and reinvested at a constant rate and annualized at the end of
a six-month period.
The Yield formula is as follows: YIELD = 2[((a-b/cd) +1)/6/ -1].
Where: a = dividends and interest earned during the period. (For this
purpose, the Fund will recalculate the yield to maturity
based on market value of each portfolio security on each
business day on which net asset value is calculated.)
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the ending net asset value per share of the Fund for the
period.
The Fund may quote total return figures from time to time. A "Total
Return" on a per share basis is the amount of dividends received per share plus
or minus the change in the net asset value per share for a period. A "Total
Return Percentage" may be calculated by dividing the value of a share at the end
of a period (including reinvestment of distributions) by the value of the share
at the beginning of the period and subtracting one. For a given period, an
"Average Annual Total Return" may be computed by finding the average annual
compounded rate that would equate a hypothetical initial amount invested of
$1,000 to the ending redeemable value.
B-21
<PAGE>
Average Annual Total Return is computed as follows: ERV = P(1+T)/n/
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period at the end of the
period (or fractional portion thereof).
The Fund may quote certain performance-related information and may compare
certain aspects of its portfolio and structure to other substantially similar
closed-end funds as categorized by Lipper, Inc. ("Lipper"), Morningstar, Inc. or
other independent services. Comparison of the Fund to an alternative investment
should be made with consideration of differences in features and expected
performance. The Fund may obtain data from sources or reporting services, such
as Bloomberg Financial ("Bloomberg") and Lipper, that the Fund believes to be
generally accurate.
Past performance is not indicative of future results. At the time Common
Shareholders sell their shares, they may be worth more or less than their
original investment.
The Adviser believes that the Fund has the potential to provide Common
Shareholders diversification within their portfolios by using an investment
which has relatively low correlations with equity and longer-term fixed-income
investments.
Senior Loans in which the Fund will invest generally pay interest at rates
which are redetermined periodically by reference to a base lending rate, plus a
premium. These base lending rates generally are the prime rate offered by one or
more major United States banks (the "Prime Rate"), the London Inter-bank Offered
Rate ("LIBOR"), the certificate of deposit ("CD") rate or other base lending
rates used by commercial lenders. The following table is intended to provide
investors with a comparison of short-term money market rates, a representative
base commercial lending rate, and a representative indicator of the premium over
such base lending rate for Senior Loans. The representative indicator shown
below is derived from the DLJ Leveraged Loan Index, which was designed in
January 1992 to mirror the investible universe of the market for Senior Loans.
The DLJ Leveraged Loan Index includes approximately $60 billion of Senior Loans
as of December 31, 1998 and new Senior Loan issues are added when they meet
certain criteria. The DLJ Leveraged Loan Index is an unmanaged index and,
although the Adviser believes that the spreads over LIBOR reported in connection
with the determination of the Index (which are an average of the contractual
spreads set forth in the loan agreements relating to the Senior Loans included
in the Index) are representative of the historical average spreads in the
overalll market for Senior Loans, the Fund will have no direct investment in,
nor will its performance be indicative of, this Index. The following comparison
should not be considered a representation of future money market rates, spreads
of Senior Loans over base reference rates nor what an investment in the Fund may
earn or what an investor's yield or total return may be in the future.
The following table is intended to provide investors with a comparison of
short-term money market rates. This comparison should not be considered a
representation of future money market rates, nor what an investment in the Fund
may earn or what an investor's yield or total return may be in the future.
<TABLE>
<CAPTION>
Comparison of Prime Rate,
Treasury Bill Rate and
London Inter-Bank Offered Rate and Senior Loans
(As of 12/31 of each Calendar Year)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1997 1998 June 30, 1999
------ ------ ------ ------ ------ ------ ------ -------------
Prime Rate/1/............................ 6.25% 6.00% 8.50% 8.83% 8.50% 8.50% 7.75% 7.75%
3 Month Treasury Bill Rate/2/............ 3.2200% 3.0600% 5.600% 5.1400% 4.9100% 5.1790% 4.8742% 4.9600%
3 Month LIBOR/3/......................... 3.4375% 3.3750% 6.5000% 5.6250% 5.5625% 5.8125% 5.0600% 5.3700%
Average Senior Loan Spreads
Plus 3 Month LIBOR/4/................ 5.9275% 5.8450% 8.8500% 7.9450% 8.0325% 8.2125% 7.4200% 7.8100%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
_____________________________
1 The Prime Rate quoted by a major U.S. bank is the base rate on corporate
loans at large U.S. money center commercial banks. Source: Federal Reserve
Bulletin.
2 The 3 Month Treasury Bill Rate. Source: Bloomberg.
3 The 3 Month London Inter-Bank Offered Rate represents the rate at which
most creditworthy international banks dealing in Eurodollars charge each
other for large loans. Source: Bloomberg.
4 Derived from reported average Senior Loan spreads in the DLJ Leveraged Loan
Index. The data do not reflect fluctuations in the principal value of
Senior Loans included in the Index. Source: Donaldson, Lufkin & Jenrette.
B-22
<PAGE>
Comparison of Yield
The following chart compares the yield of the average Senior Loan Spread
plus three-month LIBOR/1/ to the three-month LIBOR and the three-month Treasury
Bill Rate.
<TABLE>
<CAPTION>
Date Three Month Three Month Average Senior Loan
LIBOR Treasury Bill Rate Spread Plus Three Month LIBOR
<S> <C> <C> <C>
01/31/92 4.19% 3.92% 2.18%
02/28/92 4.25% 4.02% 2.18%
03/31/92 4.31% 4.13% 2.18%
04/30/92 4.06% 3.71% 2.18%
05/29/92 4.06% 3.72% 2.19%
06/30/92 3.94% 3.60% 2.24%
07/31/92 3.44% 3.17% 2.27%
08/31/92 3.50% 3.13% 2.29%
09/30/92 3.13% 2.65% 2.28%
10/30/92 3.56% 2.84% 2.31%
</TABLE>
B-23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
11/30/92 4.00% 3.19% 2.49%
12/31/92 3.44% 3.13% 2.49%
01/29/93 3.31% 2.95% 2.49%
02/26/93 3.19% 2.98% 2.48%
03/31/93 3.25% 2.94% 2.48%
04/30/93 3.19% 2.94% 2.49%
05/31/93 3.38% 3.11% 2.48%
06/30/93 3.31% 3.08% 2.49%
07/30/93 3.31% 3.09% 2.48%
08/31/93 3.25% 3.05% 2.47%
09/30/93 3.38% 2.96% 2.47%
10/29/93 3.44% 3.11% 2.45%
11/30/93 3.50% 3.21% 2.47%
12/31/93 3.38% 3.06% 2.47%
01/31/94 3.25% 3.02% 2.47%
02/28/94 3.75% 3.42% 2.46%
03/31/94 3.94% 3.55% 2.46%
04/29/94 4.31% 3.97% 2.46%
05/31/94 4.63% 4.26% 2.47%
06/30/94 4.88% 4.22% 2.48%
07/29/94 4.88% 4.35% 2.34%
08/31/94 5.00% 4.64% 2.30%
09/30/94 5.50% 4.86% 2.30%
10/31/94 5.63% 5.27% 2.33%
11/30/94 6.19% 5.83% 2.27%
12/30/94 6.50% 5.87% 2.35%
01/31/95 6.31% 6.17% 2.34%
02/28/95 6.25% 6.09% 2.28%
03/31/95 6.25% 6.18% 2.34%
04/28/95 6.19% 6.01% 2.34%
05/31/95 6.06% 5.91% 2.33%
06/30/95 6.06% 5.64% 2.36%
07/31/95 5.88% 5.62% 2.27%
08/31/95 5.88% 5.50% 2.32%
09/29/95 5.95% 5.48% 2.32%
10/31/95 5.94% 5.62% 2.30%
11/30/95 5.88% 5.41% 2.32%
12/29/95 5.63% 5.23% 2.32%
01/31/96 5.38% 5.06% 2.33%
02/29/96 5.30% 5.05% 2.34%
03/29/96 5.47% 5.28% 2.43%
04/30/96 5.48% 5.25% 2.40%
05/31/96 5.50% 5.24% 2.34%
06/28/96 5.58% 5.23% 2.37%
07/31/96 5.68% 5.41% 2.39%
08/30/96 5.56% 5.38% 2.27%
09/30/96 5.63% 5.17% 2.40%
10/31/96 5.50% 5.19% 2.47%
11/29/96 5.50% 5.21% 2.48%
</TABLE>
B-24
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12/31/96 5.56% 5.31% 2.47%
01/31/97 5.56% 5.30% 2.43%
02/28/97 5.54% 5.34% 2.44%
03/31/97 5.77% 5.57% 2.27%
04/30/97 5.82% 5.43% 2.35%
05/30/97 5.81% 5.27% 2.32%
06/30/97 5.78% 5.35% 2.26%
07/31/97 5.71% 5.38% 2.32%
08/29/97 5.72% 5.53% 2.33%
09/30/97 5.77% 5.44% 2.33%
10/31/97 5.75% 5.32% 2.38%
11/28/97 5.90% 5.37% 2.39%
12/31/97 5.81% 5.43% 2.40%
01/30/98 5.63% 5.26% 2.40%
02/27/98 5.68% 5.33% 2.40%
03/31/98 5.71% 5.28% 2.36%
04/30/98 5.72% 5.11% 2.35%
05/29/98 5.69% 5.27% 2.35%
06/30/98 5.69% 5.32% 2.37%
07/31/98 5.69% 5.30% 2.37%
08/31/98 5.63% 5.04% 2.32%
09/30/98 5.31% 4.63% 2.34%
10/30/98 5.22% 4.57% 2.20%
11/30/98 5.28% 4.53% 2.34%
12/31/98 5.07% 4.47% 2.36%
01/29/99 4.97% 4.49% 2.36%
02/26/99 5.03% 4.75% 2.35%
03/31/99 5.00% 4.67% 2.40%
04/30/99 4.99% 4.65% 2.40%
05/31/99 5.07% 4.72% 2.43%
06/30/99 5.37% 4.96% 2.44%
07/30/99 5.34% 4.89% 2.47%
</TABLE>
_________________________
/1/ Source: Donaldson, Lufkin & Jenrette; Bloomberg. Senior loans are
represented by adding the reported spreads of the senior loans in the DLJ
Leveraged Loan Index over three-month LIBOR. The DLJ Leveraged Loan Index was
designed in 1992 to mirror the investable universe of the U.S.
dollar-denominated leveraged loan market. The Index includes $60 billion of
tradable loans. New issues were added to the Index when they met certain
criteria. It is not possible to invest in an index. This comparison should not
be considered an expression of future market interest rates, spreads of senior
loans over base reference rates, nor an indication of what an investment in the
Fund may earn or what an investor's yield or total return might be in the
future. It is not possible to invest directly in LIBOR. Treasury bills carry a
U.S. government guarantee promising the timely payment of the principal and
interest. Senior loans typically are below investment-grade quality, but have
certain investor protections described elsewhere in this Statement of Additional
Information and in the Prospectus.
B-25
<PAGE>
The Senior Loan Market
The following charts show the increase in volume in the new issue and
secondary market for Senior Loans and the volume of the leveraged loan market.
Individual investors currently represent a small percentage of this market,
holding approximately $28.5 billion in Senior Loan funds as of June 30, 1999.
Senior Loan New Issue Volume
(in billions)
<TABLE>
<CAPTION>
Year Dollar
Volume
<S> <C>
1987 $ 66
1988 $163
1989 $187
1990 $ 58
1991 $ 21
1992 $ 40
1993 $ 28
1994 $ 81
1995 $101
1996 $135
1997 $194
1998 $273
</TABLE>
______________
Source: Donaldson, Lufkin & Jenrette; Loan Pricing Corporation
Senior Loan Secondary Market Volume
(in billions)
<TABLE>
<CAPTION>
Year Dollar
Volume
<S> <C>
1991 $8
1992 $11
1993 $15
1994 $25
1995 $33.8
1996 $41
1997 $62
1998 $67.3
</TABLE>
______________
Source: Loan Pricing Corporation, Securities Data Corporation
Leveraged Loan Market Volume
(in billions)
Dollar
As of March 31, Volume
- --------------- ------
1989 $317
1990 $315
1991 $192
1992 $221
1993 $150
1994 $176
1995 $224
1996 $284
1997 $318
1998 $552
June 30, 1999 $602
EXPERTS
The Statement of Net Assets of the Fund as of October 14, 1999 appearing in
this Statement of Additional Information has been audited by KPMG LLP, 303 East
Wacker Drive, Chicago, Illinois 60601, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and is included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing. KPMG LLP provides accounting and auditing services to the Fund.
B-26
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments thereto,
relating to the shares of the Fund offered hereby, has been filed by the Fund
with the Securities and Exchange Commission (the "Commission"), Washington, D.C.
The Prospectus and this Statement of Additional Information do not contain all
of the information set forth in the Registration Statement, including any
exhibits and schedules thereto. For further information with respect to the Fund
and the shares offered hereby, reference is made to that Fund's Registration
Statement. Statements contained in the Fund's Prospectus and this Statement of
Additional Information 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. Copies 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.
B-27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholder
Nuveen Senior Income Fund:
We have audited the accompanying statement of net assets of Nuveen Senior Income
Fund (the "Fund"), as of October 14, 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
misstatements. 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 of this financial statement provides a reasonable
basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the Fund as of October 14,
1999, in conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
October 14, 1999
B-28
<PAGE>
FINANCIAL STATEMENTS
Nuveen Senior Income Fund
Statements of Net Assets
October 14, 1999
<TABLE>
<CAPTION>
<S> <C>
Assets:
Cash................................................. $ 100,084
------------
Total assets........................................ 100,084
------------
Net assets............................................. $ 100,084
============
Net Assets Represent:
Cumulative preferred shares, $25,000 liquidation
value; unlimited number of shares authorized,
no shares outstanding............................... $ -
Common shares, $.01 par value; unlimited number
of shares authorized, 10,480 shares outstanding..... 105
Paid-in surplus....................................... 99,979
------------
$ 100,084
============
Net asset value per Common share outstanding ($100,084
divided by 10,480 Common Shares outstanding)........ $ 9.55
============
</TABLE>
The Fund was organized as a Massachusetts business trust on August 13, 1999, and
has been inactive since that date except for matters relating to its
organization and registration as a closed-end management investment company
under the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended, and the sale of 10,480 Common Shares to Nuveen Senior Loan
Asset Management Inc., the Fund's investment adviser (the "Adviser"), a wholly
owned subsidiary of The John Nuveen Company. John Nuveen & Co. Incorporated,
also a wholly owned subsidiary of The John Nuveen Company, has agreed to pay all
organizational expenses (approximately $10,000) and all offering costs (other
than the sales load) that exceed $.01 per common shares.
The Fund is authorized by its Declaration of trust to issue an unlimited number
of preferred shares having a liquidation value of $25,000 per share in one or
more classes or series, with dividend, liquidation preference and other rights
as determined by the Fund's Board of Trustees, by action of the Board of
Trustees without the approval of the Common Shareholders.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
Actual results may differ from those estimates.
B-29
<PAGE>
APPENDIX A
Ratings of Investments
Standard & Poor's Corporation--A brief description of the applicable Standard &
Poor's Corporation ("S&P") rating symbols and their meanings (as published by
S&P) follows:
Long Term Debt
An S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The 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.
Investment Grade
AAA Debt rated `AAA' has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA Debt 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 Debt 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 Debt rated `BBB' exhibits adequate protection parameters. However, adverse
A-1
<PAGE>
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.
Speculative Grade Rating
Debt rated `BB', `B', `CCC', `CC' and `C' is regarded as having significant
speculative characteristics with respect to capacity to pay interest and repay
principal. `BB' indicates the least degree of speculation and `C' the highest.
While such debt will likely have some quality and protective characteristics
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB Debt 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
inadequate capacity to meet its financial commitment on the obligation.
The `BB' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied `BBB--' rating.
B Debt rated `B' is more vulnerable to nonpayment than obligations rated `BB'
but currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to meet its financial commitment on the
obligation.
The `B' rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied `BB' or `BB--' rating.
CCC Debt rated `CCC' is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions to meet its
financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, it is not likely to have the capacity to
meet its financial commitment on the obligation.
The `CCC' rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied `B' or `B--' rating.
CC Debt rated `CC' is currently highly vulnerable to nonpayment.
C The rating `C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied `CCC--' debt rating. The `C' rating
may be used to cover a situation where a bankruptcy petition has been
filed, but payments on this obligation are being continued.
CI The rating `CI' is reserved for income bonds on which no interest is being
paid.
D Debt rated `D' is in payment default. The `D' rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such
A-2
<PAGE>
grace period. The `D' rating also will be used upon the filing of a
bankruptcy petition if debt service payments 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.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should exercise judgment
with respect to such likelihood and risk.
L The letter `L' indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is
federally insured by the Federal Savings & Loan Insurance Corp. or the
Federal Deposit Insurance Corp.* and interest is adequately collateralized.
In the case of certificates of deposit the letter `L' indicates that the
deposit, combined with other deposits being held in the same right and
capacity will be honored for principal and accrued pre-default interest up
to the federal insurance limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by a successor
insured institution, upon maturity.
* Continuance of the rating is contingent upon S&P's receipt of an executed copy
of the escrow agreement or closing documentation confirming investments and cash
flow.
NR Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Notes
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
-- Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
A-3
<PAGE>
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
A note rating is not a recommendation to purchase, sell, or hold a security
inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.
Commercial Paper
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1 This highest category indicates that the degree of safety regarding the
obligor's capacity to meet its financial commitment on the obligation is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 An obligation rated "A-2" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than issues
designated "A-1." However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3 Issues carrying this designation have 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 Issues rated "B" are 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 This rating is assigned to short-term debt obligations 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 Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
A commercial rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in or unavailability of such
information or based on other circumstances.
A-4
<PAGE>
Moody's Investors Service, Inc.--A brief description of the applicable Moody's
Investors Service, Inc. ("Moody's") rating symbols and their meanings (as
published by Moody's) follows:
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 risks appear
somewhat larger than in 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 sometime 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
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Con(.) Bonds for which the security depends upon the completion of some act or
the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of
A-5
<PAGE>
projects under construction, (b) earnings of projects unseasoned in
operation experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
category from Aa to Caa in the public finance sectors. The modifier 1
indicates that the issuer is in the higher end of its letter rating
category; the modifier 2 indicates a mid-range ranking; the modifier 3
indicates that the issuer is in the lower end of the letter ranking
category.
Short-Term Loans
MIG 1/VMIG 1 This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well-established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
S.G. This designation denotes speculative quality. Debt instruments in this
category lack margins of protection.
Commercial Paper
Issuers rated Prime-1 (or supporting institutions) have a superior capacity for
repayment of short-term promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
A-6
<PAGE>
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong capacity for
repayment of short-term promissory 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, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable capacity
for repayment of short-term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
Fitch IBCA, Inc.--A brief description of the applicable Fitch IBCA, Inc.
("Fitch") ratings symbols and meanings (as published by Fitch) follows:
Long-Term Credit Ratings
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.
BBB Good credit quality. `BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances
and in economic conditions are more likely to impair this capacity. This
is the lowest investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or
A-7
<PAGE>
financial alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A `CC' rating indicates that default of
some kind appears probable. `C' ratings signal imminent default.
DDD, DD, and D Default. The ratings of obligations in this category are based
on their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected recovery
values are highly speculative and cannot be estimated with any precision,
the following serve as general guidelines. `DDD' obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. `DD' indicates potential recoveries in the range of 50%-
90%, and `D' the lowest recovery potential, i.e., below 50%. Entities
rated in this category have defaulted on some or all of their obligations.
Entities rated `DDD' have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated `DD' and `D' are generally undergoing a formal
reorganization or liquidation process; those rated `DD' are likely to
satisfy a higher portion of their outstanding obligations, while entities
rated `D' have a poor prospect for repaying all obligations.
Short-Term Credit Ratings
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the
case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in
a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
A-8
<PAGE>
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D Default. Denotes actual or imminent payment default.
Notes:
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the `AAA' long-term rating
category, to categories below `CCC', or to short-term ratings other than `F1'.
`NR' indicates that Fitch IBCA does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that there is
a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. RatingAlert is typically resolved over a relatively
short period.
A-9
<PAGE>
PART C - OTHER INFORMATION
Item 24: Financial Statements and Exhibits
1. Financial Statements:
Registrant has not conducted any business as of the date of this filing,
other than in connection with its organization. Financial Statements indicating
that the Registrant has met the net worth requirements of Section 14(a) of the
1940 Act are filed herewith.
2. Exhibits:
a. Declaration of Trust dated August 13, 1999. Filed as Exhibit a to
Registrant's Registration Statement on Form N-2 (File No. 333-86619) and
incorporated herein by reference.
b. By-Laws of Registrant. Filed as Exhibit b to Registrant's Registration
Statement on Form N-2 (File No. 333-86619) and incorporated herein by
reference.
c. None.
d. Form of Share Certificate. Filed as Exhibit d to Pre-Effective Amendment
No. 2 to Registrant's Registration Statement on Form N-2 (File No.
333-86619) and incorporated herein by reference.
e. Terms and Conditions of the Dividend Reinvestment Plan. Filed as Exhibit e
to Pre-Effective Amendment No. 2 to Registrant's Registration Statement on
Form N-2 (File No. 333-86619) and incorporated herein by reference.
f. None.
g. Form of Investment Management Agreement between Registrant and Nuveen
Senior Loan Asset Management Inc. Filed as Exhibit g to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on Form N-2 (File
No. 333-86619) and incorporated herein by reference.
h.1 Underwriting Agreement.
h.2 Form of PaineWebber Amended and Restated Master Selected Dealer Agreement.
Filed as Exhibit h.2 to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-2 (File No. 333-86619) and incorporated
herein by reference.
h.3 Form of Nuveen Master Selected Dealer Agreement. Filed as Exhibit h.3 to
Pre-Effective Amendment No. 1 to Registrant's Registration Statement on
Form N-2 (File No. 333-86619) and incorporated herein by reference.
h.4 Form of Amended and Restated Master Agreement among Underwriters. Filed as
Exhibit h.4 to Pre-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-2 (File No. 333-86619) and incorporated herein by
reference.
i. Nuveen Open-End and Closed-End Funds Deferred Compensation Plan for
Independent Directors and Trustees. Filed as Exhibit i to Pre-Effective
Amendment No. 2 to Registrant's Registration Statement on Form N-2 (File
No. 333-86619) and incorporated herein by reference.
j. Form of Exchange Traded Fund Custody Agreement between Registrant and
Chase Bank of Texas.
k.1 Form of Shareholder Transfer Agency Agreement between Registrant and
The Chase Manhattan Bank.
k.2 Form of Expense Reimbursement Agreement between Registrant and Nuveen
Senior Loan Asset Management Inc. Filed as Exhibit k.2 to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on Form N-2 (File
No. 333-86619) and incorporated herein by reference.
C-1
<PAGE>
l.1 Opinion and consent of Bell, Boyd & Lloyd. Filed as Exhibit 1.1 to
Pre-Effective Amendment No. 2 to Registrant's Registration Statement on
Form N-2 (File No. 333-86619) and incorporated herein by reference.
l.2 Opinion and consent of Bingham Dana LLP. Filed as Exhibit 1.2 to
Pre-Effective Amendment No. 2 to Registrant's Registration Statement on
Form N-2 (File No. 333-86619) and incorporated herein by reference.
m. None.
n. Consent of KPMG LLP.
o. None.
p. Subscription Agreement of Nuveen Senior Loan Asset Management Inc. dated
October 12, 1999. Filed as Exhibit p to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-2 (File No. 333-86619) and
incorporated herein by reference.
q. None.
r. None.
s.1 Power of Attorney of Timothy R. Schwertfeger. Filed as Exhibit s to
Registrant's Registration Statement on Form N-2 (File No. 333-86619) and
incorporated herein by reference.
s.2 Powers of Attorney of Trustees (other than Timothy R. Schwertfeger). Filed
as Exhibit s.2 to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-2 (File No. 333-86619) and incorporated
herein by reference.
______________________
* To be filed by amendment.
Item 25: Marketing Arrangements
See Sections 1, 4(a)(xvi), 4(b)(viii), 5 and 9 of the Underwriting Agreement
filed as Exhibit h.1 to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement; Sections 2, 3(b), 3(c), 3(d) and 3(f) of the PaineWebber
Amended and Restated Master Selected Dealer Agreement filed as Exhibit h.2 to
Pre-Effective Amendment No. 1 to Registrant's Registration Statement; Section 3
of the Nuveen Master Selected Dealer Agreement filed as Exhibit h.3 to Pre-
Effective Amendment No. 1 to Registrant's Registration Statement; and Sections
1, 4, 7, and 11 of the Amended and Restated Master Agreement filed as Exhibit
h.4 to Pre-Effective Amendment No. 1 to Registrant's Registration Statement.
Item 26: Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Securities and Exchange Commission fees $ 16,680
National Association of Securities Dealers, Inc. fees 6,500
Printing and engraving expenses 400,000
Legal Fees 68,000
New York Stock Exchange listing fees 417,100
Accounting expenses 2,500
Blue Sky filing fees and expenses --
Transfer agent fees *
Miscellaneous expenses 6,000
--------
Total *
========
</TABLE>
_________
*To be completed by amendment.
Item 27: Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 28: Number of Holders of Securities
At October 14, 1999
C-2
<PAGE>
Number of
Title of Class Record Holder
-------------- -------------
Common Shares, $.01 par value 1
Item 29: Indemnification
Section 4 of Article XII of the Registrant's Declaration of Trust provides
as follows:
Subject to the exceptions and limitations contained in this Section 4,
every person who is, or has been, a Trustee, officer, employee or agent of the
Trust, including persons who serve at the request of the Trust as directors,
trustees, officers, employees or agents of another organization in which the
Trust has an interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person"), shall be indemnified by the Trust to the
fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been such a trustee, director, officer, employee or agent and
against amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a final
adjudication by the court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the Disinterested Trustees
then in office act on the matter); or
(ii) by written opinion of independent legal counsel.
C-3
<PAGE>
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Section 4
shall be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it is
ultimately determined that he is not entitled to indemnification under this
Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any
such advances; or
(b) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act
on the matter) or independent legal counsel in a written opinion shall
determine, based upon a review of the readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not
an Interested Person of the Trust (including, as such Disinterested Trustee,
anyone who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits, proceedings (civil,
criminal, administrative or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
The trustees and officers of the Registrant are covered by Investment Trust
Errors and Omission policies in the aggregate amount of $20,000,000 (with a
maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involve willful acts, bad faith, gross negligence and willful
disregard of duty (i.e., where the insured did not act in good faith for a
purpose he or she reasonably believed to be in the best interest of Registrant
or where he or she had reasonable cause to believe this conduct was unlawful).
C-4
<PAGE>
Section 8 of the Underwriting Agreement filed as Exhibit h.1 to this
Registration Statement provides for each of the parties thereto, including the
Registrant and the Underwriters, to indemnify the others, their trustees,
directors, certain of their officers, trustees, directors and persons who
control them against certain liabilities in connection with the offering
described herein, including liabilities under the federal securities laws.
Item 30: Business and Other Connections of Investment Adviser
As of the date hereof, Nuveen Senior Loan Asset Management Inc. does not
act as investment adviser for any entity or person. For a description of other
business, profession, vocation or employment of a substantial nature in which
any director or officer of the investment adviser has engaged during the last
two years for his account or in the capacity of director, officer, employee,
partner or trustee, see the descriptions under "Management of the Fund" in Part
A of this Registration Statement.
Item 31: Location of Accounts and Records
Nuveen Senior Loan Asset Management Inc., 333 West Wacker Drive, Chicago,
Illinois 60606, maintains the Declaration of Trust, By-Laws, minutes of trustees
and shareholders meetings and contracts of the Registrant and all advisery
material of the investment adviser.
Chase Bank of Texas, National Association, 600 Travis Street, Houston,
Texas 77002, is the Fund's custodian and will maintain all general and
subsidiary ledgers, journals, trial balances, records of all portfolio purchases
and sales, and all other required records not maintained by Nuveen Senior Loan
Asset Management Inc.
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004
maintains all the required records in its capacity as transfer and dividend
paying agent for the Registrant.
Item 32: Management Services
Not applicable.
Item 33: Undertakings
1. Registrant undertakes to suspend the offering of its shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement, or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
C-5
<PAGE>
5. The Registrant undertakes that:
a. For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and contained
in the form of prospectus filed by the Registrant under Rule 497(h) under
the Securities Act of 1933 shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
b. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering thereof.
6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery within two business days of receipt
of a written or oral request, any Statement of Additional Information.
C-6
<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 this City of Chicago, and State of Illinois, on the 26th day of
October, 1999.
NUVEEN SENIOR INCOME FUND
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen D. Foy Vice President and Controller October 26, 1999
- --------------------- (Principal Financial and
Stephen D. Foy Accounting Officer)
Chairman of the Board, President )
Timothy R. Schwertfeger and Trustee (Principal Executive )
Officer) )
)
) By: /s/ Gifford R. Zimmerman
) ----------------------------
} Gifford R. Zimmerman
James E. Bacon Trustee ) Executive Officer)
) Attorney-In-Fact
Jack B. Evans Trustee )
)
William L. Kissick Trustee )
)
Thomas E. Leafstrand Trustee )
)
Shiela W. Wellington Trustee ) October 26, 1999
</TABLE>
Original powers of attorney authorizing Alan G. Berkshire and Gifford R.
Zimmerman, among others, to execute this Registration Statement, and Amendments
to this Registration Statement, for each trustee of Registrant on whose behalf
this Registration Statement is filed, have been executed and filed as an exhibit
to this Registration Statement.
C-7
<PAGE>
INDEX TO EXHIBITS
a. Declaration of Trust dated August 13, 1999.*
b. By-Laws of Registrant.*
c. None.
d. Form of Share Certificate.*
e. Terms and Conditions of the Dividend Reinvestment Plan.*
f. None.
g. Form of Investment Management Agreement between Registrant and Nuveen
Senior Loan Asset Management Inc.*
h.1 Underwriting Agreement.
h.2 Form of PaineWebber Amended and Restated Master Selected Dealer
Agreement.*
h.3 Form of Nuveen Master Selected Dealer Agreement.*
h.4 Form of Amended and Restated Master Agreement among Underwriters.*
i. Nuveen Open-End and Closed-End Funds Deferred Compensation Plan for
Independent Directors and Trustees.*
j. Form of Exchange Traded Fund Custody Agreement between Registrant and
Chase Bank of Texas.
k.1 Form of Shareholder Transfer Agency Agreement between Registrant and The
Chase Manhattan Bank.
k.2 Form of Expense Reimbursement Agreement between Registrant and Nuveen
Senior Loan Asset Management Inc.*
l.1 Opinion and consent of Bell, Boyd & Lloyd.*
l.2 Opinion and consent of Bingham Dana LLP.*
m. None.
n. Consent of KPMG LLP.
o. None.
p. Subscription Agreement of Nuveen Senior Loan Asset Management Inc. dated
October 12, 1999.*
q. None.
r. None.
s.1 Power of Attorney of Timothy R. Schwertfeger.*
s.2 Powers of Attorney of Trustees (other than Timothy R. Schwertfeger).*
___________________
* Previously filed.
**To be filed by amendment.
<PAGE>
______________________ Shares*
NUVEEN SENIOR INCOME FUND
Common Shares of Beneficial Interest
Par Value $.01 Per Share
UNDERWRITING AGREEMENT
----------------------
______________, 1999
PAINEWEBBER INCORPORATED
JOHN NUVEEN & CO. INCORPORATED
as Representatives of the Several Underwriters
named in Schedule 1 hereto
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Nuveen Senior Income Fund, a Massachusetts business trust (the
"Fund"), proposes to issue and sell to you and the other underwriters named in
Schedule 1 hereto (the "Underwriters"), for whom you are acting as
representatives (the "Representatives"), _______________________ shares of
beneficial interest (the "Firm Shares"), par value $.01 per share (the "Shares
of Beneficial Interest"). In addition, the Fund hereby grants to the
Underwriters an option (the "Option") to purchase up to an additional [_____] of
its Shares of Beneficial Interest (the "Option Shares") solely for the purpose
of covering over-allotments. The Firm Shares and the Option Shares are referred
to collectively herein as the "Shares."
Nuveen Senior Loan Asset Management Inc., a Delaware corporation (the
"Investment Adviser") and a wholly-owned subsidiary of John Nuveen & Co.
Incorporated ("Nuveen"), pursuant to which will act as the Fund's investment
adviser pursuant to an Investment Management Agreement by and between the Fund
and the Investment Adviser, dated as of ____________, 1999 (the "Investment
Management
- ------------------
* Plus an option to purchase, in the aggregate, up to ______________________
additional Shares of Beneficial Interest to cover over-allotments.
<PAGE>
Agreement"). The Underwriters acknowledge that certain registered broker-dealers
may enter into one or both of a Master Selected Dealer Agreement with
PaineWebber Incorporated, dated June 11, 1984 (the "PaineWebber Master Selected
Dealer Agreement") or with Nuveen dated May __, 1999, (the "Nuveen Master
Selected Dealer Agreement"), pursuant to which such broker-dealer may act as a
Selling Group Member ("Selling Group Member") in connection with the
distribution of the Shares. The Underwriters acknowledge that in the event such
Selling Group Member has entered into both the PaineWebber Master Selected
Dealer Agreement and the Nuveen Master Selected Dealer Agreement the terms and
conditions of the PaineWebber Master Selected Dealer Agreement shall control and
that in the event such Selling Group Member shall have entered into only the
Nuveen Master Selected Dealer Agreement the terms of the Nuveen Master Selected
Dealer Agreement shall control. In addition, the Fund and the Investment Adviser
have entered into an Expense Reimbursement Agreement, dated as of
_________________________, 1999 (the "Expense Reimbursement Agreement").
_________________________________ will act as the custodian (the "Custodian") of
the Fund's cash and portfolio assets pursuant to a Custody Agreement between the
Fund and the Custodian, effective as of ____________, 1999 (the "Custody
Agreement"). _______________________________ will act as the Fund's transfer
agent and dividend disbursing agent (the "Transfer Agent") pursuant to a
transfer agency agreement between the Fund and the Transfer Agent, dated as of
____________, 1999 (the "Transfer Agency Agreement"). The Fund has adopted a
Deferred Compensation Plan (the "Deferred Compensation Plan") in connection with
the compensation of certain of its trustees.
The Fund and the Investment Adviser each hereby confirms as follows
their agreements with the Representatives and the several other Underwriters.
1. Sale and Purchase; Compensation
(a) The Fund will issue and sell to each Underwriter, and each
Underwriter will purchase from the Fund, the number of Firm Shares set forth
opposite such Underwriter's name in Schedule 1 hereto, at the purchase price of
$__________ per Firm Share.
(b) The Fund grants to the Underwriters the Option to purchase
all or any part of the Option Shares for the same consideration per share as for
the Firm Shares. The Option may be exercised only to cover over-allotments in
the sales of the Firm Shares by the Underwriters. The number of Option Shares
(adjusted by the Representatives to eliminate fractions) to be purchased by each
Underwriter will be the
2
<PAGE>
same percentage of the aggregate number of Option Shares being sold as such
Underwriter is obligated to purchase of the Firm Shares. Such Option may be
exercised in whole or in part, only to cover over-allotments, at any time or
from time to time on or before the 45th day after the date of this Underwriting
Agreement, upon written or telefacsimile notice (the "Option Shares Notice")
from the Representatives to the Fund no later than 12:00 noon, New York City
time, at least two and not more than five business days before the date
specified for closing in the Option Shares Notice (the "Option Shares Closing
Date"), setting forth the number of Option Shares to be purchased and the time
and date of such purchase. Upon delivery and receipt of the Option Shares
Notice, the Fund will issue and sell to each Underwriter, and each Underwriter
will purchase from the Fund, on the Option Shares Closing Date, its portion of
the number of Option Shares set forth in the Option Shares Notice.
(c) The obligations of the Underwriters under this Underwriting
Agreement are several and not joint and are undertaken on the basis of the
representations and are subject to the conditions set forth in this Underwriting
Agreement.
2. Payment and Delivery. Delivery by the Fund of the Firm Shares
(the "Firm Shares Closing") to the Representatives for the accounts of the
Underwriters against payment of the purchase price by wire transfer of Federal
Funds or similar same day funds to the Fund for the Firm Shares, will take place
at the offices of PaineWebber Incorporated (the "Managing Representative"), 1285
Avenue of the Americas, New York, New York or such other location as is agreed
upon by the parties hereto, or through the facilities of the Depository Trust
Company or another mutually agreeable facility, at 9:00 a.m., New York City
time, on the third business day following the date of this Underwriting
Agreement, or at such time on such other date, not later than ten business days
after the date of this Underwriting Agreement, as may be agreed upon by the Fund
and the Managing Representative (the "Firm Shares Closing Date").
If and to the extent that the Option is exercised, delivery of the
Option Shares and payment by the Underwriters (in the manner specified above)
will take place at the offices or through the facilities specified above for the
Firm Shares Closing at the time and date (which may be the Firm Shares Closing
Date) specified in the Option Shares Notice. Any Option Shares Closing Date may
not be later than three business days following the exercise of the related
Option. The Firm Shares Closing Date and any Option Shares Closing Date are
called the "Closing Dates."
Certificates evidencing Shares of Beneficial Interest will be in
definitive form (or temporary form acceptable to the New York Stock Exchange),
registered in
3
<PAGE>
such names and in such denominations as the Managing Representative requests at
least three full business days before the Firm Shares Closing Date or, in the
case of Option Shares, on the day of notice of exercise of the Option as
described in Section 1(b), and will be made available to the Managing
Representative for checking and packaging, at a place in New York City
designated by the Managing Representative, at least one full business day before
the relevant Closing Date.
3. Registration Statement and Prospectus; Public Offering. The Fund
has filed with the Securities and Exchange Commission (the "Commission"),
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
the published rules and regulations adopted by the Commission under the
Securities Act (the "Securities Act Rules") and the Investment Company Act (the
"Investment Company Act Rules"), a Notification of Registration on Form N-8A
(the "Notification") pursuant to Section 8 of the Investment Company Act and a
registration statement on Form N-2 (File Nos. 333-_____________ and 811-
____________) relating to the Shares (the "registration statement"), including a
preliminary prospectus (including any preliminary statement of additional
information), and such amendments to such registration statement as may have
been required to the date of this Underwriting Agreement. The preliminary
prospectus (including any preliminary statement of additional information) is to
be used in connection with the offering and sale of the Shares. The term
"Preliminary Prospectus" as used herein means any preliminary prospectus
(including any preliminary statement of additional information) included at any
time as a part of the registration statement and any preliminary prospectus
(including any preliminary statement of additional information) omitted
therefrom pursuant to the Securities Act Rules.
The Fund has furnished the Representatives copies of such registration
statement, each amendment to such registration statement filed by the Fund with
the Commission and the Preliminary Prospectus filed by the Fund with the
Commission or used by the Fund. If the registration statement has not become
effective, a further amendment (the "Final Amendment") to such registration
statement, including the forms of final prospectus (including any final
statement of additional information), necessary to permit such registration
statement to become effective will promptly be filed by the Fund with the
Commission. If such registration statement has become effective and any
prospectus (including any statement of additional information) contained therein
omits certain information at the time of effectiveness pursuant to Rule 430A of
the Securities Act Rules, a final prospectus (the "Rule 430A Prospectus")
containing such omitted information will be filed by the Fund with the
Commission in accordance with Rule 497(h) of the Securities Act Rules. The
registration statement as amended at the time
4
<PAGE>
it becomes or became effective (the "Effective Date"), including financial
statements and all exhibits, and any information deemed to be included by Rule
430A, is called the "Registration Statement." The term "Prospectus" means the
prospectus (including any statement of additional information) in the form in
which it is first filed with the Commission pursuant to Rule 497(b), (h) or (j)
of the Securities Act Rules, as the case may be.
The Fund and the Investment Adviser understand that the Underwriters
propose to make a public offering of the Firm Shares, as described in the
Prospectus, as soon after the Effective Date (or, if later, after the date this
Underwriting Agreement is signed) as the Managing Representative deems
advisable. The Fund confirms that the Underwriters and dealers have been
authorized to distribute the Preliminary Prospectus relating to the Shares
included in Pre-Effective Amendment No. 1 of the registration statement and are
authorized to distribute the Prospectus and any amendments or supplements
thereto.
4. Representations.
(a) Each of the Fund, the Investment Adviser and Nuveen jointly
and severally represents to each Underwriter as follows:
(i) On (A) the Effective Date and the date on which the
Prospectus is first filed with the Commission pursuant to Rule 497(b), (h)
or (j) of the Securities Act Rules, as the case may be, (B) the date on
which any post-effective amendment to the Registration Statement (except
any post-effective amendment which is filed with the Commission after the
later of (x) one year from the date of this Underwriting Agreement or (y)
the date on which the distribution of the Shares is completed) became or
becomes effective or any amendment or supplement to the Prospectus was or
is filed with the Commission and (C) the Closing Dates, the Registration
Statement, the Prospectus and any such amendment or supplement thereto and
the Notification complied or will comply in all material respects with the
requirements of the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules, as the case may
be. On the Effective Date and on the date that any post-effective
amendment to the Registration Statement (except any post-effective
amendment which is filed with the Commission after the later of (x) one
year from the date of this Underwriting Agreement or (y) the date on which
the distribution
5
<PAGE>
of the Shares is completed) became or becomes effective, neither the
Registration Statement nor any such amendment did or will contain any
untrue statement of a material fact or omit to state a material fact
required to be stated in it or necessary to make the statements in it not
misleading. At the Effective Date and, if applicable, the date the
Prospectus or any amendment or supplement to the Prospectus was or is filed
with the Commission and at the Closing Dates, the Prospectus did not or
will not, as the case may be, contain any untrue statement of a material
fact or omit to state a material fact required to be stated in it or
necessary to make the statements in it, in light of the circumstances under
which they were made, not misleading. The foregoing representations in this
Section 4(a)(i) do not apply to statements or omissions relating to the
Underwriters made in reliance on and in conformity with information
furnished in writing to the Fund by the Representatives expressly for use
in the Registration Statement, the Prospectus, or any amendments or
supplements thereto, as described in Section 7(f) hereof.
(ii) The Fund has been duly formed, is validly existing as a
business trust under the laws of The Commonwealth of Massachusetts, with
full power and authority to conduct all the activities conducted by it, to
own or lease all assets owned or leased by it and to conduct its business
as described in the Registration Statement and Prospectus, and the Fund is
duly licensed and qualified to do business and in good standing in each
jurisdiction in which its ownership or leasing of property or its
conducting of business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Fund, and the Fund owns, possesses or has obtained
and currently maintains all governmental licenses, permits, consents,
orders, approvals and other authorizations, whether foreign or domestic,
necessary to carry on its business as contemplated in the Prospectus. The
Fund has no subsidiaries.
(iii) The capitalization of the Fund is as set forth in the
Registration Statement and the Prospectus. The Shares of Beneficial
Interest of the Fund conform in all material respects to the description of
them in the Prospectus. All the outstanding Shares of Beneficial Interest
have been duly authorized and are validly issued, fully paid and
nonassessable (except as described in the Registration Statement). The
Shares to be issued and delivered to and paid for by the
6
<PAGE>
Underwriters in accordance with this Underwriting Agreement against payment
therefor as provided by this Underwriting Agreement have been duly
authorized and when issued and delivered to the Underwriters will have been
validly issued and will be fully paid and nonassessable (except as
described in the Registration Statement). No person is entitled to any
preemptive or other similar rights with respect to the Shares.
(iv) The Fund is duly registered with the Commission under
the Investment Company Act as a non-diversified, closed-end management
investment company, and, subject to the filing of the Final Amendment, if
not already filed, all action under the Securities Act, the Investment
Company Act, the Securities Act Rules and the Investment Company Act Rules,
as the case may be, necessary to make the public offering and consummate
the sale of the Shares as provided in this Underwriting Agreement has or
will have been taken by the Fund.
(v) The Fund has full power and authority to enter into each
of this Underwriting Agreement, the Investment Management Agreement, the
Custody Agreement the Transfer Agency Agreement, the Expense Reimbursement
Agreement and the Deferred Compensation Plan (collectively, the "Fund
Agreements") and to perform all of the terms and provisions hereof and
thereof to be carried out by it and (A) each Fund Agreement has been duly
and validly authorized, executed and delivered by or on behalf of the Fund,
(B) each Fund Agreement does not violate in any material respect any of the
applicable provisions of the Investment Company Act, the Investment
Advisers Act of 1940 (the "Advisers Act"), the Investment Company Act Rules
and the rules and regulations adopted by the Commission under the Advisers
Act (the "Advisers Act Rules"), as the case may be, and (C) assuming due
authorization, execution and delivery by the other parties thereto, each
Fund Agreement constitutes the legal, valid and binding obligation of the
Fund enforceable in accordance with its terms, (1) subject, as to
enforcement, to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general equitable principles
(regardless of whether enforcement is sought in a proceeding in equity or
at law) and (2) with respect to this Underwriting Agreement, except
7
<PAGE>
as rights to indemnity thereunder may be limited by federal or state
securities laws.
(vi) None of (A) the execution and delivery by the Fund of
the Fund Agreements, (B) the issue and sale by the Fund of the Shares as
contemplated by this Underwriting Agreement and (C) the performance by the
Fund of its obligations under any of the Fund Agreements or consummation by
the Fund of the other transactions contemplated by the Fund Agreements
conflicts with or will conflict with, or results or will result in a breach
of, the Declaration of Trust or the By-laws of the Fund or any agreement or
instrument to which the Fund is a party or by which the Fund is bound, or
any law, rule or regulation, or order of any court, governmental
instrumentality, securities exchange or association or arbitrator, whether
foreign or domestic, applicable to the Fund, other than state securities or
"blue sky" laws applicable in connection with the purchase and distribution
of the Shares by the Underwriters pursuant to this Underwriting Agreement.
(vii) The Fund is not currently in breach of, or in default
under, any written agreement or instrument to which it is a party or by
which it or its property is bound or affected.
(viii) No person has any right to the registration of any
securities of the Fund because of the filing of the registration statement.
(ix) No consent, approval, authorization or order of any
court or governmental agency or body or securities exchange or association,
whether foreign or domestic, is required by the Fund for the consummation
by the Fund of the transactions to be performed by the Fund or the
performance by the Fund of all the terms and provisions to be performed by
or on behalf of it in each case as contemplated in the Fund Agreements,
except such as (A) have been obtained under the Securities Act, the
Investment Company Act, the Advisers Act, the Securities Act Rules, the
Investment Company Act Rules, and the Advisers Act Rules, and (B) may be
required by the New York Stock Exchange or under state securities or "blue
sky" laws, in connection with the purchase and distribution of the Shares
by the Underwriters pursuant to this Underwriting Agreement.
8
<PAGE>
(x) The Shares are duly authorized for listing, subject to
official notice of issuance, on the New York Stock Exchange and the Fund's
Registration Statement on Form 8-A, under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), has become effective.
(xi) KPMG LLP, whose report appears in the Prospectus, are
independent public accountants with respect to the Fund as required by the
Securities Act, the Investment Company Act, the Securities Act Rules and
the Investment Company Act Rules.
(xii) The statement of assets and liabilities included in
the Registration Statement and the Prospectus presents fairly in all
material respects, in accordance with generally accepted accounting
principles in the United States applied on a consistent basis, the
financial position of the Fund as of the date indicated.
(xiii) The Fund will maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or
specific authorization; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(C) access to assets is permitted only in accordance with management's
general or specific authorization; and (D) the recorded accountability for
assets is compared with existing assets through an asset reconciliation
procedure or otherwise at reasonable intervals and appropriate action is
taken with respect to any differences.
(xiv) Since the date as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change in the condition,
financial or otherwise, business affairs or business of the Fund, whether
or not arising in the ordinary course of business, (B) there have been no
transactions entered into by the Fund other than those in the ordinary
course of its business and (C) there has been no dividend or distribution
of any kind declared, paid or made on any class of its capital shares.
9
<PAGE>
(xv) There is no action, suit or proceeding before or by any
court, commission, regulatory body, administrative agency or other
governmental agency or body, foreign or domestic, now pending, or, to the
knowledge of the Fund, threatened against or affecting the Fund, which (A)
might result in any material adverse change in the condition, financial or
otherwise, business affairs or business prospects of the Fund or might
materially adversely affect the properties or assets of the Fund or (B) is
of a character required to be described in the Registration Statement or
the Prospectus; and there are no contracts, franchises or other documents
that are of a character required to be described in, or that are required
to be filed as exhibits to, the Registration Statement that have not been
described or filed as required.
(xvi) Except for stabilization transactions conducted by the
Underwriters, and except for tender offers, Share repurchases and the
issuance or purchase of Shares pursuant to the Fund's dividend investment
plan (the "Dividend Investment Plan") effected following the date on which
the distribution of the Shares is completed in accordance with the policies
of the Fund as set forth in the Prospectus, the Fund has not taken and will
not take, directly or indirectly, any action designed or which might be
reasonably expected to cause or result in, or which will constitute,
stabilization or manipulation of the price of the Shares of Beneficial
Interest in violation of applicable federal securities laws.
(xvii) The Fund intends to direct the investment of the
proceeds of the offering of the Shares in such a manner as to comply with
the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code").
(xviii) To the knowledge of the Fund after due inquiry, no
advertising, sales literature or other promotional materials (excluding
road show slides or road show tapes) were authorized or prepared by or on
behalf of the Fund and the Investment Adviser or any representative thereof
for use in connection with the public offering or sale of the Shares other
than the (A) client brochure, (B) the adviser brochure, (C) the adviser
fact card, (D) the announcement card, (E) the mailing cover letter and (F)
the prospecting letter, drafts of each of which were filed with the NASD on
September 3, 1999 and September
10
<PAGE>
14, 1999, and final forms of which were filed with the NASD on September
__, 1999 (collectively, the "sales materials"); the sales materials and any
road show slides or road show tapes complied and comply in all material
respects with the applicable requirements of the Securities Act, the
Securities Act Rules and the rules and interpretations of the NASD; and no
broker kits, road show slides, road show tapes or sales materials
authorized or prepared by the Fund or authorized or prepared on behalf of
the Fund by the Investment Adviser or any representative thereof for use in
connection with the public offering or sale of the Shares contained or
contains any untrue statement of a material fact or omitted or omits to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading.
(b) Each of the Investment Adviser and Nuveen jointly and
severally represents to each Underwriter as follows:
(i) The Investment Adviser has been duly formed, is validly
existing as a corporation under the laws of Delaware with full power and
authority to conduct all of the activities conducted by it, to own or lease
all of the assets owned or leased by it and to conduct its business as
described in the Registration Statement and Prospectus, and the Investment
Adviser is duly licensed and qualified to do business and in good standing
in each jurisdiction in which it is required to be so qualified, except to
the extent that failure to be so qualified or be in good standing would not
have a material adverse affect on the Investment Adviser; and the
Investment Adviser owns, possesses or has obtained and currently maintains
all governmental licenses, permits, consents, orders, approvals and other
authorizations, whether foreign or domestic, necessary to carry on its
business as contemplated in the Registration Statement and the Prospectus.
(ii) The Investment Adviser is (A) duly registered as an
investment adviser under the Advisers Act and (B) not prohibited by the
Advisers Act, the Investment Company Act, the Advisers Act Rules or the
Investment Company Act Rules from acting as the investment adviser for the
Fund as contemplated by the Investment Advisory Agreement, the
Registration Statement and the Prospectus.
11
<PAGE>
(iii) The Investment Adviser has full power and authority to
enter into each of this Underwriting Agreement, the Investment Management
Agreement and the Expense Reimbursement Agreement (together, this
Underwriting Agreement, the Investment Management Agreement and the Expense
Reimbursement Agreement being referred to as the "Investment Adviser
Agreements") and to carry out all the terms and provisions hereof and
thereof to be carried out by it; and each Investment Adviser Agreement has
been duly and validly authorized, executed and delivered by the Investment
Adviser; none of the Investment Adviser Agreements violate in any material
respect any of the applicable provisions of the Investment Company Act, the
Advisers Act, the Investment Company Act Rules and the Advisers Act Rules;
and assuming due authorization, execution and delivery by the other parties
thereto, each Investment Adviser Agreement constitutes a legal, valid and
binding obligation of the Investment Adviser, enforceable in accordance
with its terms, (1) subject, as to enforcement, to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to
general equitable principles (regardless of whether enforcement is sought
in a proceeding in equity or at law) and (2) with respect to this
Underwriting Agreement, except as rights to indemnity thereunder may be
limited by federal or state securities laws.
(iv) Neither (A) the execution and delivery by the
Investment Adviser of any Investment Adviser Agreement by the Investment
Adviser nor (B) the consummation by the Investment Adviser of the
transactions contemplated by, or the performance of its obligations under
any Investment Adviser Agreement conflicts or will conflict with, or
results or will result in a breach of, the Agreement and Declaration of
Fund or By-Laws of the Investment Adviser or any agreement or instrument to
which the Investment Adviser is a party or by which the Investment Adviser
is bound, or any law, rule or regulation, or order of any court,
governmental instrumentality, securities exchange or association or
arbitrator, whether foreign or domestic, applicable to the Investment
Adviser.
(v) No consent, approval, authorization or order of any
court, governmental agency or body or securities exchange or association,
whether foreign or domestic, is required for the consummation of the
transactions contemplated in, or the performance by the
12
<PAGE>
Investment Adviser of its obligations under, any Investment Adviser
Agreement, as the case may be, except such as (A) have been obtained under
the Investment Company Act, the Advisers Act, the Securities Act, the
Investment Company Act Rules, the Advisers Act Rules and the Securities Act
Rules, and (B) may be required by the New York Stock Exchange or under
state securities or "blue sky" laws, in connection with the purchase and
distribution of the Shares by the Underwriters pursuant to this
Underwriting Agreement.
(vi) The description of the Investment Adviser and its
business, and the statements attributable to the Investment Adviser, in the
Registration Statement and the Prospectus complies with the requirements of
the Securities Act, the Investment Company Act, the Securities Act Rules
and the Investment Company Act Rules and does not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading.
(vii) There is no action, suit or proceeding before or by
any court, commission, regulatory body, administrative agency or other
governmental agency or body, foreign or domestic, now pending or, to the
knowledge of the Investment Adviser, threatened against or affecting the
Investment Adviser of a nature required to be disclosed in the Registration
Statement or Prospectus or that might reasonably be expected to result in
any material adverse change in the condition, financial or otherwise,
business affairs or business prospects of the Investment Adviser or the
ability of the Investment Adviser to fulfill its respective obligations
under any Investment Adviser Agreement.
(viii) Except for stabilization activities conducted by the
Underwriters and except for tender offers, Share repurchases and the
issuance or purchase of Shares pursuant to the Fund's Dividend Investment
Plan effected following the date on which the distribution of the Shares is
completed in accordance with the policies of the Fund as set forth in the
Prospectus, the Investment Adviser has not taken and will not take,
directly or indirectly, any action designed, or which might reasonably be
expected to cause or result in, or which will constitute, stabilization or
manipulation of the price of the Shares of Beneficial Interest in violation
of applicable federal securities laws.
13
<PAGE>
(ix) In the event that the Fund or the Investment Adviser
makes available any promotional materials (other than the sales materials)
intended for use only by qualified broker-dealers and registered
representatives thereof by means of an Internet web site or similar
electronic means, the Investment Adviser will install and maintain pre-
qualification and password-protection or similar procedures which will
effectively prohibit access to such promotional materials by persons other
than qualified broker-dealers and registered representatives thereof.
5. Agreements of the Parties.
(a) If the registration statement relating to the Shares has not
yet become effective, the Fund will promptly file the Final Amendment, if not
previously filed, with the Commission, and will use its best efforts to cause
such registration statement to become effective and, as soon as the Fund is
advised, will advise the Representatives when the Registration Statement or any
amendment thereto has become effective. If the Registration Statement has become
effective and the Prospectus contained therein omits certain information at the
time of effectiveness pursuant to Rule 430A of the Securities Act Rules, the
Fund will file a 430A Prospectus pursuant to Rule 497(h) of the Securities Act
Rules as promptly as practicable, but no later than the second business day
following the earlier of the date of the determination of the offering price of
the Shares or the date the Prospectus is first used after the Effective Date. If
the Registration Statement has become effective and the Prospectus contained
therein does not so omit such information, the Fund will file a Prospectus
pursuant to Rule 497(b) or (j) of the Securities Act Rules as promptly as
practicable, but no later than the fifth business day following the date of the
later of the Effective Date or the commencement of the public offering of the
Shares after the Effective Date. In either case, the Fund will provide the
Representatives satisfactory evidence of the filing. The Fund will not file with
the Commission any Prospectus or any other amendment (except any post-effective
amendment which is filed with the Commission after the later of (x) one year
from the date of this Underwriting Agreement or (y) the date on which
distribution of the Shares is completed) or supplement to the Registration
Statement or the Prospectus unless a copy has first been submitted to the
Managing Representative a reasonable time before its filing and the Managing
Representative has not objected to it in writing within a reasonable time after
receiving the copy.
14
<PAGE>
(b) For the period of three years from the date hereof, the Fund
will advise the Representatives promptly (1) of the issuance by the Commission
of any order in respect of the Fund or the Investment Adviser which relates to
the Fund, or which relates to any material arrangements or proposed material
arrangements involving the Fund or the Investment Adviser, (2) of the initiation
or threatening of any proceedings for, or receipt by the Fund of any notice with
respect to, the suspension of the qualification of the Shares for sale in any
jurisdiction or the issuance of any order by the Commission suspending the
effectiveness of the Registration Statement, (3) of receipt by the Fund, or any
representative or attorney of the Fund, of any other communication from the
Commission relating in any material way to the Fund, the Registration Statement,
the Notification, any Preliminary Prospectus, the Prospectus or to the
transactions contemplated by this Underwriting Agreement and (4) the issuance by
any court, regulatory body, administrative agency or other governmental agency
or body, whether foreign or domestic, of any order, ruling or decree, or the
threat to initiate any proceedings with respect thereto, regarding the Fund,
which relates in any material way to the Fund or any material arrangements or
proposed material arrangements involving the Fund. The Fund will make every
reasonable effort to prevent the issuance of any order suspending the
effectiveness of the Registration Statement and, if any such order is issued, to
obtain its lifting as soon as possible.
(c) If not delivered prior to the date of this Underwriting
Agreement, the Fund will deliver to the Representatives, without charge, a
signed copy of the registration statement and the Notification and of any
amendments (except any post-effective amendment which is filed with the
Commission after the later of (x) one year from the date of this Underwriting
Agreement or (y) the date on which the distribution of the Shares is completed)
to either the Registration Statement or the Notification (including all exhibits
filed with any such document) and as many conformed copies of the registration
statement and any amendments thereto (except any post-effective amendment which
is filed with the Commission after the later of (x) one year from the date of
this Underwriting Agreement or (y) the date on which the distribution of the
Shares is completed) (excluding exhibits) as the Representatives may reasonably
request.
(d) During such period as a prospectus is required by law to be
delivered by an underwriter or a dealer, the Fund will deliver, without charge,
to the Representatives, the Underwriters and any dealers, at such office or
offices as the Representatives may designate, as many copies of the Prospectus
as the Representatives may reasonably request, and, if any event occurs during
such period as a result of which it is necessary to amend or supplement the
Prospectus, in order to make the statements
15
<PAGE>
therein, in light of the circumstances existing when such Prospectus is
delivered to a purchaser of Shares, not misleading in any material respect, or
if during such period it is necessary to amend or supplement the Prospectus to
comply with the Securities Act, the Investment Company Act, the Securities Act
Rules or the Investment Company Act Rules, the Fund promptly will prepare,
submit to the Managing Representative, file with the Commission and deliver,
without charge, to the Underwriters and to dealers (whose names and addresses
the Representatives will furnish to the Fund) to whom Shares may have been sold
by the Underwriters, and to other dealers on request, amendments or supplements
to the Prospectus so that the statements in such Prospectus, as so amended or
supplemented, will not, in light of the circumstances existing when such
Prospectus is delivered to a purchaser, be misleading in any material respect
and will comply with the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules. Delivery by the
Underwriters of any such amendments or supplements to the Prospectus will not
constitute a waiver of any of the conditions in Section 6 hereof.
(e) The Fund will make generally available to holders of the
Fund's securities, as soon as practicable but in no event later than the last
day of the 18th full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement, if applicable, satisfying the
provisions of Section 11(a) of the Securities Act and, at the option of the
Fund, Rule 158 of the Securities Act Rules.
(f) The Fund will take such actions as the Representatives
reasonably requests in order to qualify the Shares for offer and sale under the
securities or "blue sky" laws of such jurisdictions as the Representatives
reasonably designate; provided that the Fund shall not be required in connection
therewith or as a condition thereof to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(g) If the transactions contemplated by this Underwriting
Agreement are consummated, the Fund shall pay all costs and expenses incident to
the performance of the obligations of the Fund under this Underwriting Agreement
(to the extent such expenses do not, in the aggregate, exceed $0.01 per Share),
including but not limited to costs and expenses of or relating to (1) the fees,
disbursements and expenses of the Fund's counsel and accountants in connection
with the registration of the Shares and all other expenses in connection with
the preparation, printing and filing of the registration statement and exhibits
to it, each Preliminary Prospectus, the Prospectus and all amendments and
supplements thereto, (2) the issuance of the Shares and the preparation and
delivery of certificates for the Shares, (3) the registration or
16
<PAGE>
qualification of the Shares for offer and sale under the securities or "blue
sky" laws of the jurisdictions referred to in the foregoing paragraph, including
the fees and disbursements of counsel for the Underwriters in that connection,
and the preparation and printing of preliminary and supplemental "blue sky"
memoranda, (4) the furnishing (including costs of design, production, shipping
and mailing) to the Underwriters and dealers of copies of each Preliminary
Prospectus relating to the Shares, the sales materials, the Prospectus, and all
amendments or supplements to the Prospectus, and of the other documents required
by this Section to be so furnished, (5) the filing requirements of the National
Association of Securities Dealers, Inc., in connection with its review of the
financing, including filing fees and the fees, disbursements and other charges
of counsel for the Underwriters in that connection, (6) all transfer taxes, if
any, with respect to the sale and delivery of the Shares to the Underwriters,
(7) the listing of the Shares on the New York Stock Exchange and (8) the
transfer agent for the Shares. To the extent the foregoing costs and expenses
incident to the performance of the obligations of the Fund under this
Underwriting Agreement exceed, in the aggregate, $0.01 per Share the Nuveen will
pay all such excess costs and expenses.
(h) If the transactions contemplated by this Underwriting
Agreement are not consummated, except as otherwise provided herein, no party
will be under any liability to any other party, except that (1) if this
Underwriting Agreement is terminated by (x) the Fund or the Investment Adviser
pursuant to any of the provisions hereof (otherwise than pursuant to Section 8
hereof) or (y) by the Representatives or the Underwriters because of any
inability, failure or refusal on the part of the Fund or the Investment Adviser
to comply with any material terms or because any of the conditions in Section 6
are not satisfied, the Investment Adviser, Nuveen and the Fund, jointly and
severally, will reimburse the Underwriters for all out-of-pocket expenses
(including the reasonable fees, disbursements and other charges of their
counsel) reasonably incurred by them in connection with the proposed purchase
and sale of the Shares and (2) no Underwriter who has failed or refused to
purchase the Shares agreed to be purchased by it under this Underwriting
Agreement, in breach of its obligations pursuant to this Underwriting Agreement,
will be relieved of liability to the Fund and the Investment Adviser and the
other Underwriters for damages occasioned by its default.
(i) Without the prior written consent of the Managing
Representatives the Fund will not offer, sell or register with the Commission,
or announce an offering of, any equity securities of the Fund, within 180 days
after the Effective Date, except for the Shares as described in the Prospectus
and any issuances of Shares of Beneficial Interest pursuant to the dividend
reinvestment plan established by the Fund
17
<PAGE>
and except in connection with any offering of preferred shares of beneficial
interest as contemplated by the Prospectus.
(j) The Fund will use its best efforts to list the Shares on the
New York Stock Exchange and comply with the rules and regulations of such
exchange.
(k) The Fund will direct the investment of the net proceeds of
the offering of the Shares in such a manner as to comply with the investment
objective and policies of the Fund as described in the Prospectus.
6. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters to purchase the Shares are subject to the accuracy on the date
of this Underwriting Agreement, and on the Closing Dates, of the representations
of the Fund, the Investment Adviser and Nuveen in this Underwriting Agreement,
to the accuracy and completeness of all statements made by the Fund or the
Investment Adviser or any of their respective officers in any certificate
delivered to the Representatives or their counsel pursuant to this Underwriting
Agreement, to performance by the Fund and the Investment Adviser of their
respective obligations under this Underwriting Agreement and to each of the
following additional conditions:
(a) The registration statement must have become effective by 5:30
p.m., New York City time, on the date of this Underwriting Agreement or such
later date and time as the Managing Representative consents to in writing. The
Prospectus must have been filed in accordance with Rule 497(b), (h) or (j), as
the case may be, of the Securities Act Rules.
(b) No order suspending the effectiveness of the Registration
Statement may be in effect and no proceedings for such purpose may be pending
before or, to the knowledge of counsel to the Underwriters, threatened by the
Commission, and any requests for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus or
otherwise) must be complied with or waived to the reasonable satisfaction of the
Managing Representative.
(c) Since the dates as of which information is given in the
Registration Statement and the Prospectus, (1) there must not have been any
material change in the Shares of Beneficial Interest or liabilities of the Fund
except as set forth in or contemplated by the Prospectus; (2) there must not
have been any material adverse change in the general affairs, prospects,
management, business, financial condition or results of operations of the Fund
or the Investment Adviser whether or not arising from
18
<PAGE>
transactions in the ordinary course of business as set forth in or contemplated
by the Prospectus; (3) the Fund must not have sustained any material loss or
interference with its business from any court or from legislative or other
governmental action, order or decree, whether foreign or domestic, or from any
other occurrence not described in the Registration Statement and Prospectus; and
(4) there must not have occurred any event that makes untrue or incorrect in any
material respect any statement or information contained in the Registration
Statement or Prospectus or that is not reflected in the Registration Statement
or Prospectus but should be reflected therein in order to make the statements or
information therein (in the case of the Prospectus, in light of the
circumstances in which they were made) not misleading in any material respect;
if, in the judgment of the Managing Representative, any such development
referred to in clause (1), (2), (3) or (4) of this paragraph (c) makes it
impracticable or inadvisable to consummate the sale and delivery of the Shares
pursuant to this Underwriting Agreement by the Underwriters, at the initial
public offering price of the Shares.
(d) The Representatives must have received on each Closing Date a
certificate, dated such date, of the President or a Vice-President and the
chief financial or accounting officer of each of the Fund and the Investment
Adviser certifying that (1) the signers have carefully examined the Registration
Statement, the Prospectus, and this Underwriting Agreement, (2) the
representations of the Fund (with respect to the certificates from such Fund
officers) and the representations of the Investment Adviser (with respect to the
certificates from such officers of the Investment Adviser) in this Underwriting
Agreement are accurate on and as of the date of the certificate, (3) there has
not been any material adverse change in the general affairs, prospects,
management, business, financial condition or results of operations of the Fund
(with respect to the certificates from such Fund officers) or the Investment
Adviser (with respect to the certificates from such officers of the Investment
Adviser), which change would materially and adversely affect the ability of the
Fund or the Investment Adviser, as the case may be, to fulfill its obligations
under this Underwriting Agreement or the Investment Advisory Agreement, whether
or not arising from transactions in the ordinary course of business, (4) with
respect to the Fund only, to the knowledge of such officers after reasonable
investigation, no order suspending the effectiveness of the Registration
Statement, prohibiting the sale of any of the Shares or otherwise having a
material adverse effect on the Fund has been issued and no proceedings for any
such purpose are pending before or threatened by the Commission or any other
regulatory body, whether foreign or domestic, (5) to the knowledge of the
officers of the Investment Adviser, after reasonable investigation, no order
having a material adverse effect on the ability of the Investment Adviser to
fulfill its obligations under this Underwriting Agreement or the Investment
Advisory Agreement, as the case may be,
19
<PAGE>
has been issued and no proceedings for any such purpose are pending before or
threatened by the Commission or any other regulatory body, whether foreign or
domestic, and (6) each of the Fund (with respect to the certificates from such
Fund officers) and the Investment Adviser (with respect to the certificates from
such officers of the Investment Adviser) has performed all of its respective
agreements that this Underwriting Agreement requires it to perform by such
Closing Date (to the extent not waived in writing by the Managing
Representative).
(e) The Representatives must receive on each Closing Date the
opinions dated such Closing Date substantially in the form of Annexes A and B to
this Underwriting Agreement from the counsel identified in each such Annex.
(f) The Representatives must receive on each Closing Date from
Skadden, Arps, Slate, Meagher & Flom LLP and its affiliated entities, its
counsel, an opinion dated such Closing Date with respect to the Fund, the
Shares, the Registration Statement and the Prospectus, this Underwriting
Agreement and the form and sufficiency of all proceedings taken in connection
with the sale and delivery of the Shares. Such opinion and proceedings shall
fulfill the requirements of this Section 6(f) only if such opinion and
proceedings are satisfactory in all respects to the Representatives. The Fund
and the Investment Adviser must have furnished to such counsel such documents as
counsel may reasonably request for the purpose of enabling them to render such
opinion.
(g) The Representatives must receive on the date this
Underwriting Agreement is signed and delivered by the Representatives a signed
letter, dated such date, substantially in the form of Annex C to this
Underwriting Agreement from the firm of accountants designated in such Annex.
The Representatives also must receive on each Closing Date a signed letter from
such accountants, dated as of such Closing Date, confirming on the basis of a
review in accordance with the procedures set forth in their earlier letter that
nothing has come to their attention during the period from a date not more than
five business days before the date of this Underwriting Agreement, specified in
the letter, to a date not more than five business days before such Closing Date,
that would require any change in their letter referred to in the foregoing
sentence.
All opinions, letters, evidence and certificates mentioned above
or elsewhere in this Underwriting Agreement will comply only if they are in form
and scope reasonably satisfactory to counsel for the Underwriters, provided that
any such documents, forms of which are annexed hereto, shall be deemed
satisfactory to such counsel if substantially in such form.
20
<PAGE>
7. Indemnification and Contribution.
(a) Each of the Fund, the Investment Adviser and Nuveen, jointly
and severally, will indemnify and hold harmless each Underwriter, the directors,
officers, employees and agents of such Underwriter and each person, if any, who
controls such Underwriter within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act from and against any and all losses, claims,
liabilities, expenses and damages (including, but not limited to, any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any and all amounts paid in settlement of, any action, suit or proceeding
between any of the indemnified parties and any indemnifying parties or between
any indemnified party and any third party, or otherwise, or any claim asserted),
to which such Underwriter or any such person, or any of them, may become subject
under the Securities Act, the Exchange Act, the Investment Company Act, the
Advisers Act or other federal or state statutory law or regulation, at common
law or otherwise, whether foreign or domestic, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Preliminary Prospectus, the Prospectus, the sales
materials, or any amendment or supplement to the Registration Statement, the
Preliminary Prospectus, the Prospectus, the sales materials or in any documents
filed under the Exchange Act and deemed to be incorporated by reference into the
Registration Statement, the Preliminary Prospectus, the Prospectus, or in any
application or other document executed by or on behalf of the Fund or based on
written information furnished by or on behalf of the Fund filed in any
jurisdiction in order to qualify the Shares under the securities laws thereof or
filed with the Commission, (ii) the omission or alleged omission to state, in
any or all such documents, a material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) any act or
failure to act or any alleged act or failure to act by such Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, liability, expense or damage arising out of or based upon matters
covered by clause (i) or (ii) above (provided, however, that none of the Fund,
the Investment Adviser nor Nuveen shall be liable under this clause (iii) to the
extent it is finally judicially determined by a court of competent jurisdiction
that such loss, claim, liability, expense or damage resulted directly from any
such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence, bad faith or willful misconduct);
provided that none of the Fund, the Investment Adviser or Nuveen will be liable
to the extent that such losses, claims, liabilities, expenses or damages are
based on an untrue statement or omission or alleged untrue statement or omission
made in reliance on and in
21
<PAGE>
conformity with information relating to any underwriter furnished in writing to
the Fund by the Representatives on behalf of Underwriters expressly for
inclusion in the Registration Statement, the Preliminary Prospectus or the
Prospectus. This indemnity agreement will be in addition to any liability that
the Fund, the Investment Adviser and Nuveen might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Fund
and the Investment Adviser, each person, if any, who controls the Fund or the
Investment Adviser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, each trustee of the Fund and each officer of the
Fund who signs the Registration Statement to the same extent as the foregoing
indemnity from the Fund or the Investment Adviser to the Underwriter, but only
insofar as losses, claims, liabilities, expenses or damages arise out of or are
based on any untrue statement or omission or alleged untrue statement or
omission of a material fact made in reliance on and in conformity with
information relating to such Underwriter furnished in writing to the Fund by
such Underwriter expressly for use in the Registration Statement, the
Preliminary Prospectus or Prospectus. This indemnity will be in addition to any
liability that such Underwriter might otherwise have; provided, however, that in
no case shall such Underwriter be liable or responsible for any amount in excess
of the fees and commissions received by such Underwriter.
(c) Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission to so notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provision of this Section 7 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense of
the action, with counsel reasonably satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently in-
22
<PAGE>
curred by the indemnified party in connection with the defense. The indemnified
party will have the right to employ its own counsel in any such action, but the
fees, disbursements and other charges of such counsel will be at the expense of
such indemnified party unless (1) the employment of counsel by the indemnified
party has been authorized in writing by the indemnifying party, (2) the
indemnified party has reasonably concluded (based on the advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party
(3) a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. Subject to the requirements of
Investment Company Act Release No. 11330, all such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm (in addition to local counsel) admitted to practice in such
jurisdiction at any one time for all such indemnified party or parties. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld). No indemnifying party shall, without the prior written consent of
each indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated by this Section 7 (whether or not any indemnified party
is a party thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 7 is
applicable but for any reason is held to be unavailable from the Fund, the
Investment Adviser, Nuveen or the Underwriters, the Fund, the Investment
Adviser, Nuveen and the Underwriters will contribute to the total losses,
claims, liabilities, expenses and damages (including any investigative, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim
23
<PAGE>
asserted, but after deducting any contribution received by the Fund, the
Investment Adviser and Nuveen from persons other than the Underwriter, such as
persons who control the Fund, the Investment Adviser and Nuveen within the
meaning of the Securities Act or the Exchange Act, officers of the Fund who
signed the Registration Statement and directors of the Fund, who may also be
liable for contribution) to which the Fund, the Investment Adviser, Nuveen and
the Underwriters may be subject in such proportion as shall be appropriate to
reflect the relative benefits received by the Fund, the Investment Adviser and
Nuveen on the one hand and the Underwriters on the other. The relative benefits
received by the Fund, the Investment Adviser and Nuveen (treated jointly for
this purpose as one person) on the one hand and the Underwriters on the other
hand shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Fund bear to the total
fees and commissions received by the Underwriters. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only such relative benefits referred to in the
foregoing sentence but also the relative fault of the Fund, the Investment
Adviser and Nuveen (treated jointly for this purpose as one person) on the one
hand and the Underwriters on the other hand in connection with respect to the
statements or omissions or alleged statements or omissions that resulted in the
losses, claims, liabilities, expenses or damages (including any investigative,
legal or other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted), as
well as any other relevant equitable considerations appropriate in the
circumstances. Such relative fault of the parties shall be determined by
reference to whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Fund, the Investment Adviser, Nuveen or the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission and
any other equitable considerations appropriate in the circumstances. The Fund,
the Investment Adviser, Nuveen and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 7(d) were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred to above
in this Section 7(d) shall be deemed to include, for purposes of this Section
7(d) any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding any other provisions of this Section 7(d), the Underwriters
shall not be required to contribute any amount in excess of the fees and
commissions received by it and no person found guilty
24
<PAGE>
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7(d),
any person who controls a party to this Agreement within the meaning of the
Securities Act will have the same rights to contribution as that party, and each
trustee of the Fund and each officer of the Fund who signed the Registration
Statement will have the same rights to contribution as the Fund, subject in each
case to the provisions hereof. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action against such party in
respect of which a claim for contribution may be made under this Section 7(d),
notify such party or parties from whom contribution may be sought, but the
omission so to notify will not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have under
this Section 7(d). No party will be liable for contribution with respect to any
action or claim settled without its written consent (which consent shall not be
unreasonably withheld). The Underwriter's obligations to contribute pursuant to
this Section 7 are several in proportion to the respective number of Firm Shares
set forth opposite their names in Schedule 1 (or such number of Firm Shares as
determined pursuant to Section 9 hereof) and not joint.
(e) Notwithstanding any other provisions in this Section 7, no
party shall be entitled to indemnification or contribution under this Agreement
against any loss, claim, liability, expense or damage arising by reason of such
person's willful misfeasance, bad faith or gross negligence in the performance
of its duties hereunder, or by reason of such person's reckless disregard of
such person's obligations and duties hereunder.
(f) The Fund, the Investment Adviser and Nuveen acknowledge that
the statements with respect to (1) the public offering of the Shares as set
forth on the cover page of and (2) the first two sentences of the third
paragraph under the caption "Underwriting" in the Prospectus constitute the only
information furnished in writing to the Fund by the Representatives on behalf of
the Underwriters expressly for use in such document. The Underwriters severally
confirm that these statements are correct in all material respects and were so
furnished by or on behalf of the Underwriters severally for use in the
Prospectus.
8. Termination. This Underwriting Agreement may be terminated by
the Managing Representative by notifying the Fund at any time:
(a) before the later of the effectiveness of the Registration
Statement and the time when any of the Shares are first generally offered
pursuant to
25
<PAGE>
this Underwriting Agreement by the Managing Representative to dealers by letter
or telegram;
(b) at or before any Closing Date if, in the sole judgment of the
Managing Representative, payment for and delivery of any Shares is rendered
impracticable or inadvisable because (1) trading in the equity securities of the
Fund is suspended by the Commission or by the principal exchange that lists the
Shares, (2) trading in securities generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq Stock Market shall have been suspended or
limited or minimum or maximum prices shall have been generally established on
such exchange or over-the-counter market, or, (4) additional material
governmental restrictions, not in force on the date of this Underwriting
Agreement, have been imposed upon trading in securities or trading has been
suspended on any U.S. securities exchange, (5) a general banking moratorium has
been established by U.S. federal or New York authorities or (6) any material
adverse change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or declaration by the United States of a
national emergency or war or other calamity or crisis shall have occurred the
effect of any of which is such as to make it, in the sole judgement of the
Managing Representative, impracticable or inadvisable to market the Shares on
the terms and in the manner contemplated by the Prospectus; or
(c) at or before any Closing Date, if any of the conditions
specified in Section 6 have not been fulfilled when and as required by this
Underwriting Agreement.
9. Substitution of Underwriters. If one or more of the Underwriters
fails (other than for a reason sufficient to justify the termination of this
Underwriting Agreement) to purchase on any Closing Date the Shares agreed to be
purchased on such Closing Date by such Underwriter or Underwriters, the Managing
Representative may find one or more substitute underwriters to purchase such
Shares or make such other arrangements as the Managing Representative deems
advisable, or one or more of the remaining Underwriters may agree to purchase
such Shares in such proportions as may be approved by the Managing
Representative, in each case upon the terms set forth in this Underwriting
Agreement. If no such arrangements have been made within 36 hours after such
Closing Date, and
(a) the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date does not exceed 10% of the Shares that the
26
<PAGE>
Underwriters are obligated to purchase on such Closing Date, each of the
nondefaulting Underwriters will be obligated to purchase such Shares on the
terms set forth in this Underwriting Agreement in proportion to their respective
obligations under this Underwriting Agreement, or
(b) the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date exceeds 10% of the Shares to be purchased by
all the Underwriters on such Closing Date, the Fund will be entitled to an
additional period of 24 hours within which to find one or more substitute
underwriters reasonably satisfactory to the Managing Representative to purchase
such Shares on the terms set forth in this Underwriting Agreement.
In any such case, either the Managing Representative or the Fund will
have the right to postpone the applicable Closing Date for not more than five
business days in order that necessary changes and arrangements (including any
necessary amendments or supplements to the Registration Statement or the
Prospectus) may be effected by the Managing Representative and the Fund. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters exceeds 10% of the Shares that the Underwriters are
obligated to purchase on such Closing Date, and none of the nondefaulting
Underwriters or the Fund makes arrangements pursuant to this Section within the
period stated for the purchase of the Shares that the defaulting Underwriters
agreed to purchase, this Underwriting Agreement will terminate without liability
on the part of any nondefaulting Underwriter, the Fund or the Investment
Adviser, except as provided in Sections 5(g) and 7 hereof. This Section will not
affect the liability of any defaulting Underwriter to the Fund or the
nondefaulting Underwriters arising out of such default. A substitute
underwriter will become a Underwriter for all purposes of this Underwriting
Agreement.
10. Miscellaneous.
(a) The reimbursement, indemnification and contribution
agreements in Sections 5(g) and 7 hereof and the representations of the Fund,
the Investment Adviser, Nuveen and the Underwriters in this Underwriting
Agreement will remain in full force and effect regardless of any termination of
this Underwriting Agreement. The reimbursement, indemnification and contribution
agreements in Sections 5(g) and 7 hereof and the representations and agreements
of the Fund, the Investment Adviser, Nuveen and the Underwriters in this
Underwriting Agreement shall survive the Closing Dates and shall remain in full
force and effect regardless of any
27
<PAGE>
investigation made by or on behalf of any Underwriter, the Fund, the Investment
Adviser, Nuveen or any controlling person and delivery of and payment for the
Shares.
(b) This Underwriting Agreement is for the benefit of the
Underwriters, the Fund, the Investment Adviser, Nuveen and their successors and
assigns, and, to the extent expressed in this Underwriting Agreement, for the
benefit of persons controlling any of the Underwriters, the Fund, the Investment
Adviser, Nuveen and directors and officers of the Fund, the Investment Adviser
and Nuveen, and their respective successors and assigns, and no other person,
partnership, association or corporation will acquire or have any right under or
by virtue of this Underwriting Agreement. The term "successors and assigns"
does not include any purchaser of the Shares from any Underwriter merely because
of such purchase.
(c) All notices and communications under this Underwriting
Agreement will be in writing, effective only on receipt and mailed or delivered,
by messenger, facsimile transmission or otherwise, to the Representatives in
care of PaineWebber Incorporated, Attn.: Financial Institutions Group, 1285
Avenue of the Americas, New York, New York 10019, to the Fund or the Investment
Adviser at 333 West Wacker Drive, Chicago, Illinois 60606, Attn.: Chief Legal
Officer.
(d) This Underwriting Agreement may be signed in multiple
counterparts that taken as a whole constitute one agreement.
(e) This Underwriting Agreement will be governed by and construed
in accordance with the laws of the State of New York without reference to choice
of law principles thereof.
(f) A copy of the Agreement and Declaration of Trust of the Fund
and is on file with the Secretary of The Commonwealth of Massachusetts, and
notice hereby is given that this Underwriting Agreement is executed on behalf of
the respective Trustees of the Fund and the Investment Adviser as Trustees and
not individually and that the obligations or arising out of this Underwriting
Agreement are not binding upon any of the Trustees or beneficiaries individually
but are binding only upon the respective assets and properties of the Fund and
the Investment Adviser.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Fund and the Adviser and of the controlling persons,
directors and officers referred to in Section 7, and their respective successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. The
28
<PAGE>
term "successors and assigns" as used in this Agreement shall not include a
purchaser, as such purchaser, of Shares from any of the several Underwriters.
All representations, warranties, and agreements of the Fund and the
Adviser contained herein or in certificates or other instruments delivered
pursuant hereto, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any Underwriter or any of its
controlling persons and shall survive delivery of and payment for the Shares
hereunder.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS
PRINCIPLES OF SUCH STATE.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Fund, the Adviser and the Underwriters each hereby irrevocably
waive any right they may have to a trial by jury in respect of any claim based
upon or arising out of this Agreement or the transactions contemplated hereby.
This Agreement may not be amended or otherwise modified or any
provision hereof waived except by an instrument in writing signed by the
Managing Representative, the Fund and the Adviser.
29
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Fund, the Adviser, Nuveen and the several Underwriters.
Very truly yours,
Nuveen Senior Income Trust
By:__________________________________________
Name:
Title:
Nuveen Senior Loan Asset Management Inc.
By:__________________________________________
Name: Jeffrey W. Maillet
Title: Executive Vice President
John Nuveen & Co. Incorporated
By:__________________________________________
Name:
Title:
Confirmed:
PaineWebber Incorporated
John Nuveen & Co. Incorporation
As Representatives of the Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
By: PaineWebber Incorporated
By:_____________________________
Name:
Title:
Acting on behalf of itself
and the Underwriters
named in Schedule 1
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Name Number of Firm Shares
to be Purchased
<S> <C>
PaineWebber Incorporated [___]
John Nuveen & Co. Incorporated [___]
Total Underwriters (__)
</TABLE>
<PAGE>
[CHASE LOGO]
_______________________________________________________
CUSTODY AND FUND ACCOUNTING SERVICES AGREEMENT
AMONG
NUVEEN SENIOR INCOME FUND
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
AND
CHASE GLOBAL FUNDS SERVICES COMPANY
October __, 1999
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. Appointment; Intention of the Parties...... 1
2. Definitions................................ 1
3. Delivery of Documents...................... 3
4. Instructions............................... 4
5. Services Provided; Use of Agents........... 5
6. Fees and Expenses.......................... 6
7. Limitation of Liability and Indemnification 7
8. Rights over Securities; Set-off............ 9
9. Fund Representations....................... 9
10. Term....................................... 9
11. Miscellaneous.............................. 10
</TABLE>
<PAGE>
Table of Contents (continued)
-----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule A -- Custody and Fund Processing Services Description.. A-1
Schedule B -- Fund Accounting Services Description.............. B-1
Schedule C -- Fees and Expenses................................. C-1
</TABLE>
<PAGE>
CUSTODY AND FUND ACCOUNTING SERVICES AGREEMENT (this "Agreement") dated
as of October __, 1999, by and among Nuveen Senior Income Fund, a Massachusetts
business trust (the "Fund"), Chase Bank of Texas, National Association, a
national banking association ("Chase Texas"), and Chase Global Funds Services
Company, a Delaware corporation ("Chase Boston"; Chase Texas and Chase Boston
referred to herein together as "Chase").
W I T N E S S E T H:
WHEREAS, the Fund is registered as a non-diversified, closed-end
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to contract with Chase to provide certain
services with respect to the Fund;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed among the parties hereto as follows:
1. Appointment; Intention Of Parties. (a) The Fund hereby appoints Chase
Texas to act as custodian of the Fund's portfolio of loans, securities, cash and
other property and to perform certain loan processing and other services, as
provided in Section 5 of and Schedule A to this Agreement, and appoints Chase
Boston to provide certain fund accounting and related services for the Fund, as
provided in Section 5 of and Schedule B to this Agreement, for the period and on
the terms set forth herein. Chase accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as provided
in Section 6 of and Schedule C to this Agreement.
(b) This Agreement sets out the terms governing custodial, settlement,
loan tracking, fund accounting and certain other associated services offered by
Chase to the Fund. Chase will be responsible for the performance of only those
duties that are set forth in this Agreement or expressly contained in
Instructions that are consistent with the provisions of this Agreement and with
Chase's operations and procedures. The Fund acknowledges that Chase is not
providing any legal, tax or investment advice in providing the services
hereunder.
2. Definitions.
(a) As used herein, the following terms have the meaning hereinafter
stated.
"Account" has the meaning set forth in Schedule A of this Agreement.
"Affiliate" means an entity controlling, controlled by, or under common
control with, Chase.
1
<PAGE>
"Agreement" has the meaning set forth in the introductory paragraph of this
Agreement.
"Applicable Law" means any statute, whether national, state or local,
applicable in the United States or any other country, the rules of the
treaty establishing the European Community, any other law, rule, regulation
or interpretation of any governmental entity, any applicable common law,
and any decree, injunction, judgment, order, ruling, or writ of any
governmental entity.
"Authorized Person" means any person (including the Investment Adviser or
other agent) who has been designated by written notice from the Fund or its
designated agent to act on behalf of the Fund hereunder. Such persons will
continue to be Authorized Persons until such time as Chase receives
Instructions from the Fund or its designated agent that any such person is
no longer an Authorized Person.
"Cash Account" has the meaning set forth in Schedule A of this Agreement.
"Chase" has the meaning set forth in the introductory paragraph of this
Agreement.
"Chase Boston" has the meaning set forth in the introductory paragraph of
this Agreement.
"Chase Texas" has the meaning set forth in the introductory paragraph of
this Agreement.
"Corporate Action" means any subscription right, bonus issue, stock
repurchase plan, redemption, exchange, tender offer, or similar matter with
respect to a Financial Asset in the Securities Account or a Senior Loan in
the Loan Account that requires discretionary action by the holder, but does
not include proxy voting.
"Entitlement Holder" means the person named on the records of a Securities
Intermediary as the person having a Securities Entitlement against the
Securities Intermediary.
"Financial Asset" means, as the context requires, either the asset itself
or the means by which a person's claim to it is evidenced, including a
Security, a security certificate, or a Securities Entitlement. "Financial
Asset" does not include cash or Senior Loans.
"Fund" has the meaning set forth in the introductory paragraph of this
Agreement.
"Indebtedness" has the meaning set forth in Section 8(a) hereof.
"Instructions" has the meaning set forth in Section 4(a) hereof.
"Investment Adviser" means Nuveen Senior Loan Asset Management Inc.
2
<PAGE>
"Liabilities" means any liabilities, losses, claims, costs, damages,
penalties, fines, obligations, or expenses of any kind whatsoever
(including, without limitation, reasonable attorneys', accountants',
consultants' or experts' fees and disbursements).
"Loan Account" means a custody account in the name of the Fund for any and
all Senior Loans received by Chase Texas for the account of the Fund.
"1940 Act" has the meaning set forth in the first recital of this
Agreement.
"1933 Act" has the meaning set forth in section 3(e) hereof.
"Notification" has the meaning set forth in Schedule A of this Agreement.
"SEC" has the meaning set forth in Section 3(d) hereof.
"Securities" means stocks, bonds, rights, warrants and other negotiable and
non-negotiable instruments, whether issued in certificated or
uncertificated form, that are commonly traded or dealt in on securities
exchanges or financial markets. "Securities" also means other obligations
of an issuer, or shares, participations and interests in an issuer
recognized in the country in which it is issued or dealt in as a medium for
investment and any other property as may be acceptable to Chase Texas for
the Securities Account.
"Securities Account" means each Securities custody account on Chase Texas's
records to which Financial Assets are or may be credited pursuant hereto.
"Securities Depository" has the meaning set forth in Schedule A of this
Agreement.
"Securities Entitlement" means the rights and property interest of an
Entitlement Holder with respect to a Financial Asset as set forth in Part 5
of Article 8 of the Uniform Commercial Code of the State of New York, as
the same may be amended from time to time.
"Securities Intermediary" means Chase Texas, a Securities Depository, and
any other financial institution which in the ordinary course of business
maintains custody accounts for others and acts in that capacity.
"Senior Loans" means U.S. dollar denominated senior secured or unsecured
loans, whose interest rates float or adjust periodically based on a
benchmark interest rate, of borrowers organized or located in the United
States or countries located outside the United States.
(b) All terms in the singular will have the same meaning in the plural
unless the context otherwise provides and visa versa.
3. Delivery of Documents.
The Fund has furnished Chase with copies, properly certified or
authenticated, of the following:
3
<PAGE>
(a) Resolutions of the Board of Trustees of the Fund authorizing the
appointment of Chase Texas as custodian of the Securities, Senior Loans, cash
and other property of the Fund and the appointment of Chase Texas and Chase
Boston to provide certain services to the Fund and approving this Agreement;
(b) Incumbency and signature certificates identifying and containing
the signatures of the Fund's Authorized Persons;
(c) The Fund's Declaration of Trust filed with the Commonwealth of
Massachusetts and all amendments thereto and the Fund's By-Laws and all
amendments thereto;
(d) The Fund's Notification of Registration on Form N-8A under the 1940
Act as filed with the Securities and Exchange Commission ("SEC");
(e) The Fund's most recent registration statement including exhibits on
Form N-1A under the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act, as filed with the SEC;
(f) Copies of the Investment Advisory Agreement between the Fund and
its investment adviser;
(g) The Fund's prospectus(es) and statement(s) of additional
information relating to all funds, series, portfolios and classes, as
applicable, and all amendments and supplements thereto; and
(h) Such other agreements as the Fund may enter into from time to time
including, without limitation, securities lending agreements, futures and
commodities account agreements, brokerage agreements and options agreements,
auditors' reports and such opinions of counsel as Chase may request.
4. Instructions.
(a) Chase is authorized to act under this Agreement (or to refrain from
taking action) in accordance with the instructions received by Chase from
Authorized Persons, via telephone, telex, facsimile transmission, or other
teleprocess or electronic instruction or trade information system acceptable to
Chase ("Instructions"). Chase will have no responsibility for the authenticity
or propriety of any Instructions that Chase believes in good faith to have been
given by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions that Chase may specify. The
Fund authorizes Chase to accept and act upon any Instructions received by it
without inquiry. The Fund will indemnify Chase, its officers, directors, agents
and employees, against, and hold each of them harmless from, any Liabilities
that may be imposed on, incurred by, or asserted against Chase, its officers,
directors, agents and employees as a result of any action or omission taken in
accordance with any Instructions or other directions upon which Chase is
authorized to rely under the terms of this
4
<PAGE>
Agreement. Unless otherwise expressly provided, all Instructions will continue
in full force and effect until canceled or superseded.
(b) Chase may (in its sole discretion and without affecting any part of
this Section 4) seek clarification or confirmation of an Instruction from an
Authorized Person and may decline to act upon an Instruction if it does not
receive clarification or confirmation satisfactory to it. Chase will not be
liable for any loss arising from any delay while it seeks such clarification or
confirmation.
(c) In executing or paying a payment order Chase may rely upon the
identifying number (e.g., Fedwire routing number or account) of any party as
instructed in the payment order. The Fund assumes full responsibility for any
inconsistency between the name and identifying number of any party in payment
orders issued to Chase.
(d) Any Instructions delivered to Chase by telephone will promptly
thereafter be confirmed in writing by an Authorized Person. Each confirmation
is to be clearly marked "Confirmation." Chase will not be liable for having
followed such Instructions notwithstanding the failure of an Authorized Person
to send such confirmation in writing or the failure of such confirmation to
conform to the telephone Instructions received. Either party may record any of
their telephonic communications. The Fund will comply with any security
procedures reasonably required by Chase from time to time with respect to
verification of Instructions. The Fund will be responsible for safeguarding any
test keys, identification codes or other security devices that Chase will make
available to the Fund or any Authorized Person.
(e) Chase need not act upon Instructions which it reasonably believes
to be contrary to law, regulation or market practice but will be under no duty
to investigate whether any Instructions comply with Applicable Law or market
practice.
(f) Chase has established cut-off times for receipt of some categories
of Instruction, which will be made available to the Fund. If Chase receives an
Instruction after its established cut-off time, it will attempt to act upon the
Instruction on the day requested if Chase deems it practicable to do so or
otherwise as soon as practicable after that day.
5. Services Provided; Use Of Agents.
(a) Chase will provide custody, loan processing and fund accounting
services for the Fund. A detailed description of each of the above services is
contained in Schedules A and B, respectively, to this Agreement, which Schedules
are incorporated by reference and made a part of this Agreement.
(b) Chase will maintain records relating to the services provided
hereunder in such form and manner as Chase may deem appropriate or advisable.
To the extent required by Section 31 of the 1940 Act and the rules thereunder,
Chase Boston agrees that all such records prepared or maintained by Chase Boston
relating to the services provided hereunder will be preserved for the periods
prescribed under Rule 31a-2 under the 1940 Act, maintained at the Fund's
expense, and copies of such records shall be made available in accordance with
such Section and rules.
5
<PAGE>
Chase may provide certain services under this Agreement through third
parties. Chase will not be responsible for any loss as a result of a failure by
any broker or any other third party that it selects and retains using reasonable
care to provide ancillary services that it does not customarily provide itself.
6. Fees and Expenses.
(a) As compensation for the services rendered to the Fund pursuant to
this Agreement the Fund shall pay Chase monthly fees and expenses (including
legal fees) determined as set forth in Schedule C to this Agreement. Such fees
are to be billed monthly and shall be due and payable upon receipt of the
invoice. Except as provided in Schedule C hereto with respect to a termination
prior to November 1, 2001, upon any termination of the provision of services
under this Agreement before the end of any month, the fee for the part of the
month before such termination shall be prorated according to the proportion
which such part bears to the full monthly period and shall be payable upon the
date of such termination.
(b) For the purpose of determining fees calculated as a function of the
Fund's assets, the value of the Fund's assets and net assets shall be computed
as required by its currently effective Prospectus, generally accepted accounting
principles, and resolutions of the Board of Trustees of the Fund.
(c) The Fund may request additional services, additional processing, or
special reports, with such specifications, requirements and documentation as may
be reasonably required by Chase. If Chase elects to provide such services or
arrange for their provision, it shall be entitled to additional fees and
expenses at its customary rates and charges.
(d) Chase will bear its own expenses in connection with the performance
of the services under this Agreement except as provided herein or as agreed to
by the parties. The Fund agrees to promptly reimburse Chase for any services,
equipment or supplies and the like ordered by or for the Fund through Chase and
for any other expenses that Chase may incur on the Fund's behalf at the Fund's
request or as consented to by the Fund. Expenses that may be incurred in the
operation of the Fund and that are to be borne by the Fund include, but are not
limited to: taxes; interest; brokerage fees and commissions; salaries and fees
of officers, directors and trustees who are not officers, directors,
shareholders or employees of Chase, or the Fund's investment adviser or
distributor; SEC and state Blue Sky registration and qualification fees, levies,
fines and other charges; EDGAR filing fees; processing services and related
fees; postage, printing and mailing costs; costs of share certificates; advisory
and administration fees; charges and expenses of pricing and data services,
independent public accountants and custodians; insurance premiums including
fidelity bond premiums; legal expenses; consulting fees; customary bank charges
and fees; costs of maintenance of trust existence; expenses of typesetting and
printing of Prospectuses for regulatory purposes and for distribution to current
shareholders of the Fund (the Fund's distributor to bear the expense of all
other printing, production, and distribution of prospectuses and marketing
materials); clearing and processing charges of clearing corporations; expenses
of printing and production costs of shareholders' reports and proxy statements
and materials; expenses of proxy solicitation, proxy tabulation and annual
meetings; costs and expenses of Fund stationery and forms; costs and expenses of
special telephone, customer service, other telephone
6
<PAGE>
expenses and data lines and devices; costs associated with trust, shareholder,
and Board meetings; trade association dues and expenses; reprocessing costs to
Chase caused by third party errors; all expenses for microfilm, microfiche,
imaging and other data and record storage costs; and any extraordinary expenses
and other customary Fund expenses.
(e) All fees, out-of-pocket expenses, or additional charges of Chase
shall be billed on a monthly basis and shall be due and payable upon receipt of
the invoice.
(f) Chase will render, after the close of each month in which services
have been furnished, a statement reflecting all of the charges for such month.
Charges remaining unpaid after thirty (30) days from the statement date shall
bear interest from the date of the statement to the date of payment by the Fund,
at Chase's prime rate (as announced by Chase from time to time) plus two percent
per year, and all costs and expenses of effecting collection of any such sums,
including reasonable attorneys' fees, shall be paid by the Fund to Chase.
(g) In the event that the Fund is more than sixty (60) days delinquent
in its payments of monthly billings in connection with this Agreement (with the
exception of specific amounts which may be contested in good faith by the Fund),
this Agreement may be terminated upon ninety (90) days' written notice to the
Fund by Chase. The Fund must notify Chase in writing of any contested amounts
within thirty (30) days of receipt of a billing for such amounts. Disputed
amounts are not due and payable while they are being investigated.
7. Limitation of Liability and Indemnification. (a) Chase shall use
reasonable care in performing its duties under this Agreement. Chase shall not
be in violation of this Agreement with respect to any matter as to which it has
satisfied its duty of reasonable care.
(b) Chase shall indemnify the Fund for its direct damages, excluding
attorneys' fees and costs, to the extent they result from Chase's negligence or
willful misconduct in performing its duties as set out in this Agreement.
Nevertheless, under no circumstances shall Chase be liable for any indirect,
consequential or special damages (including, without limitation, lost profits)
of any form, whether or not foreseeable and regardless of the type of action in
which such a claim may be brought.
(c) Without limiting subsections (a) and (b) above, Chase shall not be
responsible for, and the Fund shall indemnify and hold Chase, its officers,
directors, agents and employees, harmless from and against, any and all
Liabilities incurred by Chase, any of its officers, directors, agents or
employees, in the performance of its/their duties hereunder, including but not
limited to those arising out of or attributable to:
(i) any and all actions of Chase or its officers or agents
required to be taken pursuant to this Agreement;
(ii) the reasonable reliance on or use by Chase or its officers,
directors, employees or agents of information, records or documents
furnished to it or them by or on behalf of the Fund, which are
received by Chase or its officers, directors,
7
<PAGE>
employees or agents and which have been prepared or maintained by the
Fund or any third party on behalf of the Fund;
(iii) the Fund's refusal or failure to comply with the terms of
this Agreement or the Fund's lack of good faith, or its actions or
omissions involving negligence or willful misfeasance;
(iv) the breach of any representation or warranty of the Fund
hereunder;
(v) any delays, inaccuracies, errors in or omissions from
information or data provided to Chase by data, corporate action
services, pricing services or securities brokers and dealers;
(vi) the offer or sale of shares by the Fund in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any
stop order or other determination or ruling by any federal agency or
any state agency with respect to the offer or sale of such shares in
such state (1) resulting from activities, actions or omissions by the
Fund or its other service providers and agents or (2) existing or
arising out of activities, actions or omissions by or on behalf of the
Fund prior to the effective date of this Agreement;
(vii) any failure of the Fund's registration statement to comply
with the 1933 Act and the 1940 Act (including the rules and
regulations thereunder) and any other applicable laws, or any untrue
statement of a material fact or omission of a material fact necessary
to make any statement therein not misleading in a Fund's prospectuses;
(viii) any actions taken by the Fund, its investment adviser or
its distributor in compliance with, or the failure to so comply with,
applicable securities, tax, commodities and other laws, rules and
regulations; and
(ix) all actions, inactions, omissions, or errors caused by
third parties to whom Chase or the Fund has assigned any rights and/or
delegated any duties under this Agreement at the request of or as
required by the Fund, its investment advisers, its distributor,
administrator or sponsor.
Notwithstanding subsection (a) above, it is expressly understood and
agreed that Chase has no duty or obligation of reasonable care with respect to
any of the activities described in clauses (iii), (iv), (v), (vi), (vii), (viii)
or (ix) of this subsection (c).
8. Rights over Securities; Set-off.
(a) The Fund grants Chase a security interest in and a lien on the
Financial Assets held in the Securities Account and the Senior Loans held in the
Loan Account as security
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<PAGE>
for any and all amounts which are now or become owing to Chase under any
provision of this Agreement, whether or not matured or contingent
("Indebtedness").
(b) Chase will be further entitled to set any such Indebtedness off
against any cash or deposit account with Chase or any of its Affiliates of which
the Fund is the beneficial owner. Chase will notify the Fund in advance of any
such charge unless Chase reasonably believes that it might prejudice its
interests to do so and, in such event, Chase will notify the Fund promptly
afterwards.
9. Fund Representations.
(a) the Fund is a business trust, duly organized and existing and in
good standing under the laws of the Commonwealth of Massachusetts;
(b) the Fund is authorized to enter into and perform this Agreement;
(c) all requisite proceedings have been taken to authorize the Fund
to enter into and perform this Agreement;
(d) the Fund is an investment company properly registered under the
1940 Act;
(e) no legal or administrative proceedings have been instituted or
threatened which would impair the Fund's ability to perform its duties and
obligations under this Agreement;
(f) the Fund's registration statements comply in all material
respects with the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and none of the Fund's prospectuses and/or statements of additional
information contain any untrue statement of material fact or omit to state a
material fact necessary to make the statements therein not misleading; and
(g) the Fund's execution, delivery and performance of this Agreement
shall not cause a material breach or be in material conflict with any other
agreement or obligation of the Fund or any law or regulation applicable to it.
10. Term. This Agreement shall become effective on the date first
hereinabove written and may be modified or amended from time to time by mutual
agreement between the parties hereto. This Agreement shall continue in effect
unless terminated by either party on ninety (90) days' prior written notice.
Upon termination of this Agreement, the Fund shall pay to Chase such
compensation and any out-of-pocket or other reimbursable expenses which may
become due or payable under the terms hereof as of the date of termination or
after the date that the provision of services ceases, whichever is later. In the
event of late payment or non-payment, Chase shall have the right to retain the
records of the Fund until all fees and monies due Chase are paid. If the Fund
terminates this Agreement for any reason prior to November 1, 2000, the Fund
shall reimburse Chase, in accordance with Schedule C, for any start-up costs
incurred by Chase that are not the obligation of the Fund under Section 6 of
this Agreement. Sections 6 and 7 of this Agreement shall survive the termination
of this Agreement with respect to any obligation of the Fund to Chase.
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<PAGE>
11. Miscellaneous.
(a) Any notice required or permitted hereunder shall be in writing
and shall be deemed effective on the date of personal delivery (by private
messenger, courier service or otherwise) or upon confirmed receipt of telex or
facsimile, whichever occurs first, or upon receipt if by mail to the parties at
the following address (or such other address as a party may specify by notice to
the other):
If to the Fund:
Nuveen Senior Income Fund
333 West Wacker Drive
Chicago, Illinois 60603
Attention: Fund Controller
Fax: 312-917-8049
If to Chase Texas:
Chase Bank of Texas, National Association
600 Travis Street, 50th Floor
Houston, TX 77002
Attention: ____________________
Fax: 713-216-2101
If to Chase Boston:
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
Attention: Karl-Otto Hartmann, General Counsel
Fax: 617-557-8616
(b) The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
(c) Chase shall not be responsible or liable for any harm, loss,
expense, liability or damage of any nature suffered by the Fund, its investors,
or other third parties or for any failure or delay in performance of Chase's
obligations under this Agreement arising out of or caused, directly or
indirectly, by circumstances beyond Chase's control, including, without
limitation, an act of God, fire, flood, civil or labor disturbance, war, act of
any governmental authority or other act or threat of any authority (de jure or
de facto), legal constraint, fraud or forgery, malfunction of equipment or
software (except to the extent such malfunction is primarily attributable to
Chase's negligence in maintaining the equipment or software), failure of or the
effect of rules or operations of any external funds transfer system, inability
to obtain or interruption of external communications facilities, or any cause
beyond the reasonable control of
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<PAGE>
Chase. In the event of a force majeure, any resulting harm, loss, damage,
failure or delay by Chase will not give the Fund the right to terminate this
Agreement.
(d) This Agreement may be modified or amended from time to time by
mutual written agreement between the parties. No provision of this Agreement may
be changed, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, discharge
or termination is sought.
(e) If any provision of this Agreement is invalid or unenforceable,
the balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
(f) This Agreement will be binding on each of the parties' successors
and assigns, including by operation of law.
(g) Headings are for convenience only and are not intended to affect
interpretation.
(h) This Agreement, including the Schedules, sets out the entire
agreement between the parties in connection with the subject matter, and this
Agreement supersedes any other agreement, statement, or representation relating
to custody, whether oral or written.
(i) Chase will not disclose any confidential information concerning
the Financial Assets, Senior Loans and/or cash held for the Fund except as is
reasonably necessary to provide services to the Fund, as required by law or
regulation or the organizational documents of the issuer of any Financial Asset
or Senior Loan, or with the consent of the Fund. The Fund agrees to keep this
Agreement confidential and, except where disclosure is required by law or
regulation, will only disclose it (or any part of it) with the prior written
consent of Chase.
(j) Chase will not be required to maintain any insurance coverage for
the benefit of the Fund.
(k) This Agreement may be executed in several counterparts each of
which will be deemed to be an original and together will constitute one and the
same agreement.
(l) THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the date first written
above.
NUVEEN SENIOR INCOME FUND
By: ____________________________________
Name: __________________________________
Title: _________________________________
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION
By: ____________________________________
Name: __________________________________
Title: _________________________________
CHASE GLOBAL FUNDS
SERVICES COMPANY
By: ____________________________________
Name: __________________________________
Title: _________________________________
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<PAGE>
SCHEDULE A
DESCRIPTION OF CUSTODY AND LOAN PROCESSING SERVICES
1. CUSTODY AND ACCOUNTS
1.1 Accounts.
---------
(a) Chase Texas will establish and maintain the following accounts
("Accounts"):
(i) a Loan Account in the name of the Fund for the Senior Loans
which may be received by Chase Texas for the account of the
Fund;
(ii) a Securities Account in the name of the Fund for Financial
Assets, which may be received by Chase Texas for the account of
the Fund, including as an Entitlement Holder; and
(iii) an account in the name of the Fund ("Cash Account") for any and
all cash received by Chase Texas for the account of the Fund.
(b) At the request of the Fund, additional Accounts may be opened in the
future, which will be subject to the terms of this Agreement, including a
segregated Account or Accounts:
(i) in accordance with the provisions of an agreement among the Fund
and a broker-dealer (registered under the Securities and
Exchange Act of 1934, as amended, and a member of the National
Association of Securities Dealers, Inc., or any futures
commission merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization, regarding
escrow or other arrangements in connection with transactions by
the Fund;
(ii) for the purpose of segregating cash or Financial Assets with
options purchased or sold by The Fund; and
(iii) for any other corporate purposes as per the Instruction of an
Authorized Person.
(c) In connection with opening Accounts at the request of the Fund, Chase
Texas is authorized to enter into demand deposit agreements on behalf
of the Fund.
1.2 Cash Account.
-------------
Except as otherwise provided in Instructions acceptable to Chase Texas, all
cash held in a Cash Account established or maintained by Chase Texas will be
held during the period it is credited to the Accounts in one or more deposit
accounts at Chase Texas in which cash shall not
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<PAGE>
be subject to withdrawal by check or draft. Funds credited to the Cash Account
will be transferred by Chase Texas by means of Instruction ("payment order")
from an Authorized Person to a Chase Texas administrator assigned to the Fund.
Payment orders and Instructions seeking to cancel payment orders or to amend
payment orders which are issued by telephone, telecopier or in writing shall be
subject to a mutually agreed security procedure and Chase Texas may execute or
pay payment orders issued in the Fund's name when verified by an Authorized
Person in accordance with such procedure.
1.3 Segregation of Assets; Nominee Name.
------------------------------------
(a) The Fund will deliver or cause to be delivered to Chase Texas all
Securities, Senior Loans, other property and all monies owned by it, including
payments of interest, principal and capital distributions and cash received by
it from the issuance of its shares, at any time during the period of this
Agreement. Chase Texas will not be responsible for such Securities, Senior
Loans, other property and such monies until actually received by it. All cash
delivered to Chase Texas by or on behalf of the Fund will be deposited in the
Cash Account. Chase Texas will deposit in the Loan Account all promissory notes,
assignment agreements, participation certificates or other evidences of the
Fund's interest in the Senior Loans. Chase Texas will identify in its records
that Financial Assets credited to the Fund's Securities Account belong to the
Fund (except as otherwise may be agreed by Chase Texas and the Fund).
(b) Chase Texas is authorized to register in the name of the Fund, Chase
Texas, a Securities Depository, or their respective nominees, such Financial
Assets as are customarily held in registered form or such Financial Assets shall
be properly endorsed and in form for transfer satisfactory to Chase Texas. The
Fund authorizes Chase Texas to hold Financial Assets in omnibus accounts and
will accept delivery of Financial Assets of the same class and denomination as
those deposited with Chase Texas. Senior Loans will remain in the name of the
Fund.
1.4 Settlement of Trades.
---------------------
When Chase Texas receives an Instruction directing settlement of a trade
that includes all information required by Chase Texas, Chase Texas will use
reasonable care to effect such settlement as instructed. Settlement of purchases
and sales of Financial Assets and Senior Loans will be conducted in accordance
with prevailing standards of the market in which the transaction occurs. The
risk of loss will be the Fund's whenever Chase Texas delivers Financial Assets,
Senior Loans or payment in accordance with applicable market practice in advance
of receipt or settlement of the expected consideration. In the case of the
failure of the Fund's counterparty to deliver the expected consideration as
agreed, Chase Texas will contact the counterparty to seek settlement, but Chase
Texas will not be obligated to institute legal proceedings, file proof of claim
in any insolvency proceeding or take any similar action.
1.5 Contractual Settlement Date Accounting.
---------------------------------------
(a) Should the Fund request to have Chase Texas's Contractual Settlement
Date Accounting Service, Chase Texas will effect book entries on a "contractual
settlement date accounting" basis as described below with respect to the
settlement of trades in those markets where Chase Texas generally offers
contractual settlement day accounting and will notify the Fund of these markets
from time to time.
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<PAGE>
(i) Sales: On the settlement date for a sale, Chase Texas will credit
the Cash Account with the sale proceeds of the sale and transfer
the relevant Financial Assets to an account pending settlement of
the trade if not already delivered.
(ii) Purchases: On the settlement date for the purchase (or earlier,
if market practice requires delivery of the purchase price before
the settlement date), Chase Texas will debit the Cash Account
with the settlement monies and credit a separate account. Chase
Texas then will post the Securities Account as awaiting receipt
of the expected Financial Assets. The Fund will not be entitled
to the delivery of Financial Assets that are awaiting receipt
until Chase Texas or its Securities Intermediary actually
receives them.
Chase Texas reserves the right to restrict in good faith the availability of
contractual day settlement accounting for credit reasons.
(b) Chase Texas may (in its absolute discretion) upon oral or written
notification to the Fund reverse any debit or credit made pursuant to this
Section 1.5 prior to a transaction's actual settlement, and the Fund will be
responsible for any costs or liabilities resulting from such reversal. The Fund
acknowledges that the procedures described in this sub-section are of an
administrative nature, and Chase Texas does not undertake to make loans and/or
Financial Assets available to the Fund.
1.6 Actual Settlement Date Accounting.
----------------------------------
With respect to any sale or purchase transaction that is not posted to the
Account on the contractual settlement date as referred to in Section 1.5, Chase
Texas will post the transaction on the date on which the cash or Financial
Assets or Senior Loans received as consideration for the transaction is actually
received by Chase Texas.
1.7 Use of Depositories.
--------------------
(a) Chase Texas may deposit Financial Assets with, and hold Financial
Assets in, any securities depository, settlement system, dematerialized book
entry system or similar system (collectively a "Securities Depository") on such
terms as such systems customarily operate and the Fund will provide Chase Texas
with such documentation or acknowledgements that Chase Texas may require to hold
the Financial Assets in such systems. Chase Texas will have no responsibility
for any act or omission by (or the insolvency of) any Securities Depository. In
the event the Fund incurs a loss due to the negligence, willful misconduct, or
insolvency of a Securities Depository, Chase Texas will make reasonable
endeavors, in its discretion, to seek recovery from the Securities Depository.
(b) Chase Texas may execute transactions involving Financial Assets through
a broker which is an Affiliate (i) in the case of the sale of a fractional
interest or (ii) if an Authorized Person directs Chase Texas to use an
affiliated broker or otherwise requests that Chase Texas select a broker for a
transaction. The affiliated broker will charge its customary commission (or
retain its customary spread) with respect to either such transaction.
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1.8 Income Collection; Autocredit.
------------------------------
(a) Chase Texas will credit the Cash Account with income and redemption
proceeds on Financial Assets in accordance with the times notified by Chase
Texas from time to time on or after the anticipated payment date, net of any
taxes that are withheld by Chase Texas or any third party. Where no time is
specified for a particular market, income and redemption proceeds from Financial
Assets will be credited only after actual receipt and reconciliation. Chase
Texas may reverse such credits upon oral or written notification to the Fund
that Chase Texas believes that the corresponding payment will not be received by
Chase Texas within a reasonable period or such credit was incorrect.
(b) Chase Texas will make reasonable endeavors in its discretion to contact
appropriate parties to collect unpaid interest, dividends or redemption
proceeds, but Chase Texas will not be obliged to file any formal notice of
default, institute legal proceedings, file proof of claim in any insolvency
proceeding, or take any similar action.
1.9 Fractions/Redemptions by Lot.
-----------------------------
Chase Texas may sell fractional interests in Financial Assets and credit
the Cash Account with the proceeds of the sale. If some, but not all, of an
outstanding class of Financial Asset is called for redemption, Chase Texas may
allot the amount redeemed among the respective beneficial holders of such class
of Financial Asset in any manner Chase Texas deems to be fair and equitable.
1.10 Presentation of Coupons; Certain Other Ministerial Acts.
-------------------------------------------------------
Until Chase Texas receives Instructions to the contrary, Chase Texas will:
(i) present all Financial Assets and Senior Loans for which Chase
Texas has received notice of a call for redemption or that have
otherwise matured, and all income and interest coupons and other
income items that call for payment upon presentation;
(ii) execute in the name of the Fund such certificates as may be
required to obtain payment in respect of Financial Assets and
Senior Loans; and
(iv) exchange interim or temporary documents of title held in the
Securities Account or the Loan Account for definitive documents
of title.
1.11 Overdrafts.
----------
The Fund will have sufficient immediately available funds each day in the
Cash Account (without regard to any Cash Account investments) to pay for the
settlement of all Financial Assets and Senior Loans delivered against payment to
the Fund and credited to the Securities Account or the Loan Account. If a debit
to the Cash Account results (or will result) in a debit
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balance, then Chase Texas may, in its discretion, (i) advance an amount equal to
the overdraft, (ii) reject the settlement in whole or in any part or (iii) if
posted to the Securities Account or Loan Account, reverse the posting of the
Financial Assets or Senior Loans credited to the Securities Account or the Loan
Account. If Chase Texas elects to make such an advance, the advance will be
deemed a loan to the Fund, payable on demand, bearing interest at the rate
charged by Chase Texas from time to time, for overdrafts incurred by funds
similar to the Fund, from the date of such advance to the date of payment (both
after as well as before judgment) and otherwise on the terms on which Chase
Texas makes similar overdrafts available from time to time. No prior action or
course of dealing on Chase Texas' part with respect to the settlement of
transactions on the Fund's behalf will be asserted by the Fund against Chase
Texas for Chase Texas' refusal to make advances to the Cash Account or to settle
any transaction for which the Fund does not have sufficient available funds in
the Cash Account.
1.12 Corporate Actions.
------------------
(a) Chase Texas will forward Corporate Actions to the Fund and notify the
the Fund of those Corporate Actions of which Chase Texas' central corporate
actions department receives notice from the issuer, the borrower, the agent
bank, the selling institution or from the Securities Depository in which such
Financial Assets are maintained or notice published in publications and reported
in reporting services routinely used by Chase Texas for this purpose.
(b) If an Authorized Person fails to provide Chase Texas with timely
Instructions with respect to any Corporate Action, neither Chase Texas nor its
nominees will take any action in relation to that Corporate Action.
1.13 Proxy Voting.
-------------
(a) Subject to and upon the terms of this sub-section, Chase Texas will
provide the Fund with information which it receives on matters to be voted upon
at meetings of holders of Financial Assets or Senior Loans ("Notifications"),
and Chase Texas will act in accordance with the Fund's Instructions in relation
to such Notifications. If information is received by Chase Texas at its proxy
voting department too late to permit timely voting by the Fund, Chase Texas'
only obligation is to provide, so far as reasonably practicable, a Notification
(or summary information concerning a Notification) on an "information only"
basis.
(b) Chase Texas will act upon Instructions to vote on matters referred to
in a Notification, provided Instructions are received by Chase Texas at its
proxy voting department by the deadline referred to in the relevant
Notification. If Instructions are not received in a timely manner, Chase Texas
will not be obligated to provide further notice to the Fund.
(c) The Fund acknowledges that the provision of proxy voting services may
be precluded or restricted under a variety of circumstances. These
circumstances include, but are not limited to: (i) the Financial Assets or
Senior Loans being on loan or out for registration; (ii) the pendency of
conversion or another corporate action; or (iii) Financial Assets or Senior
Loans being held at the Fund's request in a name not subject to the control of
Chase Texas, in a margin or collateral account at Chase Texas or another Chase
Texas or broker, or otherwise in a manner which affects voting, local market
regulations or practices, or restrictions by the issuer.
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<PAGE>
(d) Notwithstanding the fact that Chase Texas may act in a fiduciary
capacity with respect to the Fund under other agreements or otherwise hereunder,
in performing voting proxy services Chase Texas will be acting solely as the
agent of the Fund, and will not exercise any discretion with regard to such
proxy services or vote any proxy except when directed by an Authorized Person.
1.14 Statements and Information Available On-Line.
--------------------------------------------
(a) Chase Texas will issue statements to the Fund at times mutually agreed
identifying the Financial Assets, Senior Loans and cash in the Accounts. Chase
Texas also will provide additional statements containing this information upon
the Fund's request. Additionally, Chase Texas will send (or make available on-
line to) the Fund an advice or notification of any transfers of cash, Financial
Assets or Senior Loans with respect to the Accounts. Chase Texas will be not be
liable with respect to any matter set forth in those portions of any such
statement (or reasonably implied therefrom) to which the Fund has not given
Chase Texas a written exception or objection within sixty (60) days of receipt
of the statement.
(b) Prices and other information obtained from third parties which may be
contained in any statement sent to the Fund will have been obtained from the
Fund's independent third-party pricing service or the Investment Adviser. Chase
Texas does not make any representation as to the accuracy of such information or
that the prices specified necessarily reflect the proceeds that would be
received on a disposal of the relevant Financial Assets or Senior Loans.
References in this Agreement to statements include any statements in electronic
form.
(c) The Fund acknowledges that records and unaudited reports available to
it on-line will be unaudited and may not be accurate due to inaccurate pricing,
delays in updating Account records and other causes. Chase Texas will not be
liable for any loss or damage arising out of the inaccuracy of any such records
or unaudited reports accessed on-line.
1.15 Access to Chase Texas's Records.
-------------------------------
Chase Texas will allow the Fund's independent public accountants such
reasonable access to the records of Chase Texas relating to Financial Assets and
Senior Loans as is required in connection with their examination of books and
records pertaining to the Fund's affairs.
1.16 Taxation.
--------
(a) The Fund confirms that Chase Texas is authorized to deduct from any
cash received or credited to the Cash Account any taxes or levies required by
any revenue or governmental authority for whatever reason in respect of the
Fund's Accounts.
(b) The Fund will provide to Chase Texas such certifications,
documentation, and information as it may require in connection with taxation,
and warrants that, when given, this information is true and correct in every
respect, not misleading in any way, and contains all material information. The
Fund undertakes to notify Chase Texas immediately if any information requires
updating or correcting.
A-6
<PAGE>
(c) The Fund will be responsible for the payment of all taxes relating to
the Financial Assets in the Securities Account or the Senior Loans in the Loan
Account, and the Fund will pay, indemnify and hold Chase Texas harmless from and
against any and all liabilities, penalties, interest or additions to tax with
respect to or resulting from, any delay in, or failure by, Chase Texas to pay,
withhold or report any U.S. federal, state or local taxes or foreign taxes
imposed or to report interest, dividend or other income paid or credited to the
Cash Account, whether such failure or delay by Chase Texas to pay, withhold or
report tax or income is the result of (i) the Fund's failure to comply with the
terms of this paragraph or (ii) Chase Texas' own acts or omissions; provided
however, the Fund will not be liable to Chase Texas for any penalty or additions
to tax due as a result of Chase Texas' failure to pay or withhold tax or to
report interest, dividend or other income paid or credited to the Cash Account
solely as a result of Chase Texas' negligence.
2. LOAN PROCESSING
(a) Chase Texas will enter information with respect to the interest rate,
amortization schedule, maturity date and related information for each Senior
Loan into the "Wall Street Office" software program of Financial Computer
Software, L.P. ("WSO") provided to Chase Texas by the Fund;
(b) Chase Texas will make adjustments on a daily basis to WSO to account
for principal and interest payments received on the Senior Loans and interest
rate resettings;
(c) The Fund will forward all notices received from the agent banks with
respect to the Senior Loans to Chase Texas;
(d) Chase Texas will coordinate funding requests with the Fund in response
to agent bank notices pertaining to additional borrowings;
(e) Chase Texas will prepare an electronic extract of data from the WSO
database on a daily basis and deliver a copy of same to the Fund;
(f) Chase Texas will provide Chase Boston with information reasonably
requested by Chase Boston to enable Chase Boston to perform net asset value
calculations with respect to the loans on a daily basis; and
(g) Chase Texas will reconcile purchases and sales of Senior Loans and
Financial Assets with the Investment Adviser.
A-7
<PAGE>
SCHEDULE B
DESCRIPTION OF FUND ACCOUNTING SERVICES
Chase Boston shall provide the following accounting services to the Fund:
A. Maintenance of the books and records for the Fund's assets, including
records of all securities transactions.
B. Calculation of each Fund's, portfolios' or classes' net asset value in
accordance with the Prospectus, and after the fund, portfolio or class
meets eligibility requirements, transmission to NASDAQ and to such other
entities as directed by the Fund.
C. Accounting for dividends and interest received and distributions made by
the Fund.
D. Coordination with the Fund's independent auditors with respect to the
annual audit, and as otherwise requested by the Fund.
E. As mutually agreed upon, domestic and/or international reports.
B-1
<PAGE>
SCHEDULE C
FEES AND EXPENSES
Custody and Loan Tracking Fees
[TO COME]
[to include transaction charges for short-term investments]
Fund Accounting fees
A. For the services rendered under this Agreement, the Fund shall pay to
Chase Global an annual fee based on the following schedule:
____ of 1% on the first $______ million in total assets, plus
____ of 1% on the first $______ million in total assets, plus
____ of 1% of the total assets in excess of $1 billion.
B. The foregoing calculation is based on the average daily net assets of the
Fund. The fees will be computed, billed and payable monthly. The minimum
charge per year for the Fund will not be less than ______ of 1% of
average daily net assets.
C. Out-of-pocket expenses will be computed, billed and payable monthly.
C-1
<PAGE>
CLOSED-END MUTUAL FUNDS SERVICE AGREEMENT
FOR
TRANSFER AGENCY SERVICES
NUVEEN SENIOR INCOME FUND
October 29, 1999
<PAGE>
CLOSED-END MUTUAL FUNDS SERVICE AGREEMENT
Table of Contents
-----------------
Section Page
- ------- ----
<TABLE>
<CAPTION>
<S> <C> <C>
1. Appointment......................................... 1
2. Representations and Warranties...................... 1
3. Delivery of Documents............................... 2
4. Services Provided................................... 3
5. Fees and Expenses................................... 4
6. Limitation of Liability and Indemnification......... 5
7. Term................................................ 7
8. Notices............................................. 7
9. Waiver.............................................. 8
10. Force Majeure....................................... 8
11. Additional Funds.................................... 8
12. Amendments.......................................... 8
13. Assignment.......................................... 8
14. Severability........................................ 9
15. Governing Law....................................... 9
16. Use of Chase Name................................... 9
17. Confidentiality..................................... 9
18. Massachusetts Business Trust........................ 9
Signatures................................................. 10
</TABLE>
<PAGE>
CLOSED-END MUTUAL FUNDS SERVICE AGREEMENT
Table of Contents (continued)
-----------------------------
<TABLE>
<CAPTION>
Number of Pages
---------------
<S> <C> <C> <C>
Schedule A - Fees and Expenses 2
Schedule B - List of Nuveen Funds and Jurisdictions under
which Funds are Organized 1
Schedule C - Transfer Agency Services Description 3
EXHIBIT Dividend Reinvestment Plan
</TABLE>
<PAGE>
CLOSED-END MUTUAL FUNDS SERVICE AGREEMENT
(for Transfer Agency Services)
THIS AGREEMENT made as of October 29, 1999 by and between the NUVEEN
SENIOR INCOME FUND (and each other Nuveen fund that, from time to time, in
accordance with Section 11 of this Agreement, may be listed on Schedule B
attached hereto (the Nuveen Senior Income Fund and each other fund individually
hereinafter referred to as the "Fund") and organized under the jurisdictions set
forth on Schedule B, and THE CHASE MANHATTAN BANK ("Chase"), a New York banking
corporation.
W I T N E S S E T H:
WHEREAS, Fund is registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, Fund wishes to contract with Chase to provide certain
services with respect to Fund;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Fund hereby appoints Chase to provide services for Fund,
as described hereinafter, subject to the supervision of the Board of Directors
or Trustees of Fund (the "Board"), for the period and on the terms set forth in
this Agreement. Chase accepts such appointment and agrees to furnish the
services herein set forth in return for the compensation as provided in Section
5 of and Schedule A to this Agreement.
2. Representations and Warranties.
(a) Chase represents and warrants to Fund that:
(i) Chase is a corporation, duly organized and existing as a
banking corporation under the laws of the State of New York;
(ii) Chase is duly qualified to carry on its business in the
State of New York;
(iii) Chase is empowered under applicable laws and by its
charter and by-laws to enter into and perform the services described in
this Agreement;
(iv) all requisite corporate action has been taken to authorize
Chase to enter into and perform this Agreement;
(v) Chase has, and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties
and obligations hereunder;
1
<PAGE>
(vi) no legal or administrative proceedings have been instituted
or threatened against Chase which would impair Chase's ability to perform
its duties and obligations under this Agreement; and
(vii) Chase's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of Chase or any law or regulation applicable to Chase;
(b) Fund represents and warrants to Chase that:
(i) Fund is a duly organized and existing and in good standing
under the laws of the jurisdiction set forth after its name on Schedule B
attached hereto;
(ii) Fund is empowered under applicable laws and by its charter
document and by-laws to enter into and perform this Agreement;
(iii) all requisite proceedings have been taken to authorize
Fund to enter into and perform this Agreement;
(iv) Fund is an investment company properly registered under the
1940 Act;
(v) a registration statement under the Securities Act of 1933,
as amended ("1933 Act") and the 1940 Act on Form N-2 has been filed and
will be effective and will remain effective during the term of this
Agreement, and all necessary filings under the laws of the states will have
been made and will be current during the term of this Agreement;
(vi) no legal or administrative proceedings have been instituted
or threatened which would impair Fund's ability to perform its duties and
obligations under this Agreement;
(vii) Fund's registration statement complies in all material
respects with the 1933 Act and the 1940 Act (including the rules and
regulations thereunder) and none of Fund's prospectuses and/or statements
of additional information contain any untrue statement of material fact or
omit to state a material fact necessary to make the statements therein not
misleading; and
(viii) Fund's entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of Fund or any law or regulation applicable to it.
3. Delivery of Documents. Fund will promptly furnish to Chase such
copies, properly certified or authenticated, of contracts, documents and other
related information that
2
<PAGE>
Chase may request or require to properly discharge its duties. Such documents
may include but are not limited to the following:
(i) Resolutions of the Board authorizing the appointment of
Chase to provide certain services to Fund and approving this Agreement;
(ii) Fund's charter document;
(iii) Fund's by-laws;
(iv) Fund's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission ("SEC");
(v) Fund's registration statement including exhibits, as
amended, on Form N-2 (the "Registration Statement") under the 1933 Act and
the 1940 Act, as filed with the SEC;
(vi) Copies of the Investment Advisory Agreement between Fund
and its investment adviser (the "Advisory Agreement");
(vii) Opinions of counsel and auditors' reports;
(viii) Fund's prospectus(es) and statement(s) of additional
information relating to all funds, series, portfolios and classes, as
applicable, and all amendments and supplements thereto (such Prospectus(es)
and Statement(s) of Additional Information and supplements thereto, as
presently in effect and as from time to time hereafter amended and
supplemented, herein called the "Prospectuses"); and
(ix) Such other agreements as Fund may enter into from time to
time including securities lending agreements, futures and commodities
account agreements, brokerage agreements and options agreements.
4. Services Provided.
(a) Chase will provide the following services:
(i) Transfer Agency (A description of this service is contained
in Schedule C to this Agreement.)
(b) Chase will also:
(i) provide office facilities with respect to the provision of
the services contemplated herein (which may be in the offices of Chase or a
corporate affiliate of Chase);
3
<PAGE>
(ii) provide or otherwise obtain personnel sufficient for
provision of the services contemplated herein;
(iii) furnish equipment and other materials, which are necessary
or desirable for provision of the services contemplated herein; and
(iv) keep records relating to the services provided hereunder in
such form and manner as Chase may deem appropriate or advisable. To the
extent required by Section 31 of the 1940 Act and the rules thereunder,
Chase agrees that all such records prepared or maintained by Chase relating
to the services provided hereunder will be preserved for the periods
prescribed under Rule 31a-2 under the 1940 Act, maintained at Fund's
expense, and copies of such records shall be made available in accordance
with such Section and rules.
5. Fees and Expenses.
(a) As compensation for the services rendered to Fund pursuant to
this Agreement Fund shall pay Chase monthly fees determined as set forth in
Schedule A to this Agreement. Such fees are to be billed monthly and shall be
due and payable upon receipt of the invoice. Upon any termination of the
provision of services under this Agreement before the end of any month, the fee
for the part of the month before such termination shall be prorated according to
the proportion which such part bears to the full monthly period and shall be
payable upon the date of such termination.
(b) For the purpose of determining fees calculated as a function of
Fund's assets, the value of Fund's assets and net assets shall be computed as
required by its currently effective Prospectus, generally accepted accounting
principles, and resolutions of the Board.
(c) Fund may request additional services, additional processing, or
special reports, with such specifications, requirements and documentation as may
be reasonably required by Chase. If Chase elects to provide such services or
arrange for their provision, it shall be entitled to additional fees and
expenses as the parties may mutually agree.
(d) Chase will bear its own expenses in connection with the
performance of the services under this Agreement except as provided herein or as
agreed to by the parties. Fund agrees to promptly reimburse Chase for any
services, equipment or supplies and the like ordered by or for Fund through
Chase and for any other expenses that Chase may incur on Fund's behalf at Fund's
request or as consented to by Fund. Expenses that may be incurred by Chase and
that are to be borne by Fund, include, but are not limited to: taxes; interest;
brokerage fees and commissions; salaries and fees of officers, directors, or
trustees who are not officers, directors, shareholders or employees of Chase, or
Fund's distributor; postage, printing and mailing costs for all statements,
reports and communications; costs of share certificates; advisory fees; charges
and expenses of pricing and data services, independent public accountants and
custodians; insurance premiums including fidelity bond premiums; legal expenses;
consulting fees; customary bank charges and fees; clearing and processing
charges of clearing corporations; expenses of printing and production costs of
shareholders' reports and proxy statements and materials; expenses of
4
<PAGE>
proxy solicitation and annual meetings; costs and expenses of Fund stationery
and forms; customer service and other telephone expenses; costs and expenses of
telephone and data lines and devices which are specially requested by Fund;
costs associated with corporate or trust, shareholder, and Board meetings; trade
association dues and expenses; reprocessing costs to Chase caused by third party
errors; all expenses for microfilm, fiche, imaging and other data and record
storage costs; and any extraordinary expenses and other customary Fund expenses.
(e) All fees, out-of-pocket expenses, or additional charges of Chase
shall be billed on a monthly basis and shall be due and payable upon receipt of
the invoice.
(f) Chase will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for such
month. Charges remaining unpaid after thirty (30) days from the date of the
statement shall bear interest, from the date of the statement to the date of
repayment to Chase by Fund, at Chase's Prime Rate (as announced by Chase from
time to time) plus two percent per year, and all costs and expenses of effecting
collection of any such sums, including reasonable attorney's fees, shall be paid
by Fund to Chase.
(g) In the event that Fund is more than sixty (60) days delinquent in
payments of monthly billings in connection with this Agreement (with the
exception of specific amounts which may be contested in good faith by Fund),
this Agreement may be terminated upon thirty (30) days' written notice to Fund
by Chase. Fund must notify Chase in writing of any disputed amounts within
thirty (30) days of its receipt of the billing for such amounts. Amounts
disputed in good faith are not due and payable while they are being
investigated.
6. Limitation of Liability and Indemnification.
(a) Chase shall use reasonable care in performing its duties
under this Agreement. Chase shall not be in violation of this Agreement with
respect to any matter as to which it has satisfied its duty of reasonable care.
(b) Chase shall indemnify Fund for its direct damages, excluding
attorneys fees and costs, to the extent they result from Chase's negligence or
willful misconduct in performing its duties as set out in this Agreement.
Nevertheless, under no circumstances shall Chase be liable for any indirect,
consequential or special damages (including, without limitation, lost profits)
of any form, whether or not foreseeable and regardless of the type of action in
which such a claim may be brought.
(c) Without limiting subsections (a) and (b) above, Chase shall
not be responsible for, and Fund shall indemnify and hold Chase harmless from
and against, any and all losses, damages, costs, reasonable attorneys' fees and
expenses, payments, expenses and liabilities incurred by Chase, any of its
agents, or Fund's agents in the performance of its/their duties hereunder,
including but not limited to those arising out of or attributable to:
(i) any and all actions of Chase or its officers or agents
required to be taken pursuant to this Agreement;
5
<PAGE>
(ii) the reasonable reliance on or use by Chase or its officers
or agents of information, records, or documents which are received by
Chase or its officers or agents and furnished to it or them by or on
behalf of Fund, and which have been prepared or maintained by Fund or
any third party on behalf of Fund;
(iii) Fund's refusal or failure to comply with the terms of this
Agreement or Fund's lack of good faith, or its actions, or lack
thereof, involving negligence or willful misfeasance;
(iv) the breach of any representation or warranty of Fund
hereunder;
(v) the taping or other form of recording of telephone
conversations or other forms of electronic communications with
investors and shareholders, or reliance by Chase on telephone or other
electronic instructions of any person acting on behalf of a
shareholder or shareholder account for which telephone or other
electronic services have been authorized;
(vi) the reliance by Chase, its officers or agents on any share
certificates which are reasonably believed to bear the proper manual
or facsimile signatures of the officers of Fund;
(vii) any delays, inaccuracies, errors in or omissions from
information or data provided to Chase by data, corporate action
pricing services or securities brokers and dealers;
(viii) the offer or sale of shares by Fund in violation of any
requirement under the Federal securities laws or regulations or the
securities laws or regulations of any state, or in violation of any
stop order or other determination or ruling by any Federal agency or
any state agency with respect to the offer or sale of such shares in
such state (1) resulting from activities, actions, or omissions by
Fund or its other service providers and agents, or (2) existing or
arising out of activities, actions or omissions by or on behalf of
Fund prior to the effective date of this Agreement;
(ix) any failure of Fund's registration statement to comply with
the 1933 Act and the 1940 Act (including the rules and regulations
thereunder) and any other applicable laws, or any untrue statement of
a material fact or omission of a material fact necessary to make any
statement therein not misleading in a Fund's prospectuses;
(x) the actions taken by Fund, its investment adviser, and its
distributor in compliance with applicable securities, tax, commodities
and other laws, rules and regulations, or the failure to so comply;
and
(xi) all actions, inactions, omissions, or errors caused by
third parties to whom Chase or Fund have assigned any rights and/or
delegated any duties under
6
<PAGE>
this Agreement at the request of or as required by Fund, its
investment advisers, distributor, administrator or sponsor.
Notwithstanding subsection (a) above, it is expressly understood and
agreed that Chase has no duty or obligation of reasonable care with respect to
any of the activities described in clauses (iii), (iv), (vii), (viii), (ix), (x)
or (xi) of this subsection (c).
(d) Chase is authorized to act under this Agreement (or to refrain
from taking action) in accordance with the instructions received by Chase from
Fund and its officers, employees, investors, shareholders, agents and service
providers which Chase reasonably believes to be genuine, valid and authorized
("Authorized Persons"), via telephone, facsimile transmission, or other
teleprocess or electronic instruction system acceptable to Chase
("Instructions"). Chase will have no responsibility for the authenticity or
propriety of any Instructions that Chase believes in good faith to have been
given by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions that Chase may specify. Fund
authorizes Chase to accept and act upon any Instructions received by it from
Authorized Persons without inquiry. Fund will indemnify Chase against, and hold
it harmless from, any losses, damages, costs, reasonable attorneys' fees and
expenses, payments, expenses and liabilities incurred by Chase or any of its
agents that may be imposed on, incurred by, or asserted against Chase or its
agents as a result of any action or omission taken in accordance with any
Instructions or other directions upon which Chase is authorized to rely under
the terms of this Agreement.
7. Term.
(a) This Agreement shall become effective on the date first
hereinabove written. The Agreement may be modified or amended from time to time
by mutual agreement between the parties hereto. This Agreement shall continue in
effect until terminated by either party on prior written notice to the other
party as hereinafter provided. The terminating party in such notice to the other
party shall specify the date of termination, which shall be at least 90 days
after the date of the notice. Upon termination of this Agreement, Fund shall pay
to Chase such compensation and any reasonable out-of-pocket or other
reimbursable expenses which may become due or payable under the terms of this
Agreement as of the date of termination or after the date that the provision of
services ceases, whichever is later. If Fund terminates this Agreement for any
reason during its first year, Fund shall reimburse Chase, in accordance with
Schedule A, for any start-up costs incurred by Chase that are not otherwise
payable by Fund under Section 5 of this Agreement.
(b) Sections 5 and 6 hereof shall survive the termination of this
Agreement with respect to any obligations of the parties under this
Agreement.
8. Notices. Any notice required or permitted hereunder shall be in
writing and shall be deemed effective on the date of personal delivery (by
private messenger, courier service or otherwise) or upon confirmed receipt of
telex or facsimile, whichever occurs first, or upon receipt if by mail to the
parties at the following address (or such other address as a party may specify
by notice to the other):
7
<PAGE>
If to Fund:
John Nuveen & Co., Incorporated
333 West Wacker Drive
Chicago, IL 60606
Attention: Fund Controller
Fax: (312) 917-8049
If to Chase:
The Chase Manhattan Bank
4 New York Plaza
Nuveen Customer Service, 3rd floor
New York, New York 10004-2413
Attention: Nuveen Relationship Manager
9. Waiver. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
10. Force Majeure. Chase shall have no liability for any damage, loss,
expense or liability of any nature that Fund may suffer or incur, caused by an
act of God, fire, flood, civil or labor disturbance, war, act of any
governmental authority or other act or threat of any authority (de jure or de
facto), legal constraint, fraud or forgery (except to the extent attributable to
the acts of Chase employees or agents), malfunction of equipment or software
(except to the extent such malfunction is primarily attributable to Chase's
negligence in maintaining the equipment or software), failure of or the effect
of rules or operations of any external funds transfer system, inability to
obtain or interruption of external communications facilities, or any cause
beyond the reasonable control of Chase. Chase shall use reasonable efforts to
minimize the likelihood of any damage, loss of data, delays and errors resulting
from uncontrollable events, and should such damage, loss of data, delays or
errors occur, Chase shall use its reasonable efforts to mitigate the effects of
such occurrence.
11. Additional Funds. In the event that John Nuveen & Company Incorporated
sponsors additional closed-end management companies with respect to which it
desires Chase to provide services under the terms of this Agreement, it shall so
notify Chase in writing, and if Chase agrees in writing to provide such
services, such Fund or Funds shall be subject to the terms of this Agreement and
Schedules A, B and C shall be modified accordingly.
12. Amendments. This Agreement may be modified or amended from time to
time by mutual written agreement between the parties. No provision of this
Agreement may be changed, discharged, or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, discharge or termination is sought.
8
<PAGE>
13. Assignment. Except as hereunder provided, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party, which consent shall not be unreasonably
withheld. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns. Chase may, with
notice to Fund but without its prior consent, assign this Agreement or its
rights or obligations hereunder to any subsidiary or affiliate of Chase.
14. Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all other persons and circumstances.
15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK.
16. USE OF CHASE NAME. Fund shall not use Chase's name in any offering
material, Shareholder report, advertisement or other material relating to Fund,
other than for the purpose of merely identifying and describing the functions of
Chase hereunder, in a manner not approved by Chase in writing prior to such use;
provided, however, that Chase shall consent to all uses of its name required by
the Securities and Exchange Commission, any state securities commission, or any
federal or state regulatory authority; and provided, further, that in no case
will such approval be unreasonably withheld.
17. CONFIDENTIALITY. The information contained in the attached Schedule A
entitled Transfer Agency Fees and Expenses (the "Fee Schedule") is confidential
and proprietary in nature. By receiving this Agreement, Fund agrees that none of
its trustees, officers, employees, or agents, without the prior written consent
of Chase, will divulge, furnish or make accessible to any third party, except as
required by law or any regulatory authority or as permitted by the next
sentence, any part of the Fee Schedule or information in connection therewith
which has been or may be made available to it. Fund agrees that it will limit
access to the Fee Schedule and such information to only those officers or
employees with responsibilities for analyzing the Agreement, to its counsel, to
such independent consultants hired expressly for the purpose of assisting in
such analysis, and to governmental agencies. In addition, Fund agrees that any
person to whom such information is properly disclosed shall be informed of the
confidential nature of the Fee Schedule and the information relating thereto,
and shall be directed to treat the same appropriately. The terms set forth in
this Section 17 shall continue for two years after termination.
18. MASSACHUSETTS BUSINESS TRUST. The Fund's Declaration of Trust is on
file with the Secretary of the Commonwealth of Massachusetts. This Agreement is
executed on behalf of Fund by Fund's officers as officers and not individually
and the obligations imposed upon Fund by this Agreement are not binding upon any
of Fund's Trustees, officers or shareholders individually but are binding only
upon the assets and property of Fund.
9
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
[remainder of page intentionally left blank. Next page is signature page]
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NUVEEN SENIOR INCOME FUND
By:
--------------------------
Name:
------------------------
Title:
-----------------------
THE CHASE MANHATTAN BANK
By:
--------------------------
Name:
------------------------
Title:
-----------------------
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CONSENT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholder
Nuveen Senior Income Fund:
We consent to the use of our report and the reference to our firm under the
heading "Experts" in the Statement of Additional Information.
KPMG LLP
Chicago, Illinois
October 25, 1999
